6 posts tagged “free market”

Some of his articles:

• "Fed Up"
• "Tooth Fairy Economics"
• "Washington and the Stimulus: A Parade of Blockheads"
  
• "Banana Republic, U.S.A."
• "Unnatural Disaster"
• "The Deck Chairs Are Fine Where They Are"
• "We Need Our Heads Examined, Says Harvard"
• "Government: The Cause of – and Solution to – All Our Problems" (MP3 Here)
  
• "Don't Know Much About Capitalism"
• "The Harding Way"
• "No, the Free Market Did Not Cause the Financial Crisis"
• "Beware of Obamanomics"
• "Question Authority (Unless I Say Not To)"
• "Response to the 'Market Failure' Drones"
  
• "Krugman Failure, Not Market Failure"
  
• "Should We Absolve the Fed?"
  

And visit his website.

***

Perhaps it was about ten months ago---although I am uncertain---that I turned my radio on to hear what Mr. Sean Hannity had to say. I could not take listening to his program for any longer than about five minutes. He was ranting on how the "fundamentals" of the economy are sound and then repudiated those who claimed that the economy was in a recession.

Of course today everyone will admit there is a recession. Statists like Mr. Hannity have been proven to be absolutely incorrect----whereas gentlemen like Dr. Ron Paul have been proven to be absolutely correct. (See, e.g., chapter six of The Revolution: A Manifesto.)

Unfortunately, I think one can say the exact same thing about the "d" word, depression. I.e., the establishment will be forced to admit that the "d" word is an accurate description of the situation. Things are going to be getting a lot worse, and we are just in the beginning of this.

Due to the State's monetary policies and due to the fascistic arrangement the banking industry and much of big business has with the State, many individuals and families have been living in a credit card illusion.

We live in a world of monetary socialism. It is with this arrangement, ever since the creation of the Federal Reserve System, that over 95 percent of the value of the dollar has been lost.

It's an arrangement that has encouraged debt, short-term thinking, and short-term planning. It's an arrangement that punishes thriftiness and other conservative work ethics. Thus I would call the Fed not only an anti-economic institution but an anti-social institution as well. (For a more extensive look into its anti-social nature, see "The Cultural and Spiritual Legacy of Fiat Inflation" in The Ethics of Money Production by Dr. Jörg Guido Hülsmann. Download PDF here.)

It's an arrangement that has also brought about various artificial bubbles, leading to unsustainable booms, which then lead to inevitable busts. This occurs when the Fed floods the banking system with credit, thereby lowering the interest rate.

But the only "natural"----versus artificial----way interest rates can lower is if man saves more. Briefly, this means that man has held off present consumption for the future; that he is saving and investing more in temporally lengthy projects. If the Fed, on the other hand, floods the market with credit (via the printing up of money from nothingness), this in turn artificially lowers the interest rate, despite the fact that man has not saved more. Temporal coordination of production in the economy is consequently distorted. Investments that receive the credit are made to seem profitable. In effect, such industries get subsidized as they are flooded with this new credit that was created from thin air. An artificial bubble develops (à la housing). But as this new money trickles through the market, the old consumption-saving proportions reassert themselves (which, to iterate, determine the "natural" interest rates) and those investments are then seen for what they really are; namely, hot air. They will no longer be profitable. Resources are not there to keep the "boom" going. People have not saved more. People, instead, wanted more present oriented things. And, furthermore, people were actually pushed into saving less (and hence consuming more) than they otherwise would be due to the lowering of the interest rate. But investors were being incompatibly pushed, by the artificial paper money stimulus, into future oriented things based on the illusion of freed up resources, with its large pool of savings, in the future. This is when a recession or depression occurs.

So, since today's artificial "boom" resulted in massive misallocations of resources into various temporally unsustainable lines of production (via credit expansion and hence an artificially depressed interest rate below what the market would have set it), it is only the bust that will get us on the correct course. More production projects were started up than could be completed. Thus technically speaking, the bust is not the problem; it was the "boom" generated by the Fed. Resources, capital, and labor must be able to move with the market---a market that is ridding itself of these government-generated bubbles.

It is accordingly imperative that the State not interfere with this adjustment process.

As Mr. Jim Rogers says, the unsound must fall and the sound must rise. And therefore, to repeat what has been said on this blog before, the government must allow the market's pricing system to rediscover what is truly sound and what is truly unsound, and allow men to act accordingly.

Politicians, no doubt, don't like to hear that.

Neither do they have a real incentive to listen. This is because a crisis is a great time for them to expand their power and wealth. Consequently, there is little reason to be optimistic concerning the future.

(But if they want to "do something," I do have some advice later in this blog entry.)

Moreover, these politicians propagate to the public false hopes that the State is savior. They act as if they can magically create something from nothing. This propaganda is truly sophomoric. The State has no wealth of its own which it does not coercively take from others in the productive economy. All it can do is redistribute wealth and override the market's free and voluntary interactions of men.

You can accordingly call the "stimulus" bill a wealth destruction bill.

If the politicians keep this up, they will be sending us into a deep and long depression.

***

We must keep in mind the big picture, always. Henry Hazlitt, one of the great Austrian school economists, was right. We must think about the seen and the unseen, the short-term and the long-term, individual groups and all groups. Only in this manner should we examine so-called government "solutions."

For example, the State can "create" jobs only by taking away jobs that would have been created in the market. You might see the government jobs and so forth, but you don't see that there has only been a diversion. Instead of those jobs employing resources and money to serve the direct needs of consumers, resources and money are being employed by these jobs through State dictate; independent of voluntarily paying consumers, independent of the market's profit-and-loss system, independent of the market's competitive milieu. Ordinary people are made that much poorer because they are forced to pay for these jobs, if they like it or not, and have that much less money to spend (or save) on what they want, employing who they want.

And what does it tell us that such "created" jobs are independent of voluntarily paying consumers? They must not be worth much to the needs of ordinary people. It must be wasteful. And, even if it is not, there is no way to tell, unless we subject such jobs to the market. Only then can we see if the costs are justified, i.e., if the costs of this labor are less than what this labor produces. In addition, only then can we determine if those jobs are serving the higher versus lower needs of people. The costs and expected profits can subsequently be compared and contrasted with other possible labor employments. This additional point is important, since we live in a world of changing conditions and uncertainty. Consumer demands are not static, after all. But State "created" jobs cannot engage in cost accounting and will be restrictive in movement as against a free market of labor. The maximization of wealth with a free market's labor mobility is non-existent and hence standards of living must be lower than they otherwise would be.

Such "created" jobs might even be completely destructive in every way, i.e., the costs might be greater than the output. (Even if they are not, there is no way to know if these jobs are serving the higher or lower needs of the public, as shown above.) Indeed, the State can "create" lots of jobs. It can have men build many bridges, if they lead to somewhere is beside the point. It can draft all young men into the military. [Hey, Mr. Obama, I thought we were getting out of Iraq?!] And so forth.

A free market, in contrast, allows rational calculation. It helps prevent labor (and resources in general) from being allocated to unwanted and uneconomic lines of production. This is because it is based on private property which allows for profit-and-loss calculations with a universal medium of exchange. What is more, activities in a free market are not only dependent on voluntary consumer demands, but are also in a milieu that is competitive. As a result, it helps divert labor away from their less wanted and less needed locations and into their more wanted and more needed locations. And, implied in this, the free market helps men cut down on waste and to economize to the conditions of what people demand and to the underlying reality of the finite supplies of goods and natural resources that are in existence.

However government has no such ability, by definition. Thus, government "created" jobs will be arbitrary in terms of real wants, needs, expenses, and resources. There will be general misallocation, and hence standards of living will be lower than they otherwise would be. Since such "created" jobs are not based on voluntary demand, their activities will be independent of the wants and needs of people. Thus, given such a non-market position, this labor's costs can be very high and its quality output can be very low. This will actually multiply due to the fact that such labor has no need to worry about competition. And, because the factors of production employed by such "created" jobs cannot be sold on the market, they will be independent of their capital value and hence there will be over and under utilization thereof.

The very same basic lesson of the seen and unseen applies to the wealth destruction bill in its multiplicity of schemes [see the link --- an essay by Dr. Woods]. All that it will do is override people's free choices and make people that much poorer. Dr. Woods calls it "tooth fairy economics." We all must remember: the State has no resources and it lacks the free market's ability to economize. If we are to come out of this economic downturn fast, we need the pricing system to sort out resources. All the State can do is distort that process and make this downturn that much longer and that much deeper.

***

Or, the State can try to inflate more as a "solution." Though all that would do is intensify bubbles and increase the pain at the end of the road. It would be an attempt to cure our problems by the very means that caused our problems (as I wrote about above). It would result in the unsound increasing and the sound decreasing. More than that, a redistribution of wealth would occur from the poor and middle classes to those special interests who received the new money first.

And, we should all be aware, it is perfectly clear that wealth is expanded by enlarging the amounts of goods (not money). Wealth, for society at large, is not increased by growing money on trees. Just as important, it is about increasing capital. That means saving is a good thing------despite what the mainstream media might say. Even at an intuitive level, it should be crazy to anyone when a talking head suggests that an individual, a family, a community, a society in financially difficult times should go on a spending spree.

And, to repeat again on this blog, men saving would actually make the recovery faster. Time preferences would have gone down and, hence, would put man closer to the artificially low interest rates. Less adjustment would be needed because "real" rates would be closer to the "fake" rates, so to speak. (See Rothbard on this.)

***

Though I am pessimistic, the only way that we all can avoid a long and deep depression is if government stops doing anything more than it has already done. Yes, there will be some major pain. But at least it would be over (comparatively) quickly.

Even better: it can cut its budget. And while this is a radical statement, I suppose, it is a much needed statement: money and banking must be uncut from the government; namely, it must be left to the private market. We need private money (which would most likely be gold and silver): private minting, private coining, etc. without a central bank, legal tender laws, fractional reserve banking, etc.

Furthermore, we all need to see the State as it really is. It's essentially a parasitic institution, and should be treated as such.

If a given activity is by definition theft and if it is unethical, then it is not possible to deny that this unethicalness of theft applies consistently without throwing out the first starting principles. An act of theft/murder/slavery/etc. does not become right because a man of the State is doing it. Socialism in all of its forms must be rejected.

***

I'll conclude this entry by saying that modernity has brought a de-civilizational decline in cultural and social life. Modernity might also, ultimately, do the same with material wealth. There has been, what you can almost call, financial stagnation and soon we may have a financial depression. The credit card illusion will be ending. On top of this, statism has become so powerful with its welfare-warfare apparatus that it will ultimately bankrupt itself (unless the market creates some huge innovation to keep it going longer, e.g., a new energy source).

Now I'm sure some would criticize me as a "naïve youngster." Though, all a man has to do is glance back at how the culture was, say, 60 years ago (even though he must take into account the problems of those years as well). Performing such a glance is not that difficult. Just look at the differences between the television shows back then and those of today.

An underlying error of my make-believe critic is to subconsciously accept a Whig theory of history and to be so orientated to what exists at present-------as if the present is detached from the past; detached from what it carves out for the future; and is King.

This overall attitude explains, I think, why so many men will not accept a statement like this: "The U.S. Empire will not last forever." It explains why many men think an economic depression "could never happen again."

It additionally explains why it is too difficult for many men to think about the future Death of the West. Today's ethos makes this thought about the future too shocking to be thought of as true: "Dying civilization?" "It can't happen here. ... That only occurred in the irrelevant and detached past. ... Open your eyes and see what is around you. The present is totality."

Man's present orientation, high time preference, and subconscious acceptance of the Whig theory of history, makes him go with a leftist and statist flow, and being part of that flow makes it hard for him to discern right from wrong. It makes him unable to see, for example, that the culture is in a major crisis, and that the West is dying. And, for example, it makes him unable to see that the current monetary system, with its high fragility, cannot last forever.

***

Some Previous Entries on The Paleo Blog:

• "Money and Civilization" (If you only read one, please read this one.)
• "Prolonging and Deepening the Recession"
• "Hazlitt: 'Saving the X Industry'"
• "Subsidizing Badness"
  

[Hmm ... I retired this blog? Oh, well... This subject is too important.]

The Free Market Economy is the Engine of Civilization: From Barter to Money.

Money is a crucial feature to any advanced civilization, notwithstanding how much it is looked at negatively and portrayed as intrinsically a nasty thing in "progressive" culture. Now before man can attempt to answer questions, such as, What is money?, Why do we have it?, or How does money develop in society?, there first must be an understanding of why there is any trade at all.

Comprehending that is reasonably straightforward. After that, we all will endeavor to answer those questions raised in regards to money. In so doing, the important connection money has to civilization and liberty will be concretized in the mind. Finally, we will look at the forces that undermine money, and thereby undermine civilization and liberty.

But first, imagine, following the lead-----I'm just attempting (please understand!), as a midget, to stand on the shoulders of giants-----of Murray N. Rothbard's work, that egalitarianism was not a "revolt against nature." That is, if all men were exactly alike in every single way imaginable. That even land was distributed in a homogeneous way in which every acre of land had an exactly equal proportion of resources. And, also, imagine that Mother Nature behaved in a way in which her affects were always and everywhere the same across the world in a homogeneous-collective manner as against one in which her behavior, so to speak, was different at different locations. And so on. Man in this world would be little different than a robot produced out of a mass production factory. Every man, being of identical nature, confined to his land, being of identical nature as well, would produce and consume exactly the same thing, in the same proportions as every other man. Clearly a division of labor qua society would not develop. To quote Ludwig von Mises (as Rothbard did on this subject): "No social life could have arisen among men of equal natural capacity in a world which was geographically uniform."

The real world, in which we live, is not like this at all. Rothbard is therefore absolutely correct when he said that egalitarianism is a "revolt against nature." Men, on the contrary, differ vis-à-vis each other. Land, too, is heterogeneous. Neither is Mother Nature a fan of egalitarianism. As Erik von Kuehnelt-Leddihn wrote, "'Nature' (i.e., the absence of human intervention) is anything but egalitarian; if we want to establish a complete plain we have to blast the mountains away and fill the valleys; equality thus presupposes the continuous intervention of force, which as a principle, is opposed to freedom. Liberty and equality are in essence contradictory."

Man would obviously not trade with his neighbor if his neighbor had everything he had. Man instead trades with his neighbor because his neighbor has something he does not have. More fundamentally, it is recognizing that trade in the second of the two cases is better or more profitable than trying to produce everything in isolation. A world with an extreme household protectionism would have extremely low standards of living. The population number would be nowhere near the number it is today.

It is the fact that engaging in a market economy with others is more profitable than not to engage that explains why barter developed. Man's needs and wants can be better fulfilled in the market economy. It is based on exchange and in production----production to be used in future exchange. Society is hence not an end to itself; it's a means. Men come together to do things together.

Now explanations of this development, from famous economists like Adam Smith, according to economist Hans-Hermann Hoppe, that pronounce the market economy developed for reason that man has an instinct to it and an inborn like of other men is erroneous. Both of these assumptions are not needed to explicate the development.

Trade may take place between two men, who might actually dislike each other, who rationally, opposed to instinctively, see the advantages of this type of interaction. If these two men trade with each other, then it is because the first man has something the second man wants and the second man has something that the first man wants. (Feelings of friendship, when voluntary cooperation has been established, can then truly develop!) This is not, though, the consequence of them viewing what they trade as equal to each other. No trade would result if that was the case. The trade is the consequence of them viewing these traded goods as having a different worth. One man ranks one thing higher and the other man ranks the other thing higher. Hence both trade because they see themselves as becoming better off than not trading.

This is the beauty of what Robert Nozick called "capitalist acts between consenting adults" (whose line the economist Walter Block often quotes). The mutually beneficial nature of all capitalist acts inter partes is logically implied when they take place (ex ante). It is because it is logically implied----because it must be logically implied----that such acts take place. Voluntary exchanges all logically imply it. For this reason, no empirical testing is required (and how would man go about that testing?) and no empirical testing can show this to be false. This logical deduction of action is not technically observed, but is implied even for an observer----who is an actor----who wishes to observe anything----i.e., it is implied in the way one observes anything----and for this reason cannot be refuted. It is the prerequisite (or praxeological precondition) for any voluntary exchange to take place. It is the foundation of these exchanges.

("Socialist" acts, contrariwise, we can call "acts between non-consenting adults." They imply something quite different than capitalist acts. Whereas capitalist acts take place because they are seen as advantageous for both parties, socialist, non-consenting acts are acts where one party aggressively forces his will on another. One party benefits; the other party has a loss to what was taken away. Furthermore, institutionalizing socialism above individual acts of random physical invasion is to make matters even worse for a society than "unsystematic socialism." Since institutionalized socialism is a systematic attack or redistribution of wealth from those engaging in capitalist acts----who under systematic socialism cannot rightfully defend their property from attacks----to those engaging in socialist acts, the costs of engaging in capitalist acts will be higher, and therefore there will be less capitalist acts in society. Consequently, there will be less wealth and wealth creation.)

But, from the fact that these initial barter (direct) exchanges necessitate a situation where there is a double coincidence of wants (i.e., the first man has something the second man wants and the second man has something that the first man wants), there is a major hurdle to which man has to jump through to exchange with another. It might turn out, for example, that one man sees that another man has in his ownership something he himself very much wants, but cannot trade with him because he himself has nothing that this man wants. In each and every exchange there is this hurdle. The range of man's potential capitalist exchanges will be limited. Thus, the division of labor cannot be complex and diverse under barter. Specialization, like we have today, is not a possibility.

This is why indirect exchange develops. To fulfill man's desire to trade, as elucidated above, man must find ways to facilitate it in a way to overcome the difficulties of barter. Man wanting to expand his trading opportunities, by overcoming the lack of double coincidence of wants, must find goods that are greatly marketable. These are goods that are popular; that are in high demand; that many, many people want and value. By obtaining these goods a man has therefore opened up his trading opportunities to a higher degree. And the higher this degree is, the more wealth creation prospects he has. The value he places on these goods, unlike other goods, is that they help him in acquiring services and other goods. He values it for its exchange value as opposed to its potential use value. It also follows that he will have the incentive to find a marketable good that has divisibility (without losing value), which will allow him to divide it up so as to more easily purchase more than one item and to easily purchase both expensive and inexpensive items.

Uncertainty, it should be noted, is what pushes man to adopt money. It is the uncertainty of knowing whether or not one is able to trade. (Only a world of "perfect certainty" would money not be needed.) As long as at least one entrepreneurial man can perceive all of this, a society can then start to economically evolve out of the primitive barter stage. Other men will see this. They will see that he who does such progresses upward in the hierarchy of wealth. There will therefore be an increasing demand for goods qua a medium of exchange. The interconnection of the market will increasingly intensify. It will push other men, who otherwise might not be bright enough to see the advantage of doing so, to follow the lead. "The result is a reinforcing spiral," wrote Murray Rothbard. "[M]ore marketability causes wider use as a medium which causes more marketability, etc. Eventually, one or two commodities are used as general media----in almost all exchanges----and these are called money."

This reinforcing spiral will result in the choice of a commodity that is demanded (valued), dividable, durable, homogeneous, portable, scarce, stable in supply, etc. Money is dependent on man's valuing it in terms of its, to quote Rothbard, "preexisting prices on which to ground demand." It depends on its barter demand. Unwinding the spiral by a regression, one finds that the evolution of a good (or two) to the position of money is the result of it being originally valued by man as a good in itself to be consumed. Hence, money can only originally develop through the free market as a commodity. And, hence, the only way government can enter the picture of money is if it does so on top of the necessary market development of money. Fiat paper money, by itself (with or without government force), could never get off the ground; anymore than if you took a clean sheet of practically worthless paper, applied some ink to it, and tried to buy something with it. Money, like language, is a product of freedom. That is, of free interaction, association, and discrimination. The State did not create money; anymore than it created language.

With the development of money, to iterate, the severe limitations of barter go away. The market economy becomes integrated. "Capitalist acts between consenting adults" can happen right away with money. Practically everything can be bought and sold in terms of money, without the problem of double coincidence of wants. There will thus be more exchanges and productions of goods and services. The standard of living will thus rise.

Money, moreover, allows man to easily calculate. Cardinal calculations are possible. (But the development of this, which man has to place value on, is itself an ordinal choice or ordinal value. Further, it is the feature of a market money's homogeneity that makes these cardinal calculations possible.) Exchange ratios arise. The question of how to direct scarce resources to fulfill the most wanted desires of man becomes possible to answer with a common, universal medium of exchange. The entrepreneur can now more easily see what lines of production are (relatively) more profitable than others. He can compare them. Of course this, too, raises the standard of living exponentially. The businessman can see his profits and losses. He can calculate his capital and income. Money thus develops the pricing system, which helps direct the traffic of the market. Any complex society needs the pricing system to direct scarce resources which have alternative uses. The only alternative is chaos.

The Transformation of Capitalistic Money to Socialistic Money.

Increases in the supply of money, once money has been established in society, is of no particular importance in terms of net living standards. Unlike other goods and services, an increase does nothing to make society wealthier. Only insofar as an increase of the particular money confers a non-monetary benefit to be consumed (either directly or, as a capital good, in the production of a future consumer good), can such an increase be said to raise living standards. A greater supply of money, ceteris paribus, just means a smaller purchasing power. A lesser supply of money, ceteris paribus, just means a larger purchasing power.

Assuming that the money chosen was gold, as it has been in modern times, in a free "society, one can acquire money in only three ways," said Rothbard:

(a) by mining more gold [which, by the way, is an expensive and slow process that will generally not lead to "price inflation"---my note]; (b) by selling a good or service in exchange for gold owned by someone else; or (c) by receiving the gold as a voluntary gift or bequest from some other owner of gold. Each of these methods operates within a principle of strict defense of everyone's right to his private property.

In the world in which we live this might look a little foreign, no doubt. So obviously something happened to the development of capitalistic money to turn it into the socialistic money we have today. This is an involved subject, but economically speaking the transition follows a precise pattern.

Before this blog entry briefly gets into that, however, it is very important to understand that one can try to acquire wealth by counterfeiting money. This activity of fraud is in direct violation of private property rights. As such, it is not part of the three acceptable ways to obtain money, which Rothbard described above.

The societal development of money brings the formation of banks. Their job is the storage of money and to provide for increased transactions between savers and entrepreneurs. Banks can either obtain income legitimately, as covered above, or illegitimately. They can facilitate transactions between savers and entrepreneurs legitimately or illegitimately, as well. Fractional reserve banking is an example of illegitimacy. All banks might have the desire to engage in this activity, but their desire will be limited indeed as long as there is open entry into competition (with no government central bank regulating this away in which this limit or check is eliminated [see below]). In addition, with a free market it will be limited because of the possibility of bankruptcy. (Profit and loss is both salubrious and necessary for an economy. [Bank runs are beautiful.]) Only the government can change matters. It and only it can take away competition by force or can attempt to prevent bankruptcy when bankruptcy occurs. Either of the two interventions will create moral hazard (i.e., there will be more financially risky behavior) and encourage the practice of fractional reserve banking.

Fractional reserve banking occurs when a bank issues more paper receipts (titles) than actual commodity money they possess. A one-to-one ratio (one hundred percent reserve banking) does not exist. From this it should be straightforward to see that if a bank engages in the handing out of more paper receipts (called "fiduciary media") than gold it holds in storage, it is no different ethically than a garage storage place taking one's items away from their customers while they promise to guard them. This is a violation of private property and makes the given bank financially bankrupt. That is to say, if each and every customer would come to the bank to demand their money, the bank would not be able to fulfill its contracts. Those interested in a just and free society, then, must want the law-contract enforcement agents that be to prevent these kinds of practices.

Put in another way, there will be more titles representing money property than actual money property. It tries to make two equal to one. It is an attempt to create physical property from nothingness. Because these titles have no value except insofar as they serve as a function to represent what they are titles to, the notion of free and contractual fractional reserve banking seems to make little sense. When man A deposits x amount of money, it cannot be said that x amount of money is also owned by man B at the same time. Only if it was contractually loaned (or voluntarily given) to B can it be his, but it cannot be exclusively owned both by A and B at the same time.

But, as stated, it is free banking, with no central bank, that has a build-in major economic limitation to fractional reserve banking activity, even if the enforcers of law do nothing about it. Interactions do not just occur with one customer and his respected bank or two customers of the same respected bank. Interactions can happen between one customer of one bank and another customer of another bank. That is, one man of Bank A can write a check to a man of Bank B. The second bank, with the new check, will demand the money (all of it) from the first bank. If Bank A has been reckless in engaging in fractional reserve banking, it will not be able to fulfill Bank B's request. To cut to the chase, this associational environment will thus put a major constraint on this fraud. The more banks there are, the more this constraint will increase. (Another limitation is a public that is aware of fractional reserve banking and is very untrusting of any bank that engages in it.)

What is more, artificially increasing the supply of money (via, e.g., bank notes, bank deposits, or "checkbook money" that people can use in their daily affairs)----which, unhappily, costs virtually nothing----will lead to a host of unintended consequences. (More will be written on this a little later. The unintended consequences will be far more pronounced when this artificial increasing of the money supply is systematically implemented via government.) There will be a redistribution of wealth, as already indicated. The greater the supply of money, ceteris paribus, the less purchasing power it will have relative to all goods and services. However, the result of inflation (i.e., the increase of the money supply without "specie" or commodity backing) is a result that comes to pass in a way that trickles through the economy. It is not an instantaneous event. Those accordingly getting the fake new "money" get it at the parasitic expense of those who get it later or not at all. After this inflationary process has trickled its way through the economy, prices will have risen (ceteris paribus) to reflect the new condition of the larger money supply. It is this uneven process that results in what are called "Cantillon effects." Effects of which have the result of redistributing real wealth.

Government, wanting to expand its revenues, can see all of this. This is why governments have sought control over the supply of money and the making of an alliance with the banking industry. Such an alliance would be beneficial to both, if only they can ideologically corrupt the public to thinking that it is beneficial to them as well. That, sadly, is not too difficult taking into consideration that the public's knowledge of economics is abysmal. Both the government and the banking industry can then engage in robbing the wealth of the public by controlling the money supply. Government can then tax in a new way, an indirect and unseen way.

The monopolization of minting by government, in a nutshell, first occurs and then the debasement (coin-clipping) of money, which is enforced on the public by means of legal tender laws. This debasement it pockets to itself at the parasitic expense of everyone else. More coins are created by the debasement and then the public is forced to act like nothing has happened. Now given that government outlaws all competition, the government has no competition to keep it in check. Government can thus keep on providing a inferior money without worry of a competitor offering consumers a superior money. Moreover, any remaining superior money will be driven off the market, since government will be forcefully overvaluing inferior money and undervaluing any superior money.

Then the government has monopolized money paper titles (bank notes) and creates a central bank (à la the Federal Reserve System). Counterfeiting can then occur uniformly vis-à-vis the banks. The central bank becomes the "bankers' bank" and the "lender of last resort." Gold, as the commodity money, becomes nationalized. It starts to lose its role, in the minds of the public, as money. And banks can inflate, with the government's blessing, off of government's inflation through fractional reserve banking with bank deposits. They can no longer issue bank notes, since the central bank has monopolized their issue, but can still issue bank deposits as a way to inflate. In this monetary socialism, they can do this without too much worry, as long as the public does not wake up to what is happening (or hyperinflation occurs). The previous free banking constraints largely disappear. At this time the government will also have the desire to get off the gold standard completely, and thus allowing this check to go the way of the dinosaurs for it to fill its power and greed ambitions. Soon all that is left is a fiat paper money system----a system very easy to counterfeit with.

The government can inflate at will with the counterfeiting apparatus. All that is done, essentially, is that the central bank buys some, say, government bonds. This money is produced literally out of nothingness. The bond dealer takes it to deposit at a bank and the bank then deposits it at the central bank. This deposit is the bank's reserves. The bank can then make deposits, through fractional reserve banking, on top of these reserves, in the amount the government allows by law----i.e., the reserve ratio. A reserve ratio that is 10:1, for example, means that the banks, ultimately, can increase deposits by tenfold out of nothingness on top of that original money that, too, came from nothingness.

Additionally, in the U.S., there has been the further creation of other programs that give the false impression to the public that the banking system is a sound system; instead of it being seen as a house of cards. The making of the Federal Deposit Insurance Corporation (FDIC), for instance, is an example. However, wrote Rothbard, "the FDIC itself has less than one percent of the huge number of deposits it 'insures.'" He went on: "The very idea of 'deposit insurance' is a swindle; how does one insure an institution ... that is inherently insolvent, and which will fall apart whenever the public finally understands the swindle?" And the very existence of the FDIC makes the banking system more unstable by creating moral hazard and by relieving customers their responsibility to take good care of where they put their money.

Not only will this fascistic-statist system perpetually promote inflation, it will perpetually promote business cycles leading to recessions and depressions. By perpetually declining the purchasing power of money, this system will discourage savers and encourage non-savers and debtors. Consumption, leisure, short-term thinking and planning will be relatively encouraged. The cultural characteristics and work ethics that make a healthy economy are thus punished with this system; whereas the opposite is rewarded.* Many businesses will also be thrown off course because business calculations will be distorted as a result of inflation. There will be an overestimation of profits, during the initial effective stages of inflation, and this will misdirect many businesses, and might even lead them to use up their capital on these false signals. Just as the effects of inflation will reward bad financial behavior for the individual and for the family unit, it will do ditto for private enterprise.

It is the facilitating of transactions between savers and entrepreneurs by the artificial expansion of credit (via fiat money) that sets into motion mass business cycles. The initial "boom," in the higher-order capital goods industries----which basically operate on man's ability to develop roundabout methods of production, and willingness to hold off instant gratification so as to invest present goods in such capitalistic production, that aims at an output with a higher net total of goods (than not doing so) in the temporal future----that received the credit, is artificial and the resulting bust phase is simply the market trying to correct the distortions that the government and the banking system created. Simply put, the ratio of consumption to saving (qua investment**) in society will not be reflected. With an artificially greater supply of credit, the interest rate (i.e., the cost of the procurement of money or capital in the present) is lower than it otherwise would be on the market. Instead of it reflecting the actual time preference levels (i.e., the rate in which man prefers present consumption over the future) and, on the other side of the same coin, saving levels (vis-à-vis spending-consumption levels) that men have in society, the market is misdirected to act like the time preferences are lower than what they actually are and to act like savings are higher than what they actually are. That is, instead of the boom being created out of actual savings with a low time preference that is temporally sustainable, the "boom" is based on hot air. And, remember, an increase of fiat money most certainly does not increase wealth for society. It does not and cannot increase (real) savings or lower time preferences.

A shaky imbalance in investments is created between consumers' goods (of the lower-order) and capital goods (of the higher-order). A mass of malinvestments becomes inescapable. When the rate of interest lowers, there is a shift from lower-order to higher-order industries. There will thus be an artificially greater investment in higher-order capital goods and correspondingly less investment in lower-order consumer goods. If private property and the market was respected, then it would be just the opposite given the current time preference and saving levels. However they are not respected. Even moreover, men will be saving less as lenders (and, hence, consuming more) because the return will be artificially lower than it otherwise would be. Thomas E. Woods, Jr., an historian and economist, has pointed out that, in effect, the anti-market intervention is in a tug-of-war match in which the economy is being pushed in two opposite directions at the same time. But, in the long-run, the market will win because real resources are not there to keep the "boom" going. These resources are consumed. (Insufficient resources have been freed up for the future. Instead of saving, men have been consuming. And instead of entrepreneurs producing for such present oriented things, they were being pushed into future oriented things.) The prices of these capital goods at first go up. These investments are made to seem profitable. A bubble develops. But as the effects of inflation trickles through the economy and the bank credit expansion ends, these investments will be seen for what they are, viz., hot air investments. Now they are seen (correctly) as not profitable. The prices of consumer goods will go up (with the given ratio of consumption to saving), with a shortage of resources, relative to the capital goods and there will be a redirection, in which a recession or depression occurs, of investments back to where they would have gone (in terms of production order), and the higher-order investments dry up. Hence, this process will produce another inescapable result: wealth destruction. "In sum," wrote Rothbard,

businessmen were misled by bank credit inflation to invest too much in higher-order capital goods, which could only be prosperously sustained through lower time preferences and greater savings and investment; as soon as the inflation permeates to the mass of the people, the old consumption-investment proportion is reestablished, and business investments in the higher orders are seen to have been wasteful.

*(To note, the more wealth, the lower the time preference tends to be. That is because it is less difficult to save with more wealth than less. One would hence expect that, because there is more wealth, real interest rates would be lower than the last generation. As Hoppe notes in his must read Democracy - The God That Failed book, they are higher with today's generation. This can only be the result of a systematic increase in time preferences. That is, society is more "child-like" today. ...... Mises himself recognized that the particular statist intervention of inflation is a direct attack on what we can call "conservative" values: The cultural damage of inflation is "epically strong among the youth. They learn to live in the present and scorn those who try to teach them 'old-fashioned' morality and thrift.")

**(The issue of "hording" has no direct influence on this discussion and thus will be ignored. But understand that all this would do is increase the purchasing power of the "remaining" money in circulation. For a very quick look into the un-evilness, in both an ethical and economic sense, of misers see Walter Block's Defending the Undefendable.)

Transforming Socialistic Money Back to Capitalistic Money.

Money is an important cornerstone to civilization. It is, as Murray Rothbard said, the "lifeblood" of the economy. Because of this, when men look at the evil affect the State and their banking allies have on money (and all the side effects that are produced), this should be all we need to know about the State and how regulations are designed not to protect consumers but to protect special interests.

Apologists for the status quo, especially mainstream conservatives (who are not at all friends or allies of liberty----who would be aptly described as largely fascists), fail to recognize that much of big business and big media are intermingled with the government. These businesses get granted special privileges and benefits that mom-and-pop shops do not. On the other hand, mainstream liberals that respond that money is therefore to blame for this is equivalent to saying that water is to blame for the coerced drowning of a person, instead of the criminal that murdered the person with the employment of water.

In itself money, like water, is neutral. Usage can be for good and evil. As long as there is this central machine of democratic power it is only natural that those with more influence will direct its usage to their own benefit and at the expense of others. It is therefore nonsensical to think anything but rich people will have the most direct influence on government. These particular rich people want to go to the government because it has power and they do not. For this reason, the problem is not wealth or money. The problem is power. They do not go to the government because they have power but because they don't.

The banking industry got tied into the governmental system because that system has power. And government is all too happy to get more power and control. The control over money allows the State to implement an "inflation tax." The president of the Mises Institute, Llewellyn H. Rockwell, Jr., has as a result said that the central bank is "[t]he heart of the modern state." If you understand the economics of money and the outcome of statist intervention on money, then you understand the modern state.

The justifications for the existence of the U.S. Fed can only be described as hilarious: for example, the idea that the Fed "fights" inflation. But its very nature is inflation. Since the creation of the Fed, over 95 percent of the value of the dollar has been lost. Not exactly a "fighter!" "Not worth a Continental," comes to mind. Then there is the claim that the Fed stops business cycles. Again, its very nature is business cycles. We have business cycles all the time. Right now we are in one.

Perhaps it should be also quickly noted that the Fed, as many suggest, is not a "private" bank. What is needed is a private free market in the banking industry, not more of the same. The Fed was created and established by the government, it is maintained by government, the officials in the Fed are largely appointed by the government, etc. A "Fed" could not exist if it were truly private. Competition would drive it out of business in a blink of an eye by hyperinflation over the production of worthless pieces of paper, which cannot be money without monopolistic government aggression and force.

Those that favor either no government or a very small, decentralized government must then work for the separation of State and money. This means an end to central banking and an end to fractional reserve banking. It means a return to a free market commodity money. It means an end to the house of cards we have now. It means an end to artificial bubbles generating booms-and-busts in the economy. No central plan is needed to move back to a free market of money and banking. A free market is the lack of a central plan. Accordingly, what needs to be done is the elimination of legal tender laws, the allowance of man to be free to choose his money, deregulation, and, ultimately, the abolition of the Federal Reserve. (In a manner of speaking, the inverse of "Gresham's Law" would occur.) For a guide to follow, we can turn to the recommendations of Rep. Ron Paul, a scholar in the economics of monetary issues and author of Gold, Peace, and Prosperity and The Case for Gold. In times like ours, seeking fiscal sanity is more important than ever.

"Man cannot turn back the clock" might be the reply some men have to the idea of returning to a money of free market capitalism. But, to quote the great Richard M. Weaver, "I'm not turning it back; I'm setting it right."

References: I'm just striving to stand on the shoulders of giants. Hopefully I balanced the content in this blog entry successfully. Any shortcomings are my own. Above quotes of Rothbard's comes from, respectively, What Has Government Done to Our Money?, The Case Against the Fed, "Taking Money Back," and America's Great Depression. On egalitarianism, see his Egalitarianism As a Revolt Against Nature.

A number of essays and books have shaped by understanding of monetary issues (and my understanding is still being shaped). For those new to this subject, the first and best book to read is What Has Government Done to Our Money?. It is beautifully and clearly written. See the layman populist essay "Taking Money Back." Listen to this mp3 Rothbard lecture. And be sure to read his "Economic Depressions: Their Cause and Cure." Besides Rothbard, Bob Murphy provides a reading list here. Read "What You Should Know About Inflation" by Henry Hazlitt. Take a look at "The Business Cycle" in Jim Cox's The Concise Guide to Economics. See Hans Hoppe's "Banking, Nation States, and International Politics" and "How is Fiat Money Possible?." For something light and entertaining (although, slightly off topic), see "The Economics of Star Trek or What is Good for Business?" by Dmitry Chernikov.

If you just stumbled into The Paleo Blog and know little to nothing about economics, then the best book to read is Economics in One Lesson by Henry Hazlitt and then, if you are still interested, read Economics for Real People by Gene Callahan. Thomas DiLorenzo provides a more historical perspective on the importance of economic freedom in his great How Capitalism Saved America. I highly recommend it. For something a bit more advanced, but still short in size, see An Introduction to Austrian Economics by Thomas Taylor. 

GOP "Debate" & Farming

Even though I mainly listened to the play-by-play reactions to the recent GOP "debate" at RonPaulRadio.com, in my listening I reflected on how awful Republicans are on economic issues. It is amusing how many men buy into the Republican folklore legend that the "Stupid Party" is actually good and smart on economic issues. This seems to allow them to get away with more government expansion than the Democrat Party. Fundamentally, though, the two political parties are not much different. Both parties support Leviathan statism. They just wear different masks, and many people get cornered into supporting one or the other.

(From the kool-aid drinking partisans, though, that come from either the Democrat Party or the Republican Party, it's made to seem that these two major political parties are light-years apart in their economic views. Ha-ha.)

Sure in the big picture of things Republicans sound relatively better in rhetoric on economics, but rhetoric is just rhetoric. Ronald Reagan, for example, was a huge government expander in terms of spending, and he was not good in taxation either. And he was a huge deficit spender, to boot. This was both true when he was president and when he was governor. Credulous conservatives always paint him wrongly. In fact, according to Mr. Lew Rockwell, then President Reagan gave a personal call to Rep. Ron Paul asking him to vote "yea" in a spending increase. Of course, Paul did not sell his soul to the despicable Reagan.

As the circus show played out a few days ago on CNN, candidates danced around the subject of farm subsidies to please the farming lobby.

The Bad Boy of Baltimore, H.L. Mencken, would have none of this. As you can imagine, he hated the subsidized farmer. And he was not afraid to write it in his acidic style:

"Let the farmer, so far as I am concerned, be damned forevermore! To hell with him, and bad luck to him! He is, unless I err, no hero at all, and no priest, and no altruist, but simply a tedious fraud and ignoramus, a cheap rogue and hypocrite, the eternal Jack of the human pack. He deserves all that he suffers under our economic system, and more. Any city man, not insane, who sheds tears for him is shedding the tears of the crocodile."

"No more grasping, selfish and dishonest mammal, indeed, is known to students of the Anthropoidea. When the going is good for him he robs the rest of us up to the extreme limits of our endurance; when the going is bad he comes bawling for help out of the public till. Has anyone ever heard of a farmer making any sacrifice of his own interests, however slight, to the common good? Has anyone ever heard of a farmer practicing or advocating any political idea that was not absolutely self-seeking -- that was not, in fact, deliberately designed to loot the rest of us to his gain? Greenbackism, free silver, government guarantee of prices, all the complex fiscal imbecilities of the cow state John Baptists -- these are the contributions of the virtuous husbandman to American political theory . . . . Yet we are asked to venerate this prehensile moron as . . . the foundation stone of the state!"

Now in the "debate" it was claimed that the State should subsidize farmers because other States are doing it too! So, they are hitting their heads, so "we" should too? Only a politician would reason that way. If other nations want to subsidize farmers, then the U.S. federal government should stop and then we as consumers should take advantage of the other nations' stupidity by buying their artificially priced stuff. That is not a loss, but a win. It would obviously encourage other States to be more economic as well. But if you really boil it down, such costs are just past on to the American public. Guess who is suckered with the needless bill? It only makes us poorer.

Left-Liberalism, Libertarianism, & the Free Market

One of the many problems that I have is that many left-liberals (who stole the term "liberal") falsely think that the Republicans have libertarian economic views. The trouble with them is that they not only hate the freedom to choose, which comes about with private property, but they fail to understand that politics is a rich man's game. It was they----rich big business----that cheered on (for the most part) the centralization of government power, the creation of central banking, and various regulations to freeze out small businesses. Liberals have been scammed, only they do not know it.

Recently, when browsing through various blogs around the Internet at random, I keep running into the idea that to be for personal freedom and, at the same time, to be against economic freedom is to be libertarian. "Personal freedom" only comes from private property, which these individuals are against (to varying degrees). So such a claim is fallacious. Possessing a cultural hedonistic, relativistic, or "pluralistic" outlook or attitude neither qualifies a man to be a libertarian. The only requisite to be a libertarian is to support private property and what such support logically and deductively implies. Namely, that aggressive violence against those engaging in non-violent activity should be prohibited. (This is what libertarians often call the "non-aggression axiom.") Strictly speaking that is it. To take part of a phrase from President George W. Bush, it is a uniting and not a dividing philosophy. It applies the general ethical code to everyone, including government officials. If you agree with this philosophy, then great: you are a libertarian.

But even here most of these left-liberals do not really believe in "personal freedom." They are very selective by what they mean by that phrase. (For example, why are they against the "personal freedom" of consenting adults to engage in voluntary capitalist acts with each other?!) While such men as these left-liberals are generally for Cultural Marxism to one degree or another, they easily adopt anti-libertarian views when they then see the State aggressively promoting Cultural Marxism or seeing the State limit man's ability to use his personal freedom to discriminate as he sees fit. (E.g., to non-violently discriminate against these kinds of left-liberal attitudes and/or the specific men that subscribe to them.) Moreover, they support the use of coercion to collectively force people to accept homosexual "marriage." They love the idea of civil "rights." They love commies like "Dr." MLK. In fact, their ideas of Cultural Marxism require State interventionism. This requires the substitution of family, kinship, community, church, covenant, and so forth by (i.e., to be replaced by) the State. This allows their left-cultural views to breed and expand.

A fundamental problem they have as it relates to economics is that they do not know the difference between a free market and what is in existence today. Ordinarily I do not debate teachers or professors, but one time I gave an example to my liberal chemistry instructor of how big business seeks governmental regulations to close the door to competition. I said that Clear Channel has tried to get laws past that would stop any satellite radio from doing any local news or local traffic reports. She replied that is no big deal and is only one tiny example making it irrelevant. Given that she is essentially a government-worker, maybe it is not surprising that she is so in the dark.

Liberals promote a "utilitarian" ethic and try to pin an anti-utilitarian (anti-goodness) ethic on any non-socialist. They knowingly and disingenuously structure the debate superficially where it is they that are for helping the poor and the downtrodden. It is "easy" for a man to say that he wants "society" to produce this or that good to help the poor. If man was omnipotent and could snap his finger like magic, then who could be against the idea to end this or that man's suffering?

But I reject the leftist premise. So it is not even "easy" to say that. In actual practice, when they say this they equate "society" and "state." No advocate of liberty would. The poor and those down on their luck should seek help through private-voluntary means. Greater focus on these means strengthen these means of help. It would therefore strengthen man's generosity. That is, it would strengthen the individual's direct involvement in charity. The less these private means are used, the less individual man will be generous with his money because the State has been substituted to replace the need for man to be generous. Left-liberals therefore produce a society that is less generous. Men will consequently become increasingly detached from charity.

Since liberals like talking about a "safety-net," their ideas destroy the safety-net that comes from the social intermediate institutions. As covered above, the welfare state helps destroy the formation and strength of private institutions of charity. Churches, for instance, have lost a major role in charity (relatively speaking). Another case in point has been the extended family. At one time it was held together in greater vigor and provided a comfortable safety net vis-à-vis its members. It was not as if those who were truly poor had nowhere to turn to when the welfare state did not exist. Believing that was the case is just nonsense.

Putting that aside, the move from private-voluntary charity to collective-coercive charity has only made problems worse. We do not live in the Garden of Eden. Our world is a world of scarcity. And it is a world where there are laws of nature, of mathematics, of economics. Their collectivist idea to help the poor, unlike private charity, collectively reinforces what they want to help cut-down. It systematically and collectively diverts finite resources to reinforce poverty and consequently will subsidize it. Such statist intervention makes wealth production more costly. What it does, in effect, is punishes productive men. Not only will redistribution be occurring but the size of that redistribution will continually decline. This is the great fallacy of the welfare state.

The true advocate of the poor, then, should promote effective methods through freedom. In addition to this, while we are at it, let's cut down taxes of the poor (and everyone else) to, ummmm, zero. Or, for the time being, close to zero.

More fundamentally, these liberals do not understand how the market works. Allocations of finite resources need to be allocated through the free market's spontaneous pricing system which is derived from acting men.

This is most clearly seen with how an individual businessman must behave (if he wants to remain a businessman for long). He knows that he is using his resources successfully when he makes a profit on them (or, at least, comes out even). More precisely, when a businessman takes what is perceived as less valuable and uses it to produce something that is perceived as more valuable to consumers. Or, put in another way, where the input, which costs X, and the output, which is sold at Y to consumers, is related to each other so that Y is greater than X, and where the difference between them (Y - X) is the businessman's profit. Now it is this pricing system that allows rational calculation in the free market. It helps prevent resources from being allocated to unwanted and uneconomic lines of production. It thus helps to divert resources to their most wanted and needed areas. And it helps men cut down on waste and to economize to the conditions of what people demand and to the underlying reality of the finite supplies of goods and natural resources that are in existence. This ability, which States by their very operation do not and cannot possibly have, also allows resources to be freed up so as to produce a greater amount of different things. The free market is imperative to living a comfortable life.

As we all know, life and nature produces conditions that change. There is no such thing as a static world. Once again, it is the market that is needed to deal with this reality. For example, prices change on commodities. A businessman must be able to foresee this. The better he does the more profits he can make. If he sees that Z commodity will become scarcer and buys it, and if he has correctly foreseen the future, then he has diverted resources to be used to the corresponding reality to serve the public better. When he fails he suffers losses. This, obviously, is not what he wants. Thus, businessmen tend to be able to foresee future market conditions well (under normal non-inflationary conditions).

Another important example is how the various demands of consumers, because it is not a constant, changes through time. A businessman must do his best to pay close attention to these changing demands. He has to stay on top of the latest developments. The less he does this successfully, the more he directly suffers and the smaller his business will become. He might even go out of business. Thus, to stay in business, a businessman must please people. If a businessman does not, then he goes out of business. Does this happen with statist management? No. Of course not. Our relationship is not voluntary with statist management.

Just recently, where I presently live, the statist electric system upgraded so as to have everyone's amount of usage register electronically to the electric plant. They therefore no longer have to send someone out to manually go to house-to-house to see how much electricity everyone is using. This is an example of statism and how backwards and Third World-like it is. Upgrading and economizing is sluggish. The incentive and need is just not there. It is not as persistent and pressing as the free market. These very things cause the standard of living to be less than they could otherwise be.

And when I look at public property in my area, what I see is litter and poorly maintained property. Publicly owned land is similar. Instead of this land being civilized by private property, it is a wilderness of the wild. A wilderness that is waiting to catch on fire one of these days and maybe burn down the houses near-by. Nature is always and will always be the enemy of civilization. It must be used and civilized by man.

To continue this discussion, there are several things moreover facing a businessman, unlike a politician and his coercive activity, which have positive affects on his actions. These principles play across the board to how the free market works.

Again, a cornerstone to the market is its profit-and-loss check. This has already been covered in its management of resources above, but there is more to it. Businessmen know they can go out of business or suffer large losses by other businessmen out-competing them. Customers want high-quality but low cost products and services. To remain competitive a businessman then has to do his best to provide such. If he does not, another businessman might. If that happens, then this will cause him to lose business and perhaps go out of business completely.

Businesses that lose money, profit, or closes down is actually a positive feature of the free market, for the whole of society. Scarce resources then move into businesses that are more successful at using them. Therefore, resources tend to move into their more productive lines of production. The free market encourages productive causes. It also encourages innovations.

Unlike the government and socialism, the free market gives man choices. These choices are made numerous because there is a competitive field, filled with many businessmen and capitalists. When one man buys something from another man, the other man buys something too. Joe goes to the store and buys a candy bar. Bob, the store owner, buys money. Joe buys the candy bar with the money because he, at that moment, values the candy bard more than the money. Bob, on the other hand, values the money, at that moment, more than the candy bar. Neither Joe nor Bob would have traded if they didn't expect that they would both gain in the trade. Trade, between two exchangers of opposite preferences, thus, in the ex ante sense, is mutually beneficial.

Already, even from this very basic and introductory analysis, we can dispel the myth that inequality is created or perpetuated in capitalism. A businessman can pander to a small select rich cliental. However, it is he who tries to pander to the public at large who will prosper in wealth even more. The public does not "lose" in this arrangement. They do not lose when television sets are mass produced at low costs. Costs low enough so as to be affordable to even a man who is considered in relative poverty to most other men in the given society. The poor live like kings in a free(er) society. He who trades (purchases with money) is giving up what he values less to get what he values more. Just as, supply and demand are really two frame of references equally applicable from either "end" in an exchange, so too is the concept of profit. To purchase is to purchase for profit monetarily, materially, or psychologically. To act is to act for profit. It is to give up a sadder state of affair for a better one. The rich, in a free market---not in a statist market (that currently exists)----, get wealthy only by making the public wealthy. It does not produce inequality, but wealth for all parties. If this were not the case, then no one would act to exchange with another in the market in the first place.

Often logic does not motivate the statist, but irrational resentment and envy. They wish to bring down the rich, even though it would hurt them too. Many of them also, as Ludwig von Mises explained, have what is called the Fourier Complex. Many of men blame society for their inefficiencies in life. As children men have high dreams, but reality curtails them. Men with the Fourier Complex mask their feelings of inadequacy by blaming the world, and especially the rich, for their own condition. They hide it and embrace various versions of socialism. Those men with this problem cannot be reasoned with at all. All that can be done is for them to sort out their mental complex(es) willingly.

Even the ethic of equality is faulty. Inequality is what makes man truly human. Men differ in ability, intelligence, talent, aptitude, physical appearance, et cetera. Men also grow up in different environments. We are born unequal to each other and we live unequal to each other. This is part of the reality to be human and to live. Man could not exist if this were not the case. Reality makes use of this inequality of man. It allows the man with little intelligence and little strength to live a productive and happy life. Another myth of the liberal is that market activity is like the jungle of animals. This too is nonsense. In early hunter-gather societies this was true, but capitalism grew mankind out of it. Infanticide was practiced then because primitive man did not have the capabilities or the capital he has now. Then, no one who was handicapped could live. Now, however, a handicapped man can because of capitalism. A division of labor, unlike some kind of war against all in the jungle, is what produces peace between men. It motivates men to get along with each other. The more complex and diversified it is, the more peace is required, and the more economically dependent we are on one another. Any kind of civil war would be disastrous. It would isolate man and starve him.

The so-called "ideals" of extreme left-liberalism help therefore to create war and hate.

[To footnote: This important point also helps to show how anarcho-capitalism is not only possible but something mankind should embrace.]

The "business" of a politician and of government works completely outside of the constraints of a free market enterprise. It limits our options and our choices. The more the public sector takes over life, the smaller the free market. A State that dictates our health, for example, is one that corrals man into a cage of the State's dictates. It smashes man's choices away to subservience and slavery. Such an ideology is an ideology of dictatorship. Statist management always is top-down and simplistic. Given the diversity of mankind, and the diversity of needs and wants of different men in different environments and circumstances, no top-down approach is adequate to fulfill the actual plural needs of society. They can only do harm and cause numerous and incalculable distortions, like the butterfly effect in chaos theory. Its one-size-fits-all collectivism brings havoc on a world that is made up of millions of actions by millions and millions----billions----of men. One that wants a just and wealthy society needs the markets bottom-up apparatus.

The "business" of the politician is not to fulfill the actual needs of consumers, but to pander to the various lobby groups that want the State's loot. Instead of voluntary choice, mankind gets coercive dictates. (Taxation being the clearest example of the State's criminal operation.) Instead of having mutually beneficial relationships, the State brings a relationship that is a plus for them but a negative for the robbed.

Allocations of the State will always have to be arbitrary and wasteful. When a true economic businessman fails, he then suffers a loss and perhaps disappears. It promotes correct allocations. On the other hand, when the State fails nothing happens. There is nothing that helps divert resources into productive uses. By its very nature it will use resources uneconomically, and such use harms mankind. Consumers are no longer king. It so happens when a State failure is clear and evident for men at large, the State and the pundits call for more money to be diverted into the public sector----as if that would make the State economic and wise! Instead all that happens is that the State conquers more of society.

If I am a businessman and cannot fail (because of government protection), then moral hazard is created. I no longer have to worry about acting in a rational manner with my limited resources. If I am a businessman and the State has outlawed competition or potential competition, then I no longer have to worry about a competitor out-competing me and/or driving me out of business, and therefore have no reason to economize, innovate, or lower expenses to the consumers. States, then, promote failure, abuse, waste, destruction, and other kinds of evils. This is the implication of socialist ideology.

Republicanism, Neoconservatism, and Paleoconservatism

No more talk about "Buy America." (God bless China!) It does not make America more prosperous; only less. When I trade with my neighbor, he does not vacuum up our trade into the ether. There are two sides to the transactions that make the trade beneficial. A swooping vacuum does not suck up savings into nothingness, but into increased productivity to further increase living standards. Trade could not even take place if it was not for this advantage. Even if one person (or people) in the trade are physically and mentally superior in producing goods, it still is better to trade for the weak and the strong person than not to trade at all.

If, say, Lisa is a terrific and world famous soprano but is also very good at bookkeeping, it still would pay for her to hire a bookkeeper to keep her bookings in check. Lisa might be a better bookkeeper than who she hires, but it is better for her to focus on what she is best at. Equally this applies to the bookkeeper. She/he cannot become an operatic singer of such talent of the soprano/tenor. They can do what they are best at even though one is better at both tasks. There is comparative advantage at play.

Or, let's take a look at the logic of the protectionist another way. There should be protectionism between individual cities. If the overall logic is true, it must be true here. In fact, it must be true if no one traded at all. Likewise, if one really thinks that trade, which increases productivity, lowers living standards and/or takes jobs away, then it must be the case that technological progress does the same. In fact, man would then have to look at all machines as a curse on society. Clearly, though, this is nonsensical.

And, by the way, why in the world would one want to trust the State to decide who should and should not trade? The statist managerial elite should have that power?

The only just criticism is that many of these mega companies in international trade are so tied into statism. This does destroy competitive conditions to the point where trade brings less and less benefit than it could otherwise. It does seem to redistribute wealth to some degree. But this attack is not on real free trade, but on the protectionism that we currently have. If there is one thing that "populists" are right on, it is that the middle class is suffering. But look to Mexico. There is no middle class due to the very fact that State power has squeezed it out by their redistributive schemes and economic fascism. While freedom will produce very, very rich people, it will not destroy the middle class. Populists, like Lou Dobbs, would not help the middle class but only make them poorer.

One very large reason that the middle class is hurting tremendously is because of the Federal Reserve. Inflation steals wealth away from them. But instead of looking to the Fed, which controls the money supply, many (but not all) paleocons and populists seem to blame foreign competition or some such thing on the decline of the dollar. Why not look behind the curtain?

All for the good that there are some conservatives (paleoconservatives), who are generally consistent in their hate of foreign interventionism, understand what stimulates increased terrorism and hatred around the world (blowback). But they then use a neoconservative vision or frame of mind to attack China as the enemy of the free world. This is most true for old Cold War warriors.

Often times when this is done, it is done without differentiating between the government (the State) and the people. For example, semi-retired talk radio personality Mr. Art Bell was terrified at how fast China is building up and developing, as he and his new wife saw on their trip about a year ago. ...Are we to look down on a people who are actually trying now to live in comfort with an actual standard of living? Or are these conservatives, mainly paleoconservatives, afraid of a new imperial power; something other than the United States? For the time being, however, they are the world's capitalists.

Trade promotes peaceful relationships between peoples. Too often has trade restrictions been a precursor to war. This is why anti-interventionist-protectionists would promote policies that would hurt their anti-interventionist outlook. They promote counterproductive ideas.

As much as I like, for example, paleoconservative Mr. Pat Buchanan and find him an articulate and luminousness man especially on the culture war, to call him bad on economics would be an understatement. From what I read, he calls Hamilton a good guide for economics. Hamiltonian economics is the anti-Ron Paul economics: central banking, protectionism, and rich man's welfare. (Although, Buchanan would be at least against the last thing. But even on that point, we cannot say this 100%. Protectionism is a form of indirect welfare for the rich, or well-politically connected.)

A point that I read from Richard Weaver is true. Cultural Marxists and their statist brothers have language on their side. This gives them an upper-hand. When politicians and pundits refer to "free trade," they are not referring to actual free trade of the classical liberal, the libertarian, or the anti-statist conservative. It is right to attack the WTO, NAFTA, GATT, FTAA, and whatever else. The protectionist, however, attacks these organizations for mostly the wrong reasons.

Internally in a country they produce a playground for lobby groups and big business. It is really more of a form of protectionism than of free trade. Certain businesses get special protection and others do not. It feeds on corruption and the thirst of power from men who would otherwise work to be market businessmen and not political parasites. The stronger the internal protectionism, the poorer a nation will be because they will have less trading options, and the weaker competitive conditions will be producing less efficient internal companies.

Externally it harmonizes State laws across borders. It creates international bodies of statist management and control. By doing this, such policies centralize power. It disconnects that power from the people to an ever greater extent.

Furthermore, it makes States more internally aggressive by eliminating international (external) market competition. This is because men can no longer "vote with their feet" to states that are internally less aggressive. (Smart businessmen will especially do this.) As such, this allows governments to be more internally oppressive than they otherwise would be.

All of this consequently leads to a general lowering of the standards of living.

This entry to The Paleo Blog will be doing what might be called "Defending the Undefendable," with apologies to Dr. Walter Block.

Disaster Hits! Prices Quickly Rise "Because of Evil-Greedy Businessmen." Quick: What Modern Day "Undefendable" is Portrayed as a (so-called) Evilll Villain?

The Wicked Price-Gouger, of course!

But is the price gouger so bad? Or, maybe, is the price gouger actually good?

Following the lead of Dr. Block in "Defending the Undefendable," they not only are not evil but can be considered heroes.

To see how the "price gouger" is a hero, not a villain, all that needs to be done is a simple thought experiment. Imagine a severe storm swept through your town and countless homes were very badly damaged.

Families are going to want to repair their homes, of course. Therefore there will be an increased demand for repairmen. The number of repairmen, like all other economic services and goods, are scarce, limited, finite. They would not be considered economic goods as such if this were not the case. The "limit-ness" of the number of repairmen who live and work in the given community is true to a high degree. As there is a large demand for their services by a great number of people, they are more readily able to charge more money than they usually do. Eager customers would be bidding up those finite services, from the repairmen. Prices will consequently rise.

This has a two-fold impact. For one, the families will have to be more fiscally wise. They will have to conserve and be more cautious. These households will have to think about what is more urgent to repair compared to what is less urgent to repair. They will have to carefully rank their priorities. It is this that will help direct repair activities to be more economically efficient. Greater economic efficiency tends to help diminish the superfluous. Secondly, the community will attract more repairmen from outside of the community than otherwise because the profits to be made will be higher. This will help bring about repairmen from far away, and who would be willing to pay the expense of transportation costs, to profit from helping their new voluntarily paying customers. This will create an increased supply of repairmen to meet the high demand, or (roughly) the "customer competition" of that demand. Due to the increased competition the prices will start to fall. As more "price gougers" "take advantage" (see below) of the state of affairs, competitive conditions will further increase and prices will fall even more quickly.

What happens is that these higher prices are like traffic signals. They direct the traffic of the free market. In the case of a disaster (minor or major), the relatively higher prices will signal the market to divert finite resources to the given location versus another. This is exactly why the market place needs to be left alone. Prices need to go up in accordance with market demand and supply. Individuals cannot respond and act without these directions!  And without any central plan those far away, who might have no knowledge of the severe storm, will respond to the traffic signals of the market. The traffic signals make possible the proper curtailment of resources to accomplish repairs, bring increased competition, and increase the allocation of needed resources into the community. As F.A. Hayek said, knowledge spreads by means of the market in a way that triumphs all. Leaving this community alone from State intervention is what should be greeted happily because such a reflected response comes with the understanding that such market activity brings more resources into the area and, in the long run, lowers prices back to "normal" levels as fast as possible. They could not be brought down as quickly if the market is not left to itself. That is, if civil society is not left to do the task itself.

It should be mentioned that the idea of "taking advantage" with "price gouging" is nonsense. People buy their services because they expect to benefit from the process, too. They are spending their money because they consider it of greater advantage to do so, otherwise they would not spend their money on such services. "Taking advantage" is fallacious reasoning.

Obviously this is not to say that there are no men, in such a crisis, looking to earn very large amounts of profit and is helping out for no other reason but to make "huge" amounts. Such is to miss the point. Statists, however, not only miss the point but want to take these men off the market completely. Needless to say it is better that they are out there than not. By taking them off the market it destroys free exchange between men. It destroys potential exchanges which are voluntary exchanges for mutual benefit. Such doings make matters only worse. It also distorts pricing signaling. One should not only want benevolence, kindness, and charity to resolve the crisis and return life in the community to normalcy. One should want all the help possible. This means help from those that want to earn a buck. Too often do we forget that individual persons and groups of individual persons are involved in these transactions. Socialists wish to take away man's freedom to think and act for himself. Results of such interventionism lead to individual actors not being able to respond rationally to actual market conditions. It is a view of the State bosses knowing better than each and every individual. It is based on the conception that the State is able to collectively determine the needs of various, unique and diverse individuals and families. Trouble is, it cannot possibly do this.

Price hikes and "price gouging" in moments of crisis actually illustrate the rationality of the free market. In fact, the pricing mechanism of the market is most crucial during such times. It helps direct men to confront the reality of the present conditions. It gives the proper market signals, incentives, disincentives, and directions to repair and rectify the situation. As Mr. Rockwell writes in the great linked-to article below, this illustration shows how well the market works all-around. The leap between how the market operates under "normal" compared to "abnormal" conditions should not be such a giant leap for people. The same framwork is at play.

Ultimately it comes down to top-down management through the State versus management through free individuals and groupings of free individuals. If you like the idea of statist management, then you will love FEMA. If you love disastrous fires, you will love the State in control of dealing with them.

Stuff to Read:

• In a Crisis, Markets More than Ever by Llewellyn H. Rockwell, Jr.
• Price Gouging Saves Lives by David M. Brown
• In Defense of Price Gouging by John R. Lott, Jr. and Sonya D. Jones
  
• Creating Economic Crimes by William L. Anderson

See Also: Price Controls (the “politically incorrect” way)

In a past entry to The Paleo Blog (please see Civilization versus The State), I spoke of how the free market is kind of like a grocery store. Go to your local grocery store to see the market in action. It is a pretty orderly place. Statists incessantly tell us that the market brings all sorts of various evils into the world. That the market place is chaotic, cold, and mean. That it causes all of the woes in the world. It is interesting that they say this because the State, the institution they lookup to as the solution to all of the problems of life, could not live without the market place. The State feeds on the market place. Without the market place, the State atrophies----it would shrivel up and die without a market.

All the free market is is social cooperation. It is based on voluntarism. This brings harmony and peace between peoples. Individuals exchange with one another for mutual benefit on the free market. Everyone profiteers off one another. It is the most moral and efficient system there is. The “invisible hand,” of Adam Smith, works very well.

Observe your local grocery store. As I said before, you do not see huge stockpiles of rotten food. (Thank goodness.) On average, the amount of food is just about right. You also do not observe huge shortages of food. This is not the former Soviet Union where people at large are starving. That is what socialism does.

Why, yes, most people at least recognize that a society where all factors of production are run by the State is a broken idea that would cause much misery. Yet sadly people embrace over and over again the same various fallacies of socialism.

Anyway, something I was thinking about, when I was at the grocery store a day ago, was the movements of people at the checkout section. The next time you are at your local grocery store observe and reflect upon the actions and movements of people. There is no “central planner” or dictator around to “direct traffic.” There is “anarchy.” What happens to the movement of people and the formation of lines when a new checkout line opens? Obviously those at the end of other checkout lines move over to the new one. What happens to the movement of people when one checkout line is moving relatively fast and the line becomes shorter than the others around it? Clearly the same response happens as the last. This kind of basic principle plays out in how the market at large works. It is not chaotic, but, ceteris paribus and mutatis mutandis, orderly and smooth.

This “anarchy,” furthermore, is displayed in much of our daily activities. The civilized man goes about his day obeying the golden rule. He goes about respecting the rights of others. He does not aggress against other men. His activity, as it relates to others, is based on social cooperation and voluntarism. In short, all of his actions are exactly the opposite of how the State behaves and acts. And his activities with other individuals are fairly orderly. He is part of the “invisible hand” of the market place. If men were completely akin to animals, then the current state of order could not exist! No State---no Government---could stop the chaos. Man is thus more than a mere animal. He needs rules, order, and law. There is no question about that. But it is the free market that brings unity in a way that no State can. Private property and markets bring law. Private courts and police, absent the State, would develop. The intermediate institutions, which are just as important as typical market transactions, would come into being too, helping to provide law and order.

But despite one’s experience at the grocery store, man still does not grasp the civilizing effect of the free market. Now I am not saying that I grasp it completely or anything of the sort. I’m the dumbest guy I know. But people are indeed mystified by the “invisible hand” of the free market.

Of course, any thinking of market place action is drained out of us through the governmentally run school system---private schools included. On a daily basis the entire establishment condemns capitalism and redefines it to put it into the most negative of light. We are obscurantist towards free market thinking. There are also other theories why the majority of people do not grasp capitalism. One is that man has not evolved out of the primitive and barbaric phase of mind that only saw cooperation as very closely-knit tribes. Scio-biologically we are hardwired towards socialism. But whatever the reason, with any luck man will evolve out of such a state of mind.