43 posts tagged “rothbard”
As others have said, the great Murray N. Rothbard, who this blog is joyfully dedicated to, even in death, generates more works than most living scholars of today could ever dream of. David Gordon, author of The Essential Rothbard, has said that if one did not know it, one might think there has to be multiple writers and scholars under the same name "Rothbard" for this kind of output.
The Ludwig von Mises Institute, a powerhouse in publishing Austro-Libertarian books* and of educating individuals in the philosophy of Liberty, has recently released Rothbard's Betrayal of the American Right. Amazing enough, it is something that the public has never seen (expect a few with special access). So it really contains something new. And it is not just an edited book which collects previously published essays. It seems, Rothbard tried to get this book published, but unfortunately no one would touch it. Thomas Woods, who writes the introduction to this book, says that this is as close to an autobiography that we will get, another reason we should all click away to buy the book. Well, now it is out for all of us to enjoy and learn from. And that I will do, I hope you all do so too.
LewRockwell.com Description Of The Book: Here.
Listen to Dr. Woods Talk About The Book: Here. [MP3]
Contents:
Introduction by Thomas E. Woods, Jr.
Preface to the 1991 Revision by Murray N. Rothbard
1. Two Rights, Old and New
2. Origins of the Old Right, I: Early Individualism
3. Origins of the Old Right, II: The Tory Anarchism of Mencken and Nock
4. The New Deal and the Emergence of the Old Right
5. Isolationism and the Foreign New Deal
6. World War II: The Nadir
7. The Postwar Renaissance I: Libertarianism
8. The Postwar Renaissance II: Politics and Foreign Policy
9. The Postwar Renaissance II: Libertarians and Foreign Policy
10. The Postwar Renaissance IV: Swansong of the Old Right
11. Decline of the Old Right
12. National Review and the Triumph of the New Right
13. The Early 1960s: From Right to Left
14. The Late 1960s: The New Left
Bibliography
Index
231p Hardcover
The late Murray Rothbard is always in a class of his own.
It is nice that this will focus on the Old Right, from a purely Rothbardian anarcho-capitalist perspective. Many books have come out on the American Right, that typically more focus on examining how (the supposedly clean) Republican conservatism turned into full-blown neo-conservative Bushism, in recent years. We have Patrick J. Buchanan's Where the Right Went Wrong, Conservatives Betrayed by Richard Viguierie, Invasion of the Party Snatchers by Victor Gold, Bruce Bartlett's Impostor, and probably others that I am not aware of.
Paul Gottfried’s brand new book Conservatism in America, which recently came out, would probably be a good book to read along with Rothbard's.
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*They really are a powerhouse. I do not know how they do it. But they also have recently released The Bastiat Collection (two volumes ~ 1,000 pages) and a massive biography of Ludwig von Mises, Mises: The Last Knight of Liberalism by Jorg Guido Hulsmann (~1,200 pages).
Two other theories of justice are based on deterrence and rehabilitation, but the logic behind both of them falls short of being justifiable or ethical. The aged old retribution system of times past, on the other hand, is tried and true. It also applies a consistent standard to all men without being arbitrary and fuzzy. The other two fall apart, as we will examine with the help of Murray Rothbard and his book The Ethics of Liberty as a guide.
Proportionality, as we covered in a previous recent blog entry, is the theory that holds together. To recap... Two parties are subsets to all criminal activities. The criminal is one party and the victim is the second party. A victim is one who is attacked (or threatened to be attacked or any substitution thereof) by the criminal in a way that physically damages his person and/or property. These two parties is the requisite for there to be any crime at all. Once a crime is committed, and the given parties are determined to fit the roles that they do, it is the victim (or perhaps the victim's family) that deserves to be compensated as far as humanly possible. The criminal must compensate the victim and also lose his own rights in proportion to which he took away from his victim, at the victim's discretion. This theory of justice is inline with natural rights and also our intuition.
Deterrence is a theory of justice based not of natural rights, and natural rights' basis in a consistent theory applicable to all men and at all times, but on the arbitrary whims and instability of utilitarianism. This is a far cry from a theory. We must spell out the consequences to its uttermost to see if this theory is justifiable or not. Taken to its logical form, a crime in which men are less morally inhibited to commit would require a relatively greater punishment compared to one in which men are more morally inhibited to commit. Surely, the logic spelled out of deterrence is preposterous and thus must be rejected. Criminal activity that is generally less destructive to the person and/or property of another relative to that which is more destructive, the average man is less inhibited to commit.
Given the utilitarian nature of deterrence it would also, and since it lacks moral foundation, give a pass for the State to go after innocents, secretively to the public, for a public display of punishment for reasons of "deterrence" of XYZ crime. It would fit into the model of deterring crime, and it would help deter crime. Though, it is obviously goes against all standards of moral sense. Most everyone wants more than a theory of deterrence.
Murray Rothbard wrote: "The fact that nearly everyone would consider such schemes of punishments grotesque, despite their fulfillment of the deterrence criterion, shows that people are interested in something more important than deterrence."
Rehabilitation is also based on shaky grounds of arbitrary whims. Here again we have a theory that throws away more objective standards of proportionality and restitution for giving the powers that be full control over whether or not a given criminal is "rehabilitated," and by the necessarily subjective standards of what it means to be "rehabilitated." (Or the process and/or time it will take to make a given criminal "cured.") Following Rothbard's example, we can have a thought experiment of two criminals: One who seems incorrigible, but whose crimes are relatively petty (e.g., stealing candy), and another criminal who seems corrigible, but whose crimes are relatively much more severe (e.g., murder). Punishment ("rehabilitation") would have to be greater for the one deemed incorrigible. Like a theory of deterrence, the majority of people want something more than this. Very few consider this "justice served." In addition, rehabilitation gives arbitrary power, and hence potentially abusive power, to the judge in criminal matters. Equal treatment (and equal punishment) under the law would mean nothing.
Here is what Professor K.G. Armstrong says (as Rothbard quotes him):
The logical pattern of penalties will be for each criminal to be given reformatory treatment until he is sufficiently changed for the experts to certify him as reformed. On this theory, every sentence ought to be indeterminate – "to be determined at the Psychologist's pleasure," perhaps – for there is no longer any basis for the principle of a definite limit to punishment. "You stole a loaf of bread? Well, we'll have to reform you, even if it takes the rest of your life." From the moment he is guilty the criminal loses his rights as a human being…. This is not a form of humanitarianism I care for.
The idea that punishment is meant to exist for the cure of criminals is, in itself, a gross injustice to the victim. This theory of criminal justice warps punishment for the purpose of "curing." It links crime and mental disease and blends them together. Under this, justice becomes therapeutic in nature, and the crime gets lost. It gives reason for the class of psychotherapists to go after anyone deemed not "normal" before a crime has even been committed, because it places disease first and then crime. For the person not considered "normal" with XYZ personality (or whatnot) might as well be put in the "tender," or not to tender, hands of the psychotherapists. Any "disease" that the therapeutic class wishes to label as "disease" justifies it to control the masses. It denies freewill and applies unpractical and unworkable standards.
Neither deterrence and rehabilitation gives us a systematic, practical, or moral guide to what justice is all about. Statists ideas, moral and ethical relativism, and leftism in general have clouded our judgments. It has reached the most basic issue of what constituents a crime, how criminals should be dealt with, and the importance of attempting to correct the wrong done to victims.
See chapter 13 of The Ethics of Liberty by Murray Rothbard for more.
Where is the justice in today's current criminal system? There is none. The United States has the world's largest prison population, overflowing with individuals who engaged in no wrong against the person and/or property of any other individual. Where is the justice in that? It is these individuals who deserve justice! As the great Lysander Spooner said, "Vices Are Not Crimes!"
A genuine criminal is one who engages in activity that directly and physically harms, or threatens to harm, another's person and/or property. It is when man A violates the rights of man B. These rights all men have. It is the right to one's own person and justly acquired property via homesteading (i.e., taking and transforming into one's own a state of nature before anyone else) and voluntary exchange (which, of course, includes gifts). The violation of rights is when A engages in a criminal action of destruction against B's person and/or property (which includes contractual property title relationships). It is therefore that violence against the non-violent is and can only be called un-ethical. This is what makes something such as the "war on drugs" entirely illegitimate. Doing violence against a narcotics user is doing violence on par with doing violence against a non-narcotics user. Hence it is only justifiable to "go after" and engage in the action of restitution and retribution when the criminal is a genuine criminal. After all, the idea of restitution and retribution can only come into real and actual being when another's rights have been violated.
But even when dealing with cases of genuine criminal activity we cannot look to today's system for justice. The victim gets little to no justice in today's statist society with our socialist police and court system. Say that A steals a large amount of money from B. A uses it up. Later the governmentally-run court system finds that A is guilty. What then? Is A himself forced to give back, to be forced to work to pay back, the amount that he has stolen from B back to B, at the very least? No. But it is worse than that because now B, along with other individuals who have done no wrong, have to pay for all of the government bills that handle and detain A. B is thus done a double wrong. Everyone else is also done a wrong in this process. This is a far cry from genuine justice. As a hero of mine said, it is justice that the libertarian is chiefly concerned with.
In Murray Rothbard's essay "Why Be Libertarian?," he said this:
It is our view that a flourishing libertarian movement, a lifelong dedication to liberty, can only be grounded on a passion for justice. Here must be the mainspring of our drive, the armor that will sustain us in all the storms ahead, not the search for a quick buck, the playing of intellectual games or cool calculation of general economic gains. And, to have a passion for justice, one must have a theory of what justice and injustice are----in short, a set of ethical principles of justice and injustice which cannot be provided by utilitarian economics.
To continue:
The genuine Libertarian, then, is in all senses of the word, an “abolitionist”; he would, if he could, abolish instantaneously all invasion of liberty, whether it be, in the original coining of the term, slavery, of whether it be the manifold other instances of State oppression. He would, in the words of another libertarian in a similar connection, “blister my thumb pushing that button!” The libertarian must perforce be a “button-pusher” and an “abolitionist.” Powered by justice, he cannot be moved by amoral utilitarian pleas that justice not come about until the criminals are “compensated.”
In a libertarian society, then, justice would be the very first thing on one's mind. Who but the victim (besides, possibly, his family) deserves justice? Society cannot magically claim that "it" deserves or needs justice. In our above example, it is B that deserves justice. Not "society" or anyone else. In fact, operations on the actual handling of criminal aggressors use to mirror more closely libertarian principles, where the victim was the one who was brought justice and compensation.
Here is what Rothbard had to say in The Ethics of Liberty:
The idea of primacy for restitution to the victim has great precedent in law; indeed, it is an ancient principle of law which has been allowed to wither away as the State has aggrandized and monopolized the institutions of justice. In medieval Ireland, for example, a king was not the head of State but rather a crime-insurer; if someone committed a crime, the first thing that happened was that the king paid the “insurance” benefit to the victim, and then proceeded to force the criminal to pay the king in turn (restitution to the victim’s insurance company being completely derived from the idea of restitution to the victim). In many parts of colonial America, which were too poor to afford the dubious luxury of prisons, the thief was indentured out by the courts to his victim, there to be forced to work for his victim until his “debt” was paid. This does not necessarily mean that prisons would disappear in the libertarian society, but they would undoubtedly change drastically, since their major goal would be to force the criminals to provide restitution to their victims.
In fact, in the Middle Ages generally, restitution to the victim was the dominant concept of punishment; only as the State grew more powerful did the governmental authorities encroach ever more into the repayment process, increasingly confiscating a greater proportion of the criminal’s property for themselves, and leaving less and less to the unfortunate victim. Indeed, as the emphasis shifted from restitution to the victim, from compensation by the criminal to his victim, to punishment for alleged crimes committed “against the State,” the punishments exacted by the State became more and more severe.
In a libertarian society, said Rothbard, "the criminal, or invader, loses his own right to the extent that he has deprived another man of his." The victim thus is not only entitled to get back the loot that was stolen, but the offender also loses the same proportion of rights that he took away from his victim by his act of aggression. So as Walter Block says, "two teeth for a tooth" is the going order. However, "the proportional principles," wrote Rothbard "is a maximum, rather than a mandatory." It is obviously up to the victim if he wishes to pursue his rights to the "maximum." The victim is also entitled to any other losses that resulted from being assaulted. For example, he may have lost a full day's pay of work. Thus, in a libertarian society, it is the criminal that is to be charged the bill of police and court services; not the victim (or anyone else----doing so would create more victims).
Reference: The Ethics of Liberty
by Murray Rothbard, see chapter 13 in particular.
Murray Rothbard:
“But why? What is the magic elixir possessed by the federal government that neither private firms nor states can muster? The defenders of the private insurance agencies noted that they were technically in better financial shape than FSLIC or FDIC, since they had greater reserves per deposit dollar insured. How is it that private firms, so far superior to government in all other operations, should be so defective in this one area? Is there something unique about money that requires federal control?
“The answer to this puzzle lies in . . . ”
Read Article Here.
Watch Money, Banking, and the Federal Reserve.
See Also: Bob Murphy on understanding the crisis.
Libertarians are many times confronted by people with the question: "But who would build the roads?!"
Since us libertarians firmly believe that each and every person owns his own physical body and justly acquired physical property (which can be legitimately obtained either by homesteading or voluntary exchange), we do not believe that anyone has the right to coerce others. It is simply a view that the only just relationships between persons are voluntary relationships. We libertarians reject all (involuntary) relationships based on violence: Robbery is robbery-----even if it is under the name of "taxation." Slavery is slavery-----even if it is under the name of "conscription." Two wrongs do not make a right. Government does not and cannot make a wrong, right; neither does the sacrosanct democratic doctrine of mob rule. Furthermore, we do not believe in a grand ruler or a central plan. Freedom has no central plan. Free markets have no central director. (Roads should not either.) But the free market is not not only the most ethical system with equity. It is also the most efficient system. Capitalism, private property, free markets bring efficiency and are the very means that sustain life. Only production (free market activity) brings wealth. Draining from that will only diminish wealth or destroy future production.
Now every Friday, unless Pat Buchanan is not there, I watch The McLaughlin Group on television. What this show very badly needs is a consistent defender of liberty, like Lew Rockwell. (I will not hold my breath.) This was demonstrated on a couple of shows ago (8/3).
One of the central topics was the state of the nation's infrastructure. The tragic collapse of the bridge in Minneapolis spurred this topic up. Accordingly Mr. McLaughlin gave a report on the awful state of "Roads, bridges, levees, power grids, water systems," and so on. My reaction was: Does anyone see a pattern here?
An observant viewer would notice with his report that each and every infrastructure in which McLaughlin spoke of is basically run under the same management. That is, government. It controls and manages them all. Is it just a coincidence? I think not...
(See: "The Wrong Lessons of the Bridge Collapse" by Brad Edmonds.)
Statists claim that private roads (and other such "public property" or "public goods") could not be built (or run) due to such things as the so-called "free-rider" problem, but this overlooks the fact that the majority of roads and canals were private in the nineteenth century. As Thomas J. DiLorenzo writes in his superb book How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present in chapter five, even in 1800 there were a total of 69 different turnpike (privately funded road) companies. This belies so-called "free-rider" problems.
If there is a demand, they will be built. Plus, roads are great investments. Imagine a new developing area and say a Wal-Mart goes up. Surely Wal-Mart wants easy access for potential customers to flock to their store. The same goes for any other store. Easy access makes good business. (If they had to build it, they would do it. In a free market we might see "Wal-Mart roads." ... Take that Wal-Mart haters.) Roads also increase property value. Residents and business folk alike have an interest in good roads. Because in a free market people would be tied directly into the position of wanting to maintain high property values, they will have an incentive to keep the roads well-maintained and attractive. It is something they could affect. This is because they would be in a privately owned state that has to meet the demands of the free market. Currently it is impossible for this to happen. Right now it is almost as if the public roads were "un-owned" or in a semi-state of "anarchy." Maintenance to keep them running well and looking attractive is largely arbitrary when they are run by the government. There exists no effective means to allocate scarce resources under the current environment because, by definition, there are no prices and hence no economic calculation. For prices and economic calculation to exist, the prerequisite is private property. This is what makes socialism fatal: be it road socialism or socialism in medical services or anywhere else.
Just as important, private roads are not subject to politics. Instead they are subject to market demands and conditions of the "real" world of scarcity. Private investors will be more fiscally conservative and wise because (1) the funds are not coercively collected; (2) they can lose money or go bankrupt unlike government; and (3) there is open entry into the field of producing, buying, and/or selling private roads. With every penny they spend they will want to make sure it is used wisely and will do their best not to incur extra costs. Compare this to when government hires out a company to work for them (or if they "do it themselves"). Mercantilism will develop and entrepreneurship will be political and not market based. The company will be nowhere near as constrained with money. They will have an incentive to get as much money as possible for the least amount of work. Quality will suffer as a result. They will overextend and eat up capital. Calculation problems will arise.
Here is what Dr. DiLorenzo has to say in his book:
In private, competitive markets, investment in businesses is directed by the wishes of consumers. With government-funded projects, however, the whims of politicians tend to replace the desires of consumers, and the result is always economic inefficiency and political corruption. The early-nineteenth-century America transportation entrepreneurs proved that the “market failure” rationale for government transportation subsidies (that is, the free-rider problem) was essentially a myth. In contrast, the real failures in early American transportation came from government-funded projects that were spectacularly wasteful.
One direct example DiLorenzo uses (in chapter seven) is with the railroads----which applies just as well to a comparison between private versus public roads. More specifically, he takes a look at James J. Hill. This man was a free market entrepreneur, and thus not a political (anti-market) entrepreneur. He built his transcontinental railroads, the Great Northern Railroad, with privately funded money and never trampled on anyone's private property rights. Compared to other railroads, which were subsidized by government, his is the only one that never went bankrupt.
DiLorenzo:
The Pacific Railroad Act of 1862 created the Union Pacific (UP) and the Central Pacific (CP) railroads . . . For each mile of track build Congress gave these companies a section of land----most of which would be sold----as well as a sizable loan: $16,000 per mile for track build on flat prairie land; $32,000 for hilly terrain; and $48,000 in the mountains. As was the case with Jay Cooke’s Northern Pacific, these railroads tried to build as quickly and as cheaply as possible in order to take advantage of the governmental largesse. Where James J. Hill would be obsessed with finding the shortest route for his railroad, these government-subsidized companies, knowing they were paid by the mile, “sometimes built winding, circuitous roads to collect for more mileage,” as Burton Folsom recounts. . . .
. . . The wasteful costs of construction were astonishing. The subsidized railroads routinely used more gunpowder blasting their way through mountains and forests on a single day than was used during the entire Battle of Gettysburg.
Back to the roads...
Given that we do not live in a free market, but rather a statist market, lobbying groups, as the late Murray Rothbard wrote in his For a New Liberty: The Libertarian Manifesto, used the government (while they were using them to benefit in the process too) to overproduce highways. This cut into the railroads and over-stimulated truckers. Also, as Rothbard wrote this at the time, "urban expressways have been built at a cost of from 6 cents to 27 cents per vehicle-mile, while users pay in gasoline and other auto taxes only about 1 cent..." Hence, "[t]he general taxpayer rather than motorists" pay the bills. And, hence, we see yet another incentive distortion. And here "the users of the low-cost rural highways are being taxed in order to subsidize the user of the far higher-cost urban expressways."
Beyond these distortions and mis-configurations, government has created a mess in running them with traffic congestion. In effect, the state has put into place a price control. Cooling down traffic congestion needs the rationality of the pricing system in the free market. In a free market highways would develop "peak load pricing." Rush-hours would charge higher tolls than off-hours. Prices and traffic would move towards an equilibrium.
Here is what "Mr. Libertarian" has to say:
But people have to go to work, the reader will ask? Surely, but they don't have to go in their own cars. Some commuters will give up altogether and move back to the city; others will go in car pools; still others will ride in express busses or trains. In this way, use of the roads at peak hours would be restricted to those most willing to pay the market-clearing price for their use. Others, too, will endeavor to shift their times of work so as to come in and leave at staggered hours. Weekenders would also drive less or stagger their hours. Finally, the higher profits to be earned from, say, bridges and tunnels, will lead private firms to build more of them. Road building will be governed not by the clamor of pressure groups and users for subsidies, but by the efficient demand and cost calculations of the marketplace.
Continued:
While many people can envision the working of private highways, hey boggle at the thought of private urban streets. How would they be priced? Would there be toll gates at every block? Obviously not, for such a system would be clearly uneconomic, prohibitively costly to the owner and driver alike. In the first place, the street owners will price parking far more rationally than at present. They will price parking on congested downtown streets very heavily, in response to the enormous demand. And contrary to common practice nowadays, they will charge proportionately far more rather then less for longer, all-day parking. In short, the street owners will try to induce rapid turnover in the congested areas. All right for parking; again, this is readily understandable. But what about driving on congested urban streets? How could this be priced? There are numerous possible ways. In the first place the downtown street owners might require anyone driving on their streets to buy a license, which could be displayed on the car as licenses and stickers are now. But, furthermore, they might require anyone driving at peak hours to buy and display an extra, very costly license. There are other ways. . . . .
An objection someone might have is that the various owners of these roads would decide on chaotic rules for their customers. In retrospect, that should occur to anyone as silly. They would be in the business of pleasing their customers. Many of the things we are accustomed to are very uniform and un-chaotic. They are not this way by the government, but out of the market. We buy CD, MP3, DVD players and they have the same basic template (same pictures) in regards to which button refers to play, pause, stop, etc. And look at computer software and hardware. It is not chaotic.
The railroads, in this case, without a central government plan or directive, came together to design uniform rules and made sure that their tracks inter-connected. As Rothbard wrote, 6,000 regional freight classifications were worked out without government. The timezones, too, were hammered out:
In order to have accurate scheduling and timetables, the railroads had to consolidate; and in 1883 they agreed to consolidate the existing 54 time zones across the country into the four which we have today. The New York financial paper, the Commercial and Financial Chronicle, exclaimed that "the laws of trade and the instinct for self-preservation effect reforms and improvements that all the legislative bodies combined could not accomplish."
This objection also leaves aside how the very first private roads worked. They were not chaotic or inefficient. Actually, they had a very complex and wonderfully elaborate system.
I take it that the great and wonderful Dr. Walter Block is the privatize road guru. If you have the time, I highly recommend you listen to THIS [MP3] lecture on privatizing the roads. (At least, listen to some of the beginning.)
One of the things that Dr. Block covers is how the first roads----private roads----worked very well. Walkers were charged the least amount of money to travel through them. By horse was a little more. Wagon a little more. In fact, there was a variety of ways the businessmen charged the wagon users: They would charge by the number of axels---how much stuff was in the given wagon---heaviness---and even the width of the wheel because they determined that a narrow one, while it would move faster, caused more damage to the road compared to a wider one, etc.
Another thing Block talks about is how 40,000 people die on the government roads per year! Needless to say, that does not make good business. Road entrepreneurs would compete over the fact that less people die on their road than on their competitors. A competitive environment would tend to thus lead to lower number of deaths per years. As Block reasons, this staggering number is just the result one should except under road socialism.
From this discussion we all have to remember that there is a fundamental difference between public property and private property. Government-run property (i.e. public property) does not have to respond to the demands of the market place. The above market signals do not apply to government property. Market efficiency will always be outside of government's reach. Any well-run public property will not be rewarded through profits. Thus there is no incentive or reason for the government workers to run them well. In addition, everyone is forced coercively into paying for all public property. This includes public property that one may not even use or desire. Furthermore, when a management-caused accident or disaster happens, government is once again not subject to the normal market forces of the profit-and-loss system. It cannot lose money or go out of business. When someone under this kind of circumstance gets injured (or worse) on public property (and not of their own doing but because of bad infrastructure of property itself), they (or their families) will not be compensated, demonstrating once again the inferiority of public property versus private.
Contrast all of this with private property. When I enter a local shop it is generally well taken care of. There is no talk about "infrastructure problems." There is a direct incentive to take care of it. It is voluntary. It responds to the profit-and-loss system; hence, the likelihood of an accident occurring is less. Private property is more secure. Where would you rather be? At Wal-Mart or Central Park at night? Or at Disneyland or Central Park? I think we all know the answer to those questions, if we are honest.
So Just Say No To Commie Roads!
"Most people, writes Murray Rothbard, including most political theorists, believe that once one concedes the importance, or even the vital necessity, of some particular activity of the State — such as the provision of a legal code — that one has ipso facto conceded the necessity of the State itself. The State indeed performs many important and necessary functions: from provision of law to the supply of police and fire fighters, to building and maintaining the streets, to delivery of the mail. But this in no way demonstrates that only the State can perform such functions, or, indeed, that it performs them even passably well."
Read Here. (And Listen Along.)
Debates between Democrats and Republicans in the mainstream media are subterfuge. It is largely a distraction from the more fundamental issues. It divides men up and pins them against one another into some kind of binary, partisan debate of "Republican good" and "Democrat bad" or vice versa.
And it feeds on emotions. Perhaps it is just a sad fact of human nature to become emotionally attached in a partisan way to "one's team," so to speak. Watching political debates is often like watching a debate between two sports fans of opposing teams.
Emotions are so strong, also, because man has invested so much of his energy into the political world. With a democratic and super-centralized government micromanaging society in a multitudinous of ways, men invest less and less of their energies in voluntary civil society and more and more of their energies into political plunder. Surely, the upshot of this is a degeneration of men as they put more effort to develop their political personalities.
Against such pusillanimous and daft men is to be a "radical." To be radical, in its etymological sense, is to strike at the root; it is to boil things down to their essence. To be radical is to see things for what they really are; it is to ignore the thought police and the current taboos. The only thing that politics today promotes is the status quo and the ignoring of giant problems, such as the current monetary system. Such problems become so big that men become blind to them. It requires a man to step back, see the big picture, and to analyze. Apparently, the traits to do this most men don't have, as they are conditioned by public education and their boob tube. The masses don't think; they follow current trends and current elites.
So, as a replacement for getting caught up in the trivialities of the daily political circus, we will be looking at more fundamental issues in a radical way. However, because of the fragility of today's faulty monetary system, this subject will become increasingly important in open debate in the coming years. This concise overview of some of the issues concerning money and politics is written for those who can rise above the common man. It is only those who can lead that shape future direction. If future conditions go the way they have been going, then we can expect much financial trouble ahead. It is those who are prepared for such conditions and who understand what brought about those conditions that can lead society in the correct direction.
This essay is appropriately enough dedicated to the Remnant.
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Money and Politics
I.
The most important thing to understand, as M. Rothbard would say, is that money is just a commodity. In this sense it is no different than any other commodity on the free market. It exists with a certain finite supply and there exists a definite public demand for it. The difference is that this particular commodity is most often used as a general medium of exchange. Men use it so as to participate with others in trade and division of labor. It is not independent of the market (or have a "neutral" affect on the market), but is derived from it as a solution to overcome the many problems and limitations of a barter (non-money) system.
Why is barter filled with problems and limitations? Imagine Bob has good "x" and Mike has good "y." Bob wants "y" but Mike does not want "x." In this case Bob is stuck. No direct exchange can take place. This is why indirect exchange develops. Bob starts to think about how he could get "y." He could run all over town to see if someone has "y" and wants "x." He could also ask Mike what he desires and would be willing to trade "y" for. Say Mike answers "z." Bob could then, using this indirect method, look for someone who has "z," buy it from him, and then sell it to Mike for "y." Bob would then value "z" only insofar as it facilitated a trade with Mike. But in any case a double coincidence of wants still needs to occur. That is to say, for Bob to accomplish his objective, it will only happen if and only if he finds someone who is willing to trade for "x." This is a very disorganized and inefficient system, as we can see. Another problem that can often develop is a problem of indivisibility. Say that "x" is an object that cannot be divided. Bob this time wants "b," "c," and "d." Say that he finds three people that offer these things separately. Again, Bob is in trouble.
In a barter economy it is almost instantaneous, as we can reason based on the analysis of the above paragraph, that men will be trading via indirect methods. This is what sets into motion the adoption of money, i.e., a generally used medium of exchange. For wanting to engage in many trades, entrepreneurial men look for goods that are highly marketable. These are goods that are greatly desired in the community. These goods have a high demand as a consumer good. But these entrepreneurial men value the acquisition of these goods as just a facilitator of trade. This adds a new "layer" of demand for these goods. In turn, this increases their marketability even more. An accretion of men will thus shift to this commodity as a medium of exchange. In turn, the marketability will go up even more. This process is what brings to life moneys that are used as general and universal mediums of exchange. The problems of barter disappear. Practically all trades start to take place with money. And owing to this development of money: more interactions between men can and will take place; all men will have a common "store of value;" and all men will have the ability to calculate monetarily their finances.
The incipient purchasing power of money relies upon the purchasing power yesterday (y) and the purchasing power yesterday relies upon the purchasing power yesterday minus one day (y-1) and so on. Money originates on the free market as a commodity with a pre-money barter demand and "price." So, not only has no money ever developed as fiat paper in any of recorded human history, but it is a priori impossible. A nascent money, shown with a regression proof, must have had a high non-monetary value on which to base its purchasing power.
Rothbard writes:
Economic analysis is not concerned about which commodities are chosen as media of exchange. That is subject matter for economic history. The economic analysis of indirect exchange holds true regardless of the type of commodity used as a medium in any particular community. Historically, many different commodities have been in common use as media. The people in each community tended to choose the most marketable commodity available: tobacco in colonial Virginia, sugar in the West Indies, salt in Abyssinia, cattle in ancient Greece, nails in Scotland, copper in ancient Egypt, and many others, including beads, tea, cowrie shells, and fishhooks. Through the centuries, gold and silver (specie) have gradually evolved as the commodities most widely used as media of exchange. Among the factors in their high marketability have been their great demand as ornaments, their scarcity in relation to other commodities, their ready divisibility, and their great durability. [Man, Economy, and State: A Treatise on Economic Principles, p. 164, emphasis has been removed.]
Clearly, then, a free market production of money is natural because that is where money originates. This selection process of money is also by nature competitive. Commodities which better serve as money will out compete and replace commodities that do not. It moreover gives men financial security since they have the freedom to pick and reject moneys they want and do not want. The competition in money production will thus produce the best moneys that men desire. Under a monopolistically managed money, though, this market mechanism is absent. Monopoly money, backed by legal tender laws, that is being debased and abused, for instance, cannot be replaced by a competitor's production of better money. Cheating, coin-clipping, and counterfeiting can only be much more intense than it otherwise would be under such monopolistic conditions.
Now we have a simple and straightforward reason governments have always tried to take control of the monetary system: They want to obtain more revenue. Cheating, coin-clipping, counterfeiting, and the like serve this purpose. What better way then to take control of the supply and management of the "lifeblood" of the economy, i.e. money? And in contrast to all forms of direct taxation, the bonus of appropriating revenue via monetary means is that it is indirect and unseen.
II.
It is now appropriate to go into a bit more extensively the economics of money production.
As already touched upon, money is basically like any other good that is being produced right now. It is a "hard" and "real" thing that needs to be produced. It is a commodity and hence has a "price." This price is shown daily in a man's financial transactions at the store. The man buys some bread and the store buys some money. The price of money is accordingly seen in the countless arrays of exchange ratios. Money's supply is the quantity of money in existence. And the demand for money is how much or little men are willing to give it up in exchange for other things or how willing or unwilling men are to forgo this action to save instead.
To repeat one more time: the difference between money and a "normal" good is that it is primarily used as a medium of exchange. Thus, this difference implies that once money is established in society, an increase or even a decrease in the supply does not give any social benefit or social loss per se. Therefore the production of money will be limited and slow. The supply will be more constant and steady than all other goods.
On the free market, money producers will produce money to the degree that it turns in a profit. Meaning in this case, it will be produced to the extent that men demand more money and less consumer goods that could have been produced with the same factors of production.
Private coinage will be the primary business of these producers. They are more costly to produce than bullion but they are also more valuable to consumers because they economize. Weighing and melting down to figure out quality becomes less needed with trusted private coins. In the past there have also been private insured coins. Naturally, these coins are more valuable than uninsured coins.
It is important to keep in mind that in a free market man is free to choose his money. Therefore, if a given money becomes unusable because, for example, it is later found to exist in an almost unlimited supply, man is able to shift to another money. Furthermore, even though the scarcity of a supply of money above a certain threshold in no way limits the facilitation of trade because money is only a medium of exchange relative to the things it is bought with, for purely practical reasons a given money supply might stop being used for the reason that the purchasing power has become far too high. It would then become unpractical to carry around and use microscopic coins. Man might use property title substitutes for this money, but he might also switch to another money altogether. Incidentally, as economist J. G. Hülsmann has explained, this is why if we today had a free market in money silver, versus gold, might be the primary money in use.
Man lives in a world of scarcity. His time is limited, he has only one body that has a temporarily finite existence, and most of the things he desires have a finite supply. Not everything that a man wants can be gotten. He must therefore make choices in what objectives he seeks to obtain, and these choices imply the cost of curtailing other possible objectives that he could have alternatively aimed at. Man thus aims at objectives which he (subjectively) perceives as more valuable than other possible objectives. So, obtaining an additional homogeneous unit of a good (g+1), all other things being equal, will be put to use only to ends less valuable than what the previous unit (g) was. Harmoniously, an increase in the supply of a man's money will make it less valuable than otherwise. And it will be less valuable vis-à-vis other goods than otherwise. Hence, all other things being equal, the purchasing power will go down and the buying and selling prices of goods will go up.
A redistribution of wealth will occur as the supply of money increases. Those with higher cash balances will spend their new money. They (men A) will be able to buy more than they otherwise could. And those who receive this new money (men B), from the first users, will also have higher cash balances. They, as the second users, too, will be able to buy more than they otherwise could from other market participants (men C). As a consequence early receivers will benefit and late receivers will lose. Step-by-step prices will be bid up until the economy as a whole has been adjusted to the larger supply of money.
The Catholic Spanish Scholastic Luis de Molina---a member of the founders of economic science---explained in the 1550s as follows: "Just as an abundance of goods causes prices to fall (the quantity of money and number of merchants being equal), so does an abundance of money cause them to rise (the quantity of goods and number of merchants being equal)."
Just as the supply is important, the demand is important, he also said:
Wherever the demand for money is greatest, whether for buying or carrying goods, ... or for any other reason, there its value will be highest. It is these things, too, that cause the value of money to vary in the course of time in one and the same place. [Quotes from Faith and Liberty: The Economic Thought of the Late Scholastics by A. A. Chafuen, pp. 64-5.]
All human action implies changes in society's distribution of wealth. E.g., the increase in the supply of television sets or the decrease in the demand for fax machines implies a change in wealth distribution. These changes are hardly bad per se. And, from a practical point of view, it would be impossible to regulate society in such a way that no one lost value in their respective properties. Ex ante, we do not know if our actions will negatively affect the (subjective) value of someone else's property. This cannot possibly be controlled from an ex ante point of view. For these kinds of reasons private ownership can not be said to include the ownership of "value." Instead, ownership can only be ownership in the physical-objective integrity of "real" and "tangible" things. In this case, we do know (or can know) ex ante if our actions trespass or do not trespass against the physical-objective integrity of someone else's property.
Hence, the shifting of wealth through the private production of money is not per se bad or wrong. A shifting of wealth in money production, however, is bad and wrong if it is done through violations of private property rights. This, for example, is implied when one is forced to stick to a certain money because of legal tender laws. Man cannot protect himself and move from one money to a better money in such a case. In addition, even if one is to reject the vital and unambiguous distinction between ethical and unethical money production, from the point of view of someone that wants to minimize such shifts of wealth one must conclude that the private production of money would be vastly superior to government production. Monopoly money, which can be turned into pure fiat paper money, can be more easily debased and expanded in supply than competitive money, which can only last in competition because it is scarce and costly to produce. Paper money can drop down to a value of zero whereas a commodity cannot. (Which, then, is a safer and better money? The answer is obvious.) Besides, being a monopolist in paper money production gives one incentive to be more and more inflationary (i.e., expansionary) through time. Just imagine being a money monopolist, where money grows on trees! Only the possibility of hyperinflation curtails those in this position.
We can also conclude that under a free market "the norm" would be prices falling through time versus rising through time. A robust economy would be producing lots of goods. Market money would only be expanding slowly and predictably. As a result, the purchasing power of money would increase as it is being used for a larger amount of goods. Although today we see just the opposite, this is the result of a monetary system that is socialistic and fascistic. We would not see it in a freer and more moral society. Though, this no doubt begs questions concerning deflation and hoarding.
Defining deflation as simply the overall fall in price levels is something that much of history has seen during periods of tremendous growth and prosperity. Empirically speaking, then, we can refute the notion that deflation is necessarily "bad." Even today we can see industry-specific "deflation," e.g., in computers. These industries refute the notion that deflation leads to the stoppage of consumer purchases or the stoppage of wealth production. Men often buy an expensive computer despite the fact that they know that in a year that same computer will be less expensive. This can easily be explained. Man, all things considered, prefers present goods over future goods. In his actions, he acts through time towards the fulfillment of his objectives. Man works to get closer and closer to enjoying his goals. His actions show that he would rather get to his goal sooner rather than later. While the intensity of one man's preference for present goods over future goods differs with another man's (and differs with respect to himself at different points in time), all men have this preference----that is, time preference----given man's finite temporal existence.
Money not spent on consumer goods is saved and invested or hoarded. It is generally more profitable to save and directly invest than to hoard, even in a deflationary depression. Since we save for something in the future, this activity is in no way a net loss to the economy. On the contrary, more production and wealth will be present in the future than there otherwise would be. There will be more transactions between savers and entrepreneurs, a decreased interest rate with a larger supply of savings, and more investment. Only a readjustment in the "structure" of the economy would be required to adapt to the increased savings. In place of a market economy that relatively panders to the selling of present consumer goods (e.g., the electronic store), the market economy will relatively pander to the production of areas (e.g., research and development) remote from such selling and remote from stages of production close to such selling. The future result will be an even larger amount of consumer goods than otherwise. This is why such processes are undertaken. Capital accumulation, after all, is the road to prosperity. This will be explored more in Section IV.
Hoarding is a "withdraw" of money from market interactions. In and of itself it has no net macro consequences because, recall, economically speaking any amount of money is equally servable. A decrease in the amount of money being "used" results in an increasing purchasing power. Plus keep in mind as well that money is always "sitting" in one's cash balance. It just moves from one man's cash balance to another man's. In doing its "sitting" it's doing its job, so to speak. Additionally speaking, man is not a hermit. And a man who becomes one does not "rob" society.
It is true that deflation has often followed depressions. But this deflation is the result of shrinkage in the money supply which is partly or fully based on paper money and fractional reserve banking. When a man takes out his money from the bank he also takes out the money that the banks pyramid off of that via fractional reserve banking. For example, banks might have a reserve ratio of ten percent. The man that takes out $100 to hoard in actual practice gets "rid of" a total of $1,000 (which is equal to his $100 plus the $900 created via fractional reserve banking) from the economy. This is because when this man deposits the $100, the central bank will be sent $10 as reserves, and the $90 it will lend. The borrower with this $90 spends it and this hence goes into another bank which then puts $9 into reserves and lends out $81. Etc. When thinking about it in terms of money as gold it is straightforward: more property titles exist than actual property with fractional reserve banking. This is fraud. Secondarily, another reason for deflation is the increased financial uncertainty. It is uncertainty, specifically, that explains why man holds any cash at all. It is the uncertainty of knowing if one, for example, is able to trade with another due to a double coincidence of wants. In an economy where everyone knew exactly what everyone wanted and so forth, then everyone could engage with each other without money. (At the very least there would be no reason to hold additional cash in one's balance.) The real world is not like this. When times of uncertainty increase, men want more protection and this protection logically wants the most salable good available; that is, money. As H. H. Hoppe explains: "Because money can be employed for the instant satisfaction of the widest range of possible needs, it provides its owner with the best humanly possible protection against uncertainty." ["'The Yield from Money Held' Reconsidered."] Accordingly, the demand for money cash holdings increase, the purchasing power goes up, and overall prices fall ("deflation"). Increased certainty results and men are better off.
The only group that needs to be fearful of deflation----as a shrinkage in the supply of money by the extirpation of fiat paper money----is the power establishment. As Hülsmann writes:
Political entrepreneurs are ... right to fear deflation. For deflation takes away the source of their illegitimate income and puts them finally back on equal footing with all other members of society, whose incomes are based on efforts and services provided in a competitive environment. ["Deflation: The Biggest Myths."]
III.
Monopolization of minting operations has often gone hand-in-hand with having the face of government officials imprinted on coins. Weight and quality start to decrease, as officials enrich themselves at the expense of the public at large. Legal tender laws are put into place to force all contracts to accept such debased money on par with un-debased money. Of course under free market conditions, in direct distinction, such activity would be considered fraud and even if it did occur (man being what he is----imperfect), it would be harshly limited to a complete stop because of competition. Competitive conditions would allow men to seek honest and high quality companies. Such a possibility is, by definition, not possible under governmental management. Moreover, no legal tender laws would exist, by definition, to force men to accept such inferior money.
New coins introduced into the market via government that have a real weight of Z start to be labeled with a weight value = to Y, where Y is > Z. Y is the weight of the old coins which are labeled properly. Because of legal tender laws these old and new coins become legally equal to each other. Mathematically, so to say, we know that this is unmistakably impossible from the outset. Men will discriminate between coins. The old coins (which have a weight of Y = to their label) start to be hoarded and the new artificially overvalued coins in circulation (which have a real weight of Z which is < Y despite their label saying it is > Z and = to Y) start to become the only coins traded. In trading and contracting it only makes sense to trade with the inferior money. In a way, one can say that this makes robbery legal. One man's contract with another can be fulfilled using this new money. Matching this, bimetallism----in comparison to freely floating parallel standards----is a vivid illustration of this kind of interventionist policy. Here a fixed exchange ratio is set by law between two moneys, say, gold and silver. But, clearly, this form of price control will only sooner or later conflict with reality. Supplies and demands are not constant. How one exchanges into another will change.
"Gresham's Law"----[tells us] that an artificially overvalued money tends to drive an artificially undervalued money out of circulation----is an example of the general consequences of price control. Government places, in effect, a maximum price on one type of money in terms of the other. Maximum price causes a shortage----disappearance into hoards or exports----of the currency suffering the maximum price (artificially undervalued), and leads in circulation by the overpriced money. [What Has Government Done to Our Money? by M. Rorthbard, p. 72.]
Flip-flops will take place, too, in terms of what is being undervalued and overvalued. The market will become chaotic----all in the name of public officials saying that they are making moneys "stable" vis-à-vis each other! When one money is driven out of the market, another effect will be produced. This will be artificial deflation. As a massive readjustment process takes place to handle the price control's sudden effect of taking money off the market, business calculations will be massively thrown off. Many bankruptcies and readjustments will thus take place. Moreover, the incentive to use fractional reserve banking will increase so as to stabilize this process. Such bimetallism, therefore, has an indirect result of shifting man to use more and more notes that are not 100% covered by what it is meant to represent, viz., a "hard" commodity.
Juan de Mariana, another Late Spanish Scholastic, called these kinds of debasements and manipulations "systematic robbery" and "barbaric," and that they are a "plague in the republic." He said that it additionally produces "distrust" in commerce and the thus the reduction of interaction. He wrote:
I understand that any alternation of money is dangerous. It can never be good to debase currency or to fix its price higher than its natural valuation and common estimation. [Quotes from Faith and Liberty, pp. 66 & 68.]
As is always the case, one interventionism leads to another. Government comes in and all of these bad consequences and unintended consequences occur. Next the call for more government involvement is asked for. Then more bad consequences occur. Next more government is called for. ... Etc. From the point of view of the government and its allies, this is generally wonderful. Those who consider the welfare of the public at large as more important, though, see this as something else entirely. Government obtains its revenues parasitically from those who actually produce wealth and improve society. Production is logically prior to government. Hence, government can only be viewed as a parasite. All of its activities are based on this parasitism. Its interest in expanding its wealth is more or less like any other man's, but it can expand its wealth not by serving voluntary consumers (which proves it is actually serving them well versus competitive alternatives) but by expropriation and exploitation (which proves that it is obstructing consumers by destroying their "sovereignty" and by destroying competitive alternatives).
This interventionist road led to banks increased use of fractional reserving banking (FRB). This pestilence played the key role in the devolution of money. FRB is inheritably unstable because it opens up the possibility of a bank run. A bank will not be able to fulfill its contracts in such a case. And the bank run of one bank leads to a chain reaction that will generally cause the run of another bank and another. In some sense, then, all have a collective incentive to prevent such a thing. This gives an impetus to form a cartel-----a central bank. In actual practice, the formation of one requires the protection of government. Government, motivated by self-interest, agrees because this will increase its revenue and control over men. Inflation as a way to increase its income starts to have essentially no limitations. Printing up more money or, even better, adding more money electronically has a cost of almost zero.
Another advantage, from the point of view of government, of fiat paper money is its constant homogeneity in comparison to commodity coins because men cannot evaluate and discriminate between the newer and older money. An increase in fiat paper money therefore does not lead to artificial deflations, as has been covered above.
Now it is often complained that before the Federal Reserve System there was "wildcat banking." In several different periods of American history this is basically true and is what led to the formation of the Fed (and its short-lived predecessors). However, it was only the logical step resulting from previous interventions. Not only did the government legitimatize FRB, it tremendously encouraged its practice, and it often allowed banks to "suspend species payments" when a bank run occurred. As far as the last thing is concerned, this gave a given bank the ability to cancel its contractual obligations, at least for a period of time. This set a precedent and encouraged more and more reckless behavior on the part of banks. In fact, FRB combined with government protection creates moral hazard on a massive scale. It is only through the power of government and its violations of the free market that allow FRB to reign.
One major factor to FRB has been war funding. The War of 1812, for example:
Most of the country's banks were located in New England, a section unsympathetic to America's entry into the war. These banks refused to lend for war purposes, and so the government borrowed from new banks in the other states. These bands issued new paper money to make the loans. These banks issued new paper money to make the loans. The inflation was so great that calls for redemption flooded into the new bands, especially from the conservative nonexpanding banks of New England, where the government spend most of its money on war goods. As a result, there was a mass "suspension" in 1814, lasting for over two years (well beyond the end of the war); during that time, banks sprouted up, issuing notes with no need to redeem in gold or silver. ... This suspension set a precedent for succeeding economic crises; 1819, 1837, 1857, and so forth. [What Has Government Done to Our Money?, pp. 78-9.]
To quickly skip ahead, 1913 saw the creation of the Federal Reserve System (Fed), with the help of major banks and businessmen (e.g., J.P. Morgan and John D. Rockefeller) seeking to enrich themselves at the expense of the public. Ultimately, it allowed all banks to expand their money supply more uniformly. It became the "bankers' bank" because all of the banks were forced to deal with it and only it. Banks could then only create deposits on top of these monopoly notes (based on the reserve ratio). The Fed additionally became the "lender of last resort."
Although this did not really solve the problems that previously existed. For instance, a bank run can still occur, in principle, on the Fed. It is only when the money in existence completely turned into pure paper money backed by nothing that this was absolutely prevented. Then the Fed can never go bankrupt. (This is exactly what happened in 1971 with the collapse of Bretton Woods. The U.S. central bank could not redeem its dollars to other central banks with gold. This was entirely predictable from the start because Bretton Woods allowed the Fed to get away with more inflation than it could before. And so it was later finally facing a run and thus cut its ties to gold.) On the other hand, it now has the ability to print up money with no technical or practical limitations that can result in hyperinflation and the complete break down of the economic system. Natural market checks on reckless behavior have only decreased more with this money devolution.
IV.
A Fed can bail out any bank or any business simply by printing money. Given the interconnection much of big business has with big government, such activities are to be expected. Big business by itself has no power. It becomes "big" by profiting voluntary consumers (who can boycott at any time).* Government has power (which no one can boycott without going to jail) and that is why big business comes to it seeking privileges. And government agrees because it can then expand its role in civil society.
More fundamentally, a large scale bankruptcy can have the result of bringing down the unstable, pyramid-based banking system. This is why the Fed has the incentive to bailout. But this is what creates moral hazard. Businessmen start to behave recklessly knowing that a bailout is likely if many of them fail consumers. The monetary system is ubiquitous; it should thus be expected that its negative consequences are economy-wide.
Furthermore, businessmen become more credit dependent and bank dependent, as the work of economists such as Hülsmann show. Credit will be cheaper and more abundant than otherwise, and hence this is the area competition will pressure businessmen to. Equity (real cash holdings) will thus decrease whereas liabilities (credit) will increase and make businessmen more fragile to any miscalculations on their part concerning future market conditions. Likewise, private men will become more debt orientated in their finances.
FRB and its centralized nature via the Fed will put the economy through violent swings of booms and busts as well.
We have already demolished, at least in rough form, the idea that saving is a "bad" thing for the economy. A society that moves from the position of saving little to saving much results in a change in the capital structure of the economy, as shown in Section II. The upshot of this shift will result in a society that will be more prosperous in the future than if this shift did not occur. We have also showed that money gets its primary value as a medium of exchange. So real wealth, as should be more than clear, is not created by growing money on trees, or printing it up. Producing desirable goods for consumers is wealth creation.
To further this process requires capital goods, which are used to create consumer goods. The growth thereof depends on technological innovation and the holding off of present gratification, to save and invest. Such production aims at a higher total of consumer goods in the future. Savings is what allows this to happen. It is a freeing up of resources to devote to such production instead of being used on present consumption. Man cannot logically consume X and invest X at the same time.
With a bank acting as an intermediary, men's savings can be transferred to entrepreneurs as a loan. It is the supply (savings) and the demand for such loans that determine interest rates. Consequently, the more savings, all other things being equal, the more to loan and thus the lower the interest rate is. Printing up money and creating "imaginary savings," to be sure, can lower the interest rate. But it is a lowering of the interest rate independent of true market conditions. It ignores the proportions men are saving versus consuming. Such artificial lowering of the interest rates through the banking system's centralized top-down nature will therefore push entrepreneurs to invest in long-term projects far removed from the consumer at the same time consumers are continuing their consumption versus savings activities. That is, men will be consuming, and, accordingly, a freeing up of resources (e.g., equipment and labor) will not be occurring to sustain these projects for the long-term. On top of this, men will actually be saving less than they would be because it will pay less to loan. An unsustainable boom has occurred which will go bust as soon as the new money flows through the economy reestablishing interest rates that reflect real market conditions. As a result, resources will become scarce for these investment projects and profitability will be destroyed. In addition, due to the location of the "boom," many investments and projects will even have to be completely abandoned. They will not be able to be moved to other areas of the economy because they are so capital-specific in their location.
Money calculation is essential when understanding this subject. Quoting D. Mahoney, money, as it allows for cardinal calculations so as to compare things based on a common medium, is a "'measure' of the amount of property available for production processes." ["Austrian Business Cycle Theory: A Brief Explanation."] Hence, an artificial lowering of the interest rate will bring the illusion of a larger pool of savings. There will be, in other words, a mismatch between time preference (as it is represented in the public at large) and investment. This in turn will distort entrepreneurs to start up more projects than can be temporally maintained. Now, keep in mind, to engage in capital production requires savings so that temporally lengthy roundabout methods of production can take place. So from the very outset, a greater amount of projects will be started than reality will allow; hence, a bust after the "boom."
L. v. Mises writes:
The whole entrepreneurial class is, as it were, in the position of a master-builder whose task it is to erect a building out of a limited supply of building materials. If this man overestimates the quantity of the available supply, he drafts a plan for the execution of which the means at his disposal are not sufficient. He oversizes the groundwork and the foundations and only discovers later in the progress of the construction that he lacks the material needed for the completion of the structure. It is obvious that our master-builder's fault was not overinvestment, but an inappropriate employment of the means at his disposal. [Human Action: A Treatise on Economics, p. 557.]
*[Put in another way: in a genuine free market, getting rich is dependent---versus independent, as under government---on getting others rich. The very rich man gets rich by making the masses rich. The market makes us think about how we can better serve our fellow man, since a man must use the goals of others as economic means to achieve his own goals. It is therefore untrue, as many dullards claim, that the free market promotes egotistical selfishness. The diminution of the division of labor would help to accomplish that. Increased statism, likewise, would do that. After all, under a voluntary system---where violence against the non-violent is viewed as unethical---you can always cancel your interaction with or membership to an organization. This is impossible under statism. States, for this reason, do not really have to directly serve their constituents well. They do not have any direct competition in the area they are monopolists. Nor are they directly dependent on changing and heterogeneous consumer demands, since they can easily expropriate property. No requisite exists, unlike free enterprise, for them to be cost-effective or to put maximum effort into improving the quality of their services. Hence a State enterprise often grows not because it is being cost efficient and is being ever better in its quality of services but despite it, as economist Hoppe has shown. Given that man is no angel, increased perversity should be expected as the outcome of increased government. Moreover, allocations of the State will always have to be arbitrary and wasteful with no profit - and - loss. 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 often happens. There is nothing that helps divert resources into productive uses, which can only be done on the market with the pricing system. No continuous mechanism would exist so as to rationally and non-arbitrarily filter out bad lines of production and promote good lines of production. The State that does X activity necessarily does it at the expense of other things. It is absolutely impossible to judge if alternative Y or Z or A or B, or a combination of them, is more or less wanted by the public----a public that is heterogeneous. And its simplistic top-down nature cannot manage a complex world in an effective manner.]
V.
In this essay we have shown: (1) how and why money enters into society; (2) the superiority of competition in money production; (3) the redistributionist effects of changes in the supply of money; (4) that there is no reason to fear deflation; (5) why savings is the road to prosperity, even in a depression; (6) the non-problem of hoarding; (7) Gresham's Law; (8) the tendency of monetary interventions to lead to further interventions and further instability; (9) how the current monetary system leads to debt and enervates the economy; and (10) the economy-wide distortions of credit expansion in the structure of production.
We conclude, therefore, that there is a vital need to eliminate the current monopolistic system to allow a competitive market order as its replacement.
***
Notes and References: This essay was completely rewritten in Oct 2009 as the result of e-mail conversations I have had. My attempted answers to certain questions resulted, at least in part, in this essay. Now the essay itself has been greatly influenced not only by the late Murray Newton Rothbard but also Jörg Guido Hülsmann, a German economist teaching in France. He has written some outstanding essays on the economics and ethics of money production. Here are some of his essays, which have heavily influenced this essay:
- "The Political Economy of Moral Hazard"
- "Optimal Monetary Policy"
- "Legal Tender Laws and Fractional-Reserve Banking"
- "Deflation: The Biggest Myths"
- "Deflation and Liberty"
- "Toward a General Theory of Error Cycles"
- "Nicholas Oresme and the First Monetary Treatise"
- "The Cultural and Spiritual Legacy of Fiat Inflation"
While my leanings are towards the “Don’t Vote” and “Abolish Elections for Public Office,” and I in particular like Frank Chodorov’s apologia on this position in his book Out of Step, I, however, think it is foolish to say you cannot have a preference or support “the lesser of two evils.” Only a fool would say he has no preference between, say, a Hitler and a Ron Paul.
(Here is what Lew Rockwell says on voting: "I don’t vote. Why play along? Your vote doesn’t count, unless the election is decided by one vote, and you have far more chance of being killed on the way to the polls than that happening. Besides, the vote is the sign and symbol of the democratic state. I abstain. . . . I would like to see elections for public office abolished, and that is particularly true for the presidency. The idea of the president was initially that some far-seeing, wise person would emerge from the aristocratic class who would sit atop the apparatus of the state and make sure that all things ran well. The founders were not stupid: they knew there was potential for abuse. So they made it possible to impeach the president if there was the slightest slip up. Unfortunately, this didn't work. It was like putting the chief inmates in charge of overseeing the conduct of the other inmates. The problem is that they all end up working together. . . . Of course I'm cheering on Ron Paul because he is exposing the nature of the whole system. He is not running for president. He is running against the presidency as it is currently understood. Ultimately, however, I do not believe that politics offers a way out. What we need is a new consciousness concerning the idea of human liberty.")
As for voting for Ron Paul, me personally that is, if I get the opportunity in the Republican primary, I think I will go for it. But as for general elections, I think I am done with that for good. I voted in 2004 and do not feel that it is worthwhile to engage in the democratic process, which I am fully against. So when 2008 comes along, no, I do not see myself voting. If, and that is a big if, Ron Paul was running in the general election under the Republican Party, then would I? Not certain. He is a once in a lifetime chance, so under that scenario....maybe. Yes, I admit, I am slightly conflicted on this subject. Democracy, in my view, has turned the government into a larger Leviathan. It is (partly) because the increased democratization of government. This is why I find it hard to see voting as the way freedom will come or a relatively freer nation, such as a return to the U.S. constitution, come about.
From my frame of reference, the goal or objective that Ron Paul is serving is the spreading of freedom-oriented ideas that are very receptive to libertarianism. Do a Google search of Ron Paul’s name and one of the top links will bring you right to LRC. New people are discovering the freedom message. How can this not be a welcomed thing? To hear the stories and to read them online of new people discovering Ron Paul and to see them think about libertarian ideas is a great thing to see!
***
OK, here is Dr. Block and him quoting Murray Rothbard. . .
"[Objection:] Libertarians shouldn’t be voting for ANYONE, Ron Paul included, since this goes against their principles
Stuff and nonsense.
If a slave master allows his property to vote between a harsh and a more humane overseer, we are to blame to slaves for choosing the latter? This is a perversion of libertarianism.
Murray N. Rothbard was interviewed on this matter by the New Banner in 1972. Yet, apart from the date, and the mention of the presidential candidates of that day, so fresh is his voice he could well have been talking about Dr. Ron Paul, his good friend and confidant.
NEW BANNER: "Some libertarians have recommended anti-voting activities during the 1972 election. Do you agree with this tactic?"
ROTHBARD: "I'm interested to talk about that. This is the classical anarchist position, there is no doubt about that. The classical anarchist position is that nobody should vote, because if you vote you are participating in a state apparatus. Or if you do vote you should write in your own name, I don't think that there is anything wrong with this tactic in the sense that if there really were a nationwide movement – if five million people, let's say, pledged not to vote. I think it would be very useful. On the other hand, I don't think voting is a real problem. I don't think it's immoral to vote, in contrast to the anti-voting people.
"Lysander Spooner, the patron saint of individualist anarchism, had a very effective attack on this idea. The thing is, if you really believe that by voting you are giving your sanction to the state, then you see you are really adopting the democratic theorist's position. You would be adopting the position of the democratic enemy, so to speak, who says that the state is really voluntary because the masses are supporting it by participating in elections. In other words, you're really the other side of the coin of supporting the policy of democracy – that the public is really behind it and that it is all voluntary. And so the anti-voting people are really saying the same thing.
"I don't think this is true, because as Spooner said, people are being placed in a coercive position. They are surrounded by a coercive system; they are surrounded by the state. The state, however, allows you a limited choice – there's no question about the fact that the choice is limited. Since you are in this coercive situation, there is no reason why you shouldn't try to make use of it if you think it will make a difference to your liberty or possessions. So by voting you can't say that this is a moral choice, a fully voluntary choice, on the part of the public. It's not a fully voluntary situation. It's a situation where you are surrounded by the whole state which you can't vote out of existence. For example, we can't vote the Presidency out of existence – unfortunately, it would be great if we could, but since we can't why not make use of the vote if there is a difference at all between the two people. And it is almost inevitable that there will be a difference, incidentally, because just praxeologically or in a natural law sense, every two persons or every two groups of people will be slightly different, at least. So in that case why not make use of it. I don't see that it's immoral to participate in the election provided that you go into it with your eyes open – provided that you don't think that either Nixon or Muskie is the greatest libertarian since Richard Cobden! – which many people, of course, talk themselves into before they go out and vote.
"The second part of my answer is that I don't think that voting is really the question. I really don't care about whether people vote or not. To me the important thing is, who do you support. Who do you hope will win the election? You can be a non-voter and say "I don't want to sanction the state" and not vote, but on election night who do you hope the rest of the voters, the rest of the suckers out there who are voting, who do you hope they'll elect. And it's important, because I think that there is a difference. The Presidency, unfortunately, is of extreme importance. It will be running or directing our lives greatly for four years. So, I see no reason why we shouldn't endorse, or support, or attack one candidate more than the other candidate. I really don't agree at all with the non-voting position in that sense, because the non-voter is not only saying we shouldn't vote: he is also saying that we shouldn't endorse anybody. Will Robert LeFevre, one of the spokesmen of the non-voting approach, will he deep in his heart on election night have any kind of preference at all as the votes come in. Will he cheer slightly or groan more as whoever wins? I don't see how anybody could fail to have a preference, because it will affect all of us."
Read the entire article here.
“We have talked at length of individual rights; but what, it may be asked, of the 'rights of society'? Don't they supersede the rights of the mere individual? The libertarian, however, is an individualist; he believes that one of the prime errors in social theory is to treat 'society' as if it were an actually existing entity. 'Society' is sometimes treated as a superior or quasi-divine figure with overriding 'rights' of its own; at other times as an existing evil which can be blamed for all the ills of the world. The individualist holds that only individuals exist, think, feel, choose, and act; and that 'society' is not a living entity but simply a label for a set of interacting individuals. Treating society as a thing that chooses and acts, then, serves to obscure the real forces at work. If, in a small community, ten people band together to rob and expropriate three others then this is clearly and evidently a case of a group of individuals acting in concert against another group. In this situation, if the ten people presumed to refer to themselves as 'society' acting in 'its' interest, the rationale would be laughed out of court; even the ten robbers would probably be too shamefaced to use this sort of argument. But let their size increase, and this kind of obfuscation becomes rife and succeeds in duping the public. . . .”
“The individualist view of 'society' has been summed up in the phrase: 'Society' is everyone but yourself. Put thus bluntly, this analysis can be used to consider those cases where 'society' is treated, not only as a superhero with superrights, but as a supervillain on whose shoulders massive blame is placed. Consider the typical view that not the individual criminal, but 'society,' is responsible for his crime. Take, for example, the case where Smith robs or murders Jones. The "old-fashioned" view is that Smith is responsible for his act. The modern liberal counters that 'society' is responsible. That sounds both sophisticated and humanitarian, until we apply the individualistic perspective. Then we see that what liberals are really saying is that everyone but Smith, including of course the victim Jones, is responsible for the crime. Put this baldly, almost everyone would recognize the absurdity of this position. But conjuring up the fictive entity 'society' obfuscates this process. As the sociologist Arnold W. Green puts it: 'It would follow, then, that if society is responsible for crime, and criminals are not responsible for crime, only those members of society who do not commit crime can be held responsible for crime. Nonsense this obvious can be circumvented only by conjuring up society as devil, as evil being apart from people and what they do.'”
-- Murray Rothbard, For a New Liberty.
