Mises Wire |
- The Usual Suspects Are Pushing War with Russia
- The Betrayal of the American Right
- Who Needs Personal Responsibility When We Can Just Trust Our Overlords?
- Why Fighting Inflation Is Not a Priority for the Fed
- A New Defense of the Single Tax
- Will Artificial Intelligence Create a Socialist Paradise?
- Germany's New Green Stimulus Plan Won't Save Their Economy
- Understanding the Rothbardian Critique of Free Banking
| The Usual Suspects Are Pushing War with Russia Posted: 28 Jan 2022 02:30 PM PST Here we go again. Since the original Gulf War in 1991, a certain pattern has emerged. Every few years, the regime in Washington attempts to whip the American people into a frenzy so as to support the latest American invasion "necessary" for regime change, "spreading democracy," or some other agenda item. It worked with Iraq in 1991, with Serbia in the late 1990s, and with Iraq again in 2003. It worked in Libya in 2011. They tried it again in 2013, but Americans showed so little interest in the floated Syria invasion that the move was eventually rejected by the White House. The American regime was forced to resort to small-scale under-the-radar mini-wars designed to keep the military spending going while avoiding any large-scale mobilizations. But they keep on trying. This time, with conflict ongoing between Russia and Ukraine, the enemy is Russia. The latter has increasingly been a bogeyman for American neoconservatives and paranoid anti-Trump neo-McCarthyites for a growing number of years. Yet war with Russia is hardly a crusade of righteousness, and it brings with it the risk of catastrophe. Calls for an American military "response" to the Ukraine-Russia conflict must be fully rejected. The Usual Suspects Push for WarAll the usual suspects are making all the usual claims. For example, Melinda Haring of the Atlantic Council insists that the US must now fight a new war to prevent future wars. After all, she claims, further unanswered action by Russia "could inspire China to take aggressive military action in the South China Sea or across the Taiwan Strait." It's basically a variation on the old domino theory. If you don't fight the bad guys in Country A, you'll end of fighting them in countries B,C, and D also. This is only one step removed, of course, from the Iraq-era and Vietnam-era slogan of "we have to fight them over there or we'll be fighting them in Kansas City!" (The US lost both of those wars, and we're still not fighting "them" in America's streets.) In addition, the Biden administration has promised to impose a "severe cost" if the Russians take "aggressive action." Biden even allegedly has been more alarmist on the matter than even the Ukrainians themselves, supposedly telling the Ukrainian head of state that Kyiv would be "sacked." The organs of so-called Conservatism, Inc., meanwhile have also been pushing for similar belligerence. The Washington Examiner has repeatedly pushed for more military intervention in Ukraine. In a Friday column, Examiner writer Jamie McIntyre wants the US to ship more weapons to Ukraine on the model of arming the Mujahideen in Afghanistan in the 1980s. Meanwhile, Examiner writer Tom Rogan has penned an article in The Wall Street Journal attacking the German government for being insufficiently bellicose toward Russia. Those who remember the Iraq War of 2003 will recall this old strategy of badmouthing any American ally who is unenthusiastic about starting new wars. Back then, it was France and Germany, who were denounced by Donald Rumsfeld in 2003—in a fit of sour grapes—as "old Europe." GOP politician Kenneth Timmerman then penned an extended anti-French diatribe in his book The French Betrayal of America in 2004. Today, having been proven right by the American debacle in Iraq, it's once again Paris and Berlin who are trying to defuse the potential for a wider war. In response, Rogan says Germany is "putting Russian interests before those of the West" and that Germany is "no longer a credible ally [us the US]." Germany's sin, it seems, has been to purchase natural gas from Russia, and to resist calls for facilitating weapons transfers to Ukraine. As is so often the case, the American hawks are trying to present the conflict as an easy case of evil Russians versus blameless Americans and their allies. This has long been the common tactic, since every new target of US foreign policy—whether Saddam Hussein or Slobodan Milosevic or Assad—is the next Hitler bent on world domination. The real situation, of course, isn't that simple. Pushing NATO EastwardPolitical factions in the nation have long fought over whether or not the regime would lean toward favoring "the West" or favoring rapprochement with Russia. The US regime, of course, has long been more than happy to intervene where it can to "encourage" the Ukrainian regime to move into the US's orbit. Politically, however, this move toward the US is not a slam dunk in Ukraine. Ethnic Russians likely compose 20 percent to 40 percent of the population of several eastern provinces, and this ethnic Russian minority has long feared anti-Russian legislation out of Kyiv. This has often limited just how much the regime in Kyiv can be seen favoring alignment with the West. After anti-Russian factions installed a new government in 2014, the fears of many ethnic Russians were confirmed: the Ukrainian parliament passed legislation outlawing the use of Russian as a second language. (The executive branch eventually vetoed the effort. But, many reasonably feared this wasn't the last bit of anti-Russian legislation.) This, in part, has led to de facto separatism in some areas of eastern Ukraine, and to the ongoing War in Donbas between pro-Russia separatists—supplied largely by Russia—and the Ukrainian state. The US, for its part, has never shied away from meddling in Ukrainian affairs to "encourage" a turn toward the West. One key tactic in this regard has been to repeatedly hold out the idea of NATO membership to Ukraine. This has long enticed the Ukrainian regime with the promise of military defense paid by American taxpayers. But this also alarms the Russians. After all, the gradual movement of NATO membership eastward has placed NATO, what has become a de facto anti-Russian organization, on Russia's doorstep. The Russians view potential Ukraine membership in NATO as a real threat to Russian sovereignty. Consider, for example, how the US would react if the Mexicans signed a mutual defense pact with China. Thus, the NATO game has made the Ukraine's orientation toward the West a high-stakes situation. This has been a long-simmering problem with Russia as NATO has expanded eastward over time. The Russians view this as particularly treacherous since they claim that US had promised in 1990 to not expand NATO even "one inch eastward." The US denies this promise ever occurred, but Joshua Shifrinson has shown this did, in fact, occur. He notes in The Los Angeles Times in 2014:
This latter point is as true today as it was in 2014. In recent talks, Russia has reiterated its demand that Ukraine not be eligible for NATO membership. Yet, even though NATO's raison d'etre ended with the collapse of the Soviet Union, the US continues to seek its expansion as a means of augmenting the US's ability to carry out a growing list of military interventions, such as the bombing of Libya in 2011, or the 1998-9 wars against Serbia. So, rather than embrace what could have helped defuse tense relations with a nuclear-armed power, the US stuck to continued antagonism in the form of NATO expansion. Things Could Spin Out of ControlTo make matters worse, the US continues to keep indirect military action on the table. Even if the US avoids direct confrontation, however, indirect measures could still lead to disaster. As Lyle Goldstein points out,
Putting additional troops near Ukraine—as now the administration is threatening to do—does indeed raise the risks of US personnel becoming casualties. William Hartung notes
Yet, the usual war hawks continue to show interest in accelerating US involvement in the Ukraine conflict which is likely to end up putting US soldiers in harm's way, and potentially ratcheting up the chances of a real and catastrophic military conflict with a nuclear power. Fortunately, many Americans seem to not be falling for the latest calls for ever greater levels of foreign adventurism. Few candidates of either party this fall appear to be making war against Russia a plank for their fall campaigns. It could be that, when it comes to foreign policy, many voters have actually learned something from the past thirty years. Given that 84 percent of Americans don't know where Ukraine is, it's unlikely many Americans understand the political ambiguities underlying the Ukraine conflict, but perhaps many also know enough to know when they're being played. This posting includes an audio/video/photo media file: Download Now |
| The Betrayal of the American Right Posted: 28 Jan 2022 12:00 PM PST Introduction: Two Rights, Old and NewIn the spring of 1970, a new political term—"the hard hats"—burst upon the American consciousness. As the hard-hatted construction workers barreled their way around the Wall Street area, beating up college kids and peace demonstrators, earning the admiration of the right wing and a citation from President Nixon, one of the banners they raised summed up in a single phrase how remarkably the right wing has changed over the past two decades. For the banner said simply: "God Bless the Establishment." In that single phrase, so typical of the current right wing, the hard-hats were expressing the age-old political philosophy of Conservatism, that philosophy which formed the central core of the originally labeled "Conservatism" of early 19th-century Europe. In fact, it is the philosophy that has marked genuinely conservative thought, regardless of label, since the ancient days of Oriental despotism: an all-encompassing reverence for "Throne-and-Altar," for whatever divinely sanctioned State apparatus happened to be in existence. In one form or another, "God Bless the Establishment" has always been the cry on behalf of State power. But how many Americans realize that, not so long ago, the American right wing was almost the exact opposite of what we know today? In fact, how many know that the term "Establishment" itself, now used almost solely as a term of opprobrium by the Left, was first applied to America not by C. Wright Mills or other Left sociologists, but by National Review theoretician Frank S. Meyer, in the early days of that central organ of the American Right? In the mid-1950s, Meyer took a term which had previously been used only—and rather affectionately—to describe the ruling institutions of Great Britain, and applied the term with proper acidity to the American scene. Broader and more subtle than "ruling class," more permanent and institutionalized than a "power elite," "the Establishment" quickly became a household word. But the ironic and crucial point is that Meyer's and National Review's use of the term in those days was bitterly critical: the spirit of the right wing, then and particularly earlier, was far more "God Damn" than "God Bless" the establishment.1 The difference between the two right wings, "Old" and "New," and how one was transformed into the other, is the central theme of this book. The Old Right, which constituted the American right wing from approximately the mid-1930s to the mid-1950s, was, if nothing else, an Opposition movement. Hostility to the Establishment was its hallmark, its very lifeblood. In fact, when in the 1950s the monthly newsletter RIGHT attempted to convey to its readers news of the right wing, it was of course forced to define the movement it would be writing about—and it found that it could define the right wing only in negative terms: in its total opposition to what it conceived to be the ruling trends of American life. In brief, the Old Right was born and had its being as the opposition movement to the New Deal, and to everything, foreign and domestic, that the New Deal encompassed: at first, to burgeoning New Deal statism at home, and then, later in the '30s, to the drive for American global intervention abroad. Since the essence of the Old Right was a reaction against runaway Big Government at home and overseas, this meant that the Old Right was necessarily, even if not always consciously, libertarian rather than statist, "radical" rather than traditional conservative apologists for the existing order. Origins of the Old Right, I: Early IndividualismIndividualism, and its economic corollary, laissez-faire liberalism, has not always taken on a conservative hue, has not always functioned, as it often does today, as an apologist for the status quo. On the contrary, the Revolution of modern times was originally, and continued for a long time to be, laissez-faire individualist. Its purpose was to free the individual person from the restrictions and the shackles, the encrusted caste privileges and exploitative wars, of the feudal and mercantilist orders, of the Tory ancien régime. Tom Paine, Thomas Jefferson, the militants in the American Revolution, the Jacksonian movement, Emerson and Thoreau, William Lloyd Garrison and the radical abolitionists—all were basically laissez-faire individualists who carried on the age-old battle for liberty and against all forms of State privilege. And so were the French revolutionaries—not only the Girondins, but even the much-abused Jacobins, who were obliged to defend the Revolution against the massed crowned heads of Europe. All were roughly in the same camp. The individualist heritage, indeed, goes back to the first modern radicals of the 17th century—to the Levellers in England, and to Roger Williams and Anne Hutchinson in the American colonies. The conventional historical wisdom asserts that while the radical movements in America were indeed laissez-faire individualist before the Civil War, that afterwards, the laissez-fairists became conservatives, and the radical mantle then fell to groups more familiar to the modern Left: the Socialists and Populists. But this is a distortion of the truth. For it was elderly New England Brahmins, laissez-faire merchants and industrialists like Edward Atkinson, who had financed John Brown's raid at Harper's Ferry, who were the ones to leap in and oppose the US imperialism of the Spanish-American War with all their might. No opposition to that war was more thoroughgoing than that of the laissez-faire economist and sociologist William Graham Sumner or than that of Atkinson who, as head of the Anti-Imperialist League, mailed antiwar pamphlets to American troops then engaged in conquering the Philippines. Atkinson's pamphlets urged our troops to mutiny, and were consequently seized by the US postal authorities. In taking this stand, Atkinson, Sumner, and their colleagues were not being "sports"; they were following an antiwar, anti-imperialist tradition as old as classical liberalism itself. This was the tradition of Price, Priestley, and the late 18th-century British radicals that earned them repeated imprisonment by the British war machine; and of Richard Cobden, John Bright, and the laissez-faire Manchester School of the mid-19th century. Cobden, in particular, had fearlessly denounced every war and every imperial maneuver of the British regime. We are now so used to thinking of opposition to imperialism as Marxian that this kind of movement seems almost inconceivable to us today.2 By the advent of World War I, however, the death of the older laissez-faire generation threw the leadership of the opposition to America's imperial wars into the hands of the Socialist Party. But other, more individualist-minded men joined in the opposition, many of whom would later form the core of the isolationist Old Right of the late 1930s. Thus, the hardcore antiwar leaders included the individualist Senator Robert LaFollette of Wisconsin and such laissez-faire liberals as Senators William E. Borah (Republican) of Idaho and James A. Reed (Democrat) of Missouri. It also included Charles A. Lindbergh, Sr., father of the Lone Eagle, who was a congressman from Minnesota. Almost all of America's intellectuals rushed to enlist in the war fervor of the First World War. A leading exception was the formidable laissez-faire individualist Oswald Garrison Villard, editor of the Nation, grandson of William Lloyd Garrison and former member of the Anti-Imperialist League. Two other prominent exceptions were friends and associates of Villard who were later to serve as leaders of libertarian thought in America: Francis Neilson and especially Albert Jay Nock. Neilson was the last of the laissez-faire English Liberals, who had emigrated to the United States; Nock served under Villard during the war, and it was his Nation editorial denouncing the progovernment activities of Samuel Gompers that got that issue of the magazine banned by the US Post Office. And it was Neilson who wrote the first revisionist book on the origins of World War I, How Diplomats Make War (1915). The first revisionist book by an American, in fact, was Nock's Myth of a Guilty Nation (1922), which had been serialized in LaFollette's Magazine. The world war constituted a tremendous trauma for all the individuals and groups opposed to the conflict. The total mobilization, the savage repression of opponents, the carnage and the US global intervention on an unprecedented scale—all of these polarized a large number of diverse people. The shock and the sheer overriding fact of the war inevitably drew together the diverse antiwar groups into a loose, informal and oppositional united front—a front in a new kind of fundamental opposition to the American system and to much of American society. The rapid transformation of the brilliant young intellectual Randolph Bourne from an optimistic pragmatist into a radically pessimistic anarchist was typical, though in a more intense form, of this newly created opposition. Crying, "War is the health of the State," Bourne declared:
If the opposition was polarized and forced together by the war, this polarization did not cease with the war's end. For one thing, the war and its corollary repression and militarism were shocks that started the opposition thinking deeply and critically about the American system per se; for another, the international system established by the war was frozen into the status quo of the postwar era. For it was obvious that the Versailles treaty meant that British and French imperialism had carved up and humiliated Germany, and then intended to use the League of Nations as a permanent world guarantor of the newly imposed status quo. Versailles and the League meant that America could not forget the war; and the ranks of the Opposition were now joined by a host of disillusioned Wilsonians who saw the reality of the world that President Wilson had made. The wartime and postwar opposition joined together in a coalition including Socialists and all manner of progressives and individualists. Since they and the coalition were now clearly antimilitarist and anti-"patriotic," since they were increasingly radical in their antistatism, the individualists were universally labeled as "leftists"; in fact, as the Socialist Party split and faded badly in the postwar era, the Opposition was given an increasingly individualistic cast during the 1920s. Part of this opposition was also cultural: a revolt against hidebound Victorian mores and literature. Part of this cultural revolt was embodied in the well-known expatriates of the "Lost Generation" of young American writers, writers expressing their intense disillusion with the wartime "idealism" and the reality that militarism and the war had revealed about America. Another phase of this revolt was embodied in the new social freedom of the jazz and flapper eras, and the flowering of individual expression, among increasing numbers of young men and women. Origins of the Old Right, II: The Tory Anarchism of Mencken and NockLeading the cultural struggle in America was H.L. Mencken, undoubtedly the single most influential intellectual of the 1920s; a notable individualist and libertarian, Mencken sailed into battle with characteristic verve and wit, denouncing the stodgy culture and the "Babbittry" of businessmen, and calling for unrestricted freedom of the individual. For Mencken, too, it was the trauma of World War I, and its domestic and foreign evils, that mobilized and intensified his concern for politics—a concern aggravated by the despotism of Prohibition, surely the greatest single act of tyranny ever imposed in America. Nowadays, when Prohibition is considered a "right-wing" movement, it is forgotten that every reform movement of the 19th century—every moralistic group trying to bring the "uplift" to America by force of law—included Prohibition as one of its cherished programs. To Mencken, the battle against Prohibition was merely a fight against the most conspicuous of the tyrannical and statist "reforms" being proposed against the American public. And so, Mencken's highly influential monthly The American Mercury, founded in 1924, opened its pages to writers of all parts of the Opposition—especially to attacks on American culture and mores, to assaults on censorship and the championing of civil liberties, and to revisionism on the war. Thus, the Mercury featured two prominent revisionists of World War I: Harry Elmer Barnes and Barnes's student, C. Hartley Grattan, whose delightful series in the magazine, "When Historians Cut Loose," acidly demolished the war propaganda of America's leading historians. Mencken's cultural scorn for the American "booboisie" was embodied in his famous "Americana" column, which simply reprinted news items on the idiocies of American life without editorial comment. The enormous scope of Mencken's interests, coupled with his scintillating wit and style (Mencken was labeled by Joseph Wood Krutch as "the greatest prose stylist of the 20th century"), served to obscure for his generation of youthful followers and admirers the remarkable consistency of his thought. When, decades after his former prominence, Mencken collected the best of his old writings in The Mencken Chrestomathy (1948), the book was reviewed in the New Leader by the eminent literary critic Samuel Putnam. Putnam reacted in considerable surprise; remembering Mencken from his youth as merely a glib cynic, Putnam found to his admiring astonishment that H.L.M. had always been a "Tory anarchist"—an apt summation for the intellectual leader of the 1920s. But H.L. Mencken was not the only editor leading the new upsurge of individualistic opposition during the 1920s. From a similar though more moderate stance, the Nation of Mencken's friend Oswald Garrison Villard continued to serve as an outstanding voice for peace, revisionism on World War I, and opposition to the imperialist status quo imposed at Versailles. Villard, at the end of the war, acknowledged that the war had pushed him far to the left, not in the sense of adopting socialism, but in being thoroughly "against the present political order." Denounced by conservatives as pacifist, pro-German, and "Bolshevist," Villard found himself forced into a political and journalistic alliance with socialists and progressives who shared his hostility to the existing American and world order.4 From a still more radical and individualist perspective, Mencken's friend and fellow "Tory anarchist" Albert Jay Nock, cofounded and coedited, along with Francis Neilson, the new weekly Freeman from 1920 to 1924. The Freeman, too, opened its pages to all left-oppositionists to the political order. With the laissez-faire individualist Nock as principal editor, the Freeman was a center of radical thought and expression among oppositionist intellectuals. Rebuffing the Nation's welcome to the new Freeman as a fellow liberal weekly, Nock declared that he was not a liberal but a radical. "We can not help remembering," wrote Nock bitterly, "that this was a liberal's war, a liberal's peace, and that the present state of things is the consummation of a fairly long, fairly extensive, and extremely costly experiment with liberalism in political power."5 To Nock, radicalism meant that the State was to be considered as an antisocial institution rather than as the typically liberal instrument of social reform. And Nock, like Mencken, gladly opened the pages of his journal to all manner of radical, anti-Establishment opinion, including Van Wyck Brooks, Bertrand Russell, Louis Untermeyer, Lewis Mumford, John Dos Passos, William C. Bullitt, and Charles A. Beard. In particular, while an individualist and libertarian, Nock welcomed the Soviet revolution as a successful overthrow of a frozen and reactionary State apparatus. Above all, Nock, in opposing the postwar settlement, denounced the American and Allied intervention in the [Russian] Civil War. Nock and Neilson saw clearly that the American intervention was setting the stage for a continuing and permanent imposition of American might throughout the world. After the folding of the Freeman in 1924, Nock continued to be prominent as a distinguished essayist in the leading magazines, including his famous "Anarchist's Progress."6 Most of this loose coalition of individualistic radicals was totally disillusioned with the political process, but to the extent that they distinguished between existing parties, the Republican Party was clearly the major enemy. Eternal Hamiltonian champions of Big Government and intimate government "partnership" with Big Business through tariffs, subsidies, and contracts, long-time brandishers of the Imperial big stick, the Republicans had capped their antilibertarian sins by being the party most dedicated to the tyranny of Prohibition, an evil that particularly enraged H.L. Mencken. Much of the opposition (e.g., Mencken, Villard) supported the short-lived LaFollette Progressive movement of 1924, and the Progressive Senator William E. Borah (R-Idaho) was an opposition hero in leading the fight against the war and the League of Nations, and in advocating recognition of Soviet Russia. But the nearest political home was the conservative Bourbon, non-Wilsonian or "Cleveland" wing of the Democratic Party, a wing that at least tended to be "wet," was opposed to war and foreign intervention, and favored free trade and strictly minimal government. Mencken, the most politically minded of the group, felt closest in politics to Governor Albert Ritchie, the states-rights Democrat from Maryland, and to Senator James Reed, Democrat of Missouri, a man staunchly "isolationist" and anti-intervention in foreign affairs and pro-laissez-faire at home. It was this conservative wing of the Democratic Party, headed by Charles Michelson, Jouett Shouse, and John J. Raskob, which launched a determined attack on Herbert Hoover in the late 1920s for his adherence to Prohibition and to Big Government generally. It was this wing that would later give rise to the much-maligned Liberty League. To Mencken and to Nock, in fact, Herbert Hoover—the prowar Wilsonian and interventionist, the Food Czar of the war, the champion of Big Government, of high tariffs and business cartels, the pious moralist and apologist for Prohibition—embodied everything they abhorred in American political life. They were clearly leaders of the individualist opposition to Hoover's conservative statism. Since they were, in their very different styles, the leaders of libertarian thought in America during the 1920s, Mencken and Nock deserve a little closer scrutiny. The essence of Mencken's remarkably consistent "Tory anarchism" was embodied in the discussion of government that he was later to select for his Chrestomathy:
Again, Mencken on the State as inherent exploitation:
In letters to his friends, Mencken reiterated his emphasis on individual liberty. At one time he wrote that he believed in absolute human liberty "up to the limit of the unbearable, and even beyond." To his old friend Hamilton Owens he declared, "I believe in only one thing and that thing is human liberty. If ever a man is to achieve anything like dignity, it can happen only if superior men are given absolute freedom to think what they want to think and say what they want to say … [and] the superior man can be sure of freedom only if it is given to all men." And in a privately written "Addendum on Aims," Mencken declared that "I am an extreme libertarian, and believe in absolute free speech…. I am against jailing men for their opinions, or, for that matter, for anything else."9 Part of Mencken's antipathy to reform stemmed from his oft-reiterated belief that "all government is evil, and that trying to improve it is largely a waste of time." Mencken stressed this theme in the noble and moving peroration to his Credo, written for a "What I Believe" series in a leading magazine:
Insofar as he was interested in economic matters, Mencken, as a corollary to his libertarian views, was a staunch believer in capitalism. He praised Sir Ernest Benn's paean to a free-market economy, and declared that to capitalism "we owe … almost everything that passes under the general name of civilization today." He agreed with Benn that "nothing government does is ever done as cheaply and efficiently as the same thing might be done by private enterprise."11 But, in keeping with his individualism and libertarianism, Mencken's devotion to capitalism was to the free market, and not to the monopoly statism that he saw ruling America in the 1920s. Hence he was as willing as any socialist to point the finger at the responsibility of Big Business for the growth of statism. Thus, in analyzing the 1924 presidential election, Mencken wrote:
As for John W. Davis, the Democratic candidate, Mencken noted that he was said to be a good lawyer—not, for Mencken, a favorable recommendation, since lawyers "are responsible for nine-tenths of the useless and vicious laws that now clutter the statute-books, and for all the evils that go with the vain attempt to enforce them. Every Federal judge is a lawyer. So are most Congressmen. Every invasion of the plain rights of the citizen has a lawyer behind it. If all lawyers were hanged tomorrow … we'd all be freer and safer, and our taxes would be reduced by almost a half." And what is more,
In fact, the following brief analysis of the postwar settlement combines Mencken's assessment of the determining influence of Big Business with the bitterness of all the individualists at the war and its aftermath:
But as a result, Mencken went on, the Morgans decided to come to terms with the foe, and therefore, at the Lausanne Conference of 1922–23, "the English agreed to let the Standard Oil crowd in on the oil fields of the Levant," and J.P. Morgan visited Harding at the White House, after which "Dr. Harding began to hear a voice from the burning bush counseling him to disregard the prejudice of the voters who elected him and to edge the United States into a Grand International Court of Justice…."13 While scarcely as well known as Mencken, Albert Nock more than any other person supplied 20th-century libertarianism with a positive, systematic theory. In a series of essays in the 1923 Freeman on "The State," Nock built upon Herbert Spencer and the great German sociologist and follower of Henry George, Franz Oppenheimer, whose brilliant little classic, The State, had just been reprinted (New York: B.W. Huebsch, 1922). Oppenheimer had pointed out that man tries to acquire wealth in the easiest possible way, and that there were two mutually exclusive paths to obtain wealth. One was the peaceful path of producing something and voluntarily exchanging that product for the product of someone else; this path of production and voluntary exchange Oppenheimer called the "economic means." The other road to wealth was coercive expropriation: the seizure of the product of another by the use of violence. This Oppenheimer termed the "political means." And from his historical inquiry into the genesis of States Oppenheimer defined the State as the "organization of the political means." Hence, Nock concluded, the State itself was evil, and was always the highroad by which varying groups could seize State power and use it to become an exploiting, or ruling, class, at the expense of the remainder of the ruled or subject population. Nock therefore defined the State as that institution which "claims and exercises the monopoly of crime" over a territorial area; "it forbids private murder, but itself organizes murder on a colossal scale. It punishes private theft, but itself lays unscrupulous hands on anything it wants…." In his magnum opus, Our Enemy the State (New York: William Morrow, 1935), Nock expanded on his theory and applied it to American history, in particular the formation of the American Constitution. In contrast to the traditional conservative worshippers of the Constitution, Nock applied Charles A. Beard's thesis to the history of America, seeing it as a succession of class rule by various groups of privileged businessmen, and the Constitution as a strong national government brought into being in order to create and extend such privilege. The Constitution, wrote Nock, "enabled an ever-closer centralization of control over the political means. For instance … many an industrialist could see the great primary advantage of being able to extend his exploiting opportunities over a nationwide free-trade area walled in by a general tariff…. Any speculator in depreciated public securities would be strongly for a system that could offer him the use of the political means to bring back their face value. Any shipowner or foreign trader would be quick to see that his bread was buttered on the side of a national State which, if properly approached, might lend him the use of the political means by way of a subsidy, or would be able to back up some profitable but dubious freebooting enterprise with 'diplomatic representations' or with reprisals." Nock concluded that those economic interests, in opposition to the mass of the nation's farmers, "planned and executed a coup d'etat, simply tossing the Articles of Confederation into the wastebasket…."14 While the Nock-Oppenheimer class analysis superficially resembles that of Marx, and a Nockian would, like Lenin, look at all State action whatever in terms of "Who? Whom?" (Who is benefiting at the expense of Whom?), it is important to recognize the crucial differences. For while Nock and Marx would agree on the Oriental Despotic and feudal periods' ruling classes in privilege over the ruled, they would differ on the analysis of businessmen on the free market. For to Nock, antagonistic classes, the rulers and the ruled, can only be created by accession to State privilege; it is the use of the State instrument that brings these antagonistic classes into being. While Marx would agree on precapitalistic eras, he of course also concluded that businessmen and workers were in class antagonism to each other even in a free-market economy, with employers exploiting workers. To the Nockian, businessmen and workers are in harmony—as are everyone else—in the free market and free society, and it is only through State intervention that antagonistic classes are created.15 Thus, to Nock the two basic classes at any time are those running the State and those being run by it: as the Populist leader Sockless Jerry Simpson once put it, "the robbers and the robbed." Nock therefore coined the concepts "State power" and "social power." "Social power" was the power over nature exerted by free men in voluntary economic and social relationships; social power was the progress of civilization, its learning, its technology, its structure of capital investment. "State power" was the coercive and parasitic expropriation of social power for the benefit of the rulers: the use of the "political means" to wealth. The history of man, then, could be seen as an eternal race between social power and State power, with society creating and developing new wealth, later to be seized, controlled, and exploited by the State. No more than Mencken was Nock happy about the role of Big Business in the 20th century's onrush toward statism. We have already seen his caustic Beardian view toward the adoption of the Constitution. When the New Deal arrived, Nock could only snort in disdain at the mock wails about collectivism raised in various business circles:
Or, as Nock summed it up, "The simple truth is that our businessmen do not want a government that will let business alone. They want a government they can use. Offer them one made on Spencer's model, and they would see the country blow up before they would accept it."17 This article is excerpted from The Betrayal of the American Right.
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| Who Needs Personal Responsibility When We Can Just Trust Our Overlords? Posted: 28 Jan 2022 11:00 AM PST Across so many fields, from money to nutrition, I've found that the corollary to the government-heavy approach is a desire not to make choices for oneself. Original Article: "Who Needs Personal Responsibility When We Can Just Trust Our Overlords?" This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack. |
| Why Fighting Inflation Is Not a Priority for the Fed Posted: 28 Jan 2022 09:00 AM PST On Wednesday, the Federal Open Market Committee (FOMC) held true to its monetary-tightening timeline despite last week's 10 percent drawdown in most major indices, effectively saying, "10 percent is not enough." With retail sales numbers that will surely return to trend without more stimulus (see chart), a gridlocked Senate, and the prospect of higher interest rates surely to discount equity valuations, why aren't more people selling?  Don't get me wrong, the Fed will cave eventually, but they just sent a clear message that they need to see more selling. Will they ever make it to "lift off"? This handy chart, courtesy of the Macro Tourist newsletter, can shed some light:  As you can see, there has been just one rate hike post-1988 during which the S&P 500 was more than 10 percent off its fifty-two-week high. This rate hike was enacted by Jerome Powell and set off the infamous Taper Tantrum episode. So, we have two months before he is faced with this decision again. Suppose the market remains relatively flat or even increases between now and March. Given yesterday's tolerance and historical precedence, I'd bet on lift off proceeding, which would hurt valuations. Alternatively, if the market continues to decline before the March meeting, historical precedence and Powell's taper trauma tell us there will likely not be a rate hike in March, which is where things will get interesting. Long story short, markets are going down before they go up. I ask again, Why isn't everyone selling? Now, when the FOMC finally capitulates, resumption of quantitative easing will be perceived as an admission that looser monetary policy is here to stay and the Fed will do anything to prop up asset prices (if that wasn't already obvious). This will be the time to buy back in, so why hold on now? The stimulus is not returning until enough people sell, so might as well beat the crowd. Upon reversal of policy, inflation assets will rally stronger than the broader market (as was the case during QE's debut in 2008), and to see why this may be a secular inflationary shift, take a look at Biden's nominees for the Federal Reserve Board of Governors: Lisa Cook, Sarah Bloom Raskin, and Phillip Jefferson (who's always mentioned last for some reason). In regards to mandatory diversity requirements for corporate boards, Cook stated, "I would adopt that rule more broadly."
Raskin said, "While none of [the US financial regulators were] specifically designed to mitigate the risks of climate-related events, each has a mandate broad enough to encompass these risks within the scope of the instruments already given to it by Congress. Accordingly, all U.S. regulators can—and should—be looking at their existing powers and considering how they might be brought to bear on efforts to mitigate climate risk."
Jefferson claimed "CPI is upwardly biased." In other words, it overreports inflation.
While a few quotes do not define a person, they're worth paying attention to. I get the impression that these people want to expand the Federal Reserve's power and believe the threat of inflation pales in comparison to climate change and racial inequities. So, in a world where investing largely revolves around guessing how a group of seven people will choose to arbitrarily tinker with our country's financial system, I'm betting these folks will stay looser for longer. This posting includes an audio/video/photo media file: Download Now |
| A New Defense of the Single Tax Posted: 28 Jan 2022 09:00 AM PST Libertarians stress self-ownership and property rights, but one variant position, held by Albert Jay Nock and Frank Chodorov, limits property rights. In their view, which they derived from the nineteenth-century economist and social reformer Henry George, you own only the value your labor adds to the resources you appropriate. You do not own unworked land and other resources, because your labor has not made them. It is the entire community, taken as a group of individuals, which owns these resources. People who want to use these resources bid against one another. For example, suppose that you want to establish a restaurant in a good location. You will get the location you want only if you offer to pay more rent for it than your competitors do. The result of the bidding for various locations will be that the total rent for all land will be the greatest possible, and all of this goes into a common fund that is equally divided among everyone, once the expenses of government are deducted. Using the revenue from land to pay for government expenses is the famous "single tax." The economic problems with this proposal are well-known, and I don't intend to go into them here. If you think, though, that resources are owned by the community, you can see the rationale for the proposal. If "everyone" owns the resources, equal division of the total rent seems like a fair way to proceed. If you don't have this starting point but instead think that resources start out unowned, matters seem different. If resources are "there for the taking," isn't individual appropriation of property justified? Murray Rothbard and those of us who follow him adopt this position. A related view begins from noting that before resources are appropriated, in the sense that the owner can exclude other people from using them, everyone is at liberty to use any resource, so long as he doesn't try to prevent others from using it as well. For example, someone who walks along a path doesn't block others from using it later; but if someone appropriates the land where the path is located, he can compel those who used to walk on it to take a different route. This makes them worse off than before, so, it is argued, they are owed compensation for this loss. They are also owed compensation for the fact that once someone appropriates a resource, that resource is removed from the resources that can be appropriated. The compensation is, however, easily fulfilled. The need for compensation stems from the fact that people are made worse off but a system of private property rights makes everyone much better off than in the state of nature, before property is appropriated. This view is then in practice almost always equivalent to Rothbard's position and was supported by Robert Nozick. Suppose, though, that you agree that resources start off unowned but are also sympathetic to George's single tax. Can you support the single tax from that starting point? It would seem not, but Hillel Steiner attempts to do it in an article entitled "Compensation for Liberty Lost: Left Libertarianism and Unconditional Basic Income," which appeared in volume 22 of the journal Juncture. If anyone can do it, Steiner can, as he is one of the world's leading political philosophers, but I do not think he succeeds. He objects to the positions held by Nozick and Rothbard that people under their systems do not have equal initial access to appropriating resources. Those on the scene first have a greater opportunity to do so than latecomers. That's indeed true, but if we ask how the latecomers get compensation for this, matters take an odd turn. Steiner takes the criterion of compensation to be that allowing appropriation makes people better off than if it isn't allowed. People do not receive individual compensation because there are particular resources they aren't free to use or appropriate, rather the system as a whole makes people better off. In particular, he imagines a modified Walrasian auction in which people are initially given an equal number of chips which they use to bid for all resources. In the auction, they have perfect knowledge of all prices and make their bids on that basis. In such an auction, winning bids go to those who can use the resources most efficiently, and Steiner thinks that if this is so, everyone is better off. Of course, in the actual world, we lack the knowledge required in the auction, but he takes the Georgist single tax, as explained earlier, as the best available substitute for it. It isn't clear to me that this is correct. In the free market, equilibrium is never reached, but entrepreneurs aim constantly to shift resources so that they go to those best able to satisfy the demands of consumers. If your aim is to approximate as closely as you can the conditions of Walrasian equilibrium—I don't think this should be your aim, but we here looking at things from Steiner's perspective—why isn't the free market the best we can do? In the Georgist system, land rent is paid into a common pool and does not go to the individual owners of land, but what makes land special? The Georgists have an answer to this; they say that land cannot be owned by individuals, but it is not evident how Steiner, who starts with unowned resources and allows appropriation of them with compensation, can also say this. Indeed we can go further. In the system in which all rents go to a common pool, people are not free to appropriate land but only to rent it. This contradicts the premise from which we began that resources can be appropriated. Further, Steiner does not deny that the alternative systems of Rothbard and Nozick do make people better off than they would be in a system without property titles; he just prefers to set a different baseline. He might respond that people are better off with his baseline than with the alternative baseline because they have a guaranteed annual income, but once more this is highly doubtful. A great deal of the success of the free market in satisfying the demands of consumers depends on entrepreneurs' being able to gain exceptionally large returns. The incentive to get such gains encourages them to shift resources in a way that anticipates consumers' demands, because success in doing so is profitable for them. In the Georgist system, anything above a standard rate of return on capital is considered rent on resources and goes in the common pool. This would in practice stultify the market process. People would be able to spend the guaranteed incomes but would find the attenuated market less able to satisfy their demands. In conclusion, you must either allow initial appropriation of resources or reject it. You cannot do both at the same time. |
| Will Artificial Intelligence Create a Socialist Paradise? Posted: 28 Jan 2022 07:00 AM PST This is freedom: "That he is independent of the arbitrary power of his fellows … [freedom] arose in the process of social development and its final completion is the work of mature Capitalism." Original Article: "Will Artificial Intelligence Create a Socialist Paradise?" This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack. |
| Germany's New Green Stimulus Plan Won't Save Their Economy Posted: 28 Jan 2022 05:00 AM PST Germany's government is pushing a new plan for massive spending on a "Climate Fund." This is justified with the usual Keynesian myths about the benefits of government spending. Original Article: "Germany's New Green Stimulus Plan Won't Save Their Economy" This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack. |
| Understanding the Rothbardian Critique of Free Banking Posted: 28 Jan 2022 04:00 AM PST The free banking debate seems to be a perennially reoccurring event with no resolution in sight. On Twitter, George Selgin recently had a series of tweets and threads again criticizing the "Rothbardian" position on free banking. Although partly due to the limitations of the medium, the description of the Rothbardians' objections to free banking was less than accurate. Since we are never going to get anywhere in the debate if the two sides keep misunderstanding each other, allow me to here present a short guide to the main critiques of free banking from the Rothbardian side. Given this emphasis, this guide will necessarily present a lopsided picture of the debate, and I therefore suggest that the neophyte also read the able expositions of the free banking side, including online overviews such as this one and this one, Larry White's and George Selgin's foundational books, and this brief(ish) academic article by Selgin. Fundamentally, the point at issue is this: Is free banking, i.e., a system of banks freely and competitively supplying money backed by fractional reserves, economically stable and efficient, or an unstable source of inflation and distortions in the economy? "Free Banking Is Fraudulent"One point often critiqued by the free bankers is the claim made by Murray N. Rothbard and his followers that free banking is necessarily fraudulent. In recent years Rothbardians have downplayed this point, understandably so, perhaps, since they have wanted to emphasize the purely economic critiques of free banking. However, the point contains a substantial critique and deserves more than to be passed over in silence. There are really two strands to this critique: First, that money substitutes—banknotes and deposits—are really warehouse receipts or property titles, and therefore it is tantamount to fraud to issue notes and deposits in excess of the reserves of money proper. Or in the Roman law framework favored by Jesús Huerta de Soto, loan contracts that confuse the deposit and loan function of banks and grant several persons an equal claim to the same underlying property are self-contradictory and therefore void. Second, that the historical emergence of fractional reserve banking was due to a fraud perpetrated on the public, as the first bankers—whether London goldsmiths or Italian merchants—lent out the gold or silver deposited with them or issued more notes when they discovered that their notes circulated as money substitutes. Ever since, fractional reserve banking, whether free or supported by a central bank, has systematically relied on deception and government privilege. Ad 1: It's Not, Except It Is By no means all Rothbardians insist on the first point: Guido Hülsmann in 2003 (see also Joseph T. Salerno's brief summary) suggested the theoretical possibility of fiduciary media (i.e., money substitutes in excess of reserves) that take the legal form of an IOU with a redemption promise. If the banker can convince his customer to accept such a claim on par, no fraud occurs, but there will be a tendency on the free market for such callable loans to trade at a discount to money proper and fully backed titles to money due to the default risk inherent in such mere promises. I myself tried to expand on this point more recently, arguing that the difference between fiduciary media and fully backed titles—one carries the risk of default while the other doesn't—means that an individual who accepts callable loans at par with money and considers them part of his cash holding commits an entrepreneurial error. In the free market there will be a tendency for all errors to be corrected, including this one, leading to the virtual suppression of fiduciary media. This does not mean that the older fraud arguments must be disbanded, however. They point to a basic point of contention between free bankers and their critics: when a person holds money, what he wants is immediate access to a fund of purchasing power. This is true also in the case of fiduciary media: the person accepts banknotes because he thinks they give him immediate and total control over a sum of money; that is, he thinks he is the owner of the sum in question in the economic sense if not in the legal sense. Free bankers disagree. Yes, we all agree when it comes to money in the narrow sense. But it is different when it comes to bank money: Steven Horwitz argues that the banking system supplying fiduciary media to money demanders is really a subset of the loanable funds market. Selgin says that "[t]o hold inside money is to engage in voluntary saving" and that holders of money lend out the sum in question through the banking system. He repeated the same point in his critique of Bob Murphy's take on market monetarism in 2020. Yet as we just saw, the fraud argument is a result of the claim that two persons cannot have equal, mutually exclusive property rights in the same good—but this is exactly what the free bankers say happens in a free banking system: claims to the same sum of money multiply within the system and everyone thinks he has immediate and total control over it. Huerta de Soto in his 1998 article points out this confusion between the concepts of saving and of demand for money. An increase in the supply of fiduciary media, even when it corresponds to an increase in the demand for fiduciary media, does not constitute an increase in real savings. There is a basic disagreement here over the nature of savings in the form of money. The free bankers consider cash holding as a form of capitalistic saving that releases resources for investment. While Hülsmann in his 1996 critique agrees that holding money is a form of saving—holding any kind of durable good is saving—it is not capitalistic saving. It would be more correct to consider it akin to what Ludwig von Mises termed plain saving, the piling up of consumer goods for later use. Since the effects of changes in money saving are different from changes in other kinds of saving, it would perhaps be best to put it in its own category, monetary saving. Whether money is held in the form of money proper, money titles, or fiduciary media, what the holder wants is immediate access to purchasing power. Just because a money substitute takes the legal form of a loan, this does not mean the holder of the claim has given up present goods. He has not, or rather, he did not intend to. This is why Huerta de Soto considers fractional reserve banking illegitimate. The intentions behind the contracts are contradictory. This is also why Rothbard suggested antibank vigilante leagues would be beneficial in a free banking setting: the public would be misguided in thinking their money safe in the bank, and the vigilantes would attempt to spread awareness of the practice and basic unsoundness of fractional reserve banking. There is, then, more substance to the fraud critique—it is not simply a misunderstanding about the nature of callable loans. Ad 2: Define "Fraud," Your Honor The second variant of the fraud argument is mainly historical, as it concerns the interpretation of the various historical episodes claimed as instances of successful free banking. One classic example is the London goldsmiths. Rothbard argues in his Mystery of Banking that goldsmiths' note issues in excess of the gold deposited with them was fraudulent—an argument that puts Rothbard square in the mainstream of opinion on this issue—while Selgin has quite ably shown that the story is not so simple. Beyond fraud, the Rothbardian charge is more generally that some kind of legal privilege was always necessary for fractional reserve banking to get off the ground. The locus classicus of his disagreement is the case of Scottish free banking. Rothbard at first agreed with Larry White's positive interpretation of the Scottish experience but by 1988 had changed his mind. Several features of the Scottish institutional setup suggested to Rothbard that the system was not so much free banking as privileged banking, since the bankers were to some extent protected from prosecution for failure to pay debts if they didn't honor their notes. That is of course one kind of freedom. The most recent round in the Scottish debate, to my knowledge, was between Joakim Book and myself. Bob Murphy also deals with Scotland (and the Canadian case, described by Selgin here) in a 2019 paper. There are dozens of other examples of historical free banking, but I will not go into further details here. This is not to disrespect the scholarly work done, much of it of great interest (it's for instance pretty clear that American "free banking" was nothing of the kind), but rather to point to a more fundamental issue. If by free banking we mean the complete absence of government interference, then such a thing has never existed. I think everyone agrees on this. But it's the same with free markets: if what is meant is the complete absence of government regulation, then they never existed, and we wouldn't therefore claim that arguments for the superiority of economic freedom to interventionism are vacuous. In other words, free bankers can claim that free banking was free enough so long as government intervention was minimal. This is a too cavalier attitude, I think, both when it comes to free banking and economic history in general. What we must do is look at what the specific government interventions were and what their effects were. Only after having done so can we declare whether or not they were irrelevant to the evolution of the market. This is exactly what is at issue in the Scottish case: one side claims the interventions were irrelevant, the other argues that they had important distorting effects. The historical record does not tell us which is true: this is a matter of interpretation. In other words, history cannot take the place of theory: we must first settle the issue of free banking by economic reasoning, and then apply our results to history. Is Rothbard wrong to say that the key decisions in the British legal system that led deposits to be considered loans rather than bailments were wrong? Is Huerta de Soto wrong in his interpretation and critique of the Roman law treatment of deposit contracts as it evolved and was applied in the early modern period? Does Selgin prove the immaculate conception of fractional reserve banking when he shows that London goldsmiths did not in fact break the law? Answering these questions without regard to the results of economic theory would simply amount to smuggling in our own assumptions about the matter. If Rothbard's economic analysis of deposit banking is correct, then he is also correct to deplore the British legal evolution that legitimized fractional reserves; if not, then he is not. Neutral Money?Notwithstanding disputes over historical episodes, the main debate is in the field of theory. I have already described one fundamental disagreement over the nature of money: the Rothbardians claim that demanding money always means demanding a present good, while free bankers argue that demanding bank money is the same as lending money through the banking system. I will not repeat the arguments, but only point to an interesting paper by Michael Bauwens from 2017 suggesting that the dispute boils down to a basic difference in philosophy. Critics of free banking espouse (at least implicitly) a realist social philosophy while free bankers have a more nominalist orientation. Free banking theory argues that a free banking system will be stable and resilient. An equilibrium will emerge where banks supply a stable stock of money that only varies in accordance with the demand for money. Rather than causing instability and shocks, free banking alleviates monetary shocks and prevents them from causing economic damage. A rise in the demand for money, for instance, is compensated by an equal rise in the supply of bank money, and this means that the flow of spending is not disrupted and the economy does not have to adjust to a painful exogenous shock. Philipp Bagus and David Howden in their critiques of free banking (here, here, and here) argued that this is not so. The supply of bank money is not simply passive in response to demand for money, and the constraint on money expansion from the need for precautionary reserves is overstated. Lending of reserves between banks can accommodate an expanding bank, even when it holds lower reserves than other banks. Nikolay Gertchev has explained how an interbank reserve loan market effectively takes the place of a central bank by permitting credit expansion. The supply of money, critics argue, is therefore not constrained and tightly regulated in a free banking system. One reason for this is that free bankers are wrong to claim that the demand for bank money is exogenous to the banking system. On the contrary, demand for bank balances depends on the terms on which they can be had. The interest rate at which banks make loans is thus an important determinant of the demand for bank money. Following Mises, Rothbardians claim that banks can lower the rate of interest (at least temporarily) below the natural rate and that this incentivizes bank borrowing and the holding of bank money. If banks issue more money, this has consequences beyond simply allowing greater nominal demand for money. There is an implicit assumption in free banking theory that the issue of bank money, when kept within the bounds set by the demand for money, is neutral—it does not affect relative prices or the distribution of real incomes and wealth. Rothbardians, on the contrary, argue that since an increase in the supply of fiduciary media is by definition inflationary, it leads to the outcomes described by the Cantillon effect and (possibly) also to a business cycle. The first receivers of the new money gain while later receivers lose, and if the first receivers are businessmen who use the new money for investment projects, the result is the process of malinvestment described by business cycle theory. Selgin claims that fractional reserve banking is only inflationary if the reserve ratio is persistently declining. This is not so, the Rothbardians say. If banks can expand credit, an increase in reserves leads to bank credit inflation and a business cycle, even if the reserve ratio is increasing. Rothbard's own work on the Great Depression shows how this happened historically, with the inflow of gold from abroad contributing to the inflation. It is also a thoroughly Misesian point: Mises explained how when banks merely maintain the stock of media in existence without adding to it there is no inflation and no malinvestment but that any issue of fiduciary media that increases the stock does cause disruptions. Nowhere does Mises claim that the impact of credit expansion depends on a change in the reserve ratio. What matters is the money supply and changes to the money supply, not the ratio of money substitutes to reserves. DisequilibriumWhile free bankers maintain that fractional reserve banking can maintain monetary equilibrium, their critics attack the very idea of monetary equilibrium. All agree that when analyzing money, we need to take account of more than simply exchange demand. Setting out from the brilliant British economist Edwin Cannan, reservation demand is included as a key cause influencing the value of money. Yet here free bankers and critics part: to the free bankers, monetary equilibrium simply means adjusting the stock of money to satisfy the reservation demand for money, while the exchange demand for money—the supply of goods and services—is fundamentally unrelated: so long as there are no disturbances from the monetary side, the real economy can go on functioning smoothly. In terms of the equation of exchange (MV = PY), the money side is MV and the goods side is PY. Not surprisingly, perhaps, the Rothbardians reject this way of conceiving of money and the economy. As Salerno shows in a 2006 article, while it is correct to follow Cannan (and Rothbard) in looking at reservation demand as well as exchange demand for money, this does not mean that we can ignore exchange demand. In order to understand the formation of prices, the demand for money, and the value of money, we need to always keep the exchange demand for money in mind; i.e., the supply of all the goods and services against money (exchange demand) is a key factor not only in the formation of specific prices but in the total demand for money. Hülsmann made much the same point in his review of Lawrence White's Theory of Monetary Institutions. Any change in monetary conditions—be it from the demand or supply side—leads to a change in the purchasing power of money, the very quality for which it is demanded: "Thus the supply of money does not have to be adjusted to the demand of money. Unlike all other commodities, money itself constantly adjusts to the conditions of the market." In her article against monetary disequilibrium theory, Laura Davidson expands on this critique. We cannot simply cancel out exchange demand for money because there necessarily is an equal exchange supply of money. We must look at the total demand schedule of money, and that includes its exchange demand. Each good on the market has its own supply-demand schedule in terms of money, and money therefore has a partial supply-demand schedule in terms of each good. Davidson puts it eloquently:
Descending from the heights of disequilibrium, price stickiness and menu costs have been put forward as reasons for why an uncompensated increase in the demand for money will cause economic dislocation. Since prices cannot adjust immediately, a decrease in the flow of spending will lead to painful dislocations as factors of production become unemployed and output declines. Bagus and Howden have criticized this line of argument in an academic exchange with Anthony J. Evans and Horwitz and Selgin. The claim is not that prices will instantly change in response to every change in market data. There is some price stickiness built in, but only because entrepreneurs and consumers want it this way (e.g., long-term contracts with fixed prices help businessmen engage in economic planning, since they are insulated from unforeseen price changes). In fact, if prices were in constant flux, planning would become very difficult, if not impossible. That said, prices are sticky only so long as and to the extent that this is desired by market actors. If they change their minds, prices will change too. Of course, it is a different case if government interventions cause stickiness. Price controls can cause permanent unemployment, for instance in the case of unions violently enforcing minimum wages for various kinds of work. Then, an increase in the money supply to lower real wages can be a help, if only very temporarily—for if the union had the power to enforce one minimum wage, what is to prevent them from getting wise to the deceit and enforcing a higher or index-linked minimum wage? F.A. Hayek showed long ago that inflation to combat union power is a futile endeavor. Conclusion: Misesian by Any Other Name Is Just as SweetThere is thus plenty of meat on the Rothbardian critique of free banking. While I count myself among these critics, I've here tried to simply present the main points and the principal authors, although I've doubtlessly neglected and forgotten some. One final note on the use of terms, however: I've throughout humored the free bankers by accepting the term "Rothbardian" as a descriptor of the critics. Now, this is in part because it is correct: Rothbard was a main critic and all later critics have drawn from his work. However, it is also misleading: it suggests that hostility to free banking is something that flows from ideas unique to Rothbard. In reality, the critique of free banking is Misesian. The critics cleave to a Misesian understanding of money and its impact on the economy and on this basis criticize free banking theory. The only uniquely Rothbardian argument not found in Mises is that fractional reserves should be outlawed as fraudulent. But that is down to a difference in legal and ethical philosophy between the two: Mises the utilitarian versus Rothbard the natural law theorist. Yet as we saw, the fraud argument rests on economic theory and on a desire to make legal categories match economic reality. If Mises refused to go the route of 100 percent reserves, it is only because he thought free banking the better policy for the suppression of fractional reserve banking. This posting includes an audio/video/photo media file: Download Now |
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