Mises Wire |
- Do "Inflationary Expectations" Cause Inflation? Contra Krugman, the Answer Is No
- Sovereign Immunity Is Antilaw: The State Must Make Restitution to Its Victims
- New Covid Study Shows Lockdown-Heavy States Had Some of the Worst Health Results
- Fetter the Radical
- And Now for a Really Bad Response to Political Calamity: Autarky
- The Fed Wanted Inflation, Now They Have No Idea What to Do
- Political Upheaval Is Not Threatening “Our Democracy.” Our Democracy Is.
- The Wrong Elites
- How Russia Uses Immigration and Naturalization to Grow State Power
- Fighting Back: My Legal and Ethical Battle against Covid Mandates
- How Fully Private, No-Insurance Hospitals Help the Common Man
- The Nature of Man and His Government
- Behind Klaus Schwab, the World Economic Forum, and the Great Reset: Part 5
- Instead of War, Russia, Ukraine and Their Allies Should Try the Free Market
- The Fed Can't Fix the Economy, but It Can Break It
- If Ukraine Joins the EU, It Will Be the Poorest Member by Far
- Deflation: Bad for the Government, Good for Producers and Consumers. What's Not to Like?
| Do "Inflationary Expectations" Cause Inflation? Contra Krugman, the Answer Is No Posted: 15 Apr 2022 05:00 AM PDT Paul Krugman recently wrote that the reason we see high inflation is that people mistakenly believe inflation is in our future and act accordingly. This reasoning is false. Original Article: "Do "Inflationary Expectations" Cause Inflation? Contra Krugman, the Answer Is No" This Audio Mises Wire is generously sponsored by Christopher Condon. | ||
| Sovereign Immunity Is Antilaw: The State Must Make Restitution to Its Victims Posted: 15 Apr 2022 04:00 AM PDT The doctrine of sovereign immunity1 is the antithesis of libertarianism.2 Immunity from the consequences of its actions makes the state (i.e., those who work for it) so very dangerous. A private party who causes manifest measurable harm to others can be sued, if not prosecuted, for that harm. Sovereign immunity short-circuits this vital feedback mechanism that provides strong incentives to refrain from further such harm. To the extent that state agents cannot be sued, and may even be rewarded, for bad behavior, they will continue to harm their citizens with impunity. The removal of sovereign immunity is necessary if no one is to be "above the law." Currently, in the unlikely case that someone does successfully "fight city hall," the guilty parties are seldom the ones who pay. As a case in point, the $27 million settlement paid to the family of George Floyd came not from the pocket of the police officer the court ruled guilty of Floyd's death3 or the police high command that authorized the restraint technique applied with deadly result, but rather from the Minneapolis taxpayers, none of whose knees were on Floyd's neck.4 Since the officer in question presumably did not have $27 million with which to pay such a settlement, removing sovereign immunity would require all those working on behalf of the government to carry liability insurance. If physicians must carry malpractice insurance and employees in fields ranging from banking to janitorial services must be bonded, for what reason should government officials be spared such requisites? While these insurance costs would likely discourage many people from seeking government employment, anyone who considers our current government to be too large and powerful would consider this outcome desirable. What makes ending immunity necessary is that the cash nexus so characteristic of private economic transactions is not present in the public sector. In the private sector, if I am not satisfied with a product I purchase, I have several options: seeking a refund, exchanging my defective product for a nondefective one, or ceasing to do business with those merchants and dissuading as many people as I can from transacting with them as well. Those potential consequences are likely to bring most businesses in line. This option is basically not available in any meaningful way for government-provided services, since we are forced to pay through taxation for what government provides regardless of whether we are satisfied with it or not, or even whether we use it or not. Let's look at what is universally seen as the most important function of the government—protection of life and property. In the spring and summer of 2020, mayors of dozens of large American cities failed to fulfill this most important function, ordering their police to stand down as people rioted, causing dozens of deaths and billions of dollars in property damage. In New York City, for instance, "not only did the city brutalize protesters exercising their First Amendment right to assemble, but it also stood by as throngs of nonpolitical actors rampaged the city's storefronts."5 Risks to residents and property damage in and around protests paled in comparison to the widespread looting in New York, yet the police responses to nonideological rioting were markedly slower. Would then mayor Bill de Blasio and his police commissioner have been so derelict in their most important duty had they known they would have had to pay damages out of their own pockets?6 A second example highlights the governmental response to covid-19. Had key public-health officials, governors, and mayors not been immune from liability for the consequences of their policies, we might not have seen them arrogantly stand between doctors and their patients by suppressing legally approved drugs such as ivermectin and thus increase the number of deaths and hospitalizations caused by a virus spawned in US government–funded labs.7 Nor would they have severed people from their means of sustenance through lockdown policies based much more on politics than on science. They are at least as guilty of malpractice as any doctors successfully sued for their errors. Finally, the state has managed to confer its own sovereign immunity on private-sector actors. Traditionally, companies could be sued for irreversible harms caused by their defective products. For example, Vioxx, a pain-relief and anti-inflammatory drug produced by Merck, was found to have played a role in causing twenty-seven thousand heart attacks. Merck was sued and settled for $4.85 billion (roughly 12 percent of its annual revenue). This result was consistent with the principle that those who harm others have to compensate their victims. This principle appears to have been completely jettisoned with regard to vaccine manufacturers. Breaking the link between causing harm and making restitution has been enshrined in law by the 1986 National Childhood Vaccine Injury Act (NCVIA). While claiming that one of its goals is to "ensure the production and procurement of safe and effective vaccines," the act's provision that "no vaccine manufacturer shall be liable in a civil action for damages arising from a vaccine-related injury or death" does not exactly create incentives conducive to that outcome. We want to incentivize the production not of any and all vaccines, but of safe and effective vaccines. If manufacturers make vaccines that are unprofitable because of the insurance premiums that must be paid to cover the liability for those injured by those vaccines, then those particular vaccines have failed the market test. For that reason, polio-vaccine pioneer Dr. Albert Sabin, who cannot be dismissed by any honest and sane person as an "antivaxxer," opposed laws like the NCVIA. In the words of economist Barry Brownstein, "the best way to ensure vaccine safety is to expose pharmaceutical companies to the full costs of any mistake and not let any company without proper insurance near a human body."8 This principle that no one should be above the law applies universally. If car manufacturers are held liable for faulty cars that lead to excess injuries and deaths, you will get fewer cars, but safer cars. If vaccine manufacturers are held liable for faulty vaccines that lead to injuries and deaths, you will get fewer vaccines, but safer vaccines. And if those charged with enacting and enforcing laws can be held liable for failure to protect and violation of rights, you will get fewer laws, but more rights. While the principle is clear, the problem is the implementation. Now there is the need for libertarian legal scholars to develop ways of implementing these principles. This will not be simple, as many cases will be far from black and white. In addition, we will need many more judges who have internalized this principle than are likely to be turned out by our law schools in their current state. Nonetheless, even imperfect implementation should prove far superior to the current situation of nearly total government immunity. If we can accomplish that, we can begin the process of undoing at least a century of damage state that actors not bound by law have done to this country.
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| New Covid Study Shows Lockdown-Heavy States Had Some of the Worst Health Results Posted: 14 Apr 2022 04:30 PM PDT As hard as it is to believe, the Chinese regime is still employing a "zero covid" strategy and claims it can eradicate covid entirely through lockdowns and vaccinations. China's draconian, nightmarish, near-total lockdown policy—which is notably still "necessary" in spite of widespread vaccination—has recently been revived in Shanghai where residents are now struggling to find food. But the regime has only doubled down on the policy, with Chinese President Xi Jinping declaring that "persistence is victory." This approach has no basis in any actual science, however, and contradicts decades of epidemiological research condemning lockdowns. Moreover, a 2021 joint study from USC and the Rand Corporation concluded "excess mortality increases" following "the implementation of SIP [shelter-in-place] policies." This week, a new study published by the National Bureau of Economic Research found that the states with the harshest lockdowns tended to perform the worst in a composite measure of mortality, economic performance, and education. The states that performed the best were in many cases states where lockdowns were weak or nonexistent, with Utah and Nebraska at the top of the list. The study, authored by Phil Kerpen, Stephen Moore, and Casey B. Mulligan, also concluded that antilockdown Florida, Arkansas, West Virginia, and Utah "were outliers" that performed unexpectedly well compared to their neighbors. Prolockdown California, Illinois, New Mexico, and Colorado, on the other hand, performed more poorly than their neighbors. The chief value of the report is that it takes economic, educational, and health variables and normalizes them across states. For example, it's difficult to meaningfully compare economies when some states are far more reliant on service industries than others. In this case, the authors find the "combined economic performance" for states taking the nature of each state's economy into account. By this metric, the states that performed the best during the pandemic were lockdown-light states Montana, South Dakota, Nebraska, Idaho, and Utah. The states with the worst outcomes were lockdown-heavy Hawaii, New jersey, Connecticut, New York, and Illinois. On the matter of education—which the authors note is closely tied to both economic performance and mortality in the longer term—the authors look at bans on in-person education, state by state, and presumed resulting "learning loss." In this case, the best performers were Wyoming, Arkansas, Florida, South Dakota, and Utah. The worst performers were California, Oregon, Maryland, Washington, and Hawaii. Of course, if faced with statistics such as these, lockdown advocates are likely to admit that lost educational opportunities and lost economic prosperity are unfortunate. But, they will say education and property rights had to limited in the name of preventing mortality and protecting "public health." So what do we find when examining actual mortality and health outcomes? In this case, the authors controlled for key health variables like the prevalence of obesity, diabetes, and old age. Adjusting for these, lockdown-heavy states did, in fact, perform well with Vermont, Hawaii, Maine, Oregon, and New Hampshire coming in at the top. But lockdown-heavy states in this case were also among the worst performers with Nevada, New York, New Jersey, Arizona, and Colorado coming in at the bottom of the list. Moreover, this measure emphasizes just how irrelevant lockdowns can be when looking at mortality outcomes. For example, if we look beyond just the top and bottom five in the mortality rankings, we find some interesting comparisons. Age and Metabolic Health Adjusted COVID-Associated Deaths Per 100K Population (Updated March 9):  Adjusting for age and obesity, Florida and Michigan are virtually identical in spite of the fact Michigan under governor Gretchen Witmer locked down long and hard. Florida by contrast is known for abandoning both lockdowns and mask mandates early. The state of Georgia—which was accused of embracing "human sacrifice" when it abandoned lockdowns early on—ranks better than much of New England (i.e., Massachusetts, Connecticut, Rhode Island) which was notable for harsh covid mandates. Rankings that fail to adjust for obesity and age, of course, miss key factors, and this could be seen in the fact that unadjusted covid outcomes tend to be especially poor in the Deep South. But the Deep South is also where obesity rates have long been among the highest, reflecting poor health outcomes in a variety of issues. Meanwhile, we should generally expect the best health outcomes from western states (excluding New Mexico, which is a regional outlier in terms of obesity) where residents tend to be thinner and in better health. Residents are generally in better general health in New England as well. Yet, once we adjust for these variables, the usual patterns don't hold up at all. Instead we find no clear connection at all between the length and severity of mandates and mortality outcomes. Of course, even if lockdowns states were shown to be reliably and indisputably among those states with the best health outcomes, that would still not justify the forced closure of businesses and violations of basic human rights like the right to seek income and the right to travel. Basic human rights don't disappear simply because an unelected health workers declares an emergency. This posting includes an audio/video/photo media file: Download Now | ||
| Posted: 14 Apr 2022 12:00 PM PDT [This is Murray Rothbard's introduction to Frank A. Fetter's Capital, Interest, and Rent.] Frank Albert Fetter (1863–1949) was the leader in the United States of the early Austrian school of economics. Born in rural Indiana, Fetter was graduated from the Indiana University in 1891. After earning a master's degree at Cornell University, Fetter pursued his studies abroad and received a doctorate in economics in 1894 from the University of Halle in Germany. Fetter then taught successively at Cornell, Indiana, and Stanford universities. He returned to Cornell as professor of political economy and finance (1901–11) and terminated his academic career at Princeton University (1911–31), where he also served as chairman of the department of economics. Fetter is largely remembered for his views on business "monopoly" (see his Masquerade of Monopoly [New York: Harcourt, Brace and Co., 1931]). But long before he published his work on monopoly in the 1930s, he developed a unified and consistent theory of distribution that explained the relationship among capital, interest, and rent. While Fetter's theoretical work, like much of capital and interest theory in recent decades, has been generally neglected, much of it is still valuable and instructive today. In my opinion, microeconomic analysis has a considerable way to go to catch up to the insight that we find in Fetter's writings in the first decade and a half of this century. Apart from his two lucidly written treatises (The Principles of Economics [New York: The Century Co., 1904]; and Economic Principles [New York: The Century Co., 1915]), Fetter's major contributions to distribution theory appeared in the series of journal articles and shorter papers that I have collected to form this volume. It was difficult for me to classify Fetter's work into the categories of "capital," "rent," and "interest," because his was an unusually systematic and integrated theory of distribution, all areas of analysis being interrelated. Fetter's point of departure was the Austrian insights that (1) prices of consumer goods are determined by their relative marginal utility to consumers; and (2) that factor prices are determined by their marginal productivity in producing these consumer goods. In other words, the market system imputes consumer goods prices (determined by marginal utility) to the factors of production in accordance with their marginal productivities. While the early Austrian and neoclassical schools of economics adopted these insights to explain prices of consumer goods and wages of labor, they still left a great many lacunae in the theories of capital, interest, and rent. Rent theory was in a particularly inchoate state, with rent being defined either in the old-fashioned sense of income per year accruing to land, or in the wider neo-Ricardian sense of differential income between more and less productive factors. In the latter case, rent theory was an appendage to distribution theory. If one worker earns $10 an hour and another, in the same occupation, earns $6, and we say that the first man's income contains a "differential rent" of $4, rent becomes a mere gloss upon income determined by principles completely different from those used to determine the rent itself. Frank Fetter's imaginative contribution to rent theory was to seize upon the businessman's commonsense definition of rent as the price per unit service of any factor, that is, as the price of renting out that factor per unit time. But if rent is simply the payment for renting out, every unit of a factor of production earns a rent, and there can be no "no-rent" margin. Whatever any piece of land earns per year or per month is rent; whatever a capital good earns per unit time is also a rent. Indeed, while Fetter did not develop his thesis so far as to consider the wage of labor per hour or per month as a "rent," it is, as becomes clear if we consider the economics of slavery. Under slavery, slaves are either sold as a whole, as "capital," or are rented out to other masters. In short, slave labor has a unit, or rental, price as well as a capital value. Rent then becomes synonymous with the unit price of any factor; accordingly, a factor's rent is, or rather tends to be, its marginal productivity. For Fetter the marginal productivity theory of distribution becomes the marginal productivity theory of rent determination for every factor of production. In this way, Fetter generalized the narrow classical analysis of land rent into a broader theory of factor pricing. But if every factor earns a rent in accordance with its marginal product, where is the interest return to capital? Where does interest fit in? Here Fetter made his second vital and still unappreciated contribution to the theory of distribution. He saw that the Austrian Eugen von Böhm-Bawerk, in the second volume of his notable Capital and Interest, inconsistently returned to the productivity theory of interest after he had demolished that theory in the first volume. After coming to the brink of replacing the productivity theory by a time-preference theory of interest, Böhm-Bawerk withdrew from that path and tried to combine the two explanations — an eclecticism that capital and interest theory (in its "real" form) has followed ever since. Fetter approached the problem this way: If every factor earns a rent, and if therefore every capital good earns a rent, what is the source of the extra return for interest (or "long-run normal profit," as it is sometimes called)? In short, if a machine is expected to earn an income, a rent, of$ 10,000 a year for the next ten years, why does not the market bid up the selling price of the machine to $100,000? Why is the current market price considerably less than $100,000, so that in fact a firm that invests in the machine earns an interest return over the ten-year period? The various proponents of productivity theory answer that the machine is "productive" and therefore should be expected to earn a return for its owner. But Fetter replied that this is really beside the point. The undoubted productivity of the machine is precisely the reason it will earn its $10,000 annual rent; however, there is still no answer to the question why the market price of the machine at present is not bid high enough to equal the sum of expected future rents. Why is there a net return to the investor? Fetter demonstrated that the explanation can only be found by separating the concept of marginal productivity from that of interest. Marginal productivity explains the height of a factor's rental price, but another principle is needed to explain why and on what basis these rents are discounted to get the present capitalized value of the factor: whether that factor be land, or a capital good, or the price of a slave. That principle is "time-preference": the social rate at which people prefer present goods to future goods in the vast interconnected time market (present! future goods market) that pervades the entire economy. Each individual has a personal time-preference schedule, a schedule relating his choice of present and future goods to his stock of available present goods. As his stock of present goods increases, the marginal value of future goods rises, and his rate of time-preference tends to fall. These individual schedules interact on the time market to set, at any given time, a social rate of time-preference. This rate, in turn, constitutes the interest rate on the market, and it is this interest rate that is used to convert (or "discount") all future values into present values, whether the future good happens to be a bond (a claim to future money) or more specifically the expected future rentals from land or capital. Thus, Fetter was the first economist to explain interest rates solely by time-preference. Every factor of production earns its rent in accordance with its marginal product, and every future rental return is discounted, or "capitalized," to get its present value in accordance with the overall social rate of time-preference. This means that a firm that buys a machine will only pay the present value of expected future rental incomes, discounted by the social rate of time-preference; and that when a capitalist hires a worker or rents land, he will pay now, not the factor's full marginal product, but the expected future marginal product discounted by the social rate of time-preference A glance at any prominent current textbook will show how far economics still is from incorporating Fetter's insights. The textbook discussion typically begins with an exposition of the marginal productivity theory applied to wage determination. Then, as the author shifts to a discussion of capital, "interest" suddenly replaces "factor price" on the y-axis of the graph, and the conclusion is swiftly reached that the marginal productivity theory explains the interest rate in the same way that it explains the wage rate. Yet the correct analog on the y-axis is not the interest rate but the rental price, or income, of capital goods. The interest rate only enters the picture when the market price of the capital good as a whole is formed out of its expected annual future incomes. As Fetter pointed out, interest is not, like rent or wages, an annual or monthly income, an income per unit time earned by a factor of production. Interest, on the contrary, is a rate, or ratio, between present and future, between future earnings and present price or payment. Fetter's theory makes it impossible to say that capital "earns," or generates an interest return. On the contrary, the very concept of capital value implies a preceding process of capitalization, a summing up of expected future rental incomes from a good, discounted by a rate of interest. Rent, or productivity, and interest, or time-preference, are logically prerequisite to the determination of capital value. Frank A. Fetter's earliest article in this collection, a review of Frank W. Taussig's Wages and Capital: An Examination of the Wages Fund Doctrine (New York: D. Appleton, 1896), was written in 1897 and sets the pace for the articles in the first part of this book. Here Fetter criticized Taussig's attempt to revive the classical notion of the "wage fund." Rather than attempting to explain aggregate wage payments, Fetter recommended explaining individual wage rates. Fetter's first full-length article on capital was his "Recent Discussion of the Capital Concept" (1900). In it he compared the theories of capital offered by Böhm-Bawerk, John Bates Clark, and Irving Fisher. Fetter did less than full justice to Böhm-Bawerk's subtle insistence on the defects of the idea of capital as merely a fund, especially in comparing or measuring concrete capital goods that differ from each other. Above all, Fetter, in properly concentrating on a fund of capital value as an attribute of all durable productive goods, never fully realized the importance between land (the original producer's good) and capital goods (created or produced producer's goods). In fact, Fetter's idea of capital as a fund of value and the Austrian view of capital as concrete capital goods are not inconsistent; they play roles in different areas of capital theory. Of special interest is Fetter's charge that Böhm-Bawerk's intention was to establish a labor theory of property in capital goods. Furthermore, when Fetter declared that Böhm-Bawerk was inconsistent in classifying man-made improvements permanently incorporated into the land as "land" itself, he apparently did not realize that for Austrian economists the crucial criterion for classifying a good as "land" is not its original nature-given state but its permanence as a resource (or, more precisely, its nonreproducibility). Goods that are permanent, or nonreproducible, earn a net rent, whereas capital goods, which have to be produced and maintained, only earn a gross rent, absorbed by costs of production and maintenance. Here is a vital distinction between land and capital goods that Fetter completely misunderstood (see my Man, Economy, and State, 2 vols. [New York: D. Van Nostrand, 1962], 2:502–4). Fetter, however, took his stand squarely with Böhm-Bawerk and against Clark when he denied that capital is a permanent fund and that production ever becomes "synchronous," thereby eliminating the time dimension between input and output. This same controversy was to reappear dramatically in the 1930s in publications of Frank H. Knight (advancing the Clark position) and those of Friedrich A. Hayek and Fritz Machlup (representing the Austrian view). On the other hand, Fetter praised Irving Fisher's theory of capital (The Rate of Interest: Its Nature, Determination, and Relation to Economic Phenomena [New York: Macmillan Co., 1907]) in places where it deviated from the Austrian view and criticized it where it conformed to the Austrian position. Thus, Fisher's distinction between capital and income (based on the differences between stock and flow measurements) is commended because it eliminates the need for distinguishing between land and capital goods. On the other hand, Fetter objected to Fisher's highly sensible insistence that the concept of concrete physical capital goods is logically prerequisite to the concept of abstract capital as a fund of value. Furthermore, Fetter objected to the Austrian view, also in Fisher, that capital goods are way stations on the path to producing more consumer goods, and that they are therefore "used up" in production. Fetter cited machines and land ("natural agents") as goods that do not advance toward the status of consumer goods. But machines advance toward consumer goods precisely by being impermanent, that is, by being used up in the march of production toward the goal of consumption; and the fact that land is not used up in this way is precisely the reason for distinguishing it from capital goods. In his 1902 review of Böhm-Bawerk's Einige strittige Fragen der Capitalstheorie Fetter quite properly pointed to the major textual contradiction in Böhm-Bawerk's theory of interest: Böhm-Bawerk's initial finding that interest stems from time-preference for present over future goods is contradicted by his later claim that the greater productivity of roundabout production processes is what accounts for interest. However, when criticizing Böhm-Bawerk's productivity theory of interest, it was not necessary for Fetter to dismiss Böhm-Bawerk's important conception of roundaboutness or the period of production. Roundaboutness is an important aspect of the productivity of capital goods. However, while this productivity may increase the rents to be derived from capital goods, it cannot account for an increase in the rate of interest return, that is, the ratio between the annual rents derived from these capital goods and their present price. That ratio is strictly determined by time-preference. "The Nature of Capital and Income" (1907) offered a review of Irving Fisher's book of the same title. Fetter hailed Fisher's use of the capitalization concept of capital as well as Fisher's abandonment of his previous view that the stock/flow concept of capital and income applied to the same concrete goods. Here, Fisher shifted to an abstract and generalized conception of stocks and flows. But, as Fetter noted, this very abstraction rendered the whole stock/flow dichotomy untenable. Fisher's treatment of income as strictly psychic income, to the virtual exclusion of money income, is properly criticized, as is the corollary that only consumption is income, and therefore capital gains are not income and should not be subject to an income tax. Finally, Fetter, who had himself been working on an integrated theory of income distribution, found that Fisher's theory of capital and income had an ad hoc flavor because it had been developed separately from the remainder of Fisher's distribution theory. In "Are Savings Income — Discussion?" (1908), Fetter elaborated on his criticism of Fisher's view that savings, or rather additions to capital, are not income, and that the term income should be limited to consumption expenditure only. Fetter correctly pointed out that Fisher confused the concept of ultimate psychic income, which indeed consists only of consumption, with the concept of monetary incomes acquired in the market, which are partially saved and partially consumed. Two decades later (1927) Fetter returned to the theory of capital in his contribution to the Festschrift honoring John Bates Clark. In the course of reviewing Clark's contributions to the theory of capital, Fetter praised Clark for treating capital as a fund rather than as an array of heterogeneous capital goods and for offering a general definition of rent as the income from all capital goods and not just the income from land. Böhm-Bawerk is criticized once again for clinging to the identification of capital and interest (instead of realizing how interest permeates the entire time-value market), but this cogent criticism is again misleadingly linked to an attack on Böhm-Bawerk for maintaining a distinction between land and capital goods. In this article, F. W. Taussig is criticized for allegedly maintaining that only land, and not capital, is productive. But here Taussig was not simply in the throes of the labor theory of value; rather, he was adopting the subtle Böhm-Bawerkian insight that, while capital goods are evidently productive, they are not ultimately productive, for they have to be produced and reproduced by labor, land, and time, so that capital goods earn gross rent, but not net rents, which go only to labor and land factors. Hence again we encounter the importance of the land-capital goods distinction. As for interest, it is entirely the result of time-preference; in the case of a capital good, interest depends on first producing the capital good by combining labor and land and then on reaping the fruits of this combination at a later time. The very distinction between land and capital goods so resisted by Fetter was thus used by Böhm-Bawerk to pave the way for Fetter's own theory of interest! Of particular importance in this 1927 essay is Fetter's critique of Alfred Marshall's capital theory. Always an unsparing logician, Fetter relentlessly criticized the myriad of inconsistencies, confusions, and contradictions in Marshall's discussion. Fetter also added to his previous criticisms of Fisher's capital theory a review of the inconsistency in adopting a wealth-at-one-time/services-at-one-time distinction between capital and income on top of his previous stock/flow dichotomy. Fetter's contribution entitled "Capital," which appeared in the Encyclopedia of the Social Sciences (1930-35), is a convenient summation of his views on capital as well as his criticisms of alternative theories. It is clear that his exclusive concern with capital as a fund, or as "the market value [of] the present worths of… individual claims to incomes," is a consequence of his dissatisfaction with the productivity theories of interest and his desire to establish "capital value" as simply the capitalized sum of expected future rental incomes. Frank A. Fetter's pioneering development of the pure time-preference theory of interest began with his article "The 'Roundabout Process' in the Interest Theory" (1902). Here Fetter hailed Böhm-Bawerk as the first to state properly the central problem of interest theory: To explain why present goods are valued more highly than future goods. But after starting out with time-preference as the proper explanation, Böhm-Bawerk introduced his "third ground" for interest — the greater productivity of roundabout processes of production — and argued that it was the most important reason present goods had higher values than future goods. When offering his detailed critique of Böhm-Bawerk's "third ground," Fetter explained how Böhm-Bawerk had failed to separate the undoubted increase in physical productivity, resulting from an increase in capital, from a claimed increase in the "value" productivity of capital. Fetter noted that an increase in the value of capital (as distinct from its physical amount) will increase the value productivity of capital if and only if the interest rate remains constant. In other words, Böhm-Bawerk's productivity explanation of interest makes use of the concept of the present value of capital and therefore assumes that the interest rate is already given, since it is needed to determine the present value of capital. Thus, Böhm-Bawerk's productivity explanation of interest involved circular reasoning. Similarly, Fetter noted that one determinant of the degree of capitalization, or the degree of roundaboutness of production processes in the economy, is precisely the interest rate — the rate of present capitalization of future rents. Here is still another example of circular reasoning. For the remainder of his 1902 article, Fetter elaborated on his critique (outlined above) of the Austrian separation of land and capital goods, and the idea of the period of production. Here it might be noted that Fetter's perfectly valid point about land capitalization in the market by way of the interest rate does not negate the Austrian distinction between land and capital goods. According to the Austrian school "capital" and "capital goods" are separate and distinct concepts. Furthermore, Fetter's repeated attempts to attribute a labor theory of capital value to Böhm-Bawerk are contradicted by his own admission that both land and time enter into the Austrian view of the production of capital. Fetter, however, made an important point in criticizing Böhm-Bawerk's formulation of the "average period of production," especially the idea of ex post averaging of the various periods of production throughout the economy. Fetter also cogently attacked Böhm-Bawerk's attempt to leap from the increased physical productivity of roundabout processes to value productivity by the use of purely arithmetical tables. Here Fetter leveled a (characteristically Austrian) critique of the use of mathematics in economics against an economist who was himself a leading critic of the mathematical method. In his 1902 article, Fetter offered another brilliant criticism of Böhm-Bawerk's "third ground." Böhm-Bawerk tried to use the greater productivity of capital to explain why these "present goods" are worth more than "future goods" when the capital comes to fruition as consumer goods. But, as Fetter pointed out, since capital instruments only mature into consumer goods at various times in the future, capital goods are really future goods, not present goods. If, then, we concentrate on utility to consumers, capital goods are seen to be future goods, and the "third ground" for an extra return to these (future) capital goods as being more productive "present goods" becomes totally invalid. We may apply Fetter's insight to the current textbook explanations of interest rate determination in the market for productive loans. The supply curve of loanable funds is conventionally explained by time-preference, while the demand curve for loans by business firms is explained by reference to the "marginal productivity of capital" — in short, by the "natural" rate of interest embodied in the long-term normal rate of profit. But the firm that borrows money in order to hire workers or to buy capital goods is really buying future goods in exchange for a present good, money. In short, the business borrower, like the saver-creditor who lends him money, is buying a future good whenever he makes an investment. If we assume, for example, that there are no business loans but only stock investment, this point is easier to understand. When a man saves and invests in a productive process, he pays workers and other factors now in exchange for services that will yield a product, and therefore an income, at some future time. In short, the capitalist-entrepreneur hires or invests in factors now and pays out money (a present good) in exchange for productive services that are future goods. It is for his service in paying factors now, in advance of the fruits of production, that the capitalist normally earns an interest return, a return for time-preference. In sum, every factor of production (whether labor, land, or capital goods) earns, not its marginal value productivity, according to the current conventional explanation, but its marginal productivity discounted by the interest rate or time-preference; and the capitalist earns the discount. Fetter also cogently argued that Böhm-Bawerk in effect used one explanation (the "third ground") for interest on producer goods and another (the notion of time-preference) for interest on consumer loans. Since interest must have a unitary explanation, Böhm-Bawerk's analysis is something of a retrogression. Fetter stressed the basic weakness of all productivity explanations of interest. It is not enough, he pointed out, to show that more capital is productive in physical or even value terms; the problem is to explain why the value of capital on the market today is low enough to generate a surplus value return tomorrow. The productivity of capital has nothing to do with the solution to this problem. As Fetter wrote:
Fetter pointed out ironically that Böhm-Bawerk himself, in criticizing earlier productivity theories of interest, had raised precisely the same point. Even conceding that very long roundabout processes may be physically highly productive, Fetter pointed out that the question remained unresolved in Böhm-Bawerk why these processes are not then always preferred to less productive, but more immediately fruitful, processes. Fetter concluded by reiterating his unique position on the relationship between interest and rent. Rent reflects the (marginal) productivity of scarce factors of production, and interest reflects the present valuation of future services and therefore depends, not at all on roundaboutness, but on the postponement of use. The theory of interest, Fetter concluded, "must set in their true relation the theory of rent as the income from the use of goods in any given period, and interest as the agio or discount on goods of whatever sort, when compared throughout successive periods." In the presentation of his theory before the American Economic Association, "The Relations between Rent and Interest" (1904), Fetter pointed out the confusions and inconsistencies of previous writers on the theory of rent and interest. In place of the classical distinction between rent as income from land and interest as income from capital goods, Fetter proposed that all factors of production, whether land or capital goods, be considered either "as yielding uses,… as [a] bearer of rent," or as "salable at their present worth,… as [a] discounted sum of rents," as "wealth" or "capital." As a corollary, rent must be conceived of as an absolute amount (per Unit time), whereas interest is a ratio (or percentage) of a principal sum called capital value. Rent becomes the usufruct from any material agent or factor — the use of the agent considered apart from using it up. But then there is no place for the idea of interest as the yield of capital goods. Rents from any durable good accrue at different points in time, at different dates in the future. The capital value of any good then becomes the sum of its expected future rents, discounted by the rate of time-preference for present over future goods, which is the rate of interest. In short, the capital value of a good is the "capitalization" of its future rents in accordance with the rate of time-preference or interest. Therefore, marginal utility accounts for the valuations and prices of consumer goods; the rent of each factor of production is determined by its productivity in eventually producing consumer goods; and interest arises in the capitalization, in accordance with time-preference, of the present worth of the expected future rents of durable goods. Such is Fetter's lucid, systematic, and unique vision of the relative place of rent, interest, and capital value in the theory of distribution. Fetter's paper was considered so important that nine economists were assigned to discuss it. As Fetter indicated in his reply, few of his commentators demonstrated that they understood his positive theory, and many were only interested in defending the classical school against Fetter's criticisms. To Thomas Nixon Carver's major point that since land, in contrast to other factor services, need not be supplied, land rent does not enter into cost, Fetter replied: (1) that the same sort of surplus, or no-cost, elements may be said to permeate all factors of production, and (2) that land, like other factors, must also be served, maintained, and allocated efficiently. Furthermore, several of the commentators, as Fetter pointed out, mistakenly identified Fetter's theory with that of John Bates Clark and proceeded to criticize Clark's assimilation of rent and interest, despite the fact that Fetter held an almost diametrically opposed view. A decade later Fetter returned to the theory of interest, in "Interest Theories, Old and New" (1914), as part of a critique of Irving Fisher's recantation from his previous adherence to pure time-preference theory, a position he had approached in his The Rate of Interest (1907), and one that influenced Fetter in developing his own theory. But now Fisher was taking the path of Böhm-Bawerk and returning to a partial productivity explanation. Moreover, Fetter discovered that the seeds of error were in Fisher's publication of 1907. Fisher had stated that valuations of present and future goods imply a preexisting money rate of interest, thereby suggesting that a pure time-preference explanation of interest involves circular reasoning. By way of contrast, and in the course of explaining his own pure time-preference, or "capitalization," theory of interest, Fetter showed that time valuation is prerequisite to the determination of the market rate of interest. The market rate of interest on loans is, for Fetter, a reflection of a general rate of time-preference in the economy, a capitalization process that discounts, in the present prices of durable goods and factors of production, the future uses of these goods. Consumers evaluate directly enjoyable consumer goods, then evaluate durable factors according to their productivity in making these goods, and then discount these future uses to the present in accordance with their time-preferences. The first step yields the prices of consumer goods; the second, the incomes or rents of producer goods; the last, the "underestimation" of, or the rate of interest yielded by, the producer goods. Again restating his case, this time in criticizing the views of Henry R. Seager, Fetter pointed to the crucial problem: why does entrepreneurial purchase of factors seem to contain within itself a net surplus, an interest return? The productivity of capital goods does not explain why the value of this expected productivity is discounted in their present price, which in turn permits the entrepreneurs to pay interest on loans with which to buy or hire these factors of production. As Fetter stated: "The amount of interest which 'enterprisers estimate' they can afford to pay... is the difference between the discounted, or present, worth of products imputable to these agents and their worth at the time they are expected to mature." Fetter added that there of course must be productivity to account for the expected future income, just as there must be people and markets; but there would be no rate of interest if the future value of the products were not discounted. Market interest can be paid out of a value surplus that emerges from an antecedent time discount of the "value-productivity" of the factors of production. Or, putting it another way, Fetter readily admitted that productivity of capital goods brings greater value to the final product. "But the value-productivity which furnishes the motive to the enterpriser to borrow and gives him the power, regularly, to pay contract interest, is due, not to the fact that these products will have value when they come into existence, but to the fact that their expected value is discounted in the price of the agents bought at an earlier point of time." Fetter also sharpened the contrast between his own theory and the productivity theory of interest in another way. The productivity theorists assert that as capital grows the economy becomes more productive, and that the interest rate increases owing to the greater productivity of capital. But Fetter countered with the insight that, as the economy advances and more present goods are produced, the preference for present goods is lowered, and the interest rate therefore may be expected to fall. Or, as it might be put more elaborately, everyone has a time-preference schedule relating his supply of present goods with his preference for the present over the future. A greater supply of present goods would move to the right and down along a given time-preference schedule, so that the marginal utility of present goods would fall in relation to future goods. As a result, on the given schedules, the rate of time-preference, of degree of choice of present over future, would tend to fall and so therefore would the interest rate. Fetter also anticipated Frank Knight's classic distinction, in Risk, Uncertainty, and Profit (1921), between interest, or long-run normal profits, on the one hand and short-run profits and losses earned by superior, or suffered by inferior, entrepreneurs on the other — superiority or inferiority defined in terms of the ability to forecast the uncertain future. Why does an entrepreneur borrow at all if in so doing he will bid up the loan rate of interest to the rate of time-preference as reflected in his long-run normal rate of profit (or his "natural rate of interest," to use Austrian terminology)? The reason is that superior forecasters envision making short-run profits whenever the general loan rate is lower than the return they expect to obtain. This is precisely the competitive process, which tends, in the long run, to equalize all natural and loan rates in the time market. Those entrepreneurs "with superior knowledge and superior foresight," wrote Fetter, "are merchants, buying when they can in a cheaper and selling in a dearer capitalization market, acting as the equalizers of rates and prices." Fetter also pointed out, quite correctly, that the process of capitalization and time discount applies as fully and equally to land as it does to capital goods. From the point of view of capitalization, there is no fundamental distinction between land and produced means of production. In fact, Fetter might have pointed out that under slavery, where laborers are owned, they, too, become capitalized, and the present price of slaves becomes the capitalized value of expected future earnings (or "rents") of slaves, discounted by the social rate of time-preference. But the fact that slaves, too, can be capitalized does not justify obliterating for other purposes any and all distinctions between slaves and capital goods. Not only is Fetter's pure time-preference, or capitalization, theory the only one that offers an integrated explanation of interest on slaves, land, and capital goods, but it is also, as he pointed out, the only one that provides an integrated explanation of interest on consumption loans and on productive loans. For even the productivity theorists had to concede that at least in the case of consumer loans interest was occasioned by time-preference. In Fetter's final and extensive treatment of interest, "Interest Theory and Price Movements" (1927), pessimism has replaced his optimism of earlier years; for after an illuminating discussion of early interest theories (in which he rescued Turgot from the deprecation of Böhm-Bawerk), Fetter sadly noted that his insight into interest theory had been ignored. The old productivity theory of interest, having at last conquered Böhm-Bawerk and Irving Fisher, survived as the dominant explanation of interest in the eclectic theory of Alfred Marshall. Among English and American economists, productivity remained the major explanation of interest on productive capital, and time-preference was relegated to an explanation of consumer lending. Fetter proceeded to a particularly extended discussion of the nature of time-preference and the time market. Time-preference enters into primitive, Crusoe-type valuations, which predate the development of barter as well as the emergence of money loans and a money economy. The rates of time-preference reflect all the conditions, the interactions, and the choices of human beings. In almost all cases, present goods are preferred to future goods, and this preference is most marked in primitive man. But, Fetter added, with the development of civilization, the advent of thrift generally means a lowering of the premiums placed on present goods and hence of the rate of time-preference. In the money economy, just as the utility scales of individuals interact to bring about uniform prices on the market, individual time-preference schedules through exchange bring all time-preferences into conformity. The consequence is a social rate of time-preference, a "general, average rate of premium of present dollars over future dollars which has resulted from leveling out a great part of the individual differences." Through arbitrage time-preference rates tend to be equalized throughout the time market. The price of a durable factor of production is derived from the expected price of its products, being the present discount, or capitalized sum, of all of its future products. This capitalization process precedes, rather than follows, the existence of an interest rate on money loans. The time-preference rate that capitalizes future incomes emerges as the long-run normal, or natural, rate of profit of business firms. Short-run deviations from this norm are caused by special circumstances and by entrepreneurial skills. Profit rates tend to be equalized throughout the market through a continuing reevaluation of the prices of durable agents — those capital goods providing a profit being recapitalized upward and those suffering losses being recapitalized downward. This process of recapitalization and reevaluation tends to bring about uniform profit rates, Fetter noted, rather than according to the conventional theory, uniform costs of producing new durable agents. For Fetter, the interest rate on productive money loans and the normal rate of profit tend to equality because they have a common cause: capitalization of time-preferences throughout the time market. As Fetter stated:
Having thus elaborated his concept of time-preference and the time market, Fetter applied his pure theory to the complexities of determining interest in the real world. In the first place, interest rates, in addition to being determined by time-preference, vary in accordance with different degrees of risk, entrepreneurial skill, the cost of making loans, different habits, and legal restrictions. Furthermore, as Fetter pointed out, changes in the price level slow up the market process of equilibrating interest rates and lead to widespread errors of overcapitalization and undercapitalization. In a discussion of money and price levels in relation to the interest rate, Fetter incorporated into his analysis Fisher's insight, now being rediscovered, that interest rates tend to rise during a boom and fall during a recession in response to expected changes in price levels. Rising price levels lower the purchasing power of the creditor's return, and interest rates tend to rise during inflations to compensate for this loss. Conversely, interest rates tend to fall below time-preference rates during a recession to offset the increased real rate of return. But Fetter was not content to stop there. Noting that empirically interest rates do not rise continually during booms, Fetter developed a monetary theory of the business cycle, one that came close to the Mises-Hayek "monetary malinvestment" theory that was being developed in Austria at about the same time (see my America's Great Depression). Fetter explained that a currency inflation from increased government spending raises the price level, which in the long run is determined by movements in the supply of money. But increasing the money supply via bank credit expansion has far more complex consequences. Continuing bank credit expansion not only will bring about a boom and higher prices but also will increase the money supply via a massive increase in the supply of loanable funds emitted by the banks. The increased money supply will keep the rate of interest below the free-market rate, at least until later stages in the boom, and will bring about an overcapitalization of durable and producers' goods. Owing to the increase in product prices combined with the artificially low rates of interest, businessmen are led into numerous unsound investments. When the banks are finally forced to stop their credit expansion, the overestimation of capital values is suddenly reversed, and the boom is quickly succeeded by a recession. Business failures, monetary losses, and lowering of capital values bring the various parts of the system of prices and values on the market once more into harmony. In particular, that part of the market not influenced by bank credit is brought into harmony with the remainder of the economy. Such is the function of the recession in response to the distortions generated by the bank credit expansion of the preceding boom. Criticizing the theory that bank credit should simply be responsive to the "needs of business," Fetter properly pointed out that during a boom business overestimates its "needs" in response to rising prices and the seemingly greater opportunities for profit. In this way, bank credit expansion stimulates those very business "needs" that are supposed to furnish a rigorous criterion for bank credit policy. Fetter also provided a useful critique of the Swedish economist Knut Wicksell's theory that if banks should continue to hold the interest rate below the natural, or free-market, rate, the price level would rise indefinitely. Fetter pointed out that this could only be true if the lowering of the discount rate was accompanied by a continuous expansion of bank credit. Fetter concluded this discussion of interest theory by applying it to the economics of war. During wartime there is a sharp increase in rates of time-preference, in the demand for present goods immediately usable for war purposes. Consequently, there is a substantial rise in wartime of free-market interest rates. Fetter was therefore highly critical of the common attempts by governments to keep interest rates low during wartime, thus creating economic distortions and preventing high interest rates from smoothly shifting resources from civilian industries to war industries, which have a higher immediate demand for funds. Fetter's major article on the theory of rent, "The Passing of the Old Rent Concept" (1901), was one of his most notable essays. It is a detailed critique of the several mutually contradictory rent theories found in Alfred Marshall's Principles of Economics. First is the Ricardian notion that rent is the return to land. The problem of "explaining" rent becomes equivalent to defining what land is and why it is different from capital. Fetter attacked the distinction made between land and capital by criticizing the idea that land can be distinguished from capital in terms of its alleged inelasticity of supply. Fetter argued that both land and capital can be increased in the long run, while in the short run the supply of capital goods can be as inelastic as the supply of land. Fetter next turned his attention to the influential doctrine of quasi-rents. According to Marshall, land (as well as other nonreproducible goods, such as paintings and rare jewelry) is permanently fixed in supply and therefore earns a true rent. Capital goods, however, are fixed in supply only in the short run, and therefore their income, while similar to land rent, is only temporary, hence the term "quasi-rent." Fetter uncovered the crucial error in Marshall's claim that quasi-rents are not part of the cost of production. In making this claim, Marshall had quietly shifted his discussion from the entrepreneur to the owner of the capital good who "earns an income" rather than "pays a cost." Thus instead of being a costless surplus to the entrepreneur, rent "is essentially that payment which, as a part of [money] costs, prevents the [entrepreneur] from getting any surplus which can be attributed to the rented agents." At the base of the Marshallian error in the quasi-rent doctrine, stated Fetter, is a confusion between money costs and the rather mystical concept of "real costs." Money costs of production do not consist of "real" costs; they are simply the market value of the factors of production that the business firm contracts to put to use. To make rent a "surplus" over real cost is tantamount to abandoning the basic notion of rent as a regularly accruing income produced by way of market exchange. Fetter criticized Marshall's adherence to the classical notion that rent is the one income payment that does not enter into the money cost of production, or into the supply price of factors of production. Fetter noted that the rent of land enters into money costs as does any other contractual payment, as any land-renting farmer or businessman can attest. The Marshallian reply that land is employed up until the no-rent margin and therefore has no effect on decisions to produce a little more or less of the product is dismissed by Fetter's demonstration that the same could be said about any factor payment whatsoever by way of generalizing the law of diminishing returns into the law of variable proportions. There is simply nothing special about land rent in this regard. Furthermore, Fetter pointed out that no producer ever pushes a factor as far as the "no-rent" margin; here economic reality contradicts the infinitesimally small units of mathematical economics. For so long as a factor remains productive at all, it will pay a rent in accordance with that productivity, no matter how small. And, furthermore, the supply of any good is determined fully as much by rent-bearing as by marginal units. In sum, land is priced in the same way as labor or capital in terms of the value of its marginal product. In his "Comment on Rent under Increasing Returns" (1930), Fetter demolished the idea of increasing returns and called for an extension of the concept that rent accrues to land to the notion that rent accrues to the separable uses of any kind of durable good whatsoever. Finally in his article on "Rent" in the Encyclopedia of Social Sciences, Fetter traced the history of the notion of rent and defined rent in the common-sense meaning of "renting-out": the amount paid for the separable uses of a durable agent "entrusted by the owner to a borrower, to be returned in equally good condition." It may be that the hallmark of Frank A. Fetter's approach to economic theory was his "radicalism" — his willingness to discard the entire baggage of lingering Ricardianism. In distribution theory his most important contributions are still too radical to be accepted into the corpus of economic analysis. These are: (1) his eradication of all productivity elements from the theory of interest and his development of a pure time-preference, or capitalization, theory and (2) his eradication of everything pertaining to land, whether it be scarcity or some sort of margin over cost, in the theory of rent, in favor of rent as the "renting out" of a durable good to earn an income per unit time. Guided by Alfred Marshall and by eventual retreats toward the older view by Böhm-Bawerk and Fisher, microeconomic theory has chosen a more conservative route. Despite the attention and the enthusiasm accorded to his writings at the time, Fetter's contributions to distribution theory have fallen into neglect and disuse. It is to be hoped that this collection of essays will bring Fetter's contributions and his lucid and systematic economic vision to the attention of contemporary economists. | ||
| And Now for a Really Bad Response to Political Calamity: Autarky Posted: 14 Apr 2022 10:00 AM PDT The world is in chaos, so politicians MUST do something. Hence, they demand autarky, which is like attempting to put out a fire by pouring gasoline on it. Original Article: "And Now for a Really Bad Response to Political Calamity: Autarky" This Audio Mises Wire is generously sponsored by Christopher Condon. | ||
| The Fed Wanted Inflation, Now They Have No Idea What to Do Posted: 14 Apr 2022 09:15 AM PDT In this episode of Radio Rothbard, Ryan McMaken and Tho Bishop take a look back at previous statements by current members of the Fed. For years, the Fed said the biggest problem was a lack of inflation. Now, with inflation at historic heights, is there any reason to believe the Federal Reserve is prepared for what to do next? Recommended Reading"The Fed Who Cried Growth" by Jonathan Newman: Mises.org/RR_77_A "We Still Haven't Reached the Inflation Finale" by Brendan Brown: Mises.org/RR_77_B "Real Wages Fall Again as Inflation Surges and the Fed Plays the Blame Game" by Ryan McMaken: Mises.org/RR_77_C "Do Inflationary Expectations Cause Inflation? Contra Krugman, the Answer Is No" by Frank Shostak: Mises.org/RR_77_D "The Fed Can't Fix the Economy, but It Can Break It" by Jon Wolfenbarger: Mises.org/RR_77_E "Kashkari Said What?" by Robert Aro: Mises.org/RR_77_F Understanding Money Mechanics by Robert P. Murphy: Mises.org/BobMoney Be sure to follow Radio Rothbard at Mises.org/RadioRothbard. | ||
| Political Upheaval Is Not Threatening “Our Democracy.” Our Democracy Is. Posted: 14 Apr 2022 09:00 AM PDT Attempting to understand the political polarization and dysfunction that has increasingly come to define American politics in the twenty-first century requires grappling with a host of interconnected phenomena. The gradual transformations undergone by the Republican and Democratic parties, which saw the steady elimination of liberal Republicans and conservative Democrats, have deep historical roots. For all its apparent complexity, however, our political dysfunction largely stems from a small set of easy-to-understand problems. We must, therefore, resist the popular urge to attribute polarization to specific figures, such as Trump or Obama, and instead look at the structural reasons these figures emerged when they did and into what environment. History, as Scott Horton says, didn't start this morning. Single-Winner, First-Past-the-Post DistrictsThe problem is, in part, an inherited one. For all their ingenuity and creativity in crafting an experimental new kind of government, the Founders directly adopted the British system of elections at the district level. This was understandable, there being few if any applicable historical or contemporary examples they could look to for guidance, and this feature of the British electoral model apparently worked fine. And in a parliamentary system, where the effective head of government is the de facto leader of a majority coalition in parliament, the model can and does work fine. In presidential systems not so much. This has always been a bug more than a feature. And as the American political scientist Lee Drutman has documented, it is telling that while many governments around the world have amended their electoral rules, switching from single-winner, first-past-the-post districts to split-member proportional districts, none have made the switch from the latter to the former. Uncompetitive DistrictsDue to a combination of geographical sorting and gerrymandering, 94 percent of Congressional districts in the United States are now what political scientists designate as uncompetitive. This means one party enjoys so much local popular support it de facto controls that congressional seat. In these districts, the greatest threat therefore comes from a candidate's own party—typically from farther right or left depending on whether the district is Republican or Democrat controlled. This effectively means the winner of that party's primary becomes the de facto congressional representative for the district. As political participation fell across the board from the 1970s through the 2000s, primary voter turnout fell with it. Today, just 28 percent of registered voters nationwide turn out on primary day—up from 14 percent a decade ago. Those who turn up are generally the most ideologically committed partisans of their parties and they effectively choose upwards of 90 percent of Congress's members. Unsurprisingly, under these conditions it was increasingly the most partisan of their parties each sent to Congress. The Nationalization of ElectionsThis was essentially the ideological purification of brands. As the geographical sorting and ideological party realignments of the 1960s–90s documented by Alan Abramowitz unfolded, party leaders increasingly sought to distinguish their party by emphasizing its ideological commitments. The strategy, pioneered by Newt Gingrich, sought to replace discussions of local issues with the major issues separating the two national parties as the dividing lines in local races. Because the two parties were increasingly distinct both ideologically and demographically, along urban/rural, college educated / blue collar, secular/Christian, nonwhite/white, political fights at the national level came increasingly to be about the character of the country itself. Under such circumstances, the stakes involved are perceived to dramatically increase. For, unlike distributional questions, questions of national identity cut to who we are and what are values are. Combined with a uniquely competitive electoral environment, politics has increasingly come to resemble warfare rather than reasoned debate. Insecure MajoritiesAbout that newly competitive electoral environment, as Frances Lee outlined in her important book insecure majorities were a relatively rare occurrence in American politics in the twentieth century. From the Civil War onward Republicans essentially dominated the White House and Congress until FDR's landslide, which ushered in a period of Democratic dominance. From the end of the Second World War until 1994, Democrats controlled the House for forty-five of forty-nine years—with the Senate much of the time as well. When one party enjoys such broad support, the dynamics of negotiations between parties are fundamentally different than when either party could find itself in power come next November. Where much of the twentieth century saw minority parties positively collaborating in the legislative process, using what power they had to pragmatically shape legislation more to their liking, American politics in the twenty-first century has been defined by strategic opposition—betting, in effect, that fiercely opposing your opponent's legislative initiatives will prove more popular with your own voters than will making compromises to govern more effectively. The Growth of GovernmentDemocracy in America, in the Tocquevillian sense, evolved naturally out of deeply rooted social, economic, and political interrelations at the local level. But for much of its history "democracy," in the modern parlance of one person one vote, was not practiced in the United States. Real universal suffrage arrived late, in the 1960s. It brought with it subsequent enlargements of a federal government already too big, and it was this expansion, perhaps more than anything else, that destroyed the foundations of democracy in America. First, politics gradually ceased being local. The growing power and wealth concentrated in Washington led naturally to an alienation of the people from the power that they collectively supposed to be theirs. And the people's collective faith in their government, by any number of metrics, steadily declined from the 1960s onward. Second, the expansion of the government obviated the purpose of most of the prior institutions of civil society, the very foundations of democracy. Schools were placed under the purview of Washington, while the many mutual aid societies and church groups central to community life were outright replaced or marginalized. Citizens were torn from their collective institutions, placed at home, and told to write a letter to their representative or donate to one or the other party. The truth is that over the course of the twentieth century, America gradually traded democracy for statism. ConclusionWhile there are other factors that bear consideration—and some, like the centralization of party leadership and the increasing influence of corporate lobbying over the legislative and electoral processes, bear significant shares of the blame—these five interconnected issues are most to blame for the dysfunction that has made America's once enviable government a laughingstock the world over. While the process was a gradual one, and therefore passed largely unobserved, today historians of American politics can clearly delineate the development of this trend towards less pragmatic politics: for in a political incentive structure where candidates feel most answerable to their own party's most radical partisans, what incentive is there to compromise in order to govern more effectively? Answer, unless you believe politicians are solely guided by pursuit of the public good, rather than with an eye toward their own chances at reelection, none. In case you are in any doubt, as a GOP strategist succinctly explained: "If the purpose of the majority is to govern, then the purpose of the minority is to become the majority." Though it is obvious something must be done, because any change to the status quo would threaten the collective monopoly on power they have long enjoyed, Republicans and Democrats predictably oppose even mild attempts at reform, such as rank choice voting—let alone the more radical but desperately needed switch to multimember proportional districts. We are therefore likely to see only more increasingly desperate efforts by both Democrats and Republicans to capture the state, producing more dysfunction—until, finally, the system fails completely. This posting includes an audio/video/photo media file: Download Now | ||
| Posted: 14 Apr 2022 08:15 AM PDT Russian oligarchs, American pols, and state-connected billionaires are all cut from the same cloth: they didn't earn, or fully earn, their wealth and position in society. We must withdraw our sanction of these people. Original Article: "The Wrong Elites" This Audio Mises Wire is generously sponsored by Christopher Condon. | ||
| How Russia Uses Immigration and Naturalization to Grow State Power Posted: 14 Apr 2022 07:45 AM PDT While the North Atlantic Treaty Organization's expansion has been a central issue in the Russian decision to go to war with Ukraine, this is certainly not the only issue. Moscow has repeatedly maintained that a central factor in its decision was the protection of ethnic Russian minorities in eastern Ukraine from human rights abuses committed by the Ukrainian state. This justification for military intervention has used more than once in recent decades. We saw similar tactics used in Abkhazia and South Ossetia, both in Georgia. The Russian annexation of the Crimea in 2014 used similar rhetoric. Moreover, the Russian state has justified military interventions on grounds that it was protecting the local political independence and autonomy of these minority groups from their respective states' central governments. Notably, the Russian regime extended citizenship to the populations of the separatist regions in question either before or after the military intervention in each case. This was done by granting passports to the residents of each region en masse, in a process called passportization. Most recently, this has also been done in eastern Ukraine, where passportization—as in Georgia—helped set the stage for military intervention. This use of citizenship and naturalization as a tool of foreign policy helps to illustrate some of the geopolitical implications of the existence of unassimilated ethnic or linguistic minorities within a state's borders. These realities also call into question what are often overconfident assumptions that ethnic minorities will "assimilate" and abandon political allegiances with foreign states. In fact, as the Russian efforts in these areas suggest, the process of assimilation can actually be thrown into reverse, with disastrous results for those who are on the losing end of these changes. A Brief History of PassportizationThe Russian passportization effort stems from an apparent shift in the Russian regime toward incorporating Russian ethnics and other sympathetic groups—and the territories they inhabit—into a de facto or de jure union with the Russian state. Some have attributed this strategy specifically to Vladimir Putin, to whom has been attributed the so-called Putin doctrine of "Once Russian, always Russian." This doctrine, to the extent that it actually exists, is nonetheless heavily constrained by political realities. Even if Moscow has big plans for reclaiming numerous parts of the old Soviet Union, the fact is Moscow does not possess the military capability to do so. The fact Moscow's occupation efforts in Ukraine are limited to the south and southeast is only the latest evidence of this. Rather, efforts to bring new territories under Moscow's sway have only worked in areas where the Russian state has first turned a sizable portion of the local population into Russian citizens via the passportization strategy. The Russians did not invent the idea of basing citizenship on ethnicity or cultural bonds. Broadly speaking, the idea that a regime has duties toward subjects living outside its own geographic jurisdiction is an ancient one. Citizenship and state control have not always been tied to physical location, as they are in the modern system of territorial states. Nonetheless, the Russian state has apparently adapted the notion for modern use. The current passportization tactic began approximately twenty years ago. As explained by the Verfassungsblog:
(Passportization has also been a significant development in Transnistria, a separatist region of Moldova that lies on the southwestern Ukrainian border.) Similar tactics were then used in the Donbas region of Ukraine after 2019:
In each case—Georgia in 2009 and Ukraine in 2022—this reverse assimilation of ethnic Russians was followed by military action to secure the territories newly populated by Russian citizens. Encouraging Immigration into CrimeaWhen Moscow annexed the Crimea in 2014, the order of events was slightly different. In the case of the peninsula, annexations preceded widespread passportization, but Moscow benefited from the fact the Crimean population was already overwhelmingly ethnic Russian and sympathetic toward Russia. Crimean residents that did not have Russian passports received them soon after the annexation was executed. Moreover, to ensure the annexation had "staying power" the Russian regime encouraged immigration of ethnic Russians into the Crimea. Some sources estimate that more than a hundred thousand Russian migrants have resettled on the peninsula in the wake of the annexation, while a similar number of anti-Russian residents have left. Demographics and Legal Citizenship MatterIt is important to note that in these cases, the extension of Russian citizenship was not simply a formality. Russian citizenship has come with access to social benefits through the Russian state, such as pensions, and recipients of the new passports have in many cases also been able to vote in Russian elections. Moreover, Russian citizenship brings with it a right to immigrate to Russia, which is a step up for many residents of the territories targeted for passportization. Russia's GDP (gross domestic product) per capita, after all, is nearly twice that of Ukraine. Many residents of eastern Ukraine have elected to migrate to Russia following passportization. This has helped to buttress Russia's population in a time of demographic decline. For the most part, passportization has served an important geopolitical purpose for Moscow: it has fundamentally changed the demographics of each targeted region, increasing the proportion of residents that are closely tied to the Russian state and fostering a larger role for Moscow in these areas that were formerly controlled by other states. In each case, Moscow was only able to carry out these efforts because the pro-Russian minority groups were never "assimilated" or integrated into the linguistic and ethnic majorities. This created cleavages in the Ukrainian and Georgian populations that Moscow was able to exploit. The Limits of Western Ideas about Minority PopulationsIn the West, where institutions (i.e., governments, markets, schools) are richer, stronger, and consequently better able to integrate minority groups, this phenomenon of reverse assimilation is not nearly as plausible. In much of the world, however, weak states bordered by larger and richer states are quite susceptible to efforts by foreign states to entice residents with offers of citizenship and access to foreign labor markets and foreign social benefits. Georgia and Ukraine—relatively poor and isolated states—are prime examples of where this strategy can work. These developments also illustrate the limits of many proimmigration bromides about immigration. Residents of the wealthy West tend to have great confidence that ethnic minority groups are all on a clear path to integration and that all ethnic groups within a state will all enthusiastically work together to peacefully unify. It is also assumed that ethnic minorities within states are extremely unlikely to destabilize local regimes or pose any sort of real geopolitical threat. This is very often—if not usually—not the case outside the wealthy West. This posting includes an audio/video/photo media file: Download Now | ||
| Fighting Back: My Legal and Ethical Battle against Covid Mandates Posted: 14 Apr 2022 07:00 AM PDT Recorded in Birmingham, Alabama, on April 2, 2022. Special thanks to Mark Walker for sponsoring this event. | ||
| How Fully Private, No-Insurance Hospitals Help the Common Man Posted: 14 Apr 2022 04:00 AM PDT How does one make an economic decision when the price of a good is not evident? To any adherent of the Austrian school, this of course is impossible. There is no way to decide whether to purchase something if the only way of knowing the price is after committing. For example, who would fill up their car only to see what the price was at the end? No one. In no aspect of life would this make sense, yet it is the standard in the American healthcare system. This is the predicament I was in. I needed a minor outpatient surgery and tried to weigh my options, but this was impossible without knowing the price of the surgery. If I had some idea, I could at least gauge how much I would need to save. No prices were provided at any nearby facility to someone without insurance. Fine, I could go ahead and get health insurance through my employer. But the price was still unclear. I knew what I would pay annually for insurance (about $3,000), I knew my deductible (about $2,000), and I knew the percentage of the procedure's cost the insurance would cover (80 percent). I didn't know the amount of the surgery. I could at least search for average prices online and take a guess. The range was ridiculously broad, but at best, this was a $4,000 surgery, so in short, the absolute best-case scenario was $5,800, with me dropping the insurance after a year. I needed the surgery, but I was in no place to consider the $5,800-and-up range. I would have to wait. In June 2021, the Mises Institute held the Medical Freedom Summit in Salem, New Hampshire, and one of the speakers was Dr. G. Keith Smith of the Surgery Center of Oklahoma, an institution that is truly free market and receives no money from the federal government. He spoke of the successes of his business and of the simple model he and Dr. Steve Lantier established in 1997. Smith describes their first patient experience as follows:
In short, Smith asked his colleagues what a fair price would be for them, he cut out all the middlemen, and everyone won; the doctors profited and the patient saved a small fortune. A win-win, as is common in actual free market exchanges. He later told the story of a Georgia man who was quoted $40,000 for his surgery at home. The Surgery Center of Oklahoma quoted him $4,000. Upset at having lost a patient to them already, the man's hometown surgeon decided to match the price. The patient told Dr. Smith that the Surgery Center of Oklahoma "had saved him $36,000 and … hadn't even performed his surgery." I was of course curious about their answer to my own problem, so I went to their website. It was simple: $3060 out of pocket for everything. I reached out to the center and they put me in contact with the surgeon's office to set the date. Since I was coming from out of town, they scheduled me for a Monday morning consultation and surgery in the afternoon—no repeat visits necessary. I appreciated their price estimate but expected it to change. Sure, the folks that started the place were free marketeers, but in healthcare the price is always a loose estimate. I was wrong. The date neared, I called to pay, and it was still exactly $3,060. My wife and I hit the road to Oklahoma City, and everything went smoothly, with no delays or uncertainty. People like myself, and those with more serious medical issues, are flocking to the Surgery Center of Oklahoma from around America and Canada to experience economic and medical freedom. The cost of travel pales in comparison to the thousands or tens of thousands saved going to a free market medical institution. Their healthcare model easily outcompetes the one created by crony insurance companies and corrupt government-run healthcare facilities. Drs. Smith and Lantier are pioneers, heroes, and champions of liberty. They are actively fighting the government here and in Canada, and thus far have won. We can only hope their success continues. I'm proud to have participated in their efforts at least once. Hopefully, I will not need any other surgeries, but if I do, the Surgery Center of Oklahoma is the only one I would consider. This posting includes an audio/video/photo media file: Download Now | ||
| The Nature of Man and His Government Posted: 13 Apr 2022 12:00 PM PDT Here is Robert LeFevre's classic argument (1959) for a purely free society, the essay that made him a leading, if controversial, spokesman for the libertarian position on government and society in the 2nd half of the twentieth century. He argues that government is in its essence a violation of rights, one that makes life brutal, poor, and short. He demonstrates that no government anywhere has lived up to its basic promises, and calls on all people to contribute to building a new kind of freedom. Also available in PDF Introduction by Rose Wilder Lane
Man is a conglomerate of many things. His distinctive characteristic, above all others, is his ability to create tools. In this department he is unique. No other animated entity of all creation, so far as we can tell, has this ability, at least to the extent that man has it. Man has learned, because of his remarkable toolmaking facility, to extend himself into all kinds of worlds and situations which would be beyond him except for his tools. It is the use of tools which gives man mastery over this planet. If man plunges beyond this planet, it will be his tools which take him there. One of the principal characteristics of the toolmaker is his ability not only to devise the original tool but to improve upon that tool which he has devised. It could be argued that a failure to improve a given tool, while other tools were being improved, might seriously handicap man's progress. In other words, if man found himself addicted to the use of, let us say, the hand axe as the only tool for cutting wood, to such a degree that he would not consider a better method, the development of power saws would have been meaningless and impossible. If man wants to use an axe, and if his desires in this connection are buttressed by superstitious fear, by religious conviction, by stubborn willfulness or mental inertia, so that he believes the use of the axe is right whereas any tool other than the axe would be wrong, then man would never be able to go beyond the use of the axe. To convince him that the use of the axe in the midst of far more effective tools in other categories is no longer desirable, would require a virtual revolution of thought. Mankind would have to examine its habits, its thought patterns, its moral convictions, the very mores of the race itself before it would consider anything else. Therefore, man's use of a particular tool beyond the date of its obsolescence, though it admittedly had served a purpose at one time, might actually become a harmful usage. An insistence upon the use of an archaic instrument could hold back man's progress, perhaps indefinitely. Further, if the tool were basic, a dedication to its employment could become actually destructive. For it might be that this one tool was of such a nature that it could and would interfere with the development or the improvement of virtually all other tools. Man could be bound and limited by the very device which once was, perhaps, one of his chief aids. If we can begin to understand the tools men make, we may begin to understand more about man's true nature. The nature of the creator is discernible in his works. One of the most curious and one of the most useful toolmaking facilities which man has is his ability to organize. Any organization made by man can be classed as a tool. Man begins his organizational efforts by classifying things in groupings according to his understanding of those things. He learns to make associations on the basis of identity and similarity. He then learns to make disassociations on the basis of differences and, finally, opposites. Man organizes his thoughts, his time, his physical possessions. Finally, he organizes his neighbors and politics is born. Men have made hundreds of thousands of organizations. Each one has a purpose. Men have learned to combine their energies around a specific objective; harness the energies of diverse and sometimes even conflicting personalities; and concentrate upon a program, project, or product, to the exclusion of all other things. If you look at this process objectively, you cannot help but be amazed. During the long and bloody history of human progress, the most prolific and fertile efforts have been put forth by men to create an organization which is called "government." Government has been deemed by primitive and semicivilized men as the single most important tool ever to be devised. Government is important because it is a tool designed to multiply the strength and power of individuals. If one man is strong, two men would he stronger. From earliest times man has desired strength. If government, the invention of man, could be so formed that it multiplied man's strength, then man would have an important device of power to use against his enemies. This is the reason for government. It was the answer to the search made by primitive men for collective strength in place of individual lack of strength. For us to understand the nature of man, a good beginning could be made by attempting to understand the nature of this tremendous tool of man's devising. What is government? Clearly, all governments are simply groups of men or women which are put together for the purpose of finding strength, of providing protection. Every possible combination of rules, codes, laws, charters, constitutions, regencies, protectorates, treaties, contracts, specifications, and customs has gone into the tens of thousands of governments which have been devised during history's meteoric course. But however the framework is made, however the structure is built, the fact remains that government is a tool of man's devising, neither better nor worse than the men who devise and use it, and calculated to make man stronger and better able to protect himself in his weaknesses, by the use of force, exerted by some over others. That is all. The understanding of what government is, and what government is not, is of paramount importance. The importance of understanding government lies not in the importance of government itself, but in the importance men place upon their beliefs respecting government. The importance of understanding government lies in the importance of the security and protection which governments have been devised to provide. Thus, while men may believe that a government is important in itself, beneath this belief is the fact that government is a means to an end, not an end in itself. So we must not only examine this means, this tool of protection, but we must also explore protection, and the necessity for it if it exists. 2. A Reasonable ViewpointMen have many viewpoints respecting the functions and the purposes of government. Let us explore some of them in turn. It has been noted that men are weak and that government is a device aimed at helping men to overcome their weakness. Physically, mentally, and even morally, men appear to be weak. As we look at man's physical nature, we recognize immediately that he is no match for many other living things. Lacking tools, modern man would survive with difficulty if at all. Tools multiply his energies, making him more than a match for other living things. In a hand-to-claw combat man could be bested by almost any other living creature relatively near his own size. Man cannot outrun the four-footed animals, but his tools can. Man cannot outfight the wild beasts, but his tools can. Man cannot tame the domesticable animals, but his tools of fences, ropes, cages, special foods, and knowledge can. Looking at man's mental stature, again we are prone to discover his weakness. Men have lived in error. What progress man has made has been made haltingly, as he rubbed superstition and fear from his eyes, studied the true nature of matter and learned to rise, by means of the tools of books, research, test tube and model, into a better world. Compared to what man does not know, even all modern mental achievement is but a single candle flame flickering in darkness. Yet by means of his tools, man is overcoming this darkness. Where would man be without, let us say, the alphabet; the numerals 1 to 10; the printing press; paper, ink, and glue? Eliminate the tools and within a few generations man would be engulfed once more by superstition, fear, and ignorance. And what of morality? Here is, perhaps, the greatest frontier yet to be crossed by humankind. What does man know and understand about morals? Very little. In centuries, he has learned that the Golden Rule is good, and has less than a dozen basic rules of conduct embodied in the Decalogue. Here, the church and religion itself have been man's most useful tools. But today, even as man's technology improves, as his mechanical genius unfolds and his knowledge of matter increases by leaps and bounds, his ability to govern himself and to master the precepts of morality approaches a yawning chasm. It could be said that the area of man's basic goodness has been too little shored up by effective tools. While man's material tools improve, man's moral tools are neglected and remain largely static. It would not be too harsh to say that man's morality has gone into a decline. Here, then, is man — a moral, mental, and physical entity having life. And here, also, are man's weaknesses, embodied in his very nature. But as we have shown, man has, from his earliest beginnings, turned to government to bolster his weaknesses. Government is man's chief organizational tool to be employed against his weaknesses. Thus, when men turn to government in an effort to overcome weakness and to obtain protection, the strength desired is found in compulsive unity. Government, inherently, places individualism at a low point on any scale of values. Individuals are the enemies of government. Government is inescapably concerned with unity. Individuals are the necessary victims. It is true that some governments have proclaimed a contrary doctrine. Some have said that the individual is important and the government is merely the servant of the individual. But let the evidence be presented and we discover that this assertion is only a pleasant fiction. The servant has the power and the strength. The individual bows before the might of the servant, who is, despite the platitudes, a master, not a slave to men. Governments rule. Individuals are ruled. Any individual must give way to the violent cohesion of government. If the individual is physically, mentally, or morally in error, that is to say, if the individual is physically a criminal, mentally unbalanced, or morally degenerated, the combined and powerful action of a government may provide an amelioration. And it is in this area where actions taken by government are deemed to be not only proper in a moral sense, but highly practical and desirable. Since it is true that an individual who refuses to practice self-discipline and practices theft, for example, can be opposed, apprehended, and even punished by government, the employment of this tool by human beings has long been upheld as a prime necessity. This would seem to be, then, a reasonable function for the government to have. What we must explore are some of the other functions which government has assumed. Also, we must look into this same function — that of apprehending and punishing criminals — to determine the actual necessity of the function and also to discover whether the function could be performed more practically, more morally, more economically and more certainly by some tool other than government. Man's progress has come largely of his ability not only to discover tools, but to improve tools. Can the thief-taking ability of government be improved upon by providing a better tool? 3. Aggressive PowerAs we look at government we find that men have organized for the purpose of protecting themselves and their property. Government is the tool of this protection. Also, since government is always an agency which plans to use and, indeed, must use force, we have noted that government derives its power from a compulsory unification. All persons under the jurisdiction of a particular government are compelled to agree with whatever that government does. The agreement can be enthusiastic, tacit, or reluctant. But the agreement must be there. Government's power to protect is based upon that agreement, however secured. Power, to be effective, cannot permit exceptions. Thus, the government is inevitably opposed to individuals. The individual is the natural prey of the organizational tool. And we have shown that when the individual is immoral, mentally retarded, or physically aggressive against others, the government can employ its cohesive power in a manner which is pleasing to people in general. In short, it can act defensively, taking a position against the one on behalf of the many. So long as the matter is simple, the case clear-cut, the individual obviously out of order, and the protection of the people generally the paramount issue, government is fulfilling what people generally expect of it. But matters are rarely simple and cases have a way of being complicated and fogged over with a combination of motives, behavior patterns, backgrounds, and prejudice. Thus, more times than not, an individual will object to some particular government action only to find himself, by reason of his objection, the object and the victim of governmentalism. A peaceful and law-abiding citizen, for example, may have perfectly sound and moral reasons why he does not wish to share his money with the government or the politicians of Yugoslavia. His conviction can be logically derived, morally certain, and sincerely maintained. In holding to his conviction, the individual is harming no one. His belief is not inimical to the welfare of other people. Actions which might spring from his belief are not aggressive. In other words, physically, mentally, and morally, such a citizen can be above reproach. Yet, when the government adopts a policy which prescribes the sharing of his earnings with a foreign government, the man who objects to this can be treated in precisely the same manner as a bank robber could be treated and for the same reason. The government cannot brook a deviationist. If the government decrees against bank robbing, it can permit of no exception. It will use its full force of unified power to prevent bank robbing, or, at worst, to apprehend and punish the robber should one appear. And if the government decrees a universal sharing of its citizens' wealth with the politicians of another country, it can permit of no exception here. It can and it will use its full force of unified power to collect whatever sums it deems advisable and will punish any person refusing to provide those sums, with arrest, fine, or imprisonment, and in the event of resistance, with death. Thus, in practice, the tool of protection, which men have devised out of their weaknesses, can be employed and is employed with equal vigor and ferocity against both the criminal and the good and harmless citizen. Here the bank robber and the patriot who loves his country are equated. Government has but a single standard: obedience. Its decrees, good, bad, or indifferent, are enforceable. And the men in government cannot recognize a law which need not be enforced. If the government has adopted a policy, the policy must be carried out, even though one policy may be aimed at social stability and the other at social injustice. This is one of the characteristics of weakness contained in man's nearly universal tool of strength. The device of protection can be employed as a weapon both defensively and aggressively. 4. The Law FactoryHaving granted that a government can perform a defensive function by apprehending and punishing the criminal, we must look at government on a broader scale. It is immediately apparent that there is no government in all the world, saving only extremely small and local constabularies, which reserves for itself solely this simple and at least partially constructive function. The prevention of crime and the punishment of the criminal have become, in most instances, subsidiary departments of government. In the main, governments have gone far beyond this field of activity. Today governments concern themselves in general not with criminals, but with law-abiding citizens. Every citizen is a victim of the aggressive tactics of government. Government begins by seizing the arbitrary and total power of deciding how much money it wants. Then it collects the money without a care or concern for the plight of the individual who must pay or be punished like a criminal. Next, the government establishes hundreds and thousands of regulations which prescribe particular practices and proscribe others. Almost every action of every citizen has its legal "do" and "don't." The list of prohibitions and compulsions is too lengthy for cataloguing here. But it pertains to business operations, licenses, building regulations, zoning, hours of employment, prices, trade, quotas, embargoes, subsidies, grants-in-aid, traffic, assembly, slander, libel, trespass, health, cleanliness, quality, quantity, method, education, indoctrination, propaganda, news, pictures, morals, food, drink, clothing, housing, sanitation, roads, farm products, transportation, search, seizure, mental outlook, exchange of parcels by post, and so on. It can truthfully be said that there is almost no activity in which human beings engage which is free of legality. Think what you will, do what you will, there is a law somewhere which either compels, limits, or prohibits. Try to think of something that people do. With the possible exception of breathing, laws bristle from the activity like quills from a porcupine. And the result of all these laws is to make any individual who does not conform in every respect, a lawbreaker. Thus, the average person today, buttressed in by government, surrounded and overshadowed by government, finds himself a lawbreaker several times during an average day. And this fact turns him from being a law-abiding citizen into a lawbreaking citizen and equates him with any criminal who, in fact, breaks a law with aggressive intent. But the government, as has been shown, cannot concern itself with anything but the universal obedience it must enforce. Thus, any violation of law becomes in essence a punishable offense. And whereas the government does maintain certain classifications — civil, criminal, and the like — the fact remains that even in civil matters government can and will punish and apprehend with vigor. This is not the fault of government. This is the nature of government. This is the major point which must be understood eventually. Government which passes and enforces endless rules and codes is not out of character when it does so. It is in character. That is the way any government operates. And the longer a given government endures, the more numerous will be the laws it enacts. It is the business of government to pass laws and to enforce them. These laws are the productive sum of all governmental effort. Therefore it is not to be wondered at when thousands and thousands of new laws come into existence every year. It would rather be a marvel if this did not happen. Government is a law factory. It passes laws in the same manner that another type of factory extrudes metal molding. Government is a lawmaking tool. But, whereas a factory which extrudes metal molding is providing a product which is useful to the citizens generally, and which certain citizens will purchase voluntarily; the government factory extrudes compulsion which is useful principally to the government, itself, but is purchased in advance by the people, who are never in a position to refuse to buy. 5. Government as CompetitorWe have now shown that government has a single, possibly legitimate, function, that of apprehending and punishing the criminal. We have also shown that government has, in its manifold legal actions, gone far beyond its possible legitimacy by passing thousands upon thousands of laws and rules which tend to equate the avenge individual, who is peaceful and orderly, with the criminal who commits acts of aggression with willful intent. Now, we must continue to look at government as it goes even beyond this limit. For within our own lifetimes, our own governments — national, state, and local — have gone beyond even the excessiveness of multiple legal prohibitions and compulsions. One of the most serious incursions performed by the governments against their citizenry has occurred in those instances where the government has abandoned its position as arbiter and compulsionist, and has embarked in the role of entrepreneur. Today, not content with compelling and preventing citizens as they go about their daily routines, government has developed for itself an independent status as a business or industrial entity. Our federal government has taken on this chore in more than nine hundred separate fields, ranging from corset making, rope manufacture, and candy-bar purveying to the distilling of low-grade rum. It has become a provider of electric power, gas, and water; it runs golf courses, zoos, and tourist attractions; it manages bus and railroad lines, radio and television stations, newspapers and periodicals. It manufactures nuts and bolts and copper wire, and engineers immense building projects. It builds roads and ships, runs hospitals and, even in the end, handles graveyards. Yet all of these things also are done by private persons, managing their own affairs under government supervision and by permission — after taxes; whereas the government cannot supervise itself, pays no taxes, and consistently competes with the very persons who are compelled to provide the wherewithal for government enterprise. Nor have state or local governments been free of the general federal trespass. In point of fact, in many areas local governments are the principal offenders. This is a very far cry, indeed, from the simple expedient of catching and punishing thieves and murderers. Nor is this the end of government's straying from its prescribed course. In our own case, a new departure in governmentalism has arisen to plague every American. For in this country chiefly, although the offense also exists in other countries to a minor degree, our own taxpayers are compelled to pay taxes for the support of foreign governments. And this is tyranny of the worst order. Yet it is not unknown in history. Weaker states have, from time immemorial, been compelled to pay tribute to stronger and more vigorous neighbors. The innovation, circa the 1930's, was that the United States of America, the then strongest and most vigorous nation in the world, began to pay tribute from a position of strength. And this was the great advance towards barbarism, made exclusively by American politicians. Stripped of its humanitarian language and reduced to fundamentals, the payment of American tax money to foreign powers constituted international bribery of an order a degree worse than the payment of ransom money to the Barbary pirates. Fear was obviously at the bottom of the move. With America the greatest and most productive nation on earth, her politicians became fearful of both the envy of others and the warmaking potentials of others. It was as though we lived in a glass house in a neighborhood of stone throwers. And to prevent the stones from being thrown, our government adopted a policy of rewarding our neighbors for the negative passivity of not throwing stones. The claim was made that this would win us friends. The most simple and least informed psychologist could have revealed that this practice would only win us the contempt and hostility of others. For America was no glass house. It was a rich and productive reservoir of a high percentage of all the production on earth, including the production of the means to defend ourselves. And this our neighbors knew. 6. National DefenseWe come at once to government's classic usage, that of making war upon government's enemies. Whether we begin our examination of government as a warmaker in tribe, clan, city, state, or nation, or even as a body of nations joined together, we find this the single most costly and terrible function that government can ever attempt. Aggressive warfare is always the exclusive prerogative of government. Mobs, groups, families, or individuals may fight. They may riot, destroy, pillage, and perform in any wanton way. But it takes a government to conduct a war. Only government has the capacity, extended through both time and space, to organize sufficient force and violence to sustain a war. And only government, in our age, can effectively amass sufficient wealth for such a nonproductive and destructive purpose. Aggressive warfare can never be justified on any moral ground. The use of initiated violence is abhorrent to all persons. But what does fall under our gaze is the apparent occasional necessity for a government to perform in war as a defendant. It is true, governments being what they are, that certain governments will plot and plan an aggressive campaign of combat, however immoral or foolish such a campaign might be. And it must follow that if any government undertakes so violent a course, other governments, lying in the pathway of the deliberate predator, may with some justification inform their citizens of the danger. What should be the nature of this information? Since government is merely a tool, and since it is always the citizens who face the hazards occasioned by a physical clash in battle, the alert should always be couched in terms acceptable to volunteers. Further, the call to arms should come from the people and not from their government. If there is a real danger, the danger is one which the citizens will recognize. Having recognized it, they will do what they can to defend themselves. They are the actors of the drama. On the other hand, it is entirely possible, and in many instances a proven fact, that the announced danger is fancied rather than real. Governments tend to make trouble, in a great hubbub of concern for their own prerogatives. The citizens are capable of discerning the difference between a scare drummed up by power-hungry politicians and a real threat to their safety and security. In truth, the citizens are always in a better position to make this discernment than is their government. Governments, as instruments of force and power, are far too prone to operate in an atmosphere of fear. They tend to engender fear. They end by believing their own engenderings. One of the most serious mistakes the citizens can ever make is to grant to their government the power of a draft. Governments which can forcefully enlist the citizens under them, can shoulder their way truculently among all foreign powers, confident that they can compel a final showdown to their liking. Lacking this power, a government is constantly in review before its citizens. The citizens may, in such a case, refuse to accept their government's foreign policies and the errors perpetrated thereby. This would leave such a government in an untenable position. It must move warily and peacefully or risk an ultimate exposure before a hostile force. From a practical point of view the volunteer in any war is a better soldier than the conscript. The nature of man being what it is, men will always seek to be in the place they wish to be, and they will attempt to get away from the place they do not wish to be. If a man chooses to oppose an actual enemy in the field, it is because he would rather be in such a position than in any other. But if a man is compelled to take the field, and is uncertain as to the actual hostility in the breast of his supposed enemy, he must be driven and forced at every turn of the road. Such a man will only stay to fight because he fears his own government more than he fears the guns of his opponents. Under such compulsions he does not do his best. Nor is his love of country encouraged by such outrage. Our problem is not to find a way to compel men to defend themselves. This they will always do gladly and voluntarily if defense is truly needed. Our problem is to prevent the evils of conscription which hamper true defense, create armed forces which contain aggressive potential, and create a drain of economic wealth beyond all other actions. We must be vigilant that we are not lured into hostile poses by a fearful or belligerent government. But here we run into a whole series of dilemmas. The dilemmas are occasioned by the fact that historically the citizens have turned over to their government all power of decision respecting the preparing for and the waging of war. How can a government, armed and capable of conducting an effective defensive campaign, be successfully prevented from the slightest act of aggressive war? To this question, history gives us a discouraging answer. Any government fully armed and ready for defense is all too prone to prove the point upon the field. Alas, the human record proves another point. Who is the aggressor in any war? With absolute unanimity the answer is, the other fellow. The bristling engines of war build up along each national boundary. The pressures mount behind the barricades. A rising tide, like a great wave, towers menacingly until sometime, somewhere, the laws of gravity take hold and the great wave topples, spilling out across the barriers like an onrushing flood. This is aggression. Who caused the spilling? The science of tactics and of strategy gives us the official ruling. "Each act of war is retaliatory." Even the first act of any conflict is in reprisal for some prior condition. The prior condition in itself need not be hostile. Differences between nations and people abound. Wars have been waged For the flimsiest of reasons. Yet, when a government decides that warfare is "the only course," the slightest pretext, relating to color of skin, religious differences, tariffs, immigration laws, language differences, differences in philosophies, or even hostile words, has established at one time or another a cause for war. Thus, even when one government hurls its legions across a boundary in an obvious attempt to amass land and plunder, the excuse is always given that the aggression occurred because the government on the other side of the boundary drove the government on the near side to this final deadly act of politics. How can the ultimate in human foolishness be prevented? Clearly, it is preposterous to assume that the tool capable of such a holocaust can also be relied upon to prevent the very thing it is uniquely designed to do. This would be like supposing that fire will not burn, or that a fire once started can be extinguished by a larger fuel supply. One does not call upon one's government to prevent war. One calls upon one's government to wage it. And it is here that the necessity for understanding man's own nature as well as the nature of his tool de main, becomes, in modern times, acute. If we are to believe the tacticians, war is always a reaction against some prior act. But this is only saying what has been said all along, that war is the natural extension of politics. War is organized force employed by government against some other government which is under no constraint to give obedience to alien politicians. Governments wage wars against their individual citizens and it is called policing. But when a government wages war against another government, it is called by its right name. But let us ask, in what way is a war against an opposing government different from government's eternal war against the individual? The answer is that in principle it is the same; only the battlefields and the size and scope of the arena provide a distinction. But it is a distinction without a difference in principle. Governments back up their decrees by force of arms. In the event the decree is leveled against a citizen, the force of arms required is moderate. In the event the decree is aimed at a foreign power, an army must be employed to compel obedience. In the end we will see that only governments make war. The people in all nations do the fighting and the dying. But our quarrel is never truly with them. Our quarrel is always with their government, which sets them upon us. We are not suggesting a dismantling of the tool of our possible protection. But we are suggesting that we examine this tool, recognizing that while it is capable of defensive action, it is also capable of so conducting itself at home or abroad that defensive action, in the end, becomes the only course open to us. Here, as in every other case, that which was formed for our protection becomes, finally, the very reason we need to be protected. This tool of defensive potential inevitably contains the seeds of aggressive force and violence. The larger and more powerful it becomes defensively, the more it is apt to use its vast ability in some aggressive manner. 7. A Government's GovernmentIf we would understand why our government has so invaded private rights; if we would learn why our government has expanded so greatly during the past two and a half decades; if we would comprehend the thinking which has caused our government to resort to bribery in an effort to maintain friendly relations, and is even now considering the advisability of launching a war to prevent a war from breaking out — we must look to the nature of man, and not to the nature of government. Government, as we have attempted to show, is merely a tool. Man, the maker of government, is, in the final analysis, the master of government. Yet man has made government to perform the opposite function and to master man. And while all governments begin with the premise that they will protect the many peaceful from the few who are belligerent, it is in the nature of governments that the rules will be extended and expanded until the state itself becomes man's mortal foe. We cannot blame a lever if, in our exercise of it across a fulcrum, it slips from our grasp and smashes a toe. We cannot blame a shovel if, in the hands of the wielder, it plunges into an ancient tomb and permanently damages a priceless relic. The tool is blameless. And thus, the government, within itself, is blameless. It is simply a ravening monster, naturally, and will continue to grow, to expand, to pounce upon its victims and devour them in the normal course of its activity. That is the kind of tool it is. Man made the tool to perform in that fashion. It is an instrument of force and coercion. And there can never be an instrument of force and coercion which will consciously restrain itself. It must be restrained. Yet there is no tool capable of such restraint. For any type of tool, whatever its nature, which is allegedly formed to restrain and contain government, would, by its own nature, simply become a government's government. In other words, the restraining tool for a compulsive instrument would have to contain a greater accumulation of power than the compulsive instrument or it would be ineffective. But this, in essence, would also be a government. It would simply be a larger, more compulsive, more dangerous and more mischievous tool and less subject to restraint than the original instrument of coercion. The United Nations falls into this category, as does every other prior political organization aimed at universal peace. The United Nations is simply a government's government. The members of the United Nations are, by definition, not the peoples of the world, but the nations of the world, at present eighty-two in number. Individual people cannot belong to the United Nations. Only governments can belong. The delegates to the United Nations are simply politicians who have been appointed by the member governments. And it is in the nature of the United Nations that it will look after the governmental interests of its members. Hence, the things that the member governments desire to do will become the policies of the United Nations. But the thing all member governments desire to do is to rule their own people and to collect money from them. This is inherent in their natures. So the United Nations, perforce, will aid and abet the member governments in their universal desire to maintain a coercive hold over their individual subjects. Thus, the United Nations is a government of the governments, by the governments, and for the governments. And it cannot and will not restrain these governments, for the members support the giant, looking to it for backing, even as the individual citizen supports his own government and looks to it for backing. So much for the nature of government, and even for the nature of a government's government. But at the root of all government stand the people. What is it in the nature of human beings which causes them to look to a government? There is only one thing which causes man to look for and to organize a tool which is an instrument of compulsion and prohibition. That thing is fear. Men look to government to protect them because they fear. And virtually without exception, everything that human beings fear becomes a project for government. 8. The Product of FearFear is one of the most interesting and one of the most basic of all human emotions. And, as we have attempted to show, man, recognizing his weaknesses, which are many, is fearful of many things. He fears his predatory neighbor, death, old age, poverty, loneliness, hunger, and cold. In man's rise from the primitive to the relatively civilized status of modern times, man has been propelled by fear probably more than by any other facet of his heterogeneous nature. His fear of hunger has caused him to search diligently for dependable food supplies. His fear of cold has caused him to erect buildings and to fashion clothing. His fear of death has caused him to study the nature of matter, to discover the germ theory, to guard his health and to provide as long as possible against the ultimate. His fear of the supernatural, which led him first into a belief in a plurality of deities and created a world of superstition, led him ultimately toward morality and the Golden Rule. He discovered that it was wise to fear the immoral act of others, and hence it was a matter of simple prudence for him to forbear when it came to committing an immoral act himself. Probably no basic emotion of man has been so fruitful in its results. If men were not chronic worriers, they would take no thought of tomorrow. As it is, they have taken great thought of tomorrow and the result is that our todays are buttressed about with forethought, even though tomorrow always brings its problems which must still be solved. It is this all-compelling emotion, fear, that has sired governments. Man is fearful of strength in others. Therefore, he has devised an organizational gadget, containing compulsory unification, and by means of which he hopes to offset, or even to overcome, the strength of others. Governments, then, are not agencies of right, necessarily. They are, necessarily, agencies of strength. It could be said that man, feeling certain that he was surrounded by gangsters, has devised a gangster of his own, theoretically obedient to his own will, who will act with truculence against alien gangsters, while remaining docile and tractable towards his deviser. History teaches us with much repetition that this is an enormous fallacy. Governments begin with a soft side towards their own creators and a hard exterior exposed towards potential foes. But as time passes, the hard exterior extends until it completely encompasses the government. Then, it develops that it has no "soft" side at all. It becomes equally hard and impervious towards every human being, since the nature of the gadget is that it must be strong against human beings. Government's presumed selectivity, in knowing whom to favor and whom to oppose, is actually nonexistent. This is because, as we have shown, the nature of government's strength is derived wholly from its compulsory unification. Government can permit no exceptions to its rules, whether these rules are aimed at preventing an aggressive act against a citizen under its jurisdiction by another citizen similarly situated, or whether the rules are aimed at compelling uniform attendance at a government institution of indoctrination by every junior citizen from the age of six. In the one case the government may act defensively, to protect the rights of an individual; in the other case, the government will act aggressively, protecting no individual right but simply compelling universal obedience to its decrees. In the one case the government acts as a friend, within the framework of its theoretical usefulness. In the other case the government is the predator, actively enacting the role of the foreign or alien gangster. And it is apparent that men have so much fear concerning the imminence of gangsterism in their midst that they tend to bear the iniquities of government's predatory actions without a murmur, rather than to deprive themselves temporarily of their own gangster, however powerful and unruly he has become. 9. The GuillotineGovernment's ability to bite the hand that feeds it has long been mourned by its principal progenitors. Simple human beings for at least six thousand years have learned to put their faith in some governmental organization only to find, after the passage of a few years, that the agency they trusted has turned to rend them in their tracks. They have long marveled at this phenomenon. And their wonder, during the unfolding of man's story, has taken two principal avenues towards a solution.
We will take these two avenues in turn. First, what of the men in government? Nowhere in all the world has such feverish activity attended the process of selecting good men to governmental office than in these United States. With us, it is a passion, nay, a mania. In the United States an enfranchised citizenry is virtually the single untouchable institution of our time. If the people are free to vote and, thus, to select the men who will become the personnel manning our own gangster device, it is deemed that we have overcome barbarism and that security is certain. The right to vote is, in the public mind, prior to and superior to the right to liberty. It is by the process of polling that we secure for ourselves the best in the way of governmental servants. But is this really true, or is it rather a large superstition generally believed? Could we timidly inquire if the voting process has always secured for us men of superior ability? And if our answer is affirmative, or we have raised our voices against a shibboleth … then how does it happen that so many administrations of good men have been able to do so many evil and harmful things to their subjects? Let us assume that voting practices embody no superstition; that, in fact, the men selected="true"="true" by the voting public are inescapably the best that can be found at a given moment in our history. Then, the resulting harm must come, not because of the good men but because the good men are powerless to prevent the harm. And surely we are mature enough in our deliberations at this crucial point in our history so that we can admit that our multitudinous governments, at every level — federal, state, and local — do considerable in the way of harm. The harm is obvious. We have less freedom than we used to have. We are more coerced. We are plundered repeatedly and in growing amounts for every conceivable scheme that the human mind can invent. Nor does one act of plunder solve the problem for which the plunder was originally legalized. Rather, each act of plunder gives birth to the necessity for additional acts of plunder. And the number of laws curtailing us, regimenting us, restricting us, and punishing us grows hourly larger and more difficult of evasion. So the harm continues, yet the men inflicting the harm are the best that can be obtained! If this is the case, Isabel Paterson, in her monumental work, The God of the Machine, gives us one kind of answer. She establishes that government is a tool, and she defines the nature of the tool as that of a guillotine. In effect she asks, what good does it do to have a saint of every conceivable virtue operating a guillotine? Personally, the man may be above reproach. He may have the highest of morals and ethics. He may be imbued with a passion for doing good. But the mechanism he is hired to operate cuts off heads. He may dislike to cut off heads. He may weep with true sorrow whenever a head falls into the basket. But he was hired to pull the rope that lets the knife drop. And when it comes down, off comes the head. That is the way the tool works. In her analysis, Miss Paterson is eminently correct. Government is an agency of force which can and must be employed against every deviationist. And this is only to say again that the government must oppose the individual. Therefore the "good" man in government is like a priest with a machine gun. The mechanism does the harm. The man who operates it merely pulls the trigger. 10. Two-Party SystemThere is no other way of explaining the phenomenon. Good men do find their way into government. But having gotten there, they must either perform their function or resign. If they perform their function, they use the government, an agency of compulsively gathered coercive force, to accomplish that function. Inevitably, they hurt someone. This is undoubtedly the reason such a furore is maintained over the necessity for a two-party system. Nothing is said in the Constitution or the Bill of Rights about the necessity of a two-party system. Yet most Americans hold that two parties are necessary. The reason is obvious. The party in power inevitably employs its friends and well-wishers, and passes laws and enforces proceedings against others not of the same political conviction. Over a period of time these laws and enforcements build up a body of resistance. The oppression mounts. It may become a public scandal. Finally, the "ins" are ousted and the other party assumes power. Immediately the process repeats but with alternate emphasis. Those who are "ins" become "outs." And the newly hired "ins" go to work to cut their friends free from oppression and to visit their vengeance upon those who subscribed to the beliefs of the former "ins." Then the same iniquities come to pass all over again. Those persecuted change places with the persecutors. And around and around goes the political wheel of chance, with the voting public spinning the wheel. In our own time we have seen one curious variance occurring to this otherwise monotonous and easily predictable routine. The "ins" and the "outs" have performed a merger. The party in power has now scarcely a discernible difference from the party out of power. And the reason for this merger is self-evident. The government has in itself grown so large and so formidable that it tends to absorb any and all politically interested persons, regardless of party affiliation. And since, in the main, there is no real difference in political parties, each party desiring only to rule — each party adopts an advertising program consisting of those public statements which each party leader feels will win an election — the merger is that of blood brothers and constitutes no betrayal. Of course there are those who have felt that elections were for the purpose of establishing policies, rather than for the purpose of selecting men. These persons, always a minority, vote for the statement made by certain politicians and against the statement made by others. But since all of these statements are nothing but window trimming, constituting a verbal display, and in all probability not representing either the thinking or the intention of the person making the statement, a vote secured by virtue of a statement does not establish policy but merely enhances the position of the man who made it. But again, this is simply the mechanics, the "advertising." The purpose of an election is to select men, not policies. And in the end, the men are selected="true"="true", after which the policies are adopted. But the policies, whether from party one or party two, are more nearly identical than opposite. For it is the business of government to employ force and to compel obedience. And it is the business of any politician within a government, regardless of his party, to employ government as an agency of force and coercion; to compel obedience and uniformity; and to punish any individual who does not go along with those mandates imagined as necessary by the men in power. So, now we must ask the inevitable question. We have considered the situation that must ensue if we presume that the voting process always provides us with the best possible government employees. But, what if this is not true? What if the voting process does not guarantee the selection of superior men? In this case, then, our preoccupation with the polls is simply a false reliance upon a majority. And since a majority is nothing but the amassing of power by virtue of superior numbers, are we not extolling the alleged virtue of might, instead of right? Either the voting process will provide for us the best men in government, or it will not. Whichever way we choose to believe, we meet the inescapable result. The result is that government has the tendency of growing large and unmanageable and in the end of turning to rend and devour even its most devoted followers. 11. Superstitious AweWe have now explored the first avenue. This is one of the paths taken by some men when they discover that their government has become predatory against themselves. They seek to alleviate the predation by changing the personnel within their agency of collective power. The other avenue to be taken deals with the changing of the form of the government in an effort to prevent the predation in advance. From time immemorial, men have also concerned themselves with this process. Let us explore this avenue. We have shown that fear is the basic emotional drive which leads men towards the establishment of government. Primitive governments have maintained their power largely by fostering fear. Look where you will in the governments of our forebears and you will find men, clad with power, using terror and compulsion in order to maintain a hold over their followers. Thus, fear not only drives men to form governments but it is used within the government formed for the purpose of perpetuating that government. Probably the most ancient form of government ever to come into existence amassed power and dealt with fear by claiming that the person in the government had been selected="true"="true" and appointed by divinity. For centuries it was this belief that provided confidence in government and kept it there — so long as people believed that their gods had a hand in its formation. Men do not mind being ruled by gods. They recognize their own weaknesses but, assured that divinity is actually conducting governmental affairs for them, they subside and become docile when they confront the politician clad in such glorious disguise. The record is full of stories of men who have gladly gone to their deaths under the impression that their deaths served a divine purpose. And this, for centuries, was the ne plus ultra of every politician. Cunning rulers went in league with priests — the one, the embodiment of force, the other the embodiment of propaganda and superstition. It was a telling combination. In point of fact, so well did this combination work that there are traces of it still apparent in our modern world. The Russian government, as an example, today combines the function of despot and priest, by organizing army, civil offices, schools, and even churches with the same kind of dual leadership. The general is flanked by the political commissar. Military decisions are buttressed with the party line. The government, in Russia, takes the place of God. To obey the Leader is to gain total approval. No contrary voice is permitted. Thought and action are blended into a consistent whole. Every action is made to follow the statist philosophy. And the statist philosophy is turned and twisted to match whatever actions are taken. History is rewritten after the fact, so that whatever occurs can be shown to be that which was predicted and planned. There are evidences within our own government that the same process has much appeal in this country. This is especially true in the military, where the debacle of multiple defections during the Korean war has caused the ruling hierarchy to adopt a program of indoctrination which is calculated to make everything that the military attempts, correct, and everything that is correct, an action of the military. There is also a general superstition among the voting groups that our political leadership cannot err. Whatever the leader decides is sanctified with general approval. The most banal and trivial decisions are exaggerated into being utterances of profundity. Even questionable policies are glossed over with the statement: "Our leadership is the best in the world. That leadership could not have come into being unless God had so willed it. Therefore, it is up to us, the citizens, to give immediate, unquestioned, and undeviating loyalty and obedience to every action of our political leadership." This is the "God wills it" of the ancients, scarcely altered with the passage of time and the enlightenment of the people. The superstitions which plagued mankind for generations still ride upon its shoulders in the guise of a majority decision only God could sanction. It is frightening and a discouraging spectacle. 12. Varying Forms of GovernmentGovernments always come into being because men recognize their weaknesses as individuals. The very first government to be formed undoubtedly was that of a strong man, stronger than his fellows, who was called upon by his weaker followers to protect them against real and fancied dangers. It was doubtless a dictatorship. Then, because the dictator in time grew old and feeble, and because he dreamed of bequeathing his power and authority to his own offspring, the monarchial system was born. The dictator, while at the height of his power, had convinced his followers that his ascendancy over them was divinely ordained. He could have told them that he was a son of a god. Thousands of early politicians maintained this fiction. And not a few of them were deified, either during their reign or after their passing. The next step was for the successful dictator to claim that his family, the descendants of his loins, were also divinely ordained. Royal families came into being. Thus, God and government were intermixed in the general opinion, and theocracy, the oldest and perhaps the most frightening of all governments, held sway for more than a thousand years. We have already described this system. It provides for the combination of despotic power in the hands of a king with the power of superstition wielded by a crafty priest. Disobedience to secular authority became at once a blasphemy as well as civil disobedience. One does not defy God, even when God is unapproachable and his only avenue is the king who rules you. But wherever these despotic pretensions were maintained, the people suffered. And, in the end, we shall see that it is the people, and not the politician, who are supreme. For, even when people believed largely that a god or many gods had established their ruling politician in office, they revolted against his tyranny and oppression. This is the history of man. Everywhere we see men setting up governments, submitting to them, growing tired of the mounting oppression, and finally throwing off that yoke, only to acquire another. And each successive yoke represented an effort to do away with the evils of the prior form by establishing a better form. We can think of no better statement covering this phenomenon than that written by Rose Wilder Lane in her great book, Discovery of Freedom. Here is what she says:
Each of these efforts has been made with the most solemn and noble purpose. Always the aim has been to set up an organized collective which can and will use force against the enemies of a particular group, class, clan, nation, or family. Always the collective has amassed power and ended by using that power to harass and tax and oppress and regiment the very persons who set it up and gave it original obedience. There is no variation to this story. Nor is it possible to find a combination which has not been tried. Let us now consider the American experiment, which was, without a doubt, the most noble and the most solemn ever undertaken. 13. The American ExperimentWhen the American pioneers found themselves the victors after a war with England, they decided they must undertake the establishment of a form of government which was to be impervious to inner tyranny. It is probable that at no other time or place in history had so many men, so well informed, so nobly motivated, ever convened for such a purpose. Few of the founders of our Constitution were politically ambitious. With high purpose and deep sincerity, they set about the task of providing a form of government which would stand the assaults of the mean and selfish. They labored diligently and well. And when they finished, although they were far from unanimity, they had forged a document which was at once both wonderful and a political curiosity. For the great distinction which set the American form apart from all others was that it was probably the most inefficient, cumbersome, and unwieldy government ever devised! How well the founders knew that men with power could not be trusted. They set up a conflicting and enigmatic mechanism which was more notable for what it could not do than for what it could do. There was an executive branch; but its functions were limited and contained. There was a legislative branch, equally frustrating. And, finally, a judicial branch, which was to watch the fulminations of the other two. But this was not all. Having established three equal containers for power, they proclaimed that it was a federated government, with sovereignty residing both in the separate states and in the people generally. In short, what they had devised was not a government but the antithesis of government as it was normally contrived. European politicians chortled with glee when they first heard the news. Here was an anti-rule rulership; a powerless powerhouse; a contradiction within an enigma. They opined that it would never work. However, a few elevated mentalities glimpsed the ideal our pioneers had striven to attain and gasped at its daring and immensity. And in large measure the European politicians who ridiculed the form were right. The American government did not perform with efficiency. It wasn't intended to. And the American people, finding themselves for the first time without a ruling despot, were hard pressed to know what to do. Consequently, unable to call upon their government for aid or guidance, they set to work themselves. Their energy, uncontrolled by living authority, changed the world. Their achievements, in a few short years altered all of history. For the first time, freedom was proclaimed as a national policy, individualism was given full sway, and government was reduced to puppeteering functions. It was delightful, while it lasted. Never was so much accomplished by so few, under such adverse conditions. Freedom was the big payoff. Men who do not have to kneel come to recognize divinity within themselves as individuals. Our ancestors were a stiff-necked lot. They bowed to none but God. Government could go hang for all of them. We had done away with theocracy by delivering it a mortal blow. And even in our Bill of Rights it was ordained that the government could make no law affecting the practice of religion. Church and state were separated. We had a republic which used a democratic process, which provided for a temporary aristocracy, which removed the priests, which put God into heaven and off the throne, which uncrowned the dictator or the king, which eliminated succession to power, and which generally disrupted every ordinary political practice. For years it worked, because it didn't do too much. Our power was in the hands of the people. But our founding fathers had seen that what they had done, even though it was a mechanism shorn of much power, still contained the seeds of tyranny. Therefore they provided that as time passed, changes could occur. And at least some of them fondly hoped that, by permitting change, still further reductions in governmental protocol would come. An informed populace could learn the fallacy of even this much power remaining. For if the people individually learned to overcome their weakness, what need had they for an instrument of force? The changes, provided for, came in due course. But the changes were not in the direction our most dedicated idealists had desired. 14. Sic Transit Gloria MundiWe honor the authors of our Constitution and Bill of Rights. We admire them and pay them homage. More than any other group of men at a particular moment of history, did they comprehend the inherent dangers which inevitably come to the fore when men are clad with the robes of power and the insolence that office-holding breeds. The founders of our government sought to nullify these dangers. They provided what we have called our system of checks and balances, which deprive an officeholder of supreme and perpetual power. Yet our founders were humble. They knew they were fallible and, therefore, they wrote up the amendment clause and inserted it in the Constitution. They fondly hoped others coming after them would surpass them in high purpose and in penetrating wisdom. How vain those hopes have been is now demonstrated. For, since the days of our government's origin, we have never equaled the character and purpose of those who set pen to paper to forge that basic charter. If there was one oversight of which our founders were guilty, this is it. They had too much faith in man's ability to understand his own motives and principles. They failed to comprehend the extent of the venality and lassitude of politicians and ordinary citizens. Yet, even here were warnings. Franklin said: "We have given you a Republic, if you can keep it." And Jefferson, even in his first years in office, cried out against the mounting tendency of public and private citizens alike to look to the government to solve all problems. In the end, the Constitution was overcome. Instead of remaining a system of checks and balances, our government has become overbalanced and predatory. The executive branch of the government is very largely ruling the land by means of bureaus and executive decrees. Congress still passes laws. But the decrees put out by the executive department, including treaties, outnumber congressional laws by more than four to one. And the Supreme Court, instead of testing the validity of laws against the Constitution, has itself, in large measure, become a lawmaking body, enlarging its own functions and approving virtually every other action which enlarges government. The policies expressed by the Chief Executive come into force and power either through Congressional enactment or via the backdoor route of the bureaus. Yet the bureaus are filled with appointees, none of them elected to office, and hence all of them beyond responsiveness when it comes to following the wishes of the people. What we have yet to see in these United States is the fact that, in fine, the people will command. For government is always nothing but a tool. It takes human energy to employ any tool, even with automation. Somewhere there must be human minds and human energies directing each operation. And the people will not forever support and use that tool which exploits and misuses them. So much for the American experiment. It was magnificent. But as a safeguard for human freedom and dignity it has been found wanting. Nor can we turn back to it with confidence that it will yet protect us. A wall once breached is no longer a wall. And with mounting political pressure all about us, the dyke with the hole has become a sieve. Now we have explored both avenues of remedy taken by people who find their government no longer protecting them as individuals. We have discovered that a change of personnel provides us with no certain guarantee of freedom. And now we learn that even the greatest form of government ever devised has also proved inadequate. The reasons in both cases are similar. Government is a tool. The nature of the tool is that of a weapon, a gun, a sword, a guillotine. And when people, be they politicians or otherwise, call upon a gun, a sword, or a guillotine to protect them from others, the device, willy-nilly, works two ways. It can be used defensively. But it is always used aggressively. 15. Anti-individual DeviceLet us examine this idea. Why is it that government, designed for protection, always ends up by attacking the very persons it was intended to protect? The reason is basic. Government's power, as we have shown, comes from a compulsive unification of all peoples. Government speaks and acts for everyone. It cannot permit nonconformity. The individual, at variance with governmental policy in any particular, becomes the target of government action, be he saint or sinner. Individualism is always opposed to collectivism. Any government is, by its nature, a collective. "The best government," said Jefferson, "is the government which governs least." And following up on that thesis Thoreau exclaimed, "Then the very best government would govern not at all." And here we come to the nature of human beings. For the inescapable fact of human life is that people are different. Their fear may sire governments for purposes of protection. But what they fear varies from person to person. One man may fear a thief, another the tax collector. One man may shun canines and salesmen, another zoning regulations and the foreign-born. Still another will have a veritable phobia about disease germs, whereas his opposite number will shudder principally over government questionnaires. In the end, the government, seeking only to be a useful tool, will overreach itself and seek to protect both the unprotectable and those not wanting protection. Its character is universal. If you do not fear disease, the government can, all the same, compel you to fear it. If you love canines and perhaps are yourself a salesman, the government can rule both out of order. And thus we see the government is at once both protector and predator. It is not that governments begin in virtue only to end in sin. Government begins by protecting some against others and ends up protecting itself against everyone. This is the course of history. We need only to look at taxation to see the universal flaw in every government. There is no government on earth that, now or ever, sold protection only to those who would willingly pay for it. Nor is there now or ever has been a government which permitted the purchasers of its service to decide just where the protection was to begin and end. On the contrary, all governments always have and probably always will decide:
Taxation, by definition, is compulsory. Whether or not you approve of a particular policy, practice, or program, and even if the policy, practice, or program is personally injurious to you, the government can and will compel you to pay for it. For example: There are few Americans today who are in love with communism. Yet every American, by means of both direct and indirect taxation, is helping to spread the teaching of communism. An exchange agreement with the Soviet Union provides that a slick magazine, published in the USSR, shall be made available to readers in this country. Your money pays the shipping charges and helps to underwrite the cost. But, at least this particular practice is a two-way street. There is an American counterpart, another slick, shipped to Russia and made available there. And the Soviet taxpayer pays at least some of the cost for this exchange. But the matter goes much further than this. Communism, in essence, is not a Russian program but an economic program. It calls for the elimination of private property and private ownership. Yet your money is being taken from you — try to prevent it, if you will — and is being used in most of our schools, both private and governmental, to promote the idea that capitalism is both decadent and immoral, and that a sharing of wealth is the new economic order. This is communism. And the dissemination of this doctrine is being subsidized by the free enterprisers of America who are compelled at the point of a tax gun to pay all charges. You cannot successfully object. You cannot withhold that portion of your taxes which would be used to underwrite this practice. Thus, your own money, via the hands of the government, is being used to undermine the very device by which you earned your money in the first place. 16. Is There a Way Out?When we are all through examining the logical and the illogical regarding government, we inescapably come up against an as yet insurmountable problem. Governments may be intrinsically evil; clearly they operate on the basis of tax predation. And with equal clarity we can discern that the collection of the tax money precedes the vaunted protection thus dearly bought. But the fact remains that human nature being what it is, a certain amount of protection of our lives and property is desirable. The world is not an ideal place. The people who go to make up our world are, in the main, neither idealists nor saints. Criminals do stalk our streets; viciousness, selfishness, inconsideration, stupidity and worse are all about us. We cannot completely forego the right to protect one's life and property. Would that we could. But the facts of life are bloody, and in altogether too many instances an inability to protect ourselves defensively would simply encourage the rise of organized aggression. Therefore, we come to an impasse. When government is employed as a protective device, immorality of necessity appears. But, should we forego protection, at least at this time and place, the immorality might conceivably be expanded by even more brutality and cruelty. And though it may be true, and there are some who will argue the point valiantly, that we actually require far less protection than we think we do, the fact remains that something must be done, some tool provided, which will offset man's belligerency, at least in individual cases. Let us, then, state with certainty that some tool of protection must be found. And if we can find nothing better than government, cruel, rapacious, immoral, and unjust though it has proved to be in all of history, then, we must still have government. However, let us suppose that we are able, by virtue of our advanced knowledge and by virtue of a renewed belief in moral verities, to devise a tool of protection which is superior to government. Ah, there is a thought to conjure with. We have shown that government is a tool. But in this respect, though it may provide a necessary service, it is no more sacred than any other tool which also provides a necessary service. Government's distinct character comes from the peculiar manner in which it attains to force and power. It derives this power from the compulsive unification of all persons below its exalted level. No other tool occupies this strange elevation. Every other tool of man's devising is a tool which, if man can control himself, will become docile and tractable in his hands. Government alone, of all man's inventions, is capable of independent life. Government alone, like Mrs. Shelley's terrifying creation of the monster born in Frankenstein's mind, has the power and the ability to turn upon its creators and destroy them. The question which must one day demand our finest intellectual efforts is: Can we invent or create a tool to protect ourselves from aggression without building into it so much power that ultimately it can turn against the very persons who create it and give it strength? We cannot yet answer this question. However, avenues of procedure already suggest themselves as offering at least a partial remedy. Is government the only device we know of self-protection? No, it is not. Voluntary insurance is another device. So are private policemen, private organizations such as the American Legion, night watchmen, merchant police, the Triple A and perhaps a score of others. We have found, for example, that we can protect ourselves from fire with fire insurance. This does not prevent the fire from occurring, but it can indemnify us from loss in the event the unwanted holocaust occurs. And, similarly, if we hire a private policeman, a private watchman, or a private detective, these men cannot prevent a criminal tendency in the mind of another, but they can and will prevent a crime in some cases, and in others they can and do track down the criminal. But can government do more? Quite frankly, it cannot. We could pass a law, but fires will continue to occur. We can establish expensive and expansive police departments, yet the criminal mind will still function in its own warped way. 17. The Voluntary WayWe must concern ourselves with morality. We have, for centuries, struggled to understand more about matter and more about technological things. We now know where to look for a reliable food supply. For ages this knowledge was not available. We now know how to protect ourselves against extremes of temperature, both by shelter and by clothing. Additionally, we can, within limited areas, control the weather. We have deep freezes and we have roaring furnaces. Air conditioning is not new to us. But as we look at the progress we have made as humankind, we find that chiefly we have concerned ourselves with material things. Materially, we stand at an advanced position as we compare modern living with prior barbarism. But we have yet to break the barrier of immorality which surrounds us. We have yet to understand ourselves sufficiently so that we can protect ourselves from aggression in a wholly moral manner. And, if we can devote ourselves to this frontier ever before us, we may yet learn how to cross this invisible boundary and move our society into a completely moral setting. And this would be a fitting climax to the drama of human progress. If only people would govern themselves. But, alas, they do not. If only people would believe in and practice the Golden Rule and the basic prohibitions of the Decalogue. But people, basically, neither believe nor practice. And even those who devoutly assay these moral heights fall dismally by the wayside. Yet we do hold certain clues to a better moral climate. We know that men cannot be compelled to be good. They can only be prevented from being bad — a negative condition. We know from bitter experience that men cannot be forced into doing the wise thing, for such a forcement is foolishness. Therefore, dimly we see that men can be good, but only when they wish themselves to be good. And through the fog and smoke of friction we can make out the fact that wisdom is possible only when the individual has learned to control himself. Great wisdom comes only with great self-discipline and great self-control. And experience, we learn from experience, is the very best and surest of teachers, though the cost is high. So the word "voluntary" becomes suddenly of inestimable importance. Men cannot be driven up a slope. But individually, voluntarily, men can and will assay the climb. Further, if their training is proper, if their education is sound, they will long for a moral world with all their hearts. If the longing is born in their breasts, they will inevitably seek the light. And if they do, their seeking will be voluntary and their progress, so long as it is voluntarily conducted, will be certain. Again we look at insurance and private protective agencies. Have we fully explored all that these devices can perform? We do not think so. This is an age in which both government and insurance ideas have gained great expansion. But government leads the race, twenty to one. This age will probably yet be called, not the age of reason, but the age of compulsion. What reason we have found has led us, immorally, towards compulsion. For example, we have two kinds of insurance, voluntary and involuntary. The first is purchased willingly by the buyer, because he feels that it is a good buy for him. The second is forced upon him by his government, whatever he thinks of it. The first is moral, the second is immoral. Yet the latter is gaining ground. Still, the very essence of immorality is found in the use some persons make of force in compelling others to do what some think they should. And we have two kinds of police protection, voluntary and involuntary. The first is paid for voluntarily because someone wants protection and is willing to pay for it. The second is forced upon us all because some people feel we must have it. The first is moral, the second is immoral. Yet the latter is gaining ground. So there is the great question. Can we yet establish a fully voluntary government … or, perhaps, to phrase it best, can we devise a tool for our protection which will be paid for only by those who want it, and in whatever amounts the payers deem best? 18. What Can You Do?We come, finally, to you. Individually, you are in difficulties, many of them probably not of your own making. But, of course, in some way, you are responsible for all your difficulties, even when they have been thrust upon you. You, alone, can solve your own problems. As a member of a community and as a member of a nation, you are in difficulties. Your various governments have taken your energies in the form of frustrating regulations and in the form of mounting taxation, until you stand today almost equated with the victim of a vampire. You are being drained. Let's face it. You have been drained. The government, you say, has done this to you against your will. This is true. But it is only partially true. For the government is still nothing but a tool of man's devising and you, although you may deny it, have aided and abetted the condition in which you now find yourself. In short, you have, yourself, employed the tool for your own use, only to find that with each use the tool grew stronger and you grew weaker. Isn't it time you discovered this fact? Isn't it time you learned that whenever you call upon the government to do something for you, the call you make is like food and drink for the bureaucracy? On your calls and your demands, it is nourished. Without that nourishment it would not grow. It could not. It is an inescapable fact that what your attention is upon flourishes because of your attention. If you love your home and your family and devote yourself to these things, do they not flourish? And if you turn away and deprive them of your attention, do they not wither, and perhaps ultimately depart? If you love your business and your work, and devote yourself here, does not your business expand and your work multiply? And if you shirk your business and your work, will they not shrivel and perhaps ultimately turn to dust to be blown away by the winds of chance? And if you look to the government as your great love, pouring your energies out upon it, coddling it, coaxing it, wheedling it, beseeching it, will it not blossom and wax fat and strong? But in this latter case, because of its contradictory formation, the government never has anything of its own. It can only gain by your loss. You can grow with the growth of your family and your home. You can grow with the growth of your business or your work. But you cannot grow with the growth of your government. You must shrink, and from the shrinkage the government grows. You are on the threshold of a new world. This is true every day of the year and every year of your life. Can you and will you discipline yourself so that you will not employ an agency of coercion and affliction to compel others to support you in your fondest hopes and dreams? Can you be content with minding your own affairs and living your own life? Or must you inflict your views and your opinions on others by using your agency, government, to compel universal support to your ideas? Can you and will you raise your head in pride and honor and refuse to receive the slightest governmental "aid," knowing that whatever it may be, it has been wrung from the energies of others? Will you become a devotee of the American capitalistic system and give your energies to producing wealth and services on a voluntary basis? Will you turn your attention away from government, either as a big brother to help you, an employer to hire you, or a mailed fist to force others into your way of doing things? The nature of man is such that he can rise to any height if he but will. The nature of government is such that, whatever strength it has, it will be used to amass greater strength by draining away the strength of individuals. You, alone, can decide where you will stand. If you can and will be strong, the future is yours. If you cannot and will not discipline yourself, the future belongs to the government. Thus we are confronted with the necessity for most serious introspection. Government is a tool, made necessary by man's weakness. But in the passage of time man, through the employment of an enormous array of other tools, is no longer weak. Yet man clings to government as the first and most important requisite of organized living. Admittedly, the worthy functions which government can and does perform are necessary. But it must be seen that government is not an end in itself, but a means whereby those functions of security and protection are vouchsafed to humankind. The question which must be asked is this: Can man obtain the necessary mental objectivity to devise a modern tool, other than government, which will provide for his security and his protection without the evils which are inherent in any and every government ever devised? In a word, can man improve his tool of protection so that its destructive character is eliminated? Is man, through fear, already addicted to the use of compulsion beyond the possibility of change? Or is it possible that man may now, in this century of much retooling, set up a protective device which will remain docile to his will; his servant, never his master? Is modem man dedicated to the axe of force? Or can he exercise his unparalleled skill in tool improvement so that the primitive and prehistoric use of coercion is no longer a necessary adjunct to his own concept of power? Robert LeFevre ran the Freedom School and Rampart College, founded in 1957. He had a legendary impact on a whole generation of libertarians. This monograph was originally published by Caxton Printers in 1959. LeFevre's complete audio archive is hosted by Mises.org. Comment on the blog. | ||
| Behind Klaus Schwab, the World Economic Forum, and the Great Reset: Part 5 Posted: 13 Apr 2022 11:00 AM PDT Bob completes his series on the elites who are literally trying to take over the world. He first explains Schwab's connection to the Global Government Summit, and then finishes reading key excerpts from Schwab's book on Covid-19 and the Great Reset. Mentioned in the Episode and Other Links of Interest:
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
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| Instead of War, Russia, Ukraine and Their Allies Should Try the Free Market Posted: 13 Apr 2022 09:00 AM PDT The war in Ukraine has generated commentary from a wide variety of observers in many fields. But economic science is the only field that can provide lasting solutions. And economics delivers the same time-honored solution: the free-market economy is the only way to durable peace between Russia and Ukraine. The immediate goal is to defuse the crisis. Any immediate steps, however, must be consistent with the ultimate goal of a genuine free-market economy for Russia and Ukraine. Three immediate steps are required to defuse the crisis:
So, who should take the first step? All three governments should be racing to take the first step toward peace. It is a grave mistake to think that the first mover will lose the conflict in Ukraine. Rather, as detailed below, each government has great incentives to move first toward peace. UkraineThe Ukrainian government has the most obvious incentives to move first toward peace. It is impossible for Ukraine to win this war. Russia's GDP in 2020 ($1.5 trillion) was almost ten times greater than Ukraine's ($160 billion). Similarly, Russia's military spending ($62 billion) was about ten times greater than Ukraine's ($6 billion). These figures suggest Russia has a ten to one advantage over Ukraine in its economic capacity to wage war. Ukraine (233,000 square miles) is too large for Russia to permanently occupy. Russian leadership probably wants to permanently absorb the Donbas and Ukraine's coastal territory. But it has no interest in most of the country. The Russians will destroy most of Ukraine, and then they will leave. The Ukrainians will be left to pick up the pieces. Ukraine will suffer more and more death and destruction until the government finally yields on the NATO issue. And if enough destruction occurs, NATO will no longer desire Ukraine as a member. Either it can agree now to never join, or it can be destroyed and agree later. Either way, Ukraine will never be in NATO. It is best to agree now to avoid needless death and destruction. Critics might argue that Ukrainian resistance to Russian aggression is a just cause. It is true: the only just war is a defensive war waged against a violent aggressor. At the same time, however, just war theory dictates that it is unjust to fight an unwinnable war. Ukrainian leadership is unjust for allowing needless human suffering for the lost cause of NATO. RussiaRussian leadership is the least likely to move first toward peace. It knew Russia would be demonized and sanctioned for invading Ukraine. Russian leaders must feel that it is politically impossible to pull back now. Still, they would be wise to take the first step toward peace. To understand why, it is necessary to dispel two myths about Russian power. First, the great size of Russia's territory gives the impression that she is a great power. However, the stupidity of Napoleon and Hitler must not delude the Russians. Russia's massive territory does not make her invincible. Russians should remember the Russo-Japanese War. Japan's territory (154,441 square miles) was only 1.8 percent of Russia's (8,378,413 square miles). Yet Japan defeated Russia in 1905. Russians might also remember the humiliating Soviet-Afghan war of the 1980s. Second, World War II emboldened the Russians. Nazi Germany lost five million soldiers in World War II, and the Red Army killed about 75 percent of them. To do so, the Soviet Union lost eleven million soldiers and fifteen million civilians. These tragic facts are sacred to Russians. A 2021 poll showed that 63 percent of Russians believe that the USSR would have defeated Nazi Germany without the Western allies. The idea that the USSR defeated Nazi Germany is a postwar myth created by Soviet propaganda. In public, Joseph Stalin's communist regime had to downplay any contributions from the "evil capitalists." In private, however, Stalin admitted the USSR would have lost the war without her Western allies. Nikita Khrushchev explained: "[Stalin] stated bluntly that if the United States had not helped us, we would not have won the war. If we had had to fight Nazi Germany one on one, we could not have stood up against Germany's pressure, and we would have lost the war. Today, Russia cannot win a conventional war against the US and NATO. In 2020, the combined GDP of NATO was $40.5 trillion—27 times greater than Russia's. Of course, the US is the great power in NATO. Its GDP ($20.9 trillion) was 13.9 times greater than Russia's. California's GDP ($3.1 trillion) is twice Russia's. NATO's military spending ($1.1 trillion) in 2020 was 17.4 times greater than Russia's ($62 billion). A Russian patriot might reply that Russia can increase her military spending. But so might the US. During World War II, the military spending of the US and USSR peaked at 42 percent and 61 percent of GDP, respectively. At these ratios, US military spending today would be 9.6 times greater than Russia's. Let's put this in context. When adjusted for inflation, Nazi Germany's GDP ($879 billion) in 1942 was 1.4 times greater than the USSR's ($630 billion). That year, Germany's military spending ($563 billion) was 1.5 times more than the USSR's ($384 billion). Again, Stalin himself admitted the USSR alone could not have defeated the Nazis. But the Nazis' economic advantage over the USSR in 1942 was only 1.5 to 1. Today, the economic advantage of NATO over Russia is somewhere between 9.6 to 1 and 27 to 1. Even Comrade Stalin would shudder. To be blunt, Russia is not a great power. It is in the Russian government's own interest to remove its troops from Ukraine immediately to avoid an unwinnable war with the US and NATO. The United StatesThe US government should remove all sanctions against Russia immediately. These sanctions are unjust because they will harm innocent Russians. However, blowback can cause even greater pain for innocent Americans. Many of the sanctions against Russia have not kicked in yet. The sanctions should be removed now to prevent damage to average Americans. Predictably, the US government is blaming Russian leadership for American price inflation. In actuality, the Fed is responsible. The purchasing power of the US dollar is determined by the supply and demand for US dollars. The M2 money supply in January 2020 was $15.4 trillion versus $21.8 trillion in February 2022. The increase in the supply of US dollars is the root cause of American price inflation. Still, the sanctions can add fuel to the fire. Sanctions affect the demand for US dollars. Overusing sanctions might lead other nations to think they will be sanctioned next. If other nations flee from the US dollar, this will aggravate price inflation in America. Given the supply-and-demand picture for the US dollar, Americans are in danger of having an existential experience with price inflation. The Fed cannot do anything real to combat price inflation. US government revenue ($4 trillion) is only 14.3 percent of US government debt ($28 trillion). This constrains the Fed. If the Fed raised interest rate to 5 percent, the cost of financing the government debt would be 35 percent of government revenue. The Fed is cornered and can take no real action to stop runaway price inflation. Moreover, the sanctions against Russia could cause a financial crisis in the US or other financial centers. The sanctions could produce a default in some unexpected corner of the world. This could ignite a financial crisis that spreads to the US. In short, there are real financial risks to average Americans from these sanctions. Best remove them immediately to avoid any financial blowback. Finally, the US government should pressure Ukrainian leadership to yield on the NATO issue. Although this might insult NATO bureaucrats, every other member will do whatever the US decides. If the Ukrainian government refuses to act, the US government should announce that Ukraine will never be admitted to NATO. Also, it would help if the US promised that NATO will never admit another member. NATO is already too big. The Free-Market EconomyMany pundits have argued that government violence must be used to transform Ukraine into a neutral "buffer" state between Russia and Europe. These commentators do not understand the cause of modern wars. Government intervention in the free-market economy is the fundamental cause of all modern wars. There is no benefit to empire in a system of genuine free trade. But in a protectionist world, nations can benefit by expanding their empires to capture and lock off markets. Protectionism and imperialism go hand in hand. In the 1880s, the European powers turned toward protectionism. This started a wave of imperial expansion that put the European empires on a collision course. The result was World War I in 1914. World War I led to fascism in Germany, Italy, and Japan, extremism in the Middle East, and communism in Russia, China, Vietnam, Korea, and many other countries across Europe and Asia. In short, protectionism from 1880 to 1914 generated a century of war. The current war in Ukraine has its origins in World War I. The war led to the Russian Revolution of 1917, and the USSR was born. Until 1991, the USSR was a socialist nation violently opposed to the free-market economy. Economic theory dictates that socialism leads to chaos. The USSR's chaotic socialist system collapsed, and Ukraine declared its independence from Russia in 1991. The Russians and Ukrainians did not learn the important lessons from the world wars and the collapse of the USSR. They should have learned that government interference with trade causes poverty and war. They should have learned that the free-market economy is the only way to prosperity and peace. The current war in Ukraine would have been avoided if the Russians and Ukrainians had learned these lessons in 1991. Here is one of the most important lessons from economic science: the free-market economy is the only way to lasting world peace. Treaties, buffer states, and other government machinations cannot prevent war between nations who reject the principle of free trade. After the current crisis is defused with the immediate steps outlined above, the Russians and Ukrainians must make a genuine commitment to the free-market economy. All other nations of the world should learn from this tragic crisis and commit themselves to free trade at home and abroad. This posting includes an audio/video/photo media file: Download Now | ||
| The Fed Can't Fix the Economy, but It Can Break It Posted: 13 Apr 2022 08:00 AM PDT Despite assurances from politicians and the media, the Federal Reserve System is not a collection of geniuses who stand guard against inflation and recession. Instead, think of the Fed policy makers as the Keystone Cops of central banking. Original Article: "The Fed Can't Fix the Economy, but It Can Break It" This Audio Mises Wire is generously sponsored by Christopher Condon. | ||
| If Ukraine Joins the EU, It Will Be the Poorest Member by Far Posted: 13 Apr 2022 07:00 AM PDT Ukraine should have been a middle-income country by now. Instead, it is one of the poorest in Europe. If Ukraine joined the EU, it would be the poorest country and well below even Bulgaria. Original Article: "If Ukraine Joins the EU, It Will Be the Poorest Member by Far" This Audio Mises Wire is generously sponsored by Christopher Condon. | ||
| Deflation: Bad for the Government, Good for Producers and Consumers. What's Not to Like? Posted: 13 Apr 2022 04:00 AM PDT Governments lie about the inflation rate and benefits from it, so, it is no surprise when they talk against deflation (for the purpose of this article, assume inflation as a general increase in prices and deflation as the opposite), which would be good for consumers and the economy, but bad for the government. (While Austrian Economists define inflation as an increase in the supply of money, the net effect of inflation is an increase in asset prices, as well as a distortion of the structure of production.) Prices fall in a scenario where the currency is not inflated and, therefore, there are more sustainable investments and increased productivity. In an economy with little or no government intervention (at least few monetary interventions and few regulations, government spending and taxes), there are more long-term investments (capital investments, for example), which increase the economy's productivity. In a deflationary economy, the purchasing power of money tends to increase, as there is no monetary inflation by central banks and prices tend to fall. Consumers can purchase more products and services and companies have higher profit margins. But governments do not like deflation, they are the most indebted entities. Inflation is beneficial to borrowers, as they repay loans in a currency with lower purchasing power than when they took the loan. It is even more beneficial to the government since it can expand the money supply to pay the debt. Furthermore, inflation is good for the government because it creates an apparent economic boom, which will eventually be wiped out by a recession. But, as this can take a few years, the short-term incentive for the incumbents is to take advantage of this instrument. Two typical arguments given by governments against deflation are as follows: "Deflation Will Cost Entrepreneurs"The reasoning behind this statement is that, if prices fall, entrepreneurs will sell products and services at lower prices than the cost to produce them. However, this statement does not hold if we consider the fact that, in a deflationary economy, the currency's purchasing power tends to increase. So even if entrepreneurs get less money (nominally) than what their products cost, in real terms, they will still make a profit. In addition, the prices of the inputs used in production will also fall in a deflationary economy. Therefore, with the use of productivity and management of expenses that every company must have, it is possible to sell the products at low prices, but with the same or even higher profit margin than in an inflationary environment. (Note: even if we disregard this gain in purchase power and lower production costs, it would be possible for the entrepreneur to protect himself through future contracts). And, precisely because prices get lower, consumers buy more products and services (without going into debt) and companies profit more due to the reduction in costs that occurs thanks to deflation. This is particularly the case in the technology sector. Computers today are cheaper and much better than they were 30 years ago. Because prices got lower (due to increased productivity), consumers began to buy more, which increased the industry's profits, which brought more investments and higher productivity. "Consumers Will Postpone Consumption under Deflation"The reasoning behind this argument is that if prices are constantly falling, no one will buy the products and services because individuals will always expect prices to go down. This also does not make sense, as there are always products and services that people have to purchase (such as food and medicine). Nobody starves themselves to death or does not purchase medicines because a year later they will be cheaper. Only when the product or service is expensive do consumers postpones consumption, which is what occurs with constant inflation created by central banks. Furthermore, people tend to have a high time preference (hence, they want to satisfy their demands in the present, not in the future). If they can afford to buy what they want, they won't hesitate. Therefore, deflation has several benefits, not only for consumers, but also for entrepreneurs. A deflationary economy makes industries more profitable and more efficient (producing cheaper and better products and services). Also, deflation has two other benefits: The Economy Becomes Less IndebtedIn a deflationary economy, consumers would tend to buy products and services in cash rather than by going into debt. Therefore, less money would be directed towards interest payments for consumption. The incentive to save would be higher, which would lead to more investments, which would lead to greater productivity, which would lead to cheaper and better products and services, which would lead to higher profits, which would lead to more incentives for investments. It's a beneficial cycle for the economy. Furthermore, the current scenario of zombie companies would not occur in a deflationary economy, as the incentive would be for savings and investments in productivity, not indebtedness. The central bank (if it existed) would not inflate the currency, nor it would control interest rates and expand the money supply (hence, there would be less malinvestment and companies would be more efficient, as they would be more subjected to the profit and loss mechanism). Therefore, inefficient companies would be quickly eliminated, leaving resources to be used by potentially more efficient companies. There would be less significant waste of resources in unsustainable developments. Banking activity would also be healthier, as there would be more loans for investments (which, in general, would create value that would offset interest expenses) than for consumption. Products and Services Would Be Cheaper, Better, and More VariedAssuming the government would significantly decrease spending, taxes, and regulations (in addition to not expand the money supply) a deflationary economy would generate greater diversification of products and services, as competition (or potential competition) would tend to be so high that lowering prices and improving product quality would not be enough for companies to survive. They would have to invest in product diversification to give consumers more options, meeting increasingly specific demands and being able to sell to various groups of consumers (that have different desires and needs). This is already happening in the technology sector and would occur at an even greater intensity in other sectors as well in a deflationary economy. Historical Examples of DeflationAn example of deflation occurred in the US in the nineteenth century. Between 1800 and 1900, the price index dropped by 50 percent (from 150 to 100). "Despite" this deflation, the nineteenth century was marked by great economic growth in the US (an increase in the productivity of industries and falling prices). This is precisely what happens in a deflationary economy (or, in this case, one that tends towards deflation). From 1815 to 1914, the US was in a gold standard (read pp. 89–92 of this book), which is deflationary. There were only a few inflationary periods, such as the Civil War in the 1860s. According to Patrick Newman (p. 497), during the Civil War, Congress established the national banking system. Both state and national banks were able to pyramid credit on the same set of lawful money reserves through the use of interest paying interbank deposits. This credit expansion led to a depression in the 1870s (1873–79), as explained by the Austrian business cycle theory. The credit expansion was still happening in the depression period (which, according to Newman, must be considered between 1873 and 1875 because the data at the time were based on nominal series and there was little access to aggregate economic information) and signs of contraction began to appear, resulting in bank runs, which led to a credit crunch. In addition, there were no fiscal or monetary stimulus during the depression. For this reason, according to Newman, the recovery was faster, as the economy was able to reallocate resources efficiently. Singapore is also a good example. Although it is not in a gold standard, its exchange rate policy is less inflationary than the floating exchange rate policy (adopted by most central banks, including the Fed and the European Central Bank). As of 1981, the MAS (Monetary Authority of Singapore), Singapore's central bank, began to interfere only in the exchange rate (as mentioned by Leandro Roque at 20:11), controlling the value of the Singapore dollar (SGD) in relation to a basket composed by the currencies of the main economies of the world, increasing and reducing the monetary base through purchases and sales of assets, respectively. The goal is to have a currency that continuously appreciates against the others. Therefore, the MAS does not act by setting a target for the interest rate, leaving it to be mostly determined by the market. Thus, investments tend to be more sustainable in the medium and long term (since they tend to be financed by savings). This contributes to sustainable economic growth, with less intense recessions. The result was that between 1982 and 2005 the SGD was the currency that lost less purchasing power in the world, surpassing even the Swiss Franc (CHF). Hence, the inflation rate remained low (increasing significantly only in some brief periods). At some points, there was even deflation (inflation rate below 0 percent). When it became independent from Malaysia in 1965, Singapore adopted high economic freedom, which led to the surging of private companies that were very competitive in the global market, and to a high standard of living. The government adopted a policy of low public spending and low taxation, almost nonexistent bureaucracy, and few regulations. The less inflationary policy of the MAS is one of the main (if not the main) factors that contributed to Singapore's performance. ConclusionDeflation is only bad for the government. In a deflationary economy, it cannot tax people indirectly via inflation and it can't use monetary policy to artificially boost the economy and get votes before there is the inevitable recession. Consumers (mainly the poorer) and entrepreneurs are the ones who benefit from deflation (due to lower prices and larger profit margins, respectively). To learn more about deflation, watch this lecture by Philipp Bagus. This posting includes an audio/video/photo media file: Download Now |
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