Blogroll: Mises Institute
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The European Central Bank's recent move away from the exit from ultra-loose monetary policy has revived the debate on Europe’s potential "Japanification." The Japanese scenario is gloomy. Since the bursting of the Japanese bubble in the early 1990s, growth has been stagnating, wage levels have been falling, and an increasing number of people has been forced into precarious employment. The so-called Abenomics, an immense Keynesian spending program financed by the central bank, has failed so far to jumpstart the ailing economy. Instead, statistics are interpreted and designed creatively.
Fig. 1: GDP Per Capita Based on Working Age Population and Employed
Paul Krugman (2014) has argued that the development of real GDP per capita in Japan since the early 1990s hardly differs from those in the US and the euro area. He came to this result by using working-age population as a denominator for the calculation of GDP per capita. In Japan, due to low birth rates and low immigration, the number of people between 15 and 64 is declining rapidly. Therefore, the real GDP per working-age population (i.e., between 15 and 64) has increased significantly (Fig. 1). Many commentators now follow this calculation method, thereby putting Japanese economic policy in a good light. However, Japan’s three lost decades have forced particularly women and pensioners to enter or to remain in the labor market to maintain the standard of living for themselves and their families. The upshot is that GDP per person employed has stagnated since 1990 (Fig. 1), pointing to low productivity growth. Yet, productivity gains are the prerequisite for real wage increases.
Fig. 2: Real Wage Level and the Number of Employed in Japan
More recently, a dispute has raged over the Japanese real wage development. The issue drew nationwide attention because the real wage level has been trending downward since the 1998 Japanese financial crisis (Fig. 2). In 2004, the Ministry of Health, Labor and Welfare had removed two thirds of large enterprises in Tokyo from the labor market statistics. Because the wage level is higher in Tokyo than in other parts of the country, the statistically measured real wage level declined substantially. As a positive side effect, the Japanese government saved social security expenditures which are paid to those, who have a personal income significantly below the average wage.
This statistical distortion, which was in conflict with Japan’s legal provisions for statistics, was secretly corrected in 2018. This caused a substantial rise of the real wage level, by 0.6%. Prime Minister Shinzo Abe could praise the real wage increases as proof for the success of his Abenomics (Prime Minister of Japan and His Cabinet 2018). An impressive recovery of the Japanese economy was reported worldwide (see, e.g., Reuters 2018). But when a member of the ministry's staff accidentally revealed the reasons, the Japanese opposition launched a controversial debate on the credibility of Japanese statistics. Finally, the Ministry of Health, Labor and Welfare corrected the real wage increase for 2018 downward to 0.2%, while the opposition sees real wages still falling by -0.5%.
To contain the damage to the reputation of Japan’s government, Prime Minister Abe has announced that the unpaid social benefits of around half a billion dollars will be compensated. Yet, the reputation of the Japanese statistical offices and the formerly highly respected ministerial administration has suffered. Fumio Hayashi, president of the influential Japanese Economic Association (2019), expressed in an open letter to the government concerns that the country's academic credibility is damaged. He offered support from highly renowned academics.
Whether this will help, remains questionable. Creative design of statistics cannot solve the persistent crisis. The core of the problem lies in a misguided economic policy that zombifies the Japanese economy and thus undermines prosperity. Instead, sound public finances and a stability-oriented monetary policy should strengthen Japan's growth dynamics. That way, the country could become a positive role model for the member states of the European Monetary Union and the European Central Bank.References:
Japanese Economic Association (2019): 「毎月勤労統計」をめぐる問題に関する日本経済学会理事会からの声明 [A Statement from the Board of Directors of the Japan Economic Association on the Issue of "Monthly Labor Statistics”], 29. January 2019.
Krugman, Paul (2014): Notes on Japan, New York Times, 28. October 2014.
Prime Minister of Japan and His Cabinet (2019): 経済３団体共催２０１９年新年祝賀パーティー [ 2019 New Year Party Jointly Hosted by the Three Economic Associations], 1. January 2019.
Reuters (2018): Japan Wage Growth Hits 21-year High, Signals Pickup in Household Spending, 7. August 2018.
What can we learn from the three big collapses in the gold price since 1934?
The causes have always included some combination of economic miracle, respite from grave fiat money disorder most of all in the US hegemon, anti-gold regulations, and global detente. Prudent analysts should never ignore these potential factors, even when the gold price seems to have embarked on a new journey to the summits as has most likely been the case since winter 2015 and 2016.
The gold price had sunk at that time to almost $1,000 per ounce from its multiple peaks in 2011–12 ($1,900 in summer 2011). That collapse reflected primarily the non-emergence of high inflation in the US despite the vast “money printing” and long-term rate manipulation under the first Obama administration.
Scared investors who had feared runaway inflation had not reckoned with the strong downward influence on prices (of goods and services) from globalization and digitalization. Nor had they fully digested the extent to which monetary radicalism had held back business spending in the US and other advanced economies given widespread concerns that another bubble-bust cycle was under way.
Fanning the gold price collapse of 2013–15 was continuous chatter from the Fed about normalization ahead. The oil and wider commodity market slump from late 2014 slotted into the growing narrative of no imminent goods and inflation danger.
Normalization never came. The Yellen Fed aborted all rate rises planned for 2016 in response to the growth cycle downturn and passing global asset market setback. The ECB and BoJ embarked on monetary radicalism even starker than in the US. Briefly in 2018, excitement in the media that Fed Chief Powell, convinced big business tax cuts meant boom ahead, was at last bringing monetary “accommodation” to an end, triggered a faltering of the incipient gold price recovery. Events this year have re-fuelled gold’s rising trend from its end-2015 trough.
Meanwhile news of continued “low inflation” does not impress many gold holders who worry about colossal budget deficits in the US and likely waning downward influences on prices from globalization and digitalization. Vast accumulated mal-investment and the weakness of the invisible hand in the context of unsound money — and strengthened monopoly capitalism — does not encourage optimism for economic miracles. This optimism was a key element in the epic gold price collapse from January 1980 to end 2002.
In terms of 2018 dollars, the gold price fell from $2,010 to $480 over those twenty-two years. In fact, there were two sub-collapses.
The first was the plunge to $750 (2018 dollars) in 1984. This reflected Paul Volcker’s monetarist assault on “the greatest peacetime inflation” coupled with an extraordinarily high level of real US interest rates. The height was in line with widespread speculation on the miracle of “Reaganomics.” The devaluation of the dollar at Plaza (autumn 1985) and beyond accompanied by the Volcker/Greenspan monetary inflation of 1985–88 as directed by top White House official James Baker led to a brief spring for gold.
Then the disintegration of the Soviet Empire followed by the emergence of US economic miracle (the IT boom of 1995–99) helped bring a second collapse, with 10-year real interest rates (as quoted in the 10-year US TIPS market) rising above 4 percent.
Aggressive monetary ease from 2003–04 (the Greenspan/Bernanke Fed breathing in inflation because it had fallen “too low”) as an accompaniment to the Bush administration’s dollar devaluation policy ahead of the November 2004 election set gold on its second journey to the summits (from 2003 to 2011–12). The first such journey had been from 1968 when the US ceased intervening in the free market to hold down the price of gold at $35 per ounce.
The free market was then (mid-1960s) just returning to life, having long been choked by regulation — starting with Roosevelt’s criminalization of private gold holdings within the US (1934) and then widespread exchange controls throughout the globe. The dismantling of these accelerated from the late 1960s (US gold ban lifted in December 1974, European and Japanese exchange controls abolished through 1970s).
These restrictions had doubtless played a role in the long collapse of the gold price from 1934 to 1968 (during which time the gold price in 2018 US purchasing power had fallen from $650 to $250 per ounce). Economic miracles also played an important role.
The mid-1950s to the mid-1960s were years of great economic miracles, not just the famed ones in Japan and Germany, but also in the US. Accordingly, rates of return to capital were extraordinarily high, dampening the appeal of gold. Even real interest rates were substantially positive, albeit held well below the level which would have been in line with the miracles.
Central bankers led by the Martin Fed sought to hold nominal rates down employing Depression Era-regulations on credit and deposit interest rates for that purpose. Rapid productivity growth camouflaged underlying conditions of monetary inflation from showing up in goods and services markets.
The widely told story about how the gold link of the dollar under Bretton Woods acted as bulwark against monetary inflation is myth. As soon as private gold markets came back to life, the anchor role snapped (March 1968). The remaining three years during which the official gold window remained open prolonged the opportunity for European governments to obtain the yellow metal from the US Treasury at the bargain prices still available.
In looking at the gold price beyond the next summit we should be concerned about restrictions which could imperil the free market in gold.
The lone serious non-fiat money is still in fragile condition due to government restraints. There is virtually no scope for banks or other financial institutions to develop “bullion banking” in which gold deposits could be used as a medium of payment (where clearing between the institutions would take place at a central gold “depot”) whether nationally or internationally. Regulators defend their veto here in terms of the wider war against cash — highlighting concerns that gold hoards include a criminal element whose money-laundering operations could flourish in bullion banks.
The Bundesbanker’s advice that outlawing large denomination notes due to their use by criminals is akin to banning Mercedes-Benz autos because the mafia like driving them does not go down well with the regulators. The gold bulls might be right that gold is safe against new regulation so long as the Republicans hold the White House. The likelihood is not trivial, however, that Washington will eventually join in imposing new regulations on gold trading and international shipments, perhaps in time for the next price collapse, albeit from a new record high summit.
Austrian Capital Theory (ACT) sounds arcane, academic, and complicated. In fact, it’s the key to modern organizational design, cutting edge business structures, and the high-response business models leading entrepreneurs deploy to win in today’s business environment. Hunter Hastings and Per Bylund discuss how to apply Austrian Capital Theory in modern organizational design, contemporary business structure, and a high response business model.Show Notes
Austrian economics recognizes that capital and resources are so varied and different today that agile entrepreneurs can combine them and recombine them in ways that are highly differentiated — even unique. Every firm is a capital structure that is in continuous flux, as the entrepreneur changes and adjusts to create new value in response to marketplace and environmental changes. Therefore, the whole economy is a changing, rapidly evolving capital structure, generating economic growth. It is the appreciation of the need to continually shuffle the firm’s capital combinations, and the mastery and agility in doing so, that marks the Austrian Entrepreneur. He or she is an orchestrator of capital, buying and selling capital goods and combining them with new and retrained workers to change production processes, scale up to new levels of efficiency, and to solve customers’ problems in new ways.
The purpose of the orchestration function is to achieve the highest return on capital by creating the most customer value. The value of capital is the future revenue streams it generates from customers, and revenues are a reflection of value created. Entrepreneurs examine every piece of capital, and every capital combination, to measure how much value creation it contributes. Could it do more? Can the entrepreneur render the capital more productive in maximizing value at the end of the production chain?
How can entrepreneurs assess whether their combination of capital assets is right? The managerial accounting of Austrian entrepreneurs is not identical to formal financial accounting. A conventional balance sheet is not going to tell the truth about the money-value of assets, since it is not based on assessing future revenue streams. And this year’s P&L is of little use since it is static and backward looking. How can entrepreneurs differentiate between assets that it merely feels good to own and assets that genuinely create consumer value and future revenue streams? It’s not easy, but there are two useful steps, both of which focus you single-mindedly on the consumer.
- Root out those assets that clearly do not contribute directly to consumer value, or clearly contribute very little. An office building might be one such example. It’s nice to have a central office, but couldn’t your employees contribute as much from a remote location, so that you can eliminate the cost of centralization?
- Examine capital combinations that could contribute more if they are rearranged. A server + software + trained personnel is a productive combination. What if the entrepreneur could ditch the server and rent computing power from AWS? What if the savings could be reinvested in more training for the person or better software? Would this rearrangement contribute more to consumer value? Renting rather than owning assets is one way to add dynamic flexibility to the firm.
The entrepreneur should focus the firm on what it alone can uniquely do for its consumers and customers. Outsource everything else. The firm is a necessary vehicle for the entrepreneur to take ideas to market to earn a profit. It is at its most efficient when it is 100% focused on what it does uniquely: its unique brand, its unique processes, its unique recipe, its unique design, its unique functional and emotional benefits for the consumer. Everything else should be stripped away. The necessary infrastructure can be rented or outsourced. If you own 10 computers and have 10 people sitting at them every day, it’s hard to identify what productivity you are getting out of each of them every day. If you don’t own them, and you are thinking rigorously about the future streams of consumer value your firm is producing, you won’t feel locked in to your current capital structure.
A “capital-lite” structure in no way reduces the market value of the firm — in fact, it can increase it. In the past, companies were valued based on the assets they owned, as captured on the balance sheet. But this valuation method was based on an assumption that the assets were owned because they produced consumer value and contributed to profits. What if the assets are not contributing to future profit? They become a liability. Firms like GE are finding this out today — they own a lot of non-contributing assets and face major transaction costs in shedding them.
There is no need to own consumer value-producing assets. You need to control then and have the rights to utilize them to produce value, but not to own them. In venture capital markets, it is common to see firms change hands at a price that represents a high multiple of revenues or of earnings, even if the traditional capital base is insignificant. Assets that don’t appear on the balance sheet, like brand and a loyal customer base, are more important than those that do.Actionable Insight
The Austrian Entrepreneur reviews combinations of capital and labor and non-capital resources at every moment, seeking ways to improve that combination for the consumer’s benefit. The single-minded focus is on consumers and their changing preferences and the consequent implications for responsive change in the capital structure of production.
Like the Matrix, you cannot be told about a three-hour conversation with Donnie Gebert; you must hear it for yourself. But here’s the blurb from his book, A Direct Republic: The Null Hypothesis of Politics:
All members of a direct republic sign… the constitution/social contract. This contract states you will not engage in murder, rape, theft, and basic crimes against humanity. Once signed, the individual becomes their own representative and places social contributions directly into the funding pools for the social projects they approve of.
NOTE: Bob Murphy erroneously describes Gebert as an “intelligence officer” in the introductory remarks, but in fact Gebert was a sergeant. The mistake was Murphy’s, not due to Gebert.
Since March 2016, the main refinancing interest rate of European Central Bank (EZB) is zero, and since June 2014 the ECB’s deposit interest rate is in negative territory; it currently stands at –0.40 percent. This means that euro area banks get zero funding from the ECB, and that they are charged a fee on excess reserves they hold with the central bank. The ECB’s unprecedented lowering of interest rates flowing the crisis 2008/2009 was accompanied by a huge bond purchasing program (through which the base money supply was ramped up by close to 2.8 trillion euro), and euro area banks were also offered additional term-credit at most favourable interest rates.
On 18 June 2019 ECB president Mario Draghi indicated that a new round of monetary easing is around the corner. In view of the US Federal Reserve’s now openly voiced bias towards easing monetary policy in the coming months, the ECB Governing Council can be expected to feel emboldened to go ahead with its plan. Keynesian minded observers surely stand ready for applause. They think that by lowering interest rates, by bringing them even into negative territory, the euro area economies would be kick-started, benefitting output and employment. This, however, is a serious mistake.
A sound understanding of the interest rate phenomenon reveals that the ECB’s attempt to push market interest rates to ever lower levels, and ultimately into negative territory, is economically highly destructive. For the ECB’s meddling with credit markets pushes the market interest rate below the level that would prevail had the ECB abstained from intervening in the credit market. The artificially lowered market interest rate triggers a boom, but only because it distorts peoples’ consumption, saving and investment decisions. This, in turn, leads to misallocation of scarce resources, and the initial boom will eventually end in a bust.
The ECB seems to be about to push yields on all euro area government bonds to zero or make them negative, largely by guiding investors’ future interest rate expectations downward. For instance, German government bonds with a 10 year maturity yield minus 0.32 per cent; the 2 year notes minus 0.76 per cent; and after Mr Draghi made his remarks, the French government benchmark 10 year bond yield turned negative for the first time ever. In other words: The ECB seems ready to rig the capital market for providing euro area governments with the opportunity to fund themselves at negative yields. The ‘new euro area credit market reality’ is that lenders pay when loaning to government borrowers.
Sound interest rate theory informs us that the ECB’s money policy is actually an outright attack on what little is left of the free market economic system. To understand this, one has realize that peoples’ time preference is always and everywhere positive, that it cannot fall to zero, let along become negative. Time preference means that people value a present good more highly than the good (of the same quality) available at a later point in time. The manifestation of peoples’ time preference is the originary interest rate. It stands for the value discount future goods suffer vis-à-vis present goods. Like time preference, the originary cannot fall to zero, let along become negative.
This is a (praxeo-)logical necessity, it is a category of the logic of human action. One cannot contradict the statement ‘ time preference and the originary interest are always and everywhere positive ‘ without causing a logical contradiction. Having said that, one can now easily conceive what happens if the ECB pushes all market interest rates and eventually all returns on investment to zero or even lower, while peoples’ originary interest remains positive: It would mean that people stop saving and investing, that they would consume their income in full. In other words: Capital consumption sets in, he division of labour collapses, people fall back into a primitive subsistence economy; and the death knell for millions and millions of people starts ringing.
Unfortunately, such alarmism is warranted: The ECB will most likely not restrict its efforts to bring down yields on euro area government bonds. It may also resume buying corporate debt and replacing banks’ capital market funding with direct credit lines to banks (by way of “TLTROs”). As all these yields fall, investors will increasingly search for yield. They will bid up prices for, say, stocks, houses and real estate, thereby compressing these assets’ future returns, pushing them towards the ECB’s artificially suppressed interest rate levels. The extreme end point of all this is the destruction of all positive yields, and this would mark the end of the free market as we know it today. But will it really become that bad?
One may hope it won’t. But we should not pull the wool over our eyes: Sound economic theory provides us with a clear understanding that the ECB’s monetary policy is working towards a bad end; and that there is unfortunately no indication that the ECB might abandon its devastating policy anytime soon. The loss of the free market system – as it is implied when market interest rates are pushed towards zero or into negative territory – would be a terrible price people are made to pay for upholding the euro. It is high time to stand up for those who really wish to preserve the free market system and thus individual liberty and freedom in Europe.
Money supply growth inched up in May, rising slightly above March's and April's growth levels. But overall growth levels remain quite low compared to growth rates experienced from 2009 to 2016. March's growth rate, for examples, was at a 12-year (145-month) low.
In May, year-over-year growth in the money supply was at 2.21 percent. That was up from April's growth rate of 2.00 percent. May 2019's growth rate was well down from May 2018's rate of 4.19 percent.
The money-supply metric used here — the "true" or Rothbard-Salerno money supply measure (TMS) — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth.
This measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short-time deposits, traveler's checks, and retail money funds).
M2 growth rose in May, growing 4.14 percent, compared to April's growth rate of 3.86 percent. M2 grew 3.83 percent during May of last year. The M2 growth rate has fallen considerably since late 2016, but has varied little in recent months.
Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of slow-downs in rates of money-supply growth.
Moreover, periods preceding recessions often show a growing gap between M2 growth and TMS growth. We saw this in 2006-7 and in 2000-1. The gap between M2 and TMS narrowed considerably from 2011 through 2015, but has grown in recent years.
It is commonly believed that healthcare is a sector plagued by “market failure.” A heavy dose of government intervention is therefore necessary to optimize the needs of society. A paper most commonly cited in support of that view is one published in 1963 by Nobel Prize winner Kenneth Arrow, one of the giants of economic theory in the twentieth century, and titled “Uncertainty and the Welfare Economics of Medical Care.”
But how does economic theory arrive at the concept of market failure and how do economists conceive of health care when they apply their theoretical models to medical practice?
To help sort this out, we have as our guest Robert P. Murphy, economist, teacher, and author of many books. Dr. Murphy obtained his PhD from NYU and is Senior Fellow at the Mises Institute. He is co-host with Tom Woods of the popular podcast Contra Krugman, and he is also host of The Bob Murphy Show, “a podcast promoting free markets, free minds, and grateful souls.”
The episode is in two parts. In this first part, we review the theoretical framework that forms the background to Arrow’s paper. In the upcoming second part, we will delve into the paper itself, discuss how economists conceive (or misconceive) of medical care and what the implications have been for the US healthcare system as a whole.
What started as a relatively obscure trial covered only by alternative conservative media has exploded into a Big Story, a modern David-defeats-Goliath tale in which a small business has won a victory in court against a well-heeled college whose leftist activist administrators and students tried to destroy it for no good reason. Not surprisingly, the progressive establishment already has tried to walk back the verdict and portray it as a loss for free speech.
(One should not forget that the same progressive establishment that regularly declares that anything other than “woke” speech actually is violence that the authorities must suppress, now has discovered the virtues of the First Amendment.)
Loraine County, Ohio, jurors levied a $33 million verdict against Oberlin College for its role in protests that pretty much ruined a long-time business in the town of Oberlin after students went on a rampage following the shoplifting arrest of a black Oberlin student in November, 2016.
Anyone familiar with the left-wing madness that infects many colleges and universities knows about Oberlin College, a selective institution in Oberlin, Ohio, that is famous for its uber-politically correct students that seem to fall for one “hate crime” hoax after another. It was Oberlin that canceled classes after a student claimed to have seen someone from the Ku Klux Klan menacing the campus one evening in 2013. The alleged Klansman turned out to be most likely a woman wearing a blanket to ward off cold temperature.
That same Oberlin College was roiled by a series of alleged “hate crimes” in 2013 that supposedly were so upsetting to the students that even the New York Times weighed in. In the end, there were no Klansmen on campus, no secret racists trying to destroy campus unity, just a couple of activist progressive students supposedly trying to “increase awareness” of racism, homophobia, and other such things allegedly on campus. Michelle Malkin, a conservative columnist and an Oberlin graduate writes :
According to police reports published by Chuck Ross of The Daily Caller News Foundation this week, two students had ’fessed up to most of the incidents (and fellow students suspect they are responsible for all of them). The Oberlin Police Department identified the hoaxers as Dylan Bleier (a student worker bee for President Obama’s Organizing for Action and a member of the Oberlin College Democrats) and Matthew Alden. Bleier told police the pair posted inflammatory signs and a Nazi flag around campus to “joke” and “troll” their peers.
Investigators “caught them red-handed” trying to circulate anti-Muslim fliers, and a search of Bleier’s email confirmed he had used a fake account to harass a female student. Cops told Oberlin President Marvin Krislov, but he failed to pursue any criminal action. The two students were removed from campus before the bogus “KKK” brouhaha and news-making shutdown.
Then there was the 2015 incident in which Oberlin students insisted that the food served to them in the college cafeteria be purged of its “cultural appropriation,” as they objected to being served tacos and sushi, along with other ethnic foods that apparently reminded students of the horrors of colonialism. (Yes, the New York Times covered this story, too.)
If the 2016 election of Donald Trump as president set off waves of angst among progressives, the political tremors turned into a major earthquake at Oberlin, where many students apparently were beside themselves in their grief. The day after the election, November 9, 2016, an African-American student tried to steal two bottles of wine from a local baker and grocery company, Gibson’s Food Market Bakery, a small business that had served the community since 1885, and which had a long business relationship with the college. One of the store’s owners confronted the student, and the encounter ended with the owner on the ground with the student and two female accomplices (also black) kicking and punching him, according to the police report. (The students later pleaded guilty of misdemeanors and publicly stated that Gibson’s had not racially profiled them.)
It didn’t take long for the Oberlin students, already looking for something to protest, to act. David French of National Review writes what happened next:
…students immediately organized a protest of the bakery, publishing and distributing flyers that claimed it was “a RACIST establishment with a LONG ACCOUNT of RACIAL PROFILING and DISCRIMINATION,” and that a member of the Oberlin community “was assaulted” by its owner. Evidence indicated that university officials helped publish and distribute the flyer, including by disseminating it to media.
This was but the beginning of the bakery’s ordeal. The student senate issued a resolution stating that Gibson’s had a history of “racial profiling” and “discriminatory treatment,” and the resolution was posted on campus for “a period of at least one year.” The head of Oberlin’s Department of Africana Studies published a Facebook post declaring that Gibson’s had “been bad for decades” and that “their dislike for black people is palpable.” He said, “Their food is rotten and they profile black students.” Then, from November 14, 2016, through January 30, 2017, the college suspended all business with Gibson’s.
Hundreds of Oberlin students mobbed the entrance of the business, screaming obscenities at anyone who dared enter the store, and loudly accusing the company and its employees of the worst kind of racial misconduct. Even when local black citizens — including a black Oberlin College employee — told students that Gibson’s was not a “racist enterprise,” the students refused to back off.
At that point, had it simply been a student-led protest with no official college involvement, this would have been a free-speech case and it is doubtful that Gibson’s could have taken any legal action against Oberlin College. However, both Oberlin administrators and faculty joined in the fray, as the dean of students Meredith Raimondo not only helped lead the demonstrations, but also handed out flyers claiming that Gibson’s was historically racist to black Oberlin students and regularly engaged in racial profiling. Other Oberlin administrators also publicly supported the students and the college permitted the protesters to use Oberlin facilities and publishing equipment to further their actions.
The ugly confrontations occurred for several days, and some Gibson’s employees claimed that someone had slashed their tires, although police did not arrest any suspects and could not tie students to those incidents. Another incident could have turned even worse, as one of the bakery’s owners, 90-year-old Allyn Gibson was badly injured. According to the blog Legal Insurrection:
He (Allyn Gibson) told the jury how his physical problems happened that have pushed him out of working at the bakery.
About 6 months after the protest, Allyn W. Gibson heard a banging on his first-floor apartment window at about midnight. He woke up, and then went out into the parking lot and saw a car with two people inside and its headlights on. Mr. Gibson said it was unusual for a car to be parked there at that time of night with the car running and the lights on. He testified that he didn’t recognize the people in the car or the car itself.
He decided to go inside and call the police, but fell in his doorway as he tried to do so and broke three vertebrae in his neck. He said people in the car didn’t get out to help him, and the car left as he lay on the concrete, with limited movement: “The pain was so much I couldn’t reach the cell phone for about 20 minutes.”
The reasons this testimony is being permitted is that several witnesses — those who worked at Gibson’s around the time of the protest and in the months directly afterwards — have testified they had had their tires slashed while they worked after the protest, people making nasty comments to them after they left work, and a general feeling of unease that some students seemed to feel toward them and the bakery.
But there was no evidence that anyone associated with the protest or people that supported the protesters was in any way responsible for Mr. Gibson’s accident. Nothing was stolen from his apartment, and the police have never identified who was in the car parked outside his apartment that night.
No one officially alleged Oberlin students were involved in these incidents, but it also was clear that by giving aid that was more than just moral support, the college administrators gave the impression that Oberlin College was officially trying to destroy the business and that members of the Gibson family were open targets. Legal Insurrection presented this email exchange among some administration officials:
…did bad personal feelings — an ill will toward the bakery/convenience store that had been doing business in the city since 1885 — come into play at all when the college decided to cut off ties with the small business as a bagel, donut and pizza dough food provider for the school cafeterias for the 2,800 students?
The plaintiffs’ lawyers had plenty of examples of what they told the jury was “personal beliefs overshadowing professional responsibility.” In one email, Ben Jones, the vice president of communications for the school wrote to his co-executives in the school administration that, “I love how these Gibson supporters accuse us of making rash assumption decisions, but are totally blind to their own assumptions … all these idiots complain about the college.”
He closed with, “F[--]k-em … they’ve made their own bed now.”
When Roger Copeland, an Oberlin College professor of theater and dance (he is “emeritus” status now) wrote a letter to the campus newspaper soon after the protests ended, and criticized how the school was treating Gibson’s in the letter, Jones sent a text message in caps saying, “F[--]K ROGER COPELAND.”
“F[--]k him,” Raimondo responded in a message. “I’d say unleash the students if I wasn’t convinced this needs to be put behind us. (Emphasis mine)
For the accusations to be actionable against Oberlin College, the Gibson family had to demonstrate that the college did more than just protect the First Amendment rights of the protesting students, as the college claimed in its defense. The Gibsons also had to show in court that the college itself was trying to destroy the business and that the protests, as opposed to being spontaneous action by outraged students, were directed at least in part by college officials, and jurors apparently agreed with the plaintiffs.
Oberlin’s defense not only failed to convince jurors that the college was just protecting the First Amendment, but the college’s leadership came off as being arrogant and presumptive. One of the “expert” witnesses for the defense, accountant Sean Saari, agreed that the protests and their aftermath had severely damaged the value of Gibson’s, but added that the business wasn’t worth much money, anyway.
According to Saari, Gibson’s value amounted only to about $35,000, or less than the cost of attending Oberlin for one semester. Even though the business had been in Oberlin for nearly 135 years and had financially supported not only a family but also a number of employees, Saari told the court that long life really didn’t mean very much. Legal Insurrection reports:
“I wouldn’t equate longevity with success,” Saari told the jury. “The actual recent numbers show that it is not a successful business.” But then he also added, “It is just more of an indication of permanent damage [to the business].”
Thus, Oberlin’s “expert” witness made things worse, as the plaintiff’s economic “expert” showed jurors that the business was doing well just before the protests began, and that this event really did damage the long-term prospects for Gibson’s. The plaintiffs demonstrated in testimony that they had to lay off employees and that family members worked without salary to keep the enterprise afloat.
In the end, it became clear that the leadership and the students at Oberlin College live in a very different world than that of their not-as-wealthy neighbors, and when the inevitable culture clash exploded, Oberlin’s administrators came off as arrogant, calculated, and totally clueless as how others had to make a living. One of the original Oberlin College responses to the filing of the lawsuit in 2017 further demonstrates the real cultural divide that exists between the “woke” activists living in the bubble of higher education and others who occupy very different worlds.
Recall that the original incident involved a student attempting to steal two bottles of wine from Gibson’s which led to the confrontation between a store owner and the student, with that student and his two friends ultimately pleading guilty not only to stealing but physically attacking the owner. There was little disagreement, at least in court, as to what happened. However, Oberlin College’s response claimed that the real perpetrators worked for Gibson’s and that the students were innocent victims:
By filing this lawsuit, Plaintiffs regrettably are attempting to profit from a divisive and polarizing event that impacted Oberlin College (“the College”), its students, and the Oberlin community. Indeed, the Complaint is fraught with allegations all designed to portray Plaintiffs as victims who were wrongfully targeted by Defendants when in fact community members protested the violent physical assault by Allyn D. Gibson on unarmed Oberlin students. Defendants never acted wrongfully or unlawfully, and never targeted or caused any harm to Plaintiffs. Defendants’ sole concern has at all times been for the safety and well-being of students and the community. All of the claims in Plaintiffs’ Complaint lack legal and factual merit. As a result, Defendants will vigorously defend this ill-advised and unfortunate lawsuit.
The response continued:
By commencing this legal action, however, Plaintiffs seek to personally profit from a polarizing event that negatively impacted Oberlin College, its students, and the Oberlin community. Thus, not surprisingly, the Complaint contains a smorgasbord of allegations all designed to falsely portray Plaintiffs as innocent victims. The actual facts do not bear this out. In reality, it was an employee of Gibson’s Bakery and a relative of the individual plaintiffs, Allyn D. Gibson, who left the safety of his business to violently physically assault an unarmed student .
Given that the students charged not only pled guilty but also stated in court documents that Gibson’s actions were not race-related, the college’s response to the lawsuit seem to be unjustified and its allegations untrue. That has not stopped some people from defending the college of wrongdoing, however. Floyd Abrams, a well-known First Amendment lawyer and strong free speech advocate, wrote in the New York Times that the jury’s decision imperiled free speech on campus, arguing that
…the notion that uninhibited student speech can lead to vast financial liability for the universities at which it occurs threatens both the viability of educational institutions and ultimately the free speech of their students.
Loyola Marymount University professor Evan Gerstmann, writing in Forbes, declares that the verdict is a direct threat to higher education and called for the courts to overturn the verdict. Although Gerstmann admits that Oberlin students and employees rushed to judgment and that the protests might have been ill-advised, he adds:
So, Oberlin is far from perfect. But to punish a college for not reining in its students, administrators, and faculty even when they are not speaking on the college’s behalf represents an extraordinary threat to academic freedom and to freedom of speech.
Whether Gerstmann’s statement is a stretch is up for opinion. With the Oberlin Student Senate passing a resolution calling Gibson’s business “racist” and urging its boycott, and the college going along with it, and also with Oberlin’s cutting off business ties with Gibson’s, it seems that the matter moved past just free speech and into another realm. It is one thing for students and employees of the college to state personal beliefs regarding a business enterprise, but quite another for the college to take an official or quasi-official stand against a company, make questionable claims of racism, call for the business to be closed, and then turn loose an angry student mob on the business and the family that owned it. Furthermore, as pointed out earlier, in one of her emails, dean of students Raimondo indicated that she could “unleash the students” in a context of having them engage in protests.
With at least one plaintiff’s witness (a black employee at Gibson’s) testifying that Raimondo seemed to be leading one of the protests (and she admitted under oath to handing out flyers that demanded a boycott of Gibson’s because it was a “racist establishment with a long account of racial profiling and discrimination”), it was clear she wasn’t just an observer, as she claimed. Moreover, Raimondo was not just any employee at Oberlin College, but a key administrator who helped make policies for the institution.
In short, the situation involved more than Oberlin College students engaging in spontaneous protests. Even if what they said about Gibson’s was false, students are free to allege whatever they wish, and Ohio libel law protects that right to protest. Even the plaintiffs admitted to such. However, the evidence presented to jurors seems to have well-established that college officials did more than just publicly agree with the students; the college used its facilities and communications equipment to aid the protesters and even to join them. Furthermore, it also is clear that the college administration did not respect the speech of college faculty and staff that disagreed with the protesters, creating a “free speech for me, but not for thee” situation that undermined its alleged support for freedom of speech.
How the appellate courts will handle Oberlin College’s sure appeal is anyone’s guess. One would think, at least from the evidence presented in court, that the claim of suppression of free speech is overblown, given Oberlin officials had more than just protest in mind. They wanted Gibson’s to be destroyed and were willing to do what was necessary to accomplish their goal. That this was a town landmark and that the livelihoods of real people were involved mattered not a whit to the progressives at Oberlin. Students and administrators acted maliciously, and it seems they crossed the line from free speech to something much worse.
There are lots of ways to kill off a civilization. Wars, politics, economic collapse. But what are the actual mechanics? It might be a useful thing to know whether or not we are killing ourselves off.
Ancient Rome is a good place to start. They had an advanced civilization. They had running water, sewers, flush toilets, concrete, roads, bridges, dams, an international highway system, mechanical reapers, water-powered mills, public baths, soap, banking, commerce, free trade, a legal code, a court system, science, literature, and a republican system of government. And a strong army to enforce stability and peace (Pax Romana). It wasn’t perfect, but they were on their way to modernity.
One of my favorite quotes is from Marcus Tullius Cicero, statesman, orator and writer (106-43 BCE):
Times are bad. Children no longer obey their parents, and everyone is writing a book.
If that isn’t a mark of a civilized society I don’t know what is.
But Rome collapsed. I often wonder what would have happened if it hadn’t. Could we have avoided a thousand years of the Dark Ages. Could we have been flying airplanes and driving cars in the year 1000?
What the hell happened to Rome?
Dictators. After 500 years, the famous Roman Republic ended with the dictator Julius Caesar taking power. Four hundred years later his progeny and usurpers ran the Empire into the ground and Rome fell to invading barbarians.
The standard explanation for Rome’s decline and fall is that they devolved into dictatorships (true, but not the cause of their fall). Or they became decadent and corrupt (true, but not the cause of their fall). They fell to barbarian invasions (true, but not the cause of their fall).
Rome fell because the dictators ruined the Roman economy and the institutions that had made it prosperous. Rome was falling apart before the barbarian invasions.
How did the Caesars do that? They were profligate spenders. As emperors with absolute power usually do, they thought big: infrastructure (roads, temples, palaces), a huge bureaucracy, and, as the key to maintaining their power they had a very large, loyal, and well paid army. As a consequence, massive government spending far outstripped revenue. They had what today we call a deficit problem.
They did two disastrous things to solve their deficit.
First, they kept raising taxes which became punitive. Not caring much about the consequences to the merchants, small farmers, and peasants, they came up with new ways to squeeze money out of their citizens. Onerous taxes led to tax evasion. The government’s response was to double down and implement laws that restricted economic freedoms in order to raise even more taxes. Heavy taxes forced property owners, small and large, off the land. Large feudal estates run by political cronies arose in their place. Laws were enacted that forced peasants into virtual serfdom. Business owners and their children were prevented from changing jobs or towns. And, taxes had to be paid either in gold or in kind or they would lose everything. Gold became scarce. Gold money was only lawfully available to the government, army, and bureaucrats.
Second, they debased the currency which led to inflation. It was the equivalent of printing money to pay for things. The resulting bouts of high inflation destroyed much of commerce and agriculture. Like most dictators they thought they could stop rising prices by implementing price controls, but that just led to gold and goods disappearing from the economy. Black markets grew despite threats of capital punishment. Unemployment and homelessness rose. Their large welfare system kept running short of money. Commercial, legal, and moral institutions were falling apart. Corruption was endemic. The resulting booms and busts and depressions were destroying the economy.
By the time the Goth and Visigoth invaders came along, Rome was so weakened that they could not hold back the waves of invasions. At the end, Roman citizens saw the government as the enemy and the invading barbarians as their saviors. Rome fell in 410 CE. What emerged was what we now know as the Middle Ages — it lasted for a thousand years. You know what that was like. They didn’t call it the Dark Ages for nothing.
Much of Rome’s economic history is quite familiar in modern times. Even after thousands of years of evidence of repeated failure, bad ideas simply don’t die. Proponents of bad ideas are either ignorant of history or just ignorant. Or they are politicians (as Mark Twin said, “But I repeat myself.”).
One bad idea with ancient precedents is Modern Monetary Theory (MMT). MMT is the New Thing among Progressives in America. Politicians like Alexandria Ocasio-Cortez (AOC) and Bernie are quite excited about MMT. They think they have discovered the Holy Grail of economics.
Progressives believe that government can and should cause economic growth and prosperity. They believe government can do this by various controls, regulations, spending programs, and monetary manipulation. They believe proper government spending will stimulate demand, generate consumer spending, kick-start production, and, voila! we have full employment and prosperity. Along the way we can solve various social problems.
The idea of MMT takes this one step further. They believe that the government can spend/buy whatever it wants and print pieces of greenish paper to pay for it. Government doesn’t need to tax us or borrow money to do this — it can print whatever money it needs to pay for it. Deficits don’t matter because by printing money to pay for stuff they instantly solve the deficit problem. MMTers claim, with no shortage of arrogance, that they, Oz-like, can fine-tune the mechanics of how the economy is to be run and generate prosperity, prevent inflation, end inequality, and save the planet.
In other words, everything will be perfect; “just trust us” to run things. It sounds too good to be true.
AOC and Bernie Sanders and their supporters heartily embrace MMT. They want to break free of old-fashioned concepts such as fiscal integrity, balanced budgets, and monetary stability because they want no limits on their utopian schemes.
MMT is a crackpot idea. It is the monetary equivalent of the Perpetual Motion Machine — it ignores the laws of economics. It’s like asking third graders to invent money. (“I’m gonna print me a bunch of money and buy me a Ferrari an’ a jet an’ all the coolest video games an’ …”). Proponents confuse pieces of greenish paper with wealth and, as history has repeatedly proven, you can’t print your way to wealth and prosperity.
There is nothing “modern” about Modern Monetary Theory. It has been tried many times over the centuries and it has never worked. In every case where governments have printed money to pay for things, the result has been cycles of boom and bust, inflation (and hyperinflation), economic stagnation, and social disorder. MMTers simply don’t understand what money is or the mechanics of the business cycle or the concept of malinvestment and the destruction of capital.
Why is it not possible that we could go the way of Rome? Franklin D. Roosevelt’s New Deal resulted in 25 years of economic stagnation. Only post-FDR deregulation, more economic freedoms, capital investment, and fiscal and monetary sanity led to economic growth.
AOC’s Green New Deal plus MMT would be worse than the old New Deal in that it places no limit on government’s ability to spend which means government can command economic resources and control the direction of the economy. History has shown that governments aren’t very good at that. Absolute power in the hands of the few is a bad idea.
How much destruction could MMT and utopian Progressive schemes like AOC’s utopian Green New Deal inflict on our civilization? It is hard to tell, but I hope we don’t have to look back some day and say the end started now.
Bob Murphy has a friendly discussion and debate with Karl Smith. First, Bob pushes Karl to clarify the conditions under which government deficit spending could, even in theory, help a depressed economy. Then, they switch to the economics of climate change, and Bob’s view that the case for a carbon tax is much weaker than most economists admit.
If we consider economics to be an objective science, its rules should also have universal significance and use, despite differences in societal order. However, socialists of the materialist camp are committed to the idea that common ownership of the means of production would change the way economic laws unfold under socialism. Basically, they reject the notion of the universality and objectivity of economic rules by suggesting that the laws would change along with a change to the social formation.
Thus, communists adhered to the Marxian idea that socialism would rectify a "surplus value" law, end the "exploitation" of workers, and efficiently regulate the production, distribution, and consumption aspects of the economy. They sought to eliminate the market regulatory mechanism and replace it with directives of the central planning authority. Bolsheviks enthusiastically got down to business: they eradicated private property, collectivized everything and everyone, and implemented an official planned economy.
Did it effectively turn off market relations as they thought it would?
No. In contrast to the common perception, socialism has been unable to kill the market economy. The market went underground and turned into a black market. Black markets existed in capitalist countries as well, but they worked underground because they dealt in illegal commodities and services. The black market under socialism served the same purpose, but the list of commodities and services included mostly items of everyday and innocent consumption that people under capitalism could easily purchase in stores. Virtually all groups of personal consumption products found their way to the black market at some time and in some places. Everything from jar lids to toilet paper was subject to black-market relations.
Despite the proclaimed planned economy, people were engaged in market relations on all levels and trusted more the price of the goods and services that were established by the market and not dictated by the government. The official exchange rate of the ruble to the dollar was 0.66 to 1 in 1980. But nobody except party nomenclature was able to enjoy such a favorable exchange rate. At the same time, the black market offered 4 rubles for 1 American dollar.
There was no production of jeans in the Soviet Union, but like all their peers abroad, Soviet youth wore jeans. The price was 180–250 rubles for a pair depending on the brand, which was almost twice as much as the monthly wage of an entry-level engineer. A visiting nurse charged 1 ruble for one injection if a patient lived below the fifth floor. The price reached 1.5 rubles for patients who lived on the fifth floor and up. A plumber happily repaired a faucet for just a bottle of vodka.Two Prices for Everything
Therefore, in the Soviet Union, any significant goods had two price tags: one real and another virtual. The state set the first price through some obscure methods; the usual mechanism of supply and demand established the second price on the market. If you were lucky, after several hours of standing in a queue, you could purchase goods at the state price. However, due to the chronic lack of everything for everyone, the same product could be bought on the black market at a much higher price. The virtual price became real on the black market and reflected the actual value of the goods for the buyer. The presence of two price tags is a confirmation of the thesis of Ludwig von Mises regarding the impossibility of economic calculations under socialism. At the same time, this is proof of the immortality and immutability of the economic laws of the free market, even under a totalitarian regime. Therefore, two economic systems and two sets of prices co-exist under socialism.
People were forced to use the services of the black market, even under the penalty of severe punishment, including up to the death penalty. Almost the entire society was engaged in various corruption schemes to support a certain standard of living. There was a paradoxical situation when the shelves of the supermarkets were empty, but refrigerators at home were more or less full. The black market was filled with smuggled goods from abroad, as well as commodities produced in underground workshops. But more often, everyday products were specifically kept from retail to create a shortage and sell them on the black market at a speculative price. Socialism had undermined the normal flows of production, distribution, and consumption by ignoring the objective laws of economics. Nevertheless, an underground market and the intrinsic entrepreneurial spirit of the people helped them survive the socialist madness.
Regardless of the proclaimed successes of the Soviet economy reported by Communist party leaders, the socialist economy was unable to compete with its capitalist counterparts. Communists decided to create a system that somehow mimicked the work that a free market had successfully and automatically performed for centuries. Thus, they introduced socialist competition that was supposed to replace free market competition. Surely enough, it was an inadequate and unfortunate replacement. The rewards for winners in the capitalist competition were far higher than for the winners under socialism. For example, the capitalist winner enjoyed a significant increase in well-being.
Moreover, the principal winner of the free market competition was society as a whole. This is a natural feature of a free market economy and the main reason why the evolution of human societies selected this mode of production. A competition during socialism gave to the winners some publicity, a certificate of honor, maybe a trip to a "sanatorium" (that is, a health spa), and other bagatelles that people usually did not appreciate. But most importantly, society as a whole did not enjoy a significant improvement in well-being.
People were not sufficiently stimulated and were underpaid, which explained the lower labor productivity compared to capitalist countries. Moreover, this is despite the notion that the means of production, at last, belong to the workers themselves. People had a famous saying that can be considered the quintessence of Soviet-style socialism: "They [the government] pretend to pay, and we pretend to work."
Socialism is a set of systems that try to artificially inhibit the free flow of objective economic laws by creating subjective barriers in the form of specific legislation and punitive policies. Socialists mistakenly think that if they assault private property and market relations, the economic laws will also change. They have taken up the task which, in principle, has no rational solution. Nothing good comes from the idea of ignoring or violating the fundamental laws of economics. These laws still exist, regardless of opinions and neglect to recognize their real character and the impossibility of changing them.
Socialism disrupts the evolutionary process and leads society to a dead end. The desperate economic situation of ordinary folks in Venezuela, Cuba, and North Korea — the remnants of socialist undertakings — is a direct result of building a society in defiance of the natural action of the fundamental law of economics. As a rule, socialist regimes were buying time by employing slave labor, plunder, coercion, and everything else that an aggressive totalitarian regime could offer. However, in the end, the means of socialistic life support was exhausted, and than returning to the natural and healthy market relations, where the laws of economics work for the benefit of the human race.
The same laws of market economics have worked in different human societies: from pre-historic to post-industrial, but still socialists continue to entertain the idea of tampering with these forces of nature.
Elizabeth Warren has made antitrust a major public policy issue in her campaign for the Democratic presidential nomination. She has argued that several high-tech companies such as Amazon, Google and Facebook are just too big and that they should be broken up by the Justice Department in a major antitrust initiative.
Let’s be clear. Using antitrust regulation to break up large companies is an economic and civil liberties nightmare. Those who advocate such policies always fall victim to what Friedrich Hayek termed the “fatal conceit,” that is, the assumption that regulators (and the courts) somehow know better than market participants how goods and services should be produced and sold.
That said, in order to get some perspective on Elizabeth Warren’s proposals for divestiture, let’s examine briefly the two most important corporate breakups in antitrust history: Standard Oil of New Jersey and AT&T.
The Standard Oil Company was structured as a holding company (“Trust”) when it was prosecuted for violating the Sherman Antitrust Act in 1906. Standard held a controlling interest in dozens of subsidiary companies that produced and sold petroleum products in the US. When they lost their antitrust case in 1911, the Supreme Court essentially dissolved a good part of the holding company and instructed several of the operating oil companies (such as Chevron and Standard of Indiana) to operate independently of the parent firm. The argument was that this market restructuring would help restore some rivalry to the oil industry. Yet the old Standard Oil company already had competition from several large rivals such as Texaco, Atlantic Refining, and Gulf so it is still unclear whether divestiture itself actually improved economic conditions for consumers.
Elizabeth Warren wants to break up Google, Amazon, and Facebook but she must realize that these companies, unlike Standard Oil, do NOT have autonomous subsidiaries in similar areas of business. For example, there are no independent search-engine companies “inside” of Google that could compete directly with the original Google platform; the same observation and argument applies to Amazon and Facebook, too. So breaking these firms up does not in and of itself change the competitive landscape in favor of consumers. Antitrust regulation would have to go far beyond any simple breakup in order to achieve the bulk of Warren’s objectives. More on that below.
The breakup of AT&T (1982) is even more curious. Here the Department of Justice sanctioned a divestiture of the regional phone companies (the so-called “baby bells”) from AT&T the parent holding company (which also owned other companies such as Western Electric and Bell Labs). But this divestiture did NOT immediately create any new competition either since the local phone companies themselves were legal monopolies, protected from direct competition (and price regulated) by the states. Effective competition in telecommunications would have to wait for a relaxation of the FCC restrictions on entry into long-distance service and for the widespread adoption of cell phone technology. Thus even here divestiture alone was not sufficient to restore a competitive market process.
Elizabeth Warren has maintained that Amazon, Facebook, and Google are just too big; but too big for whom? She must know that simply being “too big” is not a violation of antitrust law. Indeed, the traditional mission of antitrust is to protect consumers from the high prices and anti-competitive practices established through “conspiracy” or through the exercise of “monopoly power” in some relevant market. Yet Facebook, Amazon, and Google do not charge high prices; indeed, they do not charge ANY explicit price at all but secure the bulk of their revenue through advertising. And even if some of their economic or privacy practices are determined to be questionable at some point, that alone would hardly justify any legal divestiture.
The fact remains that all of these companies are successful because consumers freely and repeatedly use their services. They all compete in legally open markets where other firms are free to raise capital and offer alternatives. Disgruntled consumers that choose not to use the free services of Amazon or Google can easily mouse click to other search engines (Bing in the case of Google) and several other online retailers in the case of Amazon. And, of course, no one is forced to participate in the Facebook universe at all (your author does not) and opting out (if you are in) is always possible. So from a strict price and choice perspective, it would be difficult to make a convincing argument that divestiture is justified or would produce the results intended.
It should be apparent that divestiture alone is not a sufficient condition for altering the competitive landscape in these three high-tech industries. Even beyond divestiture, then, progressives have suggested that the antitrust authorities and the courts might require that these dominant companies create a rival firm and then spin it off. Alternatively, the regulators could order these firms to license their patents and important platform technology to any new firm or smaller rival in order to promote additional competitors. Indeed, Warren has argued that we should view and regulate these companies as if they were public utilities so these licensing and “mandatory sharing technology” proposals are entirely consistent with that perspective.
The trustbusters and the courts actually did some of this — believe it or not — in several older antitrust cases, including the infamous United Shoe Machinery Case decided in 1953 and 1954. But very few antitrust experts now agree that United Shoe Machinery was intelligently decided or that the forced sharing of patents and technology promotes overall economic welfare in the long run.
Antitrust has a very checkered past and those who advocate its use would do well to study its history more closely. After all, there is almost no economic problem, real or imagined, that cannot be made worse by inappropriate government regulation. Antitrust is no exception.
The idea of "velocity of circulation" arose from the quantity theory of money, which links changes in the quantity of money to changes in the general level of prices. This is set out in the equation of exchange. The basic elements are money, velocity and total spending, or GDP. The following is the simplest of a number of ways it has been expressed:Money x Velocity of Circulation = Total Spending (or GDP)
Assuming we can quantify both money and total spending, we end up with velocity. But this does not tell us why velocity might vary. All we know is that it must vary in order to balance the equation. You could equally state that two completely unrelated quantities can be put into a mathematical equation, so long as a variable is included whose only function is to always make the equation balance. In other words, the equation of exchange actually tells us nothing.
This gives analysts a problem, not resolved by the modern reliance on statistics and computer models. The dubious gift to us from statisticians is their so-called progress made in quantifying the economy, so much so that at the London School of Economics a machine called MONIAC (monetary national income analogue computer) used fluid mechanics to model the UK’s economy. This and other more recent computer models give unwarranted credence to the idea that the economy can be modelled, derivations such as velocity explained, and valid conclusions drawn.
Ludwig von Mises criticized these notions in Human Action when he wrote:
The mathematical economists refuse to start from the various individuals’ demand for and supply of money. They introduce instead the spurious notion of velocity of circulation according to the pattern of mechanics.
Mises’s criticism is based on the philosopher’s logic that economics is a social and not a physical science. Therefore, mathematical relationships must be strictly confined to accounting and not be confused with economics, or as he put it, human action. Unfortunately, we now have the concept of velocity so ingrained in our thinking that this vital point usually escapes us. Indeed, the same is true of GDP, or the right-hand side of the equation of exchange.
GDP is only an accounting identity: no more than that. It ranks gin with golf-balls by reducing them both to a monetary value. Statisticians select what’s included so it is biased in favor of consumer goods and against capital investment. Crucially, it does not tell us about an ever-changing economy comprised of successes, failures, and hard-to-predict human needs and wants, which taken all together is economic progress. And because it is biased in its composition and says nothing about progress the value of this statistic is grossly exaggerated.
The only apparent certainty in the equation of exchange is the quantity of money, assuming it is all recorded. No one seems to allow for unrecorded money such as shadow banking, but we shall let that pass. If the money is sound, as it was when the quantity theory of money was devised, one could assume that an increase in its quantity would tend to raise prices. This was experienced following Spain’s importation of gold and silver from the new world in the sixteenth century and following the gold mining booms in California and South Africa. But relating an increase in the quantity of gold to prices in general is at best a summary of a number of various factors that drive the price relationship between money and goods.
But with both sound money and fiat money, the only way to understand the relationship between money and prices is in a human framework. The quantity of a fiat currency is first expanded without the public noticing, other than the prices of certain commodities rise, or prices in and near financial centers increase as bankers and allied trades have more money to spend. As people see prices starting to rise more generally, they begin to buy more goods than they need in the knowledge that prices are rising.
In the current fiat money system, people have been doing this for years, to the point where most of the population in most countries have abandoned savings altogether and now borrow to spend. It is a situation that can persist for many years, moderated by cycles of varying credit expansion, before a final flight into goods and out of money altogether takes place. During that final collapse of purchasing power, in von Mises’s own words, “The mathematical economists are at a loss to comprehend the causal relation between the increase in the quantity of money and what they call velocity of circulation.”1
According to the equation of exchange, this is not how things should work. The order of events is first you have an increase in the quantity of money and then prices rise, because monetarist logic states that prices rise as a result of the extra money being spent, not as a result of money yet to be spent (the condition when people anticipate rising prices). With a mechanical theory there can be no room for subjectivity.
It is therefore nonsense to conclude that velocity is a vital signal of some sort. Monetarism is at the very least still work-in-progress until monetarists finally discover velocity is no more than a factor to make their equation balance. The broker’s analyst quoted above would have been better to confine his statement to the easy money regimes of the past 20 years being responsible for the substantial misallocation of capital, leaving out the bit about velocity entirely.
A small slip perhaps on the way to a sensible conclusion; but it is indicative of the false mechanization of human behavior by modern macro-economists. However, it should also be noted that is impossible to square the concept of velocity of circulation with one simple fact of everyday life: we earn our salaries once and we dispose of it. That’s a constant velocity, give or take, of one.
- 1. Ludwig von Mises; Human Action, Chapter 17.8 “The anticipation of expected changes in purchasing power.”
For most experts the central bank determines short-term interest rates by setting the target to the benchmark policy rate such as the federal funds rate in the US. Many economists are of the view that through the manipulation of short-term interest rates, the central bank by means of expectations regarding future interest rate policy can also dictate the direction of long-term interest rates. By this way of thinking, expectations regarding future short-term interest rates are instrumental in setting the long-term rates (and long-term rates are an average of short-term rates).
Given this supposedly almost absolute control over interest rates, the central bank through its manipulations of short-term interest rates can navigate the economy along the growth path of economic prosperity. Or so it is held. (In fact, this is the mandate given to many central banks, including the Fed).
But we must ask ourselves: does it makes sense to hold that the central bank is so key in the determination of interest rates?Individuals' Time Preferences and Interest Rates
According to great economic thinkers such as Carl Menger and Ludwig von Mises, interest is the outcome of the fact that every individual assigns a greater importance to goods and services in the present against identical goods in the future.
The higher valuation is not the result of capricious behaviour. It is due to the fact that life in the future is not possible without sustaining it first in the present. According to Carl Menger,
Human life is a process in which the course of future development is always influenced by previous development. It is a process that cannot be continued once it has been interrupted, and that cannot be completely rehabilitated once it has become seriously disordered. A necessary prerequisite of our provision for the maintenance of our lives and for our development in future periods is a concern for the preceding periods of our lives. Setting aside the irregularities of economic activity, we can conclude that economizing men generally endeavor to ensure the satisfaction of needs of the immediate future first, and that only after this has been done, do they attempt to ensure the satisfaction of needs of more distant periods, in accordance with their remoteness in time.1
Hence, various goods and services that are required to sustain man’s life at present must be of a greater importance to him than the same goods and services in the future. On this Menger wrote,
To the extent that the maintenance of our lives depends on the satisfaction of our needs, guaranteeing the satisfaction of earlier needs must necessarily precede attention to later ones. And even where not our lives but merely our continuing well-being (above all our health) is dependent on command of a quantity of goods, the attainment of well-being in a nearer period is, as a rule, a prerequisite of well-being in a later period. Command of the means for the maintenance of our well-being at some distant time avails us little if poverty and distress have already undermined our health or stunted our development in an earlier period. 2
Similarly, Mises wrote that,
He who wants to live to see the later day, must first of all care for the preservation of his life in the intermediate period. Survival and appeasement of vital needs are thus requirements for the satisfaction of any wants in the remoter future.
Life sustenance therefore serves as the standard of valuation regarding present goods versus future goods. According to Mises,
If he (the consumer) were not to prefer satisfaction in a nearer period of the future to that in a remoter period, he would never consume and so satisfy wants. He would always accumulate, he would never consume and enjoy. He would not consume today, but he would not consume tomorrow either, as the tomorrow would confront him with the same alternative.
As long as the means at an individual’s disposal are barely sufficient to accommodate his immediate needs, he will most likely assign less importance for future goals. Only with the expansion of his pool of means would the individual be in a position to allocate some of these means towards the accomplishments of various ends in the future.What We Need Now In Order to Think About the Future
As a rule, with the expansion of the pool of means, people tend to allocate more means towards the accomplishment of remote goals in order to improve their quality of life over time. With scarce means, an individual can only consider very short-term goals, such as making a primitive tool. The meager size of his means does not permit him to undertake the making of more advanced tools. With the increase in the means at his disposal, he could consider undertaking the construction of better tools.
No individual undertakes an outcome which promises a zero return. The maintenance of the process of life over and above hand to mouth existence requires an expansion in wealth. The wealth expansion implies positive returns. It is through the generation of wealth, after allowing for the maintenance of life and wellbeing in the present, that savings become possible.
These savings in turn permit further expansions in wealth. The expansion in the pool of real wealth permits a greater allocation of savings towards longer-term goals, implying a greater preference for future goods i.e. a lowering of interest rates.
While prior to the expansion of real wealth the need to sustain life and wellbeing in the present made it impossible to embark on various long term projects, with more wealth this has become viable. The extra wealth that becomes available is invested because the expected future benefits outweigh the benefits of consuming them in the present.Does the Lowering of Interest Permit Greater Capital Formation?
Being the outcome of the fact that life sustenance imposes a greater importance to present goods versus future goods, interest as such does not cause more or less investment, as popular theories have it.
It is true that businessmen react to interest rates. In this sense, the interest rate can be regarded as an indicator. What permits an expansion of capital goods production is not interest rates as such but the increase in the pool of real savings. A greater allocation of real saved wealth towards the buildup of capital goods - manifested by the lowering of people’s time preferences – will result in the lowering of interest rates. (Note again what enables the expansion of capital goods investments is the greater allocation of real saved wealth and not the lowering of interest rate as such, which just reflects the greater allocation of real wealth towards the capital investment).
When interest rates are not tampered with, they serve as an important tool in facilitating the flow of real savings towards the build-up of wealth-generating infrastructure. As a rule a major factor for the discrepancy between observed interest rates and the interest rate that reflects people’s time preferences are the actions of the central bank. For instance, aggressive loose monetary policy by the central banks leads to a very low observed interest rate. The aggressive monetary pumping however also undermines the real wealth formation process and works towards the increase in peoples time preferences i.e. to the increase in the underlying interest rate.
As the emerging positive gap between the time preference interest rate, which is not observed, and the observed interest rate widens, this ultimately leads to an economic bust. Whenever the central bank tampers with interest rates it falsifies this indicator, thereby breaking the harmony between the production of present consumer goods and the production of capital goods i.e. tools and machinery. An over-investment in capital goods and an under-investment in consumer goods emerges. Whilst an over-investment in capital goods results in a boom, the liquidation of this over-investment produces a bust. Hence, the boom-bust economic cycle. On this Rothbard wrote,
…once the consumers reestablish their desired consumption/investment proportions, it is thus revealed that business had invested too much in capital goods (hence the term "monetary overinvestment theory"), and had also underinvested in consumer goods. Business had been seduced by the government tampering and artificial lowering of the rate of interest, and acted as if more savings were available to invest than were really there.
The longer the central bank tries to keep interest rates at low levels, the greater the damage inflicted on the real wealth formation process. Consequently, this would extend the period of stagnation. If central banks could set interest rates at very low levels and set in motion genuine real economic growth then surely by now most poor economies should be wealthy. These economies have central banks that also know how to print money and how to keep interest rates at a zero level. What most commentators who support low interest rates policies during the times of economic recessions overlook is that central banks do not know how to generate real wealth.Conclusions
To conclude, as long as life sustenance remains the ultimate goal of human beings they will continue to assign a higher valuation to present goods versus future goods and no central bank interest rate manipulation will be able to change this. Any attempt by central bank policy makers to overrule this fact will undermine the process of real wealth formation and thus lower people’s living standards.
The central bank can try to manipulate the interest rate to whatever level it desires. However, it cannot exercise control over the underlying interest rates as dictated by people’s time preferences. When the central bank engages in a persistent lowering of interest rates this policy sets in motion an increase in the underlying interest rates as dictated by people’s time preferences. (The exact opposite of the central bank’s intention). It is not going to help genuine economic growth if the central bank artificially lowers interest rates whilst people did not allocate an adequate amount of real savings to support the expansion of capital goods investments. It is not possible to replace real saved wealth with more money and the artificial lowering of interest rates. It is not possible to generate something out of nothing as suggested by many commentators.
When people talk about the economy, they generally focus on government policies such as taxation and regulation. For instance, Republicans credit President Trump’s tax cuts for the seemingly booming economy and surging stock markets. Meanwhile, Democrats blame “deregulation” for the 2008 financial crisis. While government policies do have an impact on the direction of the economy, this analysis completely ignores the biggest player on the stage — the Federal Reserve.
One cannot grasp the economic big-picture without understanding how Federal Reserve monetary policy drives the boom-bust cycle. The effects of all other government policies work within the Fed’s monetary framework. Money-printing and interest rate manipulations fuel booms and the inevitable attempt to return to “normalcy” precipitates busts.
In simplest terms, easy money blows up bubbles. Bubbles pop and set off a crisis. Rinse. Wash. Repeat.
In practice, when the economy slows or enters into a recession, central banks like the Federal Reserve drive interest rates down and launch quantitative easing (QE) programs to “stimulate” the economy.
Low interest rates encourage borrowing and spending. The flood of cheap money suddenly available allows consumers to consume more — thus the stimulus. It also incentivizes corporations and government entities to borrow and spend. Coupled with quantitative easing, the central bank can pump billions of dollars of new money into the economy through this loose monetary policy.
In effect, QE is a fancy term for printing lots of money. The Fed doesn’t literally have a printing press in the basement of the Eccles Building running off dollar bills, but it generates the same practical effect. The Federal Reserve digitally creates money out of thin air and uses the new dollars to buy securities and government bonds, thereby putting “cash” directly into circulation. QE not only boosts the amount of money in the economy; it also has a secondary function. As the Federal Reserve buys US Treasury bonds, it monetizes government debt. The central bank can also buy financial instruments like mortgage-backed securities as it did during QE1 in 2008. This effectively serves as a bank bailout. Big banks get to remove these worthless assets from their balance sheets and shift them to the Fed’s. Theoretically, this makes the banks more solvent and encourages them to lend more money to ease the credit crunch that occurs when banks become financially shaky.
This monetary policy results in a temporary boom. All of that new money has to go somewhere. It could result in rising consumer prices (inflation), but generally, it pumps up the price of assets such as real estate and stock markets, creating a fake wealth effect. People feel wealthier because they see the value of their assets rapidly increasing. With plenty of debt-driven spending and rapidly increasing asset prices, the economy grows, sometimes at a staggeringly fast rate.
This process also creates inequality. The first receivers of this new money — generally bankers and politically-connected individuals and institutions — get the most direct benefit from the newly-minted dollars. Their decisions on where to spend the money create artificially high demand in the chosen industries or asset classes. Think the housing market in the years leading up to ’08 or tech companies during the dot-com boom. This amplifies distortions in the capital structure. The first receivers also get to spend the new money before the inflationary effects take hold and prices rise. Those who receive the money later on down the line, say through pay raises, don’t get the same benefits as the first users. Price inflation eats up their gains.
Meanwhile, surging economic growth, shrinking unemployment, and rising stock markets driven by money-creation give the illusion of a healthy economy. But the monetary policy hides the economic rot at the foundation.
In order to sustain an economic expansion, you need capital goods — factories, machines, natural resources. Capital goods are produced through savings and investment. When central banks juice consumption without the requisite underlying capital structure, it will eventually become impossible to maintain. You can print all the dollars you want, but you can’t print stuff. At some point, the credit-driven expansion will outstrip the available stock of capital. At that point, the house of cards begins to collapse.
Imagine you plan to build a giant brick wall. With interest rates low and credit readily available, you borrow all the money you need to complete the job. But two-thirds of the way through, a brick shortage develops. You may have plenty of money, but you’ve got no bricks. You can’t finish your project.
This scenario provides a simplified picture of what happens in the economy during a Fed-fueled economic expansion. Flush with cash, investors begin all kinds of projects they will never be able to complete. Eventually, the malinvestments become apparent and the boom teeters and then collapses into a bust.
Of course, the Fed helps this process along as well.
Once the apparent recovery takes hold, in order to keep inflation under control, the Fed must tighten its monetary policy. It ends QE programs and begins to nudge interest rates back up. When the recovery appears to be in full swing, the central bank may even shift to quantitative tightening — shrinking its balance sheet. During the boom, governments, consumers and companies pile up enormous amounts of debt. Rising interest rates increase the cost of servicing that debt. They also discourage new borrowing. Easy money dries up. This speeds up the onset of the next recession and the cycle repeats itself.
To understand this, we can look back at the past three boom-bust cycles.
In October 1987, the stock markets crashed. The following year, inflation rose above 5 percent, prompting then-Fed Chairman Alan Greenspan to raise interest rates above nine percent in early 1989. This led to a mild recession in the early 1990s. Greenspan pushed rates below 3 percent in late 1992, then began to slowly nudge them upward in 1994. But the Fed never got rates anywhere near the pre-recession level. With the economy plugging along, rates peaked at 6 percent in 1995. From there, Greenspan held rates in the five- to six-percent range through 2001.
As the New York Times put it, “Greenspan makes a winning bet in the mid-1990s, resisting pressure to raise interest rates as unemployment declines. He argues that increased productivity, including the fruits of the computer revolution, have increased the pace of sustainable growth. Indeed, the Fed finds itself debating whether there is such a thing as not enough inflation, and a new Fed governor named Janet L. Yellen plays an important role in convincing Mr. Greenspan that a little inflation helped to lubricate economic growth.”
In December 1996, the dot-com boom was in full swing. Greenspan actually warned of “irrational exuberance” in the markets, even as he fed it with artificially low — for the time — interest rates.
Again from the NYT.
The Fed decides that popping bubbles is not part of its job description, leading critics to charge that Mr. Greenspan’s monetary policies spawned an era of booms and busts, culminating in the 2008 financial crisis.
And then the dot-com bubble popped in the spring of 2001.
In response, Greenspan slashed rates, eventually dropping them all the way to 1 percent in June 2003. This set the stage for the 2008 financial crisis.
The Fed began nudging rates higher in the summer of 2004. By February 2005, we were already seeing ripples of trouble in the over-inflated housing market, but the Federal Reserve continued nudging rates up. Of course, mortgage rates moved upward along with the federal funds rate. More homeowners began to default. In late 2007, the bottom fell out and in 2008, the entire system imploded, kicking off the Great Recession.
By December 2008, Federal Reserve Chairman Ben Bernanke had dropped rates to .25 percent — effectively zero — and he launched what would become three rounds of quantitative easing. The Fed held rates at that historically low level for seven years.
And now we find ourselves in the midst of a new bubble. The economy is loaded up with government, corporate, and consumer debt. The stock markets have been juiced to record levels. We also see other asset bubbles in high-yield bonds, housing (again), and commercial real estate, along with a lot of other assets you don’t hear as much about — such as art and comic books.
Janet Yellen nudged rates up for the first time in 2015, followed up with one hike in 2016. It wasn’t until 2017 that the central bank began to normalize in earnest, hiking rates seven times over the next two years. After the last hike in December 2018, the Fed funds rate stood at 2.5 percent. The Federal Reserve also began to unwind quantitative easing in 2018 by shedding assets from its balance sheet.
Last fall, the impact of rate hikes and quantitative tightening began to ripple through the economy. The stock market tanked. It was the first sign that the cycle was about to turn from boom to bust. Current Federal Reserve Chair Jerome Powell rode to the rescue, signaling that interest rate normalization was over and announcing the end of quantitative tightening. This monetary policy 180 has stabilized the markets for the time being. But it is only a matter of time before the bubbles pop and the economy moves into the downward spiral.
Not only is the existence of a central bank-fueled business cycle rooted in sound economic theory, we see the impact of Federal Reserve monetary policy in the ups and downs of the business cycle as it has played out through time.
Dr. Mark Thornton, our in-house Cantillon expert, joins the Human Action Podcast to discuss the contributions of this important proto-Austrian thinker. Cantillon may well have written the first true economic treatise, one which lays out a comprehensive theory of production, money, interest, value, method, and trade—almost 150 years before Menger's Principles. And along with the other French physiocrats, Cantillon gave us the concept of lassez-faire that later influenced Adam's Smith's invisible hand. If you want to understand economics today, and the precursors to the Austrian school, you need to know Cantillon and his work.
Cantillon's An Essay on Economic Theory, edited by Mark Thornton. Free PDF available.
A biography of Cantillon by Mark Thornton.
"More on Cantillon as A Proto-Austrian" by Guido Hülsmann.
Many socialist authors emphasize that the recurrence of economic crises and business depressions is a phenomenon inherent in the capitalist mode of production. On the other hand, a socialist system is safe against this evil.
As has already become obvious and will be shown later again, the cyclical fluctuations of business are not an occurrence originating in the sphere of the unhampered market, but a product of government interference with business conditions designed to lower the rate of interest below the height at which the free market would have fixed it. At this point we have only to deal with the alleged stability as secured by socialist planning.
It is essential to realize that what makes the economic crisis emerge is the democratic process of the market. The consumers disapprove of the employment of the factors of production as effected by the entrepreneurs. They manifest their disapprobation by their conduct in buying and abstention from buying. The entrepreneurs, misled by the illusions of the artificially lowered gross market rate of interest, have failed to invest in those lines in which the most urgent needs of the public would have been satisfied in the best possible way. As soon as the credit expansion comes to an end, these faults become manifest. The attitudes of the consumers force the businessmen to adjust their activities anew to the best possible want-satisfaction. It is this process of liquidation of the faults committed in the boom and of readjustment to the wishes of the consumers which is called the depression.
But in a socialist economy it is only the government's value judgments that count, and the people are deprived of any means of making their own value judgments prevail. A dictator does not bother about whether or not the masses approve of his decision concerning how much to devote for current consumption and how much for additional investment. If the dictator invests more and thus curtails the means available for current consumption, the people must eat less and hold their tongues. No crisis emerges, because the subjects have no opportunity to utter their dissatisfaction.
Where there is no business at all, business can be neither good nor bad. There may be starvation, and famine, but no depression in the sense in which this term is used in dealing with the problems of a market economy. Where the individuals are not free to choose, they cannot protest against the methods applied by those directing the course of production activities.
It is no answer to this to object that public opinion in the capitalist countries favors the policy of cheap money. The masses are misled by the assertions of the pseudo experts that cheap money can make them prosperous at no expense whatever. They do not realize that investment can be expanded only to the extent that more capital is accumulated by saving. They are deceived by the fairy tales of monetary cranks. Yet what counts in reality is not fairy tales, but people's conduct. If men are not prepared to save more by cutting down their current consumption, the means for a substantial expansion of investment are lacking. These means cannot be provided by printing banknotes and by credit on the bank books.
It is a common phenomenon that the individual in his capacity as a voter virtually contradicts his conduct on the market. Thus, for instance, he may vote for measures which will raise the price of one commodity or of all commodities, while as a buyer he wants to see these prices low. Such conflicts arise out of ignorance and error. As human nature is, they can happen. But in a social organization in which the individual is neither a voter nor a buyer, or in which voting and buying are merely a sham, they are absent.
The Supreme Court has just issued its American Legion vs. American Humanist Assn. ruling that a nearly century-old cross built to honor WWI dead in Bladensburg, Maryland, does not violate the Establishment Clause. Hot Air’s Allahpundit wrote that the primary takeaway was:
The Court doesn’t want to be bothered anymore with questions about longstanding religious monuments on public land. If the state puts up a *new* religious symbol in 2019 on public property, that’s one thing. But the symbols that have been there for awhile? They’re all “strongly presumed” to be constitutional now.
The ruling offered several reasons for why “The passage of time thus gives rise to a strong presumption of constitutionality,” including evolving and multiplying meanings and time’s effect on historical significance, which can provide “added secular meaning.” However, Gorsuch worried over the vagueness of what would be old enough to provide presumptive constitutionality.
If the court decides to craft an answer to Gorsuch’s “how old is old enough” concern, a good principle was provided by Alito, Roberts, Kavanaugh and Breyer:
Where monuments, symbols, and practices with a longstanding history follow in the tradition of the First Congress in respecting and tolerating different views, endeavoring to achieve inclusivity and nondiscrimination, and recognizing the important role religion plays in the lives of many Americans they are … constitutional.
What the earliest Congresses accepted as constitutional under the Establishment Clause (or other clauses) has a very strong claim to be accepted as a consistent principle of interpretation. After all, that seems necessary if we are to take seriously the idea of the Constitution as the highest law of the land (See Federalist 78), rather than inventive reinterpretations that come later.
For instance, some states maintained established religions into the nineteenth century, because only the federal government was constrained by the Constitution. As Thomas Jefferson’s second Inaugural Address put it, “[religion’s] free exercise is placed by the Constitution independent of the powers of the general government, I … have left them, as the Constitution found them, under the direction and discipline of State or Church authorities.”
If the Supreme Court would like a more recent standard for a presumptive “ok if before X” rule, however, 1947 would be a very good choice. The reason is that the logic of the Establishment Clause was morphed into far different “church and state” reasoning that year in Everson v. Board of Education, supposedly based on Thomas Jefferson’s letter to the Danbury Baptists, even though Jefferson rejected the Everson interpretation. And retroactively applying that very different interpretation to what was in fact accepted beforehand effectively makes the reinterpretation, rather than the Constitution, the highest law of the land.
Justice Hugo Black simply invented the separation of church and state interpretation, adding “That wall must be kept high and impregnable. We could not approve the slightest breach.” Justice Wiley Rutledge went further, writing that “a complete and permanent separation of the spheres of religious activity and civil authority” was required. This took a restriction preventing the federal imposition of a religion on nonbelievers and transformed it into a virtual denial of virtually any role for religion in public life.
Black’s use of Jefferson’s phrase as authoritative Constitutional re-interpretation was in error. Jefferson was not in America when the Constitution was written and debated. His letter was written a decade later. It was personal and private; not official. It is the only phrase from private correspondence that has been allowed to transform explicit Constitutional language into something very different in meaning.
Jefferson also quoted the Establishment Clause immediately before “thus building a wall of separation between Church & State” in his letter. Since the clause restricted only Congress, and not any religious group, it kept Congress from intruding into religious matters, but did nothing to prohibit believers’ public influence.
The Baptist inquiry’s premise was that “the legitimate power of civil government extends no further than to punish the man who works ill to his neighbor,” in order to defend “religious privileges we enjoy … as inalienable rights.” Jefferson endorsed their view, blatantly inconsistent with current church and state interpretation, which allows the fact that government has been allowed to expand vastly beyond its delegated Constitutional limits to progressively crowd out the public influence of faith, supposedly in the name of defending the Constitution. And he was explaining how the Establishment Clause protected them from having a national church established against their wishes, not how it restricted the Baptist’s expression of their faith.
To see how large a change in precedent was involved, consider Reynolds v. United States (1878). It summarized Jefferson’s meaning as “the rightful purposes of civil government are … to interfere [only] when principles break out into overt acts against peace and good order,” very different from mandating an almost complete disconnect between faith and the public square.
If the court was to pick 1947 as a date before which a monument, now challengeable in order to enforce the “separation of church and state,” would carry a “strong presumption of constitutionality,” it would take seriously former Chief Justice William Rehnquist’s view that “the wall is a metaphor based on bad history … which has proved useless as a guide to judging. It should be frankly and explicitly abandoned.” It would not be as strong a protection as using what was considered constitutional during the founding era as a standard. But it could help undo some of the ways federal government growth far beyond its constitutional limits has permitted it to shrink the influence of religious faith, even though its protection was so important that our founders gave it pride of place in the First Amendment. And it is worth undoing what scholar Philip Hamburger’s called “transforming the constitutional guarantees against discrimination on grounds of religious differences into provisions that necessitate it.”
One of the most significant economic developments since the Great Recession has been the zombification of the economy.
A zombie company is a term introduced to the lexicon by an influential paper, Zombie Lending and Depressed Restructuring in Japan, by economists Ricardo J. Caballero, Takeo Hoshi, and Anil K. Kashyap. The official definition of a zombie company according to the Bank for International Settlements (BIS) “is a publicly traded firm that’s 10 years or older with a ratio of earnings before interest and taxes (EBIT) to interest expenses of below one.” More simply put, zombie companies are companies that are unprofitable — so unprofitable they are unable to pay even the interest on their debt out of their profits. They are effectively bankrupt but kept alive by banks continuing to lend them money to pay their existing loans.
This phenomenon first began in Japan after their real estate and stock market bubble popped in the early 1990s. The Cabellero, et al have proposed that zombie companies are to blame for Japan's Lost Decade(s), writing:
We propose a bank-based explanation for the decade-long Japanese slowdown following the asset price collapse in the early 1990s. … Large Japanese banks often engaged in sham loan restructurings that kept credit flowing to otherwise insolvent borrowers (which we call zombies). We examine the implications of suppressing the normal competitive process whereby the zombies would shed workers and lose market share. The congestion created by the zombies reduces the profits for healthy firms, which discourages their entry and investment. We confirm that zombie-dominated industries exhibit more depressed job creation and destruction, and lower productivity.Scale of the Zombie Infestation
Following the Great Recession, zombie companies became a worldwide phenomenon. Even with today’s very low interest rates; more and more companies are unable to pay the interest on their debts out of profits. According to the BIS, the share of zombie companies in the US doubled between 2007 and 2015, rising to around 10 perceent of all public companies. And counterintuitively, as interest rates have fallen lower and lower the number of zombie companies has increased. Economists Ryan Niladr Banerjee and Boris Hofmann, writing in the BIS quarterly review, describes this seemingly paradoxical result:
Using firm-level data on listed firms in 14 advanced economies, we document a ratcheting-up in the prevalence of zombies since the late 1980s. Our analysis suggests that this increase is linked to reduced financial pressure, which in turn seems to reflect in part the effects of lower interest rates. We further find that zombies weigh on economic performance because they are less productive and because their presence lowers investment in and employment at more productive firms.
In part this may be because low interest rates signify a weak banking system. Banks may be reluctant to allow a company to fail — even if there is little hope of eventual repayment — because it would be too painful to accept the losses on the loans already lent to these companies. And of course the ultra-low interest rates created by central banks unconventional monetary policy since 2008 keeps the costs of servicing debt low.
These studies likely understate the problem of zombie companies for the economy. A company doesn’t have to be as far gone as a zombie to be at risk of default if interest rates rise. Moreover, as economist Daniel Lacalle writes:
At the end of the day, 10.5% means that 89.5% are not zombies. But that analysis would be too complacent. According to Moody’s and Standard and Poor’s, debt repayment capacity has broadly weakened globally despite ultra-low rates and ample liquidity. Furthermore, the BIS only analyses listed zombie companies, but in the OECD 90% of the companies are SMEs (Small and Medium Enterprises), and a large proportion of these smaller non-listed companies, are still loss-making. In the Eurozone, the ECB estimates that around 30% of SMEs are still in the red and the figures are smaller, but not massively dissimilar in the US, estimated at 20%, and the UK, close to 25% 77.
Additionally, corporate leverage has surged in the last three years since the BIS analysis. Today corporate debt is now above the levels seen before the 2008 crisis in the United States.How Can You Kill Zombies?
In a market economy, resources are allocated according to profitably — this allows resources to flow to where they are best utilized. Keeping companies that are unprofitable alive misallocates resources and, as numerous studies have shown, slows the growth of the entire economy — potentially leading to stagnation as has been seen in Japan since the 1990s.
Zombie companies are kept alive only with low interest rates and/or lax banking regulation. But as bankers assembled last month in Stockholm for the annual meeting of the International Capital Markets Association pointed out: “The question is, with the debt level where it is, can central banks ever afford to let interest rates go back up because it will lead to a major bankruptcy wave.” Zombie companies pose a significant challenge for central banks, because in a very real sense their hands are tied — they cannot raise interest rates significantly without causing a huge number of companies to go bankrupt.
The world now has the impossible choice of permanently reduced productivity and slower economic growth — or the mass bankruptcy of a significant percentage of the economy.
[From Money, the Market, and the State, edited by Nicholas B. Beales and L. Aubrey Drewry, Jr., Athens: University of Georgia Press, 1968, pp. 35–44.]
The quantity theory of money is very old. But it has been most influential in the last half century in the form given it by Irving Fisher in The Purchasing Power of Money (1911). I shall refer to this as the Fisherine or mechanical quantity theory of money.
It would save a great deal of discussion at cross purpose if this, and only this, were referred to as the Quantity Theory of Money. A quantity theory of money (in the sense of a theory which merely acknowledges that the quantity of money is an important factor affecting the value of the monetary unit) is a quite different thing.
The Fisherine quantity theory is mechanical and mathematical. It takes no account of the psychological valuations of individuals. Under it, the existing quantity of money is the sole determinant of money's value. The value of the monetary unit is supposed to vary inversely with the quantity of money in existence. This means that the "price level" of goods and services is supposed to vary directly and proportionately with the supply of money.
From this comes the famous Fisherine equation: MV=PT. This equation is more frequently written: MV + M1V1 = PT. This second more complicated equation is simply meant to symbolize that bank deposits are counted just as much as hand-to-hand money. But we shall take this for granted hereafter and confine ourselves merely to the simpler symbols.
Now I am not primarily concerned here with refuting the Fisherine quantity theory of money. That was done magnificently by Benjamin M. Anderson in The Value of Money in 1917. But the Fisherine equation, which once dominated the field, is still found in contemporary expositions of the forces that determine the purchasing power of money. It seems to have had a wonderful longevity as a result of its apparent simplicity, its apparent mathematical precisions — and because it is easier to teach than other theories.
In my present comments I shall confine myself to a special examination of the V in this equation.
In the Fisherine equation, M stands for the quantity of money (and of demand bank deposits) in existence; V stands for the "velocity of circulation" of that money; P stands for "the average price level" of commodities and services; and T stands for the "volume of trade," or the quantity of goods and services against which money is exchanged.
Now as Anderson has pointed out, in an acute analysis, the two sides of this equation are equal only because they are identical:
The equation asserts merely that what is paid is equal to what is received. This proposition may require algebraic formulation, but to the present writer it does not seem to require any formulation at all. The contrast between the "money side" and the "goods side" of the equation is a false one. There is no goods side. Both sides of the equation are money sides.1
But I am concentrating here upon the meaning of V, the "velocity of circulation." Anderson, in discussing this, tells us,
The conception of the velocity of circulation as a real, unitary entity, a cause in the process of price-determination is, I suppose, almost as old as the quantity theory itself. It is an essential part of the quantity theory.2
In Fisher's treatment of it in The Purchasing Power of Money, V is treated as something that is fairly constant, so that when M is doubled MV is doubled, and therefore the "price level" is doubled. The quantity theory as Fisher framed it assumed that "normally" the "price level" varies directly and proportionately with the supply of money.
But when careful statistical comparisons are made, it is found that this is not so. And here is where V comes in. When the price level has not changed in direct proportion to the supply of money, the Fisherine quantity theorists assume that there has been some offsetting change in the "velocity of circulation" of money to the exact extent necessary to account for the discrepancy. If, for example, they find statistically that the quantity of money has increased by 10 percent in a given year, while the "price level," as measured by the wholesale price index or the consumers' price index, has remained unchanged, they assume that there must have been a slowing down of about 10 percent in the velocity of circulation. If the quantity of money has remained unchanged, but there has been a 10 percent increase in the "price level" in a given period, they assume that there must have been an increase in the "velocity of circulation" of money of 10 percent in that period. And so on.
Perhaps we can most clearly recognize what is wrong with this notion if we see what commonly happens in an inflation, and what the real explanation is.
What we commonly find, in going through the histories of substantial or prolonged inflations in various countries, is that, in the early stages, prices rise by less than the increase in the quantity of money; that in the middle stages they may rise in rough proportion to the increase in the quantity of money (after making due allowance for changes that may also occur in the supply of goods); but that, when an inflation has been prolonged beyond a certain point, or has shown signs of acceleration, prices rise by more than the increase in the quantity of money. Putting the matter another way, the value of the monetary unit, at the beginning of an inflation, commonly does not fall by as much as the increase in the quantity of money, whereas, in the late stage of inflation, the value of the monetary unit falls much faster than the increase in the quantity of money. As a result, the larger supply of money actually has a smaller total purchasing power than the previous lower supply of money. There are, therefore, paradoxically, complaints of a "shortage of money."
What is the real explanation of this? It is perfectly true, to begin with, that the quantity of money affects the value of the monetary unit, just as the quantity of wheat, say, affects the value of an individual bushel of wheat. In both cases, an increase of supply, other things being equal, reduces the value of a given unit, and a reduction of supply increases the value of a given unit. But no one assumes, in the case of wheat or of any other commodity, that the reduction in value of a unit is exactly proportional to the increase in the total supply (or an increase in value exactly proportional to a reduction in the total supply). And neither should we assume that there will be an exactly inverse proportional variation between the value of a unit of money and the supply of money.
The value of a unit of money is determined, like the value of a unit of a commodity, primarily by psychological factors, and not merely by mechanical or mathematical factors. As with commodities, the value of money is influenced not merely by the present quantity, but by expectations concerning the future quantity as well as the future quality. At the beginning of an inflation, many prices and wages remain as they are through habit and custom, and also because, even when the increase in the money supply is noticed, it is assumed to be purely a past event that is now over. Confidence in a sort of fixed value of the monetary unit remains high. Of course an increase in the supply of money will probably raise some prices, though the average of prices will not necessarily rise as much as the monetary increase.
In the middle stage of an inflation, prices may respond rather directly to an increase in the supply of money. But as the inflation goes on, or perhaps becomes accelerative, fears begin to spread that the inflation will continue into the future, and that the value of the monetary unit will fall further. These fears for the future are reflected in the present. There is a flight from money and a flight into goods. People fear that prices are going to rise even further, and that the value of the monetary unit is going to fall even further. Their own fears and actions help to produce that very consequence.
Now when such developments are called to the attention of, or noticed by, the adherents of a rigid quantity theory, these adherents have a ready answer. The discrepancy, they say, is accounted for by changes in V, the "velocity of circulation." And they state or assume that these changes in the velocity of circulation are of the exact mathematical extent necessary to account for the discrepancies between the increase in the supply of money and the increase in the price level.
They do not offer any mathematical proof of this. As we shall see, such mathematical proof does not and cannot exist. Let us look at some of the reasons why.
To begin with, the "velocity of circulation" of money is a misnomer. It is simply a figure of speech, a metaphor — and a misleading one. Strictly speaking, money does not "circulate"; it is exchanged against goods. Money is said to "circulate" because it changes hands, or, more precisely, changes ownership. But when a house, say, frequently changes ownership we do not say that it "circulates." If we are to apply the metaphor of circulation to money, then we should also logically apply it to goods. For money (except in borrowing or in paying off debts) is always exchanged against goods (or services). Therefore the "velocity of circulation" of money can never be any greater than the "velocity of circulation" of goods.
In the Fisherine equation of exchange, V is commonly treated as an independent variable. In other words, V is treated as something that can change independently of any change in T, or the volume of trade. An increase in the velocity of circulation is treated as being equivalent to the same percentage increase in the volume of money. Money is thought of as something that has a certain "amount of work to do." If the velocity of circulation of money is doubled, then one dollar is said to do "the work" previously done by two. According to this theory, if merely the velocity of money doubled, with no change in the quantity of money, the price level would double.
A common classroom illustration runs something like this: A owes B a dollar, who owes C a dollar, who owes D a dollar, who owes E a dollar, who owes A a dollar. If they sit around a table, and each pays the dollar he owes to the other, then the dollar "circulates," and one dollar "does the work of" five dollars. Two things may be noticed about this illustration. First, in the situation described, no actual dollar would have to change hands at all: debts could be cancelled out by mere bookkeeping transactions. This mutual cancellation of debts occurs in actual practice every day, and on a large scale, in bank clearing houses, or institutions that act as clearing houses. Secondly, the illustration, in fact, applies only to borrowing, or to paying off previously incurred debts.
But what we have to deal with, in the so-called circulation of money, is the exchange of money against goods. Therefore V and T cannot be separated. Insofar as there is a causal relation, it is the volume of trade which determines the velocity of circulation of money rather than the other way around.
What the mathematical quantity theorists seem to forget is that money is not exchanged against a vacuum, nor against other money (except in bank clearings and foreign exchange), but against goods. Hence the velocity of circulation of money is, so to speak, merely the velocity of circulation of goods and services looked at from the other side. If the volume of trade increases, the velocity of circulation of money, other things being equal, must increase, and vice versa.
An increase in V may come about through greater eagerness to buy goods. But the velocity of circulation of money cannot be speeded up to anything like the extent commonly assumed by the mathematical quantity theory. This particularly applies to spending for consumption. There is a customary (and even a maximum) rate of consumption of food, for example, which is not speeded up even in a hyperinflation. People who are paid weekly may buy their entire week's stock of food (or whatever part of it will keep) on the day they get their weekly paycheck rather than buy their needs each day. But this will not increase the weekly V. In a hyperinflation, people may stock up much sooner than otherwise in their purchase of durable goods — housing, automobiles, appliances, clothing, jewelry, works of art, etc. But even this will not increase V over a prolonged period, unless the rate of production is correspondingly speeded up. After any buying spree of durable goods, there is likely to be, other things being equal, a less than normal rate of V for such durable goods — partly because nearly everybody will be "loaded up" with them, partly because retailers' stocks will be exhausted or low, unless output can be equally speeded up.
These "hurryings" and "waitings" (to use the vocabulary of L. Albert Hahn3 are part of the business cycle.
As money is exchanged against goods, and as the rate of consumption can change only within comparatively minor limits, we must look elsewhere to find the reason for the variations in V that we actually do encounter. This reason is found in speculation. This can be shown inductively as well as deductively. There are no reliable statistics, of course, on the "velocity of circulation" of hand-to-hand currency. But we have figures on the annual rate of turnover of demand bank deposits, and as bank deposits in the United States cover nearly nine-tenths of the media of payment, these figures are a very important index. (In August of 1966, bank deposits, both time and demand, totaled $288 billion as against $38 billion representing currency outside of banks.)
What is most striking, when we examine the figures, is first of all the wide discrepancy that we find between the rate of turnover of demand deposits in the big cities, especially New York, and the rate that we find in 218 other reporting centers. In August of 1966, the annual rate of turnover of demand deposits in these 218 small centers was 34.1. In six large reporting centers outside of New York City, it was 52.2.When we come to New York City itself, the rate of turnover was 112.7. In other words, the rate of turnover of demand deposits in New York City was more than three times as great as it was in small towns and country districts.
This does not mean that people in New York City were furiously spending their money at three times the rate of people in the small centers. (We must always remember that each individual can spend his dollar income only once.) The difference is accounted for by the fact that New York, with the New York Stock Exchange, the American Stock Exchange, the stock brokers and bond houses, and a myriad of speculative markets for commodities, is the great center of speculation in the United States. This fact is further emphasized by comparisons over a period of years. For example, in 1943, the turnover of demand deposits in New York was only a little greater than in other reporting centers. But it has kept increasing since then, in relation to other centers. This increase had corresponded broadly with the measurable increase in speculation during the same period.
Though the velocity of circulation of money increases with speculation, speculation itself does not indefinitely increase. In order for speculation to increase, willingness to part with commodities must increase just as fast as eagerness to buy them. It is rapidly changing ideas of commodity values — not only differences of opinion between buyer and seller, but fluctuating opinions on the part of individual speculators — that are necessary to increase volume of speculation. But an increase of V does not necessarily mean increased commodity prices, let alone proportionately increased commodity prices. There may be violently active falling markets as well as violently active rising markets.
We may get much closer to the truth of this situation if we take what has come to be known as the "cash holdings" approach. This has been admirably presented in the works of Ludwig von Mises.4 I quote at length from his views as given in a letter to me:
The service that money renders does not consist in its turnover. It consists in its being ready in cash holdings for any future use.
Money is never "idle." It always renders to somebody the only service that it can render, namely being a part of a man's cash holdings.
Cash holdings are sometimes greater and sometimes smaller with the same individual. But nobody ever has cash holdings greater than he wants to have. If he thinks that his cash holding are excessive, he invests the surplus either by buying (producers' or consumers' goods) or by lending it. (Time deposits are one method of lending money.) It is a judgment of value to call somebody's cash holding "hoarding." The individual concerned believes that under the given state of affairs, the best policy (let us say: the minor evil) is to increase his cash holdings. It does not matter whether I approve of his behavior or not. His behavior — not my subjective opinion about its expediency — is a factor influencing the formation of market prices.
It is futile to distinguish between "circulating" money and "idle" money. Money changes hands without being ownerless for any fraction of time. Money may be in the process of transportation, traveling in railroad cars or in other means of transportation. But it is, even from the legal point of view, always in somebody's possession.
In a changing world everybody is under the necessity of keeping an amount of ready cash on hand. This desire creates the demand for money and makes people willing to sell goods and services in exchange for money. A realistic theory of the value and the purchasing power of money must therefore start from a recognition of these desires. The changes in the purchasing power of the monetary unit are brought about by changes arising in the relation between the demand for money, i.e., the demand for money for cash holding, and the supply of money.
The main deficiency of the velocity of circulation concept is that it does not start from the actions of individuals but looks at the problem from the angle of the whole economic system. This concept in itself is a vicious mode of approaching the problem of prices and purchasing power. It is assumed that, other things being equal, prices must change in proportion to the changes occurring in the total supply of money available. This is not true.
It is true that in periods of falling money value, when money is expected to fall further, people will try to reduce their cash holdings to a minimum. But as a universal thing this will be impossible. The total quantity of money remaining the same, or even increasing, somebody must hold it, and the average per capita holding will not decrease. The faster consumers seek to get rid of money, the faster tradesmen must take it in. The average individual cash holding must always be the total supply of money outstanding divided by the population.
What causes prices to go up and down, therefore, is not changes in the average cash holding, but changes in the valuations that people put on the monetary unit. V is not a cause but a result, or even a mere side effect. People who are more eager to buy goods, or more eager to get rid of money, will buy faster or sooner. But this will mean that V increases, when it does increase, because the relative value of money is falling or is expected to fall. It will not mean that the value of money is falling, or prices of goods rising, because V has increased.
When people value money less and goods more, they will offer more money for goods, and may increase "velocity of circulation." But it is not the mechanical increase in velocity of circulation that causes any subsequent price rise, let alone any proportional price rise. It is the changed valuation by individuals of either goods or money or both that causes the increased velocity of circulation as well as the price rise. The increased velocity of circulation, in other words, is largely a passive factor in the situation.
To go further: There is no necessary relation whatever between velocity of circulation and the value or purchasing power of the monetary unit. We can see this clearly if we return to the analogy with other commodities (considering money, for the moment, as it was in its origin, merely one commodity exchanged against others). The relative value of a unit of wheat, or eggs, or potatoes (if we take quality and use for granted), depends mainly on the total relative quantities in existence of these commodities. When any one of them is in short supply, the price per unit goes up; when it is in excessive supply, the price per unit goes down.
These rises or falls may or may not be accompanied by an unusual volume of speculative transactions. But the volume of speculative transactions merely reflects the extent of differences of opinion or changes of opinion among traders in the market; it has no functional relation with either rises or declines of value. Thus a falling wheat market or stock market may be more active than a steady wheat market or stock market. But so may a rising wheat market or stock market.
Similarly, when we turn to money, increased exchanges (i.e., an increased V) may accompany a decline in the value or purchasing power of money. But there will be no necessary relation between the change in velocity of circulation and the extent of the decline in the monetary unit's purchasing power. In fact (though this happens less often), an increase in the velocity of circulation of money may be accompanied by an increase in the purchasing power of money, i.e., by a fall in prices. This can happen in a speculative collapse, as, say, in late 1929.
This bears repetition in slightly different words. Increased velocity of circulation is not, in itself, even a contributing cause of higher commodity prices. It is not even a link in the chain of causation. Increased velocity of circulation and higher commodity prices are joint results of a change in the value of money in relation to the value of goods. When people value money less in relation to goods, they offer more money for goods; when they value it more in relation to goods, they offer less money for goods. Any change in velocity of circulation is likely to be a result of these changed value decisions: it is not itself a cause of the change in value. The value of money does not decline because its velocity of circulation has increased, though the velocity of circulation may increase, when it does so, because the value of money in relation to goods has declined.
To sum up:
- Velocity of circulation is a result, not a cause. It is commonly a passive resultant of changes in people's relative valuations of money and goods.
- Velocity of circulation cannot fluctuate for long beyond a comparatively narrow range, because it is closely tied (except for speculation) to the rate of consumption and production.
- V does vary with the volume of speculation, but an increased volume of speculation may accompany either rising or falling prices.
- V is never an independent factor on the side of money, because the transfer of goods must speed up, other things being equal, to an equal amount. It is just as valid to think of the velocity of circulation of money being caused by what happens on the side of goods as by what happens on the side of money.
- Actually it is psychological factors — desire to buy and sell, produce and consume — that determine V.
- Monetary theory would gain immensely if the concept of an independent or causal velocity of circulation were completely abandoned. The valuation approach, and the cash holdings approach, are sufficient to explain the problems involved.
- 1. Benjamin M. Anderson, The Value of Money (New York: Macmillan Company, 1917), p. 161.
- 2. Ibid., p. 204.
- 3. L. Albert Hahn, Common Sense Economics (New York: Abelard-Schuman, Limited, 1956).
- 4. Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949), and The Theory of Money and Credit (London: Jonathan Cape, Limited, 1934, and New Haven: Yale University Press, 1953).