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The History of Sin

Mon, 16/09/2019 - 20:00

[Excerpt from "The Fall and Rise of Puritanical Policy in America," Journal of Libertarian Studies 12, no. 1 (1996): 143–60]

America was colonized by Europeans seeking economic and religious liberty, with many of the colonies founded explicitly along theocratic lines. The most notorious of these groups, the Puritans, founded the Massachusetts Bay Colony. They adopted wide-ranging sumptuary legislation including restrictions on alcohol and tobacco. Despite the natural advantages of a small homogeneous group based on voluntary association, many of the measures proved to be unworkable and ineffective and had to be modified or replaced by decrees to maintain moderation.15 It is the Puritan impulse for social reform that drives the cycle of reform, prohibition, and repeal. Over time this cycle has produced Puritanical social control that has been secularized, centralized, and has achieved a kind of permanence within government bureaucracy.

The American Revolution was an expression of political and economic independence, primarily precipitated by the British domination over trade and taxes. Americans did not want to pay British excises on the products they consumed. But equally important was the desire to eliminate British control over international trade that enriched the English at American expense. “Sinful” goods like alcohol, tea, and tobacco were targets of British colonial policy. Tobacco farmers, for example, were forced to export their tobacco to England at extremely unfavorable terms.16

The success of the radical American Revolution ushered in a multitude of reforms honoring individualism at the expense of traditional hegemony. Slavery was abolished in several Northern states and freedom to manumit slaves was established in several Southern states. After writing the Declaration of Independence, Thomas Jefferson set about abolishing entail, eliminating primogeniture, and establishing religious freedom in Virginia, the first time this had ever been done in so complete a form. Freedom of religion was established in several other states and many established churches lost their state monopoly.

The late eighteenth century produced not only the American Revolution but also the Industrial Revolution. The new republic grew in size and population and prospered economically. Manufacturing, agriculture, and trade thrived in the northeast. The plantation economy of the South prospered and expanded, while the Northwest Territory was explored and settled.

The freedom from British dominion and the economic growth that followed the war resulted in fundamental changes in the production and consumption of alcohol. New England lost its advantage in the production of rum while western grain farmers developed an advantage in the production of whiskey. With the rise of whiskey, the long term trend of lower prices for spirits continued. Lower prices combined with the new prosperity and freedom to generate increased consumption of alcohol.

Consumption of spirits continued to increase after the Revolution, peaking during the 1820s. Despite the fact that consumption was greater than ever before or since, America was not a nation of drunkards, and public drunkenness was not common. Alcohol consumption in America was comparable to European patterns.17

Not all Americans felt the same way about the progress and freedom generated by these revolutionary spirits. Many of these grumblers had benefited from English colonial rule as administrators, tax collectors, and bureaucrats. Others benefitted from playing key roles in the system of triangular trade which saw New Englanders sell their rum and other products, while African slaves were transported on the “middle passage” to the West Indian sugar islands where the slaves were sold in order to purchase molasses, the necessary ingredient for the burgeoning New England rum industry.18

The Revolution thus posed a threat to some members of the ruling upper classes who controlled colonial society. A primary symbol of this threat to their hegemony was alcohol consumption. In colonial America, politicians controlled the issuance of licenses to sell spirits, the wealthy owned the taverns, and the clergy monitored consumption in the taverns. Spirits were expensive enough that only the wealthy could regularly afford these goods in large quantities. Public intoxication was viewed as a kind of status symbol.

The elite’s first line of defense against alcohol consumption by the lower classes had been the licensing of taverns. However, this measure had already lost much of its clout by 1764 when Benjamin Franklin’s Pennsylvania Gazette labeled the tavern a “Pest to Society.” John Adams had led a crusade in 1760 to restrict or reduce the number of licenses in Massachusetts but was ridiculed by the public and defeated in his effort. As the “seedbed of the Revolution,” the tavern was greatly strengthened (by victory over England) against the elites who sought to control alcohol consumption with policies of regulation and taxation.

The first anti-alcohol movement in the Republic turned to the British example of imposing excise taxes on spirits. After various anti-spirit measures failed at the state level, temperance advocates began calling for federal action, but no action was forthcoming until the overthrow of the Articles of Confederation. Alexander Hamilton had advocated the use of high excise taxes on spirits in the Federalist Papers and lobbied hard for such a tax as the Secretary of the Treasury.

The excise tax was eventually passed by Congress under the pressure of a budgetary shortfall, but was angrily opposed by citizens of the west and south. By 1794 hostilities erupted into open warfare known as the Whiskey Rebellion. This widespread revolt was concentrated in western Pennsylvania, but also effected parts of Maryland, Virginia, Kentucky, South Carolina and had support in parts of New York, the Northwest Territory, and in the Southwest.19 The rebels called for secession, sacked the federal tax commissioners, made advances on Fort Pitt, and threatened the federal arsenals at Pittsburgh and Frederick Maryland.

To surpress the revolt and collect the tax, George Washington and Alexander Hamilton nationalized the militia and sent a massive army into western Pennsylvania to crush the nucleus of the rebellion. Larger than most armies of the Revolutionary war, the “Watermelon Army” had more soldiers than western Pennsylvania had men of military age and was probably more than ten times the number needed to suppress the revolt. Despite this massive demonstration of federal commitment to tyranny and union, the suppression of open revolt was anything but a decisive triumph for the “friends of order” over the “friends of liberty.”

The excise tax remained difficult to collect, as western farmers continued to oppose the excise tax resulting in the costs of collection exceeding the revenue collected in the West. The Rebellion also solidified Jeffersonian opposition to the Hamiltonian nationalists. The majority of Americans now recognized that the Hamiltonians held a Tory ideology and were using the same methods and tactics as the British had used earlier. The friends of order had more in common with the enemies of the Revolution than with most Americans. Jefferson’s Republican government abolished the whiskey excise and all other internal taxes, establishing libertarianism as the dominant ideology in national government for the period 1800–1860.20

The war was not, however, a total loss to George Washington and his supporters. The cost of the army was very large and much of the money was spent in the west. The visiting soldiers and newly cash-rich residents began a buying spree in western land. George Washington personally owned large holdings in the western lands, and decided to start selling his lands just prior to the Rebellion. Of course, the buying spree meant that Washington’s own holdings dramatically increased in price. As Thomas Slaughter observed, “the coincidence was certainly a propitious one for his finances.” Even Washington, who had gobbled up the largest and choicest parcels of land while in public service, noted that “this event having happened at the time it did was fortunate.”21

The puritanical counterrevolution that would eventually undermine the libertarian structure of the Early Republica had its beginnings in the early temperance movement. One of the great contributors to the early temperance movement was Benjamin Rush, physician and signer of the Declaration of Independence. Rush published pamphlets that condemned the use of alcohol as both unhealthy for the individual and destructive to society. His views, while of questionable scientific validity, were used by temperance leaders to confirm their faith that both science and God were on their side. Rush’s position as doctor and patriot rendered his message highly effective among the intellectual classes, culminating in the conversion of Jeremy Belknap, a minister from Boston who later became President of Harvard College. Rush also promoted the anti-alcohol crusade by requiring his doctrines be taught at his medical school.

Churches, however, were the principle players in the puritanical counterrevolution.22 Traditional Christian churches held that sin was a voluntary act even when temptation was involved. In early 19th century America, reformed or “heretical” Christians began a mass movement to make a preemptive strike at sin. These Christians believed that sinful objects were the source of temptation and consequently the cause of sin and thus had to be removed from society.23 They felt that alcohol hindered their ability to reorganize and purify society in their image. Quakers and Methodists were the first churches to declare their anti-alcohol beliefs and form the early temperance movement.

This new religious perspective can be characterized as post-millennial evangelical pietistic protestantism. They were militantly zealous and emphasized preaching from the Bible. They were also pietistic in stressing Bible study, devotion, personal religious experience, and like the 17th century German religious movement, pietism, they opposed formalism and intellectualism. Most important to this counterrevolution was the doctrine of millennialism, a prophecy or belief in an ideal society that would be created by revolutionary action. Post-millennialists hold the “reformed” or “heretical” view that man himself must purge the world of sin and imperfection and establish the Kingdom of God on Earth as a prerequisite of Jesus’s second coming.24 Obviously, post-millennialist belief provides a wide latitude in terms of policy prescriptions. Rothbard considered the spread of post-millennialism to be a crucial factor in ideological change in America because it was post-millenialism ideology that would become the driving force behind the drive for prohibition and other efforts to drive out sin and imperfection using the coercive arm of the state.25

Geographically, post-millennialist evangelical pietism emanated from New England where the Puritans first settled. The Puritans (who had already experimented with theocracy, witch hunts, and prohibitionism) and the Separatists evolved into the Congregational and Unitarian churches which were the state-established churches of New England. This Yankee influence spread into western New York, the Midwest, and Great Lakes region and eventually south and west as New Englanders, their clergy, and educators migrated with the nation’s expansion.26

The first anti-alcohol organization was the Massachusetts Society for the Suppression of Intemperance, which was formed in response to the intemperance associated with the War of 1812. The American Temperance Society was organized in 1826. By 1833, the temperance movement had over one million members, largely comprised of New England evangelicals from the Baptist, Congregationalist, Methodist, and Presbyterian churches.27 This surge in prohibitionist sentiment is related to religious revivalism of the Second Great Awakening. Religious revivalism was very strong in the 1820s and 1830s throughout New England. Revivalism had always meant reform of the individual and society, but Americans saw themselves as a special case. Americans had defeated the savage Indian, nature, and the British. America was the proverbial city on the hill, an example to the world, and the most likely place for God to establish His Kingdom on Earth.

Increased alcohol consumption may have also stimulated the temperance movement. Rorabaugh estimated that the consumption of alcohol increased from 3.5 pure gallons per capita in 1770 to almost 4 gallons in 1830. This increased consumption was the result of lower production costs, lower taxes, and higher incomes. Drinking was part of virtually every aspect of life for many in the early Republic and was a symbol of the American spirit.28 While it is dubious that alcohol causes sin, “sinful” behavior is clearly associated with alcohol use. Given their superstitions, heretical religious views, and limited knowledge, it is not surprising that reformers would base their efforts on this association. Early success with private prohibitionism, such as the signing of pledges of moderation and abstinence also provided reinforcement for this association.

An added push for religious revivalism was provided by church privatization in New England. The Congregationalist Church was disestablished in 1818 in Connecticut and in 1824-1833 in Massachusetts. This period of church privatization and religious revivalism is described as follows:

During the first half of the nineteenth century, religion in New England was changing in dramatic fashion. On the one hand, the number of preachers demanded in Connecticut and Massachusetts with respect to the population increased by more than half even as real preaching salaries almost tripled. The increase in total pastors reflected a fivefold increase in dissenting preachers. From 1800 to 1840, the proportion of dissenting preachers in these two states increased from under 20 percent to over 50 percent.29

Despite the timing of privatization and religious revivalism, it is not possible to say definitively that privatization caused revivalism.30

However, this separation of church and state involved not only the disestablishment of churches but also a movement from tax-funded churches to the voluntary funding of churches. In 1800, 90 percent of churches in Massachusetts and Connecticut used taxation but only 30 percent did so by 1840 in Connecticut and by 1850 in Massachusetts.31 Economic theory can therefore provide some support for a causal connection between privatization and religious revivalism. A monopoly church with taxing power would be expected to reduce output below competitive levels and charge monopoly prices for its “services.” We would therefore expect an increase in output after the privatization-demonopolization. Theory also predicts that new firms would enter the industry and supply competing products.32

As temperance groups formed and grew, several important changes took place. Initially temperance efforts were voluntary efforts to promote moderation in alcohol consumption. Members of the temperance groups were expected to lead by example and provide education and assistance to others. Over time, however, alternative groups were established that advocated abstinence from spirits and moderation in beer, wine, and cider. Eventually, even these groups were replaced with total abstinence societies in which members were required to sign an abstinence pledge. As the work of reform became more difficult over time, reform leaders became frustrated and dissatisfied with voluntary efforts and began to advocate the use of government to enforce temperance throughout society.33

Temperance forces began to organize coalitions to pass restrictive legislation. Their first reform measure was typically to replace the license system with the more restrictive local option laws which gave communities the right to prohibit local liquor sales. Other restrictive policies included minimum-quantity purchase laws (which require the individual to buy at least 15 or 28 gallons of spirits at a time) and local prohibitions. These policies were difficult to enforce and had few if any beneficial effects. The failure of these policies to satisfy prohibitionists ultimately led to the call for state-wide prohibition.

State prohibitions were adopted in many northern states and territories between 1851 and 1855. These prohibitions were based on Maine’s law which was authored by the zealous prohibitionist, Neal Dow. The “Maine Laws” allowed for search and seizure, reduced the requirements for conviction, increased fines, created mandatory prison sentences, and called for the destruction of captured liquor.

The rapid success of the Maine Laws was shortlived as the rapidly growing immigrant populations opposed such laws. The Maine Laws also suffered several important setbacks in court. Enforcement was difficult because professional police forces existed in only a few large cities where the law was least popular. In the emerging Republican party, prohibition was considered a divisive issue and was not enthusiastically embraced at the national level.34

One event seemed to have sealed the fate of the Maine Laws. Neal Dow, who was mayor of Portland, Maine in 1855, was accused of personally profiting from the government-controlled sale of alcohol.

An angry mob assembled at the liquor agency on the night of June 2, 1855, after the existence of the liquor had become common knowledge. The mob demanded destruction of the liquor and threatened to break into the agency if the demands were not met and Neal Dow arrested for violation of his own law. Dow, who was always quick to look to force in defense of morality, assembled the local Rifle Guards. In the confrontation which followed with the stone-throwing mob, Dow ordered his troops to fire when several rioters broke into the liquor agency.35

Dow was labeled a murderer and a fanatic, and the prohibition movement which he was instrumental in crafting quickly diminished in political significance.36

The rise of the Republican party was the result of a long series of attempts to form a coalition strong enough to challenge the dominance of the Democratic party. Forged from the Whig and No-Nothing Parties, the Republicans naturally captured the prohibitionist-abolitionist radicals and thereby dominated “Yankeedom.” This coalition of mercantilist parties did not directly satisfy the prohibitionist faction, but they were able to institute taxes on alcohol and tobacco that appeased the reformers and helped the Republican party to dominate American politics for decades. After the Civil War, prohibitionists became increasingly political and better organized at the national level. Their progress included the formation of the Prohibition Party, the Women’s Christian Temperance Union, and the Anti-Saloon League.

During the period between the Civil War and the Progressive Era the post­-millennial crusade became increasingly secular. According to Barkun, the “slow nineteenth-century separation of a secular from a religious vision of the perfect society” accelerated after (and possibly because of) the Civil War and that by “the end of the nineteenth century, millennialism was dominated by secularizing tendencies” so that “by the very time that it succumbed in religious circles its secular version triumphed in the society at large.”37

With respect to prohibitionism, this period is best classified as one of “modified” prohibition. State prohibition waned to such an extent that by 1875 only three states remained “dry.” Although there was a brief resurgence in state prohibitions in the 1880s, only three states remained dry by 1904. Modified prohibition consisted of local option, high license fees and restrictive regulations. These coalition-building and seemingly pragmatic policies ironically helped establish the conditions under which national prohibition would be promoted and enacted.

The scientific veneer of modified prohibition was provided, in part, by political economist Richard T. Ely.38 In a report to the Maryland legislature, Ely argued for a modified prohibition that consisted of local option and an annual auction of licenses for large exclusive territories (retail monopolies) for the sale of alcoholic beverages. He argued this would greatly reduce the number of establishments selling alcohol and maximize public revenue. He argued that such businesses would be easier to tax and regulate because of the greatly reduced number of establishments and the fear of losing expensive liquor licenses for violating regulations. He further argued that concentrating the liquor business via modified prohibition “drags it before the public where all its evils must be conspicuous.”39

Modified prohibition was promoted as the pragmatic alternative to prohibition because it resulted in fewer saloons, higher government revenues, and reduced public drunkenness. According to The Nation, “the same story that has been told of every State in which high-license or tax laws have gone into effect. That is, they provide ‘corroborative evidence of the practical wisdom of this method of fighting the liquor evil.’” The Nation also opposed the policy of prohibition because it was not “a proper or practical method of liquor regulation,” and that “no amount of amendment or addition can make the Prohibitory Law a success.” They concluded that when in the majority use local option, but when in the minority use high taxation to control drinking and make drinkers pay for their sins. “The lesson which has been taught over and over again (is) that prohibition laws cannot be enforced except where public sentiment in their favor predominates.”40

Despite testimonials of its success, modified prohibition caused a plethora of problems such as black market production, smuggling, monopoly pricing, reduced quality, corrupt retail practices, graft, and political corruption. While not as evident as the problems caused by prohibition, modified prohibition did indeed drag the evils before the public. Indeed, the problems of modified prohibition were already obvious when Pennsylvania enacted its modified prohibition. The law attempted to limit corrupt practices stemming from modified prohibition by including a restriction on brewers that prevented them from financing the high license fees charged to saloon operators.41

The political success of modified prohibition would suggest that true prohibitionist sentiment had all but died out in the late nineteenth century. The federal excise tax on distilled spirits had been increased by 120 percent between 1868 and 1894, most non-prohibition states had enacted local option laws by 1900, and most states and local jurisdictions had enacted high license fees.42 However, instead of dying out, the prohibition movement was preparing to achieve the ultimate goal of national prohibition by organizing against the saloon, developing institutions and coalitions, and experimenting with new political techniques.

Women were an important source of support for prohibition. The leaders of the women’s suffrage movement were prohibitionists and encouraged their members to swell the ranks of prohibition organizations. The alliance was clear; women would support prohibition (and vote for it when and where they could) while prohibitionists would in turn support the women’s suffrage movement. Women would get the vote and sober husbands, while prohibitionists would reestablish social control and dry up society. In 1873, the Women’s Christian Temperance Union was formed to institutionalize this alliance.

In 1869, the Prohibition Party was formed. Often characterized as ineffective, it played a key although often neglected role in the ultimate success of national prohibition. Its electorial success was indeed limited, but the Prohibition party provided a valuable training ground for prohibitionists in politics. The Party also introduced ideas, such as child-labor laws, direct election of senators, the income tax, woman suffrage, and national alcohol prohibition, that were absorbed into major party platforms and enacted into law. The Prohibition Party also was a major factor in the major party realignment that occurred during the 1890s in which the Democratic party embraced prohibition.

The Anti-Saloon League was formed in 1895 as a political arm of the post-millennial evangelical protestant churches. By 1904, the League had organizations in forty-two states or territories. When Prohibition was enacted, the Anti-Saloon League could claim affiliation with over 30,000 churches and 60,000 agencies. It is important to note that the League, which was the prime mover toward national prohibition, explicitly emblemized the most prominent institution of “sin,” the government-licensed and heavily taxed saloon.43

The League completely split with the voluntary and educational efforts of past temperance movements. Coercion, propaganda, and intimidation of political candidates were the new tools. Professional reformers were paid to propagandize (often from the pulpit), in many instances making outrageous claims against blacks and Catholics. At its height, the League published over forty tons of propaganda literature each month. The League was able to shield its big contributors from public exposure by refusing to comply with the disclosure requirements of the Corrupt Practices Act.44

The League was able to refine, strengthen, and spread the prohibitionist ideology. The ideology that emerged during the Progressive Era was forged from the experience of “modified prohibition” and symbolized in the very name of its most powerful and effective political institution, the Anti-Saloon League. As Timberlake described, the saloon became the object of national opprobrium under modified prohibition:

The liquor industry became thoroughly involved in political corruption through its connection with the saloon. The root of the trouble here was that the ordinary saloonkeeper, confronted by overcompetition, was practically forced to disobey the liquor laws and to ally himself with vice and crime in order to survive. Unable to make a living honestly, he did so dishonestly.45

Modified prohibition forced many saloons to offer breweries exclusive selling rights in exchange for payment of their annual license fees. Saloons would also disobey blue laws, serve poor quality and watered-down liquor, and employ prostitutes, professional gamblers, and pickpockets in order to generate sufficient revenues under modified prohibition. Of course all of these practices often necessitated the bribery of police and public officials.

The success of Prohibition depended vitally on defining its goal as ridding America of the crime and vice-ridden saloon that was corrupting both the political leadership and the poor immigrants who relied on the saloon as a center of entertainment, politics, and much more. Indeed, destroying the saloon would achieve an underlying goal of prohibitionists — providing the old-stock protestants with a method of social control over the “drinking class” who were largely recent Catholic immigrants from countries such as Ireland, Italy, and Germany.

The only major remaining hurdle in the establishment of national alcohol prohibition was government revenue. The tax on alcohol products was the second largest source of revenue for the federal government prior to Prohibition. However, as Boudreaux and Pritchard have demonstrated:

The income tax proved a viable alternative to liquor taxation for raising revenue, thus making prohibition possible. To be sure, the ideology of voters and politicians mattered, but Congress could not afford the cost in foregone tax revenue (hence, foregone wealth redistribution) that an ideological vote for prohibition entailed until the income tax demonstrated its revenue-raising potential.46

They also argue that the shortfall of income tax revenue during the early years of the Great Depression led to the repeal of Prohibition and restoration of alcohol tax revenues.

In support of this tax substitution thesis, it should be recalled that it was the Prohibition party that first called for an income tax and that prohibitionists widely supported the income tax. It is also noteworthy that a tax revolt was gathering momentum in the early years of the Great Depression. The revolts began as a movement against property taxes in cities such as Chicago. Prior to Prohibition, local governments raised a great deal of revenue from high license fees, revenue which was lost with Prohibition. The repeal of Prohibition would not only lower alcohol prices, but would also reestablish revenue from license fees, thus relieving cities’ overreliance on property taxes. As Beito notes, “by the end of 1933, the effectiveness of the tax-resistance movement had started to wane.”47

The Progressive era also saw the prohibitionists launch their “war” against narcotics, tobacco, marijuana, gambling, prostitution and other “imperfections” in society. In each of these wars, prohibitionists and progressives sought to stamp out “vice,” establish means of social control (particularly over immigrants and inferior races), and to provide a path toward order and perfection of society.

During the Progressive Era the prohibitionist movement had become secularized, achieved the precedent of nationalized prohibition, and expanded its scope to cover marijuana and narcotics. The elitist, twentieth century Hamiltonians had established their control over American society.

  • 15. Gary North, Puritan Economic Experiments (Fort Worth, TX: Institute for Christian Economics, 1988).
  • 16. John S. Bassett, A Short History of the United States: 1492-1929 (New York: The Macmillan Company, 1932), p. 143.
  • 17. W.J. Rorabaugh suggests that problem drinking was rare. The two types of drinking most prominent were dietary drinking, which involved numerous small servings throughout the day as a substitute for food and water, and communal binge drinking in which the entire town might get intoxicated in celebrations, such as Independence Day, harvest, weddings, and public events such as elections, generally less than once per month. See W.J. Rorabaugh, The Alcoholic Republic: An American Tradition (New York: Oxford University Press, 1979), pp. 5­21.
  • 18. Many of the smaller towns of New England, especially Boston and the Rhode Island ports benefitted materially from the production of rum and the slave trade, see Bassett, A Short History, pp. 140-145.
  • 19. See Mary K. Tachau, “The Whiskey Rebellion in Kentucky: A Forgotten Episode of Civil Disobedience,” Journal of the Early Republic, Vol. 2 (Fall 1982), pp. 239-259.
  • 20. On this see Thomas P. Slaughter, The Whiskey Rebellion: Frontier Epilogue to the American Revolution (New York: Oxford University Press, 1986). It has been shown that the western farmers’ economic rationale for fighting was more as consumers of whiskey than as producers. See David O. Whitten, “An Economic Inquiry into the Whiskey Rebellion of 1794,” Agricultural History 49, No. 3 (July 1975), pp. 491-504.
  • 21. Slaughter, The Whiskey Rebellion, p. 224.
  • 22. This religious ideology is not necessarily inconsistent with the economic self-interest of the churches.
  • 23. This perspective on sin is analogous to an objective theory of value in economics. From the “objective” viewpoint, value and sin are innate aspects of the good, while from the subjectivist point of view, economic value and sin are matters of individual choice.
  • 24. Orthodox Christians, such as Catholics, Calvinists, Lutherans, and mainstream Protestants, are typically a-millennialist in that they do not believe in a literal 1000-year Kingdom of God on Earth. Pre-millenialists hold that Jesus will come again, defeat the forces of evil, and establish a Kingdom of God on Earth. Pre-millennialists are notorious for their incorrect predictions about the end of the world.
  • 25. Rothbard writes about the earlier post-millennialist, Joachim of Fiore, a twelfth-century Calabrian monk who attempted to establish a heretical communist society and almost converted three popes to his beliefs. Post-millennialism continued to spring up in medieval Europe, especially in Germany and among the Anabaptists. This history is described in Norman R.C. Cohn, The Pursuit of Millennium: Revolutionary Messianism in Medieval and Reformation Europe and its Bearing on Modern Totalitarian Movements (London: Harper & Row, 1961). According to Rothbard post-millennialism is also an important component of secular movements such as Karl Marx’s communism. Adolph Hitler's Nazism and Third (1000 year) Reich could also be interpreted as a secular derivation of Joachim’s millennialism and original thesis that history would be divided into three, rather than the traditional two periods of christian doctrine. See Murray N. Rothabrd, “Karl Marx: Communist as Religious Eschatologist,” Review of Austrian Economics 4 (1990), pp. 123-79.
  • 26. Much of this migration was concentrated in areas claimed by Massachusetts and Connecticut in the Treaty of 1783. On the dispersion of the prohibitionists, see Whitney R. Cross, The Burned-over District: The Social and Intellectual History of Enthusiastic Religion in Western New York, 1800-1850 (Ithaca, NY: Cornell University Press, 1950); Peter H. Odegard, [1928] Pressure Politics: The Story of the Anti-Saloon League (New York: Octagon Books, 1966).
  • 27. Ironically, both the anti-alcohol movement and anti-slavery movement were centered in Boston which dominated the early colonial triangular trade in rum and slaves.
  • 28. Rorabaugh, The Alcoholic Republic, p. 9.
  • 29. Kelly Olds, “Privatizing the Church: Disestablishment in Connecticut and Massachusetts,” Journal of Political Economy 102, No. 2 (April 1994) p. 291.
  • 30. In fact, many social and economic factors contributed to revivalism and the Second Great Awakening. For example, natural factors and natural disasters also contributed to revivalism. See Michael Barkun, Crucible of the Millennium: The Burned-Over District of New York in the 1840s (Syracuse, NY: Syracuse University Press, 1986), esp. chapters 6 and 7.
  • 31. Olds, “Privatizing the Church,” p. 291.
  • 32. Again see Olds, “Privatizing the Church,” for his evidence that the established churches did have state authority, practice price discrimination, and increase output after disestablishment (privatization), and that alternative churches expanded faster than the established churches after privatization.
  • 33. Thornton, The Economics of Prohibition, pp. 43-45.
  • 34. Interestingly, the decrease in alcohol consumption that resulted from temperance and prohibitionist efforts created a 500+ calorie deficit in the adult diet leading to declines in demographic-health measures during a period of high economic growth. See Mark Thornton, “Alcohol Consumption and the Standard of Living in Antebellum America,” Atlantic Economic Journal 23, No. 2 (June 1995).
  • 35. Ian R. Tyrrell, Sobering Up: From Temperance to Prohibition in Antebellum America, 1800-1860 (Westport, CT: Greenwood Press, 1979), pp. 295-299
  • 36. Frank L. Byrne, Prophet of Prohibition: Neal Dow and His Crusade (Gloucester, MA: Peter Smith, 1969), pp. 60-69.
  • 37. Barkum, Crucible of the Millenium, pp. 2, 151, 29.
  • 38. See Murray N. Rothbard, “World War I as Fulfillment: Power and the Intellectuals,” Journal of Libertarian Studies (Winter 1989), pp. 81-125, for more on Ely and other progressives academics.
  • 39. Richard T. Ely, Taxation in American States and Cities (New York: Thomas Y. Crowell & Co., 1888),pp. 280-288.
  • 40. The Nation, January 12, 1888, Vol. XLVI No. 1176, pp. 24-26; February 16, 1888, No. 1181, p.127; January 31, 1889, Vol. XLVIII, No. 1231, p. 83; March 14, 1889, No. 1237, pp. 214-5; April 25, 1889, No. 1243, p. 336; June 27, 1889, No. 1252, p. 515.
  • 41. The Nation, February 16, 1888, Vol. XLVI, No. 1181, p. 127. Also with respect to high taxes the National Municipal Review (January, 1935, p. 63) noted that “High taxation thus becomes the chief foundation of the illegitimate trade.” Tun Yuan Hu found this illegitimate trade to be “deeply disturbing” but he believed it could be “driven out” by reducing taxes. See The Liquor Tax in the United States, 1791-1947: A History of the Internal Revenue Taxes Imposed on Distilled Spirits by the Federal Government (New York: Columbia University Graduate School of Business, 1950), p. 86.
  • 42. Hu, The Liquor Tax, Appendix II, p. 3, shows that the federal excise tax on distilled spirits was fifty cents per tax gallon in 1868 and one dollar and ten cents in 1894. Elsewhere, Hu notes that 37 states had local option laws by 1900 (p. 49). The Nation (January 12, 1888, Vol. 46, No. 1176, p. 25) describes the high license fees in several states. Ely, Taxation, notes that in Savannah, Georgia a liquor dealer would pay a Federal license of $25, a State license of $50, a County license of $100 dollars, and a City license of $200. The bar-keepers license in Charlotte, North Carolina was $1000 (pp. 203-205).
  • 43. Cf. Jack S. Blocker, Retreat from Reform: The Prohibition Movement in the United States, 1890-1913 (Westport, CT: Greenwood Press, 1976), p. 157; Odegard, Pressure Politics, pp. 20-21. The central forces of prohibitionism were the Congregationalist, Quaker, Methodist, Baptist, and Presbyterian churches. These churches, their ministers and their flocks had radiated out from New England into western New York, the mid-west, and by the turn of the century eventually throughout most of the western and southern states. It is this geographic and demographic dissemination that enhanced the potential for national alcohol prohibition.
  • 44. As a result, Warburton found little evidence for determining the extent of commercial rent­seeking against alcohol. Clark Warburton, The Economics of Prohibition (New York: Columbia University Press, 1932), p. 263. See also Odegard, Pressure Politics, pp. 74, 181, 210; This absence of data should not be taken to infer a lack of commercial interest in promoting prohibition.
  • 45. James H. Timberlake, Prohibition and the Progressive Movement: 1900-1920 (Cambridge, MA: Harvard University Press, 1963), p. 110.
  • 46. Donald J. Boudreaux and A.C. Pritchard, “The Price of Prohibition,” Arizona Law Review 36 No. 1 (Spring 1994), p 2.
  • 47. Beito provides an excellent history of tax revolts during the Great Depression. He finds that the tax revolts ultimately failed because of a failure to develop a coherent anti-tax ideology and an overreliance on a strategy that stressed “good government.” David T. Beito, Taxpayers in Revolt: Tax Resistance During the Great Depression (Chapel Hill: University of North Carolina Press, 1989), p. 140.
Categories: Current Affairs

More Money Pumping Won't Make Us Richer

Mon, 16/09/2019 - 17:00

Whenever a central bank introduces easy monetary policy, as a rule this leads to an economic boom — or economic prosperity. At least this is what most commentators hold. If this is however the case then it means that an easy monetary policy can grow an economy.

But loose monetary policies do not generate economic growth. These policies set in motion the diversion of real savings from wealth generators to the holders of the newly pumped money. Real savings, rather than supporting individuals that specialize in the enhancement and expansion of the infrastructure are consumed by various individuals that are employed in non-wealth generating activities.

Moreover, not all consumption is a good thing. The consumption of real savings by individuals engaged in the enhancements and the expansion of the infrastructure is productive consumption. Conversely, the consumption of real savings by individuals that are employed in non-wealth generating activities is non-productive consumption.

It is non-productive consumption that sets the foundation for the weakening of the existing infrastructure thereby weakening future economic growth. In contrast, productive consumption sets the foundation for a better infrastructure, which permits stronger future economic growth. Needless to say, productive consumption leads to the increase in individuals living standards while non-productive consumption results in the lowering of living standards.

Why then is loose monetary policy seen as a major contributor towards economic growth?

Given that economic growth is assessed by means of the gross domestic product (GDP) framework — which is nothing more than a monetary turnover — obviously then when the central bank embarks on monetary pumping (i.e., loose monetary policy) it strengthens the monetary turnover in the economy and thus GDP.

After deflating the monetary turnover by a dubious price deflator one obtains the so-called real GDP. By means of real GDP, economists and various other experts are supposedly in a position to ascertain the state of economic growth, or so it is held. (Note that the increase in the monetary turnover because of the increase in the money supply is regarded as reflecting economic growth). In such a framework, it is not surprising that central bank policies are an important factor in setting in motion an economic boom.

From this, economists and various other experts conclude that the central bank by being able to grow the economy can also make sure that the economy follows the correct growth path. (The growth path as outlined by policy makers of the central bank).

Whenever the economy deviates from the path outlined by central bank policy makers and the government, this will allow them the opportunity to intervene by either raising or slowing the pace of monetary pumping.

The economy in this way of thinking is depicted as a helpless creature that must be guided by the all-knowing bureaucrats all the time. The passivity of the creature called the economy is also reflected by the fact that the output generated must be distributed by the all-knowing bureaucrats. In fact, one gets the impression that bureaucrats supervise the entire production process and individuals are just submissive entities that have hardly anything to say here.

If loose monetary policies of the central bank are able to generate through the GDP statistic so-called economic growth, then this must mean that a tighter monetary stance sets an economic bust.

"Economic bust" is here associated with the liquidation of various non wealth-generating activities. That is, the economic bust results in the curtailment of non-productive consumption.

Note that an important vehicle in setting the boom-bust cycle is the existence of the fractional reserve banking, which through the expansion of money out of thin air sets an economic boom while through the contraction of money out of thin air sets an economic bust.

Observe that in fractional reserve banking an expansion of money out of thin air emerges because of the ownerless lending. Consequently, when banks curtail the ownerless lending this leads to the contraction of money out of thin air.

Can Government Policies Grow the Economy?

While loose monetary policy, which results in an exchange of nothing for something, cannot cause economic growth, can the same be said about an increase in government outlays? Will this not result in a strengthening in economic growth?

Given that in the GDP framework one of the components is government outlays, obviously then once there is an increase in these outlays, all other things being equal, we will have an increase in the GDP and thus in so-called economic growth.

But if the government is not a wealth generating entity, how can an increase in government outlays grow the economy? Various individuals who are employed by the government expect compensation for their work. Note that the government can pay these individuals by taxing others who are still generating real wealth. By doing this, the government weakens the wealth-generating process and undermines prospects for economic growth. (We ignore here borrowings from foreigners).

Now, fiscal stimulus could “work” if the flow of real savings is large enough to fund government activities while still permitting a positive growth rate in the activities of the private sector. (Note that the overall increase in real economic activity is in this case erroneously attributed to the government's loose fiscal policy).

If, however, the flow of real savings is declining, then regardless of any increase in government outlays, overall real economic activity cannot be expanded. In this case the more the government spends (i.e., the more it takes from wealth generators) the more it weakens prospects for a recovery.

Thus when government by means of taxes diverts bread to its own activities the baker will have less bread at his disposal. Consequently, the baker will not be able to secure the services of the oven maker. As a result, it will not be possible to boost the production of bread, all other things being equal.

As the pace of government spending increases a situation could emerge that the baker will not have enough bread to even maintain the workability of the existing oven. (The baker will not have enough bread to pay for the services of a technician to maintain the existing oven). Consequently, his production of bread will actually decline.

Similarly, as a result of the increase in government outlays other wealth generators will have less real savings at their disposal. This in turn will hamper the production of their goods and services and in turn will retard and not promote overall real economic growth.

As one can see, the increase in government outlays will lead to the weakening in the process of wealth generation in general.

Many commentators are of the view that lowering of taxes could be an important catalyst for the strengthening of economic growth. This could be so if the government also curtails its outlays. It must be realized that as long as government outlays continue to grow no effective cut in taxes is possible. Remember that the expansion in government outlays implies an increase in the diversion of real savings from wealth generators to government. Hence, an effective cut in taxes can only emerge once the government curtails its outlays.

For instance, government announces that it will cut the income tax by 5% at the same time it outlays are planned to increase by 10%. What matters here is that the government will require to increase the diversion of real savings by 10% in order to support the increase in its activities.

It does not matter how the government is going to collect the required real savings – it can be by means of various forms of indirect taxes or by means of borrowings or by means of money pumping. The essence in all this is that once the government requires more real savings it will get it from the private wealth generating sector. Hence in this case rather than having a tax cut what we have here is an effective increase in the tax burden because of the increase in government outlays.

Conclusion

Neither loose monetary policy, nor big-spending fiscal policy cannot grow an economy. All that these policies can do is to redistribute a given pool of real savings from wealth generators towards non-wealth generating activities. Hence, we can conclude that both loose monetary and fiscal policies cannot set in motion an economic boom but rather an economic impoverishment.

Categories: Current Affairs

How Democracy Made Us Dumb

Mon, 16/09/2019 - 16:45

Recorded at the Mises Circle in Seattle, 14 September 2019. Includes an introduction by Jeff Deist.

Categories: Current Affairs

A Hoppean View of the 2020 Election

Mon, 16/09/2019 - 16:30

A Q&A and Panel featuring Laura Davidson, Noah Bonn, Bob Murphy, and Jeff Deist. Recorded at the Mises Circle in Seattle, 14 September 2019.

Categories: Current Affairs

Democracy as Retribution in the 2020 Election

Mon, 16/09/2019 - 16:15

Recorded at the Mises Circle in Seattle, 14 September 2019.

Categories: Current Affairs

How Democracy Destroys Political Economy

Mon, 16/09/2019 - 16:00

Recorded at the Mises Circle in Seattle, 14 September 2019. Includes an introduction by Jeff Deist.

Categories: Current Affairs

Democracy Down Under: The Good, The Bad, and The Ugly

Mon, 16/09/2019 - 15:45

Recorded at the Mises Circle in Seattle, 14 September 2019. Includes an introduction by Jeff Deist.

Categories: Current Affairs

Welcoming Remarks

Mon, 16/09/2019 - 15:30

Recorded at the Mises Circle in Seattle, 14 September 2019.

Elites in America spent the twentieth century lecturing us about the unquestioned virtue of democracy and voting. But they change their tune when the wrong guy wins. Donald Trump, Brexit, and the rise of right-populist movements in Europe all challenge the West's great sacred cow.

Hans Hoppe famously reconsidered the cult of democracy in his 2001 book Democracy: The God that Failed. Democratic politicians and voters, with high time preference and no skin in the game, give us endless spending, debt, entitlements, and war — not liberty.

Our speakers will apply Hoppe's critique to the upcoming 2020 presidential election, which promises to be brutal. What are the limits of democracy in a country of 320 million people? Have we reached the end of the myth of democratic consensus? What if democratic voting, so called, doesn’t yield any compromise between Left and Right — but only creates endless division and an entrenched political class? And what might the future of democracy look like? Hint: decentralized, smaller, local.

Categories: Current Affairs

The Nationalist Case for Free Trade, in the Words of Classical Economists

Mon, 16/09/2019 - 12:00

The founders of classical economics, namely David Hume (1711-1776), Adam Smith (1723-17790), and David Ricardo (1772-1823) and their British followers were fervent advocates of the principle of free trade between nations. Even more so were J.-B. Say (1767-1832), Frederic Bastiat (1801-1850) and their Continental disciples of the liberal school (who for simplicity I will broadly classify as classical economists because of their link to Adam Smith). Despite their devotion to free trade, the classical economists were nationalists. They viewed free trade as one of the most important means for advancing the security, prosperity, and cultural achievements of their own nations. In this sense, they tended to be what Ludwig von Mises described as “peaceful” or “liberal” nationalists,1 who recognized the existence of profound differences among nations and nationalities and loved their own nations above all others, yet discerned that the economic and cultural flourishing of each nation was inextricably linked with the flourishing of all other nations. In recognizing this international harmony of interests, the classical economists were naturally thoroughly cosmopolitan and anti-war.

The cosmopolitanism and pacifism of the classical economists has in the past been misconstrued — often deliberately — by their protectionist opponents as a lack of affection and concern for their nation and its interests. This erroneous interpretation of the classical case for free trade has once again gained currency in the writings of some contemporary libertarians and free-market economists who have embraced the anti-nationalist, globalist agenda. Fortunately, eminent historians of economic thought have previously demolished this gross caricature of the classical position and clarified the rationale of the classical economists in promoting free trade. Let us take two examples.

Lionel Robbins was a British economist who was heavily influenced by Mises, Hayek, and the founders of the Austrian school early in his career. He was also one of the foremost historians of the classical school of economics, having written several articles and books on the subject. Robbins was emphatic in defending the view that the British classical economists promoted free trade because it improved the economic conditions for Great Britain:

To the extent to which [classical economists] repudiated former maxims of economic warfare and assumed mutual advantage in international exchange, it is true that the outlook of Classical Economists seems, and indeed is, more spacious and pacific than that of their antagonists. But there is little evidence that they often went beyond the test of national advantage as a criterion of policy, still less that they were prepared to contemplate the dissolution of national bonds. If you examine the ground on which they recommend free trade, you will find that it is always in terms of a more productive use of national resources. . . . I find no trace anywhere in their writings of the vague cosmopolitanism with which they are often credited by continental writers [such as the protectionist, Friedrich List]. . . . All that I contend is that we get our picture wrong if we suppose that the English Classical Economists would have recommended, because it was good for the world at large, a measure which they thought would be harmful to their own community. It was the consumption of the national economy which they regarded as the end of economic activity.2

In a classic work, published just after World War II, Edmund Silberner surveyed the thought of the leading economists of the nineteenth century, including the British classical and French liberal economists, on the problem of war, its causes and solution.3 Silberner pointed out that the classical economists, whom he called “liberals,” viewed war as “economically and socially harmful” and “not only immoral but stupid” because “it is in effect the natural state of men ignorant of the laws of political economy.”4 Silberner summarized the classical-liberal position on the connection between free trade, prosperity, war, and the science of political economy as follows:

By favoring international accord . . . [free trade] contributes not only to the material prosperity of nations but also to the intellectual and moral progress of mankind as a whole. Of all known economic systems it is therefore . . . the most favorable to each nation as well as to the human race in its entirety. . . . [T]he establishment of commercial freedom will bring about one of the most profound revolutions in history. Free trade will assure to all men the maximum possible of material well-being, which in fact will know no other limits than the natural resources of the globe and the creative work of men. What is more, the influence of free trade will not be restricted to the economic field: freedom of international commerce will also considerably increase the external security of nations. . . . The role assigned by the liberals, in this matter, to political economy is most significant. This science must deal with war because peace is an essential element of public prosperity. Political economy . . . is regarded by the liberals as the science par excellence of peace. The diffusion of economic knowledge thus tends, in their eyes, to prevent wars.5

Having demonstrated the profoundly cosmopolitan and pacific attitudes of the classical economists, Silberner, like Robbins, emphasized that they were first and foremost nationalists. Thus he wrote: “Though hostile to militarism, they make it clear that their attitude is opposed neither to an enlightened patriotism nor to the principle of nationalities.”6 In addition, the classical economists not only saw free trade as the most effective policy for avoiding war but also as the best means of preparing for a war that was impending. According to Silberner, “whatever their differences of view [on the relative effectiveness of free trade as a deterrent to war] they all take it for granted that, if war is truly inevitable, free trade, by enriching the nations, prepares them better for it than does the protective system, which impoverishes them all.”7 Finally, despite their abhorrence of war, the classical economists, “with a few exceptions,” were “opposed or hostile” to surrendering national sovereignty to a “supernational peace organization.”8

We need not, however, depend only on the interpretation of modern historians of thought on this matter for we have the words of the classical economists themselves. There is no better place to start than a famous statement by one of the first classical economists, David Hume. Hume’s dictum poignantly illustrates how, in the eyes of classical economists, free trade perfectly harmonized nationalism and cosmopolitanism.

I shall therefore venture to acknowledge, that, not only as a man, but as a British subject, I pray for the flourishing of commerce of German, Spain, Italy, and even France itself. I am at least certain, that Great Britain and all those nations, would flourish more did their sovereigns and their ministers adopt such enlarged and benevolent sentiments towards each other.9

As Robbins pointed out,10 Adam Smith “expressly repudiates” the globalist position that places the welfare of one’s own nation on all fours with that of other nations:

France may contain, perhaps, near three times the number of inhabitants which Great Britain contains. In the great society of mankind, therefore, the prosperity of France should appear to be an object of much greater importance than that of Great Britain. The British subject, however, who upon that account should prefer upon all occasions the prosperity of the former to that of the latter country, would not be thought a good citizen of Great Britain. We do not love our country merely as part of the great society of mankind—we love it for its own sake, and independently of any such consideration.11

Ricardo’s closest disciple, J. R. McCulloch (1789-1864), argued that free trade unites all nations and peoples in common interest. “Commerce embracing different nations,” declared McCulloch,

by. . . making every people to a great extent dependent on others . . . forms a powerful principle of union and binds together the universal society of nations by the powerful ties of mutual interest and reciprocal obligation.12

Now McCulloch is not saying that free trade will dissolve peoples and nations into a homogeneous globalist mass or eradicate the desire most individuals have for the flourishing and pre-eminence of the nationality or “people” they identify with. In fact he is saying quite the opposite: that free trade and the mutual benefits it confers on all nations are the only rational means available to sustain one’s own nation and secure its desired advancement and distinction among other nations. In McCulloch’s words:

It has been shown over and over again, that nothing can be more irrational and absurd, than that dread of the progress of others in wealth and civilization that was once so prevalent; that what is for the advantage of one state is for the advantage of all; and that the true glory and real interest of every people will be more certainly advanced by endeavoring to outstrip their neighbors in this career of science and civilization, than by engaging in schemes of conquest and aggression.13

Henri Baudrillart (1821-1892) was an eminent French liberal economist and economic historian and a follower of Bastiat’s. He was an avid free trader and anti-militarist, who objected to standing armies. Baudrillart however maintained that international free trade and division of labor are not only consistent with separate nations and nationality differences but require such separateness and differences. Wrote Baudrillart:

Those who do not consider at all the differences produced among men by climate, race, and institutions, are the very theoreticians of prohibitions who want every nation to be self-sufficient and devote itself to all industries at the same time. . . . By endeavoring to maintain that division of labor which Providence itself has established among men, political economy is obviously not hostile to the spirit of nationality; it bases the alliance of peoples on the difference of characters and faculties; it wants each to excel under the conditions peculiar to it, and each to produce so as to have means of exchange. To generalize and extend trade, it localizes industry.14

It is imperative to emphasize the nationalist basis of the classical case for free trade for two reasons. First, modern libertarians and “classical” liberals who favor open borders and are indifferent to the dissolution of historical nations often invoke the names of Hume, Smith, and Bastiat in support of their position. But as we saw, the liberality, pacifism, and cosmopolitanism of these great thinkers and their nineteenth-century followers is far different from the homogenizing globalism embraced by their modern epigones. Second, without taking a position on the vexed question of immigration, it is important to bear in mind that the classical rationale for the free movement of goods cannot be simply extended to justify the “free movement of labor,” that is, open borders, especially if the result is mass immigration. As nationalists, the classical economists would hardly look on with equanimity as their nation disintegrated.

  • 1. For Mises’s description and defense of liberal nationalism, see Joseph T. Salerno, “ Mises on Nationalism, the Right of Self-Determination, and the Problem of Immigration ,” Mises Wire (March 17, 2017), and the references contained therein.
  • 2. Lionel Robbins, The Theory of Economic Policy in English Classical Political Economy (London: Macmillan & Co. Ltd., 1953), pp. 10-11.
  • 3. Edmund Silberner, The Problem of War in Nineteenth Century Economic Thought, trans. Alexander H. Krappe (Princeton, NJ: Princeton University Press, 1946).
  • 4. Ibid., p. 280.
  • 5. Ibid., pp. 281-82
  • 6. Ibid., p. 282
  • 7. Ibid.
  • 8. Ibid., p. 283.
  • 9. David Hume, “ Of the Jealousy of Trade ,” in David Hume, Writings on Economics, ed. Eugene Rotwein (Madison, WI: The University of Wisconsin Press, 1970), p. 82.
  • 10. Robbins, The Theory of Economic Policy, p. 10, fn. 5.
  • 11. Adam Smith, The Theory of Moral Sentiments (New Rochelle, NY: Arlington House, 1969), p. 337
  • 12. John R. McCulloch, The Principles of Political Economy, 5 th ed. (New York: Augustus M. Kelley, 1965), p. 92.
  • 13. Ibid., pp. 92-93.
  • 14. Henri Baudrillart quoted in Silberner, The Problem of War in Nineteenth Century Economic Thought, p. 111.
Categories: Current Affairs

Why Government Plans for Fixing Recessions Ultimately Fail

Sat, 14/09/2019 - 20:00

An essential element of the "unorthodox" doctrines, advanced both by all socialists and by all interventionists, is that the recurrence of depressions is a phenomenon inherent in the very operation, of the market economy. But while the socialists contend that only the substitution of socialism for capitalism can eradicate the evil, the interventionists ascribe to the government the power to correct the operation of the market economy in such a way as to bring about what they call "economic stability." These interventionists would be right if their antidepression plans were to aim at a radical abandonment of credit expansion policies. However, they reject this idea in advance. What they want is to expand credit more and more and to prevent depressions by the adoption of special "contracyclical" measures.

In the context of these plans the government appears as a deity that stands and works outside the orbit of human affairs, that is independent of the actions of its subjects, and has the power to interfere with these actions from without. It has at its disposal means and funds that are not provided by the people and can be freely used for whatever purposes the rulers are prepared to employ them for. What is needed to make the most beneficent use of this power is merely to follow the advice given by the experts.

The most advertised among these suggested remedies is contracyclical timing of public works and expenditure on public enterprises. The idea is not so new as its champions would have us believe. When depression came, in the past, public opinion always asked the government to embark upon public works in order to create jobs and to stop the drop in prices. But the problem is how to finance these public works. If the government taxes the citizens or borrows from them, it does not add anything to what the Keynesians call the aggregate amount of spending. It restricts the private citizen's power to consume or to invest to the same extent that it increases its own. If, however, the government resorts to the cherished inflationary methods of financing, it makes things worse, not better. It may thus delay for a short time the outbreak of the slump. But when the unavoidable payoff does come, the crisis is the heavier the longer the government has postponed it.

The interventionist experts are at a loss to grasp the real problems involved. As they see it, the main thing is "to plan public capital expenditure well in advance and to accumulate a shelf of fully worked out capital projects which can be put into operation at short notice." This, they say, "is the right policy and one which we recommend all countries should adopt."1 However, the problem is not to elaborate projects, but to provide the material means for their execution. The interventionists believe that this could be easily achieved by holding back government expenditure in the boom and increasing it when the depression comes.

Now, restriction of government expenditure may certainly be a good thing. But it does not provide the funds a government needs for a later expansion of its expenditure. An individual may conduct his affairs in this way. He may accumulate savings when his income is high and spend them later when his income drops. But it is different with a nation or all nations together. The treasury may hoard a considerable part of the lavish revenue from taxes which flows into the public exchequer as a result of the boom. As far and as long as it withholds these funds from circulation, its policy is really deflationary and contracyclical and may to this extent weaken the boom created by credit expansion. But when these funds are spent again, they alter the money relation and create a cash-induced tendency toward a drop in the monetary unit's purchasing power. By no means can these funds provide the capital goods required for the execution of the shelved public works.

The fundamental error of the interventionists consists in the fact that they ignore the shortage of capital goods. In their eyes the depression is merely caused by a mysterious lack of the people's propensity both to consume and to invest. While the only real problem is to produce more and to consume less in order to increase the stock of capital goods available, the interventionists want to increase both consumption and investment. They want the government to embark upon projects which are unprofitable precisely because the factors of production needed for their execution must be withdrawn from other lines of employment in which they would fulfill wants the satisfaction of which the consumers consider more urgent. They do not realize that such public works must considerably intensify the real evil, the shortage of capital goods.

One could, of course, think of another mode for the employment of the savings the government makes in the boom period. The treasury could invest its surplus in buying large stocks of all those materials which it will later, when the depression comes, need for the execution of the public works planned and of the consumers' goods which those occupied in these public works will ask for. But if the authorities were to act in this way, they would considerably intensify the boom, accelerate the outbreak of the crisis, and make its consequences more serious.2

All this talk about contracyclical government activities aims at one goal only, namely, to divert the public's attention from cognizance of the real cause of the cyclical fluctuations of business. All governments are firmly committed to the policy of low interest rates, credit expansion, and inflation. When the unavoidable aftermath of these short-term policies appears, they know only of one remedy — to go on in inflationary ventures.

[Human Action (1949)]

  • 1. Cf. League of Nations, Economic Stability in the Post-War World, Report of the Delegation on Economic Depressions, Pt. II (Geneva, 1945), p. 173.
  • 2. In dealing with the contracyclical policies the interventionists always refer to the alleged success of these policies in Sweden. It is true that public capital expenditure in Sweden was actually doubled between 1932 and 1939. But this was not the cause, but an effect, of Sweden's prosperity in the 1930s. This prosperity was entirely due to the rearmament of Germany. This Nazi policy increased the German demand for Swedish products on the one hand and restricted, on the other hand, German competition on the world market for those products which Sweden could supply. Thus Swedish exports increased from 1932 to 1938 (in thousands of tons) : iron ore from 2,219 to 12485; pig iron from 31,047 to 92,980; ferro-alloys from 15,453 to 28,605; other kinds of iron and steel from 134,237 to 256,146; machinery from 46,230 to 70,605. The number of unemployed applying for relief was 114,000 in 1932 and 165,000 in 1933. It dropped, as soon as German rearmament came into full swing, to 115,000 in 1934, to 62,000 in 1935, and was 16,000 in 1938. The author of this "miracle" was not Keynes, but Hitler.
Categories: Current Affairs

Recessions Can Theoretically Happen in a Free Market. But Central Banks Only Make Things Worse.

Sat, 14/09/2019 - 17:00

Given the nature of the modern global economic system, it is only natural to focus on the role of government-created money and central banks when discussing recessions and the ever-expanding credit structure. However, it is important to remember that theoretically, boom-bust cycles and other downturns are not impossible in a truly free market system. Although, the length, scale, and scope of such downturns are greatly expanded under a system of fiat credit expansion.

I’ll explain the mechanisms and effects of free market versions of various downturns and why they’ll still exist even in absence of credit expansion. In addition, I’ll explain how these events are muted in relation to similar events under the modern central banking structure.

Free Market Recessions

Imagine for a moment you’re living in a town that is a major lumber producer. Your town is a trade hub for logs for ship building and you also have a substantial manufacturing base creating high quality home furnishings. However, as ship building began moving toward aluminum and steel and people lost interest in wooden furniture, the town began to suffer. Since capital and labor can’t be instantly retooled, the town eventually went through hard times where, even with broad national economic prosperity, the area lagged in poverty and unemployment significantly.

This above scenario is not a hypothetical but what is happened in a place called Lumberton, N.C. The town and surrounding county was once a major hub for lumber for the marine industry and home of a number of furniture manufacturers. However, as the ship industry transitioned away from wood construction and people began to prefer IKEA over hand-built wooden furniture, the town’s fortunes declined. The city and surrounding county went into a lengthy period of depression where it experienced significantly higher unemployment rates than national averages and has experienced a population drop over the past decade. The town’s fortunes have since improved as the area has rebranded itself as a favored location for retirement, but it still, to this day, lags behind the nation.

The above scenario is a classic free market driven depression. Towns and cities that have built up an economy around a narrow business sector are at high risk of such recessions and depressions. Capital deterioration and obsolescence eventually causes the businesses of an area to become less competitive over time when compared to businesses elsewhere.

Over time, recessions can resolve themselves as entrepreneurs purchase the distressed assets at a discount and retool or rebuild in anticipation of future demand. However, this isn’t always the case. If an area is too specialized, such as the well-preserved ghost town of Saint Elmo, Colorado has proven, people will abandon the area if the geography is no longer conducive to habitation.

What Austrian-school economics identifies here, however, is that the above recessions tend to be amplified and exacerbated by government attempts to help. Stimulus efforts tend to be counter-productive since governments naturally attempt to prop up existing businesses and existing sectors. What this inevitably does is choke off the entrepreneur from the necessary land, labor and capital to form a more valuable business is tied up in a government-subsidized Zombie Company. It’s in the attempt to avoid the inevitable recession where the problem is lengthened.

Additionally, such a scenario is possible only if there’s a single dominant company or industry within a region. This is a common issue with small towns, but a diverse economy shouldn’t ever experience a large-scale disruption. A nation like Uzbekistan is at high risk of a free market recession since its economic output is dominated by gold mining, but a country like the United States, Japan or even Mexico should be entirely immune to large-scale recessions since no one sector has any economic dominance. Large scale recessions are evidence of public sector impositions on the economy, be it regulatory burdens or subsidies tying up resources in zombies.

Further, towns that have become unviable places to live, such as natural resource depletion, are exacerbated by government interference as residents that would otherwise have emigrated elsewhere, like the above Saint Elmo, are now given welfare subsidies that alter the calculation and convince people to stay. A good example of this welfare driven depression is in Issaquena County, Mississippi, which was once a river port until freight rail made the location obsolete and is now counting on welfare transfers as a major source of economic activity when they otherwise would have left seeking opportunity elsewhere.

Free Market Booms

A common misconception is that a boom-bust must always be sparked by credit expansion. However, this is not quite the case. While unstable credit expansion is the most common form to spark a boom, a boom is nothing more than investors confusing rising prices with sustained rising demand. Booms have been caused by an increase in a commodity-based money, such as in 17th century Spain with a large influx of gold from the Americas, to booms sparked by unstable fads.

For a fun example of a localized boom-bust, I turn to a fad in the early 1990s, POGs. At the time, I was a middle school student. A few entrepreneurial kids began marketing up the various images as rare or common and a brisk market took off. More of my peers began saving up their allowance money to buy up bags of the things to try and sell to classmates to take advantage of the growing fad. Soon, the lunch period generated a rather brisk trade.

However, since everyone wanted in on the profits, everyone started buying bags of these cardboard disks. Everyone became a seller and no one was interested in being the buyer. Predictably, the market cratered. A few kids tried to unload entire bagfuls of these things for a few Dollars and big losses but were eventually stuck with a product they didn’t want.

This POG craze was a classic Minsky Cycle. Yet, at no point in this was credit ever involved. No bank would hand a 12 year old kid a loan to buy bags of cardboard chips on expectation of turning them for a profit. This was a boom-bust financed purely by savings in a fairly strong example of a free market.

Where the fiat credit system causes problems, however, is it allows the boom to become significantly larger than it otherwise would have been. At the turn of the 21st century, housing was treated very much the same way as my middle school peers treated POGs. Buy with the expectation to flip to someone else for a profit in a short timeframe.

In a healthy, free market credit system, the boom would be muted since interest rates would increase as demand for funds to buy housing depleted the savings base. However, with a central bank in play, interest rates were continually suppressed artificially and new money and credit was created out of thin air, fueling the price increase. The longer the boom continued, the more it convinced less risk-averse investors to try their hand at flipping. Interest rate suppression continued to fuel ever increasing housing prices, pulling more and more people into the bubble, leading to a collapse more spectacular than a few middle school kids blowing a few weeks of allowance money. Had interest rates increased as demand for mortgages increased, people would have balked at 12% loans, causing the bubble to burst much earlier.

Of course, instead of learning our lesson, the government has gone right back to manipulating the housing market and prices are higher now than they were at the 2006 bubble peak.

Government Makes the Problem Worse

As noted above, the role of the government has in a recession or boom-bust cycle is not necessarily being the cause, though in our modern world it has a strong role in this, but does have the impact of making the problem significantly worse than it otherwise would have been. Government involvement can turn a recession, like the one that quickly resolved itself and was forgotten in 1920, to a full-on Great Depression, which didn’t truly resolve itself until after the Second World War.

But make no mistake, economies have downturns. What is in demand today and how we build things today is not going to be the same in the future and this will inevitably lead to a decline as an economy changes its capital structure. People and plants can’t be retrained and converted to satisfy the newest demand instantly. In a free market, the impact tends to be muted, especially in a region with significant economic diversity, but it’s a mistake to think downturns and the boom-bust is impossible in absence of government interference.

Categories: Current Affairs

Not all PIIGS are Created Equal: A Comparison of Portugal and Ireland

Sat, 14/09/2019 - 12:15

The eurozone crisis was highlighted by five countries: Portugal, Ireland, Italy, Spain, and Greece. These peripheral nations were deemed to be the culprits behind the eurozone crisis due to their overspending. Namely, they had caused excessive deficits, coupled with large debt levels. They were dubbed by the media as the “PIIGS”

However, putting all five of these countries in the same basket obscures the real culprits behind the eurozone crisis. There was group 1, Ireland and Spain, which were countries without major fiscal irresponsibility issues, however, whose debt levels ballooned as a result of bailouts and the crisis. On the other hand, there was group 2, Italy, Portugal, and Greece. These countries have had big government spending policies dating back to the 1960s and as such could not have been expected to shift around due to EU restrictions on deficit and debt levels, when the political sentiment in the countries was not in favor of free markets. Putting all five countries in the same basket obscures the question of who really had irresponsible fiscal policies.

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Table: Index of economic freedom ranking

Portugal

Portugal suffered from a burdening welfare state, coupled with an economy that was based on government intervention. In 1962, the Social Welfare Reform was undertaken, creating a unified social welfare scheme. This reform exacerbated social spending, which reached 4% of GDP in 1969. At the time this seemed a non-negligible increase, however, the increase was even greater from 1969 to 1974. The increase during this five-year period was mainly due to additional coverage being provided to hitherto unprotected groups, as well as providing benefits such as pension and family allowance. As a result of all of these new people that were taken under the government’s umbrella, between 1971 and 1974 social expenditures rose at a rate of around 36% per year. Around 64% of this increase represented a rise in spending on pensions. Even with all of these new trends and the overall expansion, prior to the 1974 revolution, social expenditures as a percentage of GDP in Portugal never exceeded 6%. However, things began to change following the fall of the Estado Novo regime. Social expenditures surpassed 10% in the decade of the 1980s and by 1995 it was at around 15%. It finally climbed above 20% after the new millennium.

The rise in social expenditures is not to indicate that times before the revolution were better. Portugal’s dictator António de Oliveira Salazar was a fascist dictator who ruled the country for decades with an authoritarian regime. Salazar’s Estado Novo regime was based on a corporatist economic system which intended to replace individual competition by collaboration of the most important social groups of the production process. With the fall of Estado Novo in 1974, the revolutionaries were faced with a myriad of state-directed companies, ruled by close friends of the dictator and the business elite. However, instead of opening up the economy and allowing firms from abroad to enter the market and dismantle inefficiencies in the market place, the revolutionaries nationalized companies in key industries. In addition, in the 1976 constitution, the preamble affirmed the need to open a path toward a socialist society. Laws were passed which made firing full-time employees arduous, people were given “rights” to work, housing, education, culture, health and a myriad of other things. These “rights” usually translate into higher spending and taxes. Before the revolution, Portugal spent 20% of GDP on basic necessities such as military expenditures and the judiciary, however that number increased to 46% after the revolution. In addition, Portugal has achieved a fiscal deficit every single year since the revolution of 1974.

These uncompetitive policies left an economic impact on Portugal, whose GDP per capita was 66% of the European average in the years after the revolution of 1974, however, this number soon fell to 60% in 2000. Changes to the constitution were made during the 1980s to foster privatization and its accession in the EU also brought welcoming changes, however, its economy was fundamentally flawed as it was a huge welfare state built on shaky, government-sponsored ground.

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Figure: Social expenditure as a % of GDP in Portugal

Ireland

Ireland is perhaps the most liberal economy of all of the peripheral countries and among the freest overall in the EU. Because of this, it is at first difficult to see why it is in the same category as the other four countries, whose economies were not as liberal. Ireland's economy was, to an extent, too competitive. It had the lowest corporate tax rate in the eurozone at the time at 12.5%, which attracted many banks to come to the island. In addition, these banks had access to cheap credit due to the low interest rates as well as the implicit backing of the euro by the political community. This essentially meant that banks could lend great amounts, knowing that the government will bail them out. Therefore, it is quite difficult to talk of Ireland in the same light as with all other countries. Although Ireland surely must have had certain policies that were not ideal in a laissez-faire economy, but the overall economy was resting on a fairly sound basis. Namely, there was government intervention in the housing sector through various tax breaks which fueled the property bubble. By giving out tax breaks for only one certain good, this distorts the market by making other investments, which would have been more profitable otherwise, look more expensive. However, even this, is miniscule as tax breaks for housing exist almost everywhere.

The euro played a huge part in the Irish bubble. The yearly growth in the money supply jumped, from a negative 6.7% in 2003 to 22% in 2006. Its main policy rate was around 13% before the introduction of the euro in the late 1990s, whereas the main refinancing rate of the ECB was as low as 2% in 2003. The growth of Irish banking assets jumped from 7.4% in 2002 to 31% in 2005. Total gross government debt as a percentage of GDP was 38.7% at the start of the millennium, steadily reducing to a low of 27.7% in 2007. Therefore, it is evident that government fiscal policy was not the issue here, it only became an issue after the crash. Total gross government debt as a percentage of GDP almost doubled in 2008 to 47.5% and by the end of the decade it was 83.5%. Total gross government debt only rose when Ireland decided to bail out its banking system.

Conclusion

As evident, the label “PIIGS” obscures the whole picture of the culprits behind the eurozone crisis. Furthermore, the macroeconomic dichotomy between Portugal and Ireland (and many other eurozone countries) brings into question the entire design of the euro. Without the euro, the problems of Portugal would have been restricted to Portugal — the same with Greece and Italy. A case could potentially be made for a common currency area with countries of similar development levels and history, however, to combine a country that rests on big government spending with one that rests on laissez-faire is shere suicide. It creates a situation where the central bank appeases to lesser-developed countries and allows their irresponsible behavior to be borne by those that were following the rules.

Categories: Current Affairs

Look to China to Learn About America

Sat, 14/09/2019 - 12:00

Given that the American people have been inculcated with the notion that they are a free people who live under limited government, whatever the federal government does is considered part and parcel of a free society. Sometimes it’s helpful to examine what totalitarian regimes do in order to bring a sense of reality to Americans.

Most every American would agree that China is not a free society. It is ruled by a brutal unelected communist totalitarian regime that will suppress any dissent that is considered to be potential threat to the regime’s monopoly control over the political process. So, we can safely use China as a model for a tyrannical regime.

A few weeks ago, 28-year-old Simon Cheng, a Chinese citizen from Hong Kong crossed the border and entered mainland China, where he was arrested. The Chinese authorities apparently suspect him of involvement in the recent protests that have occurred in Hong Kong. No one has heard from him since. He has disappeared into the bowels of China’s communist criminal justice system.

According to a New York Times article about the incident, “Under Chinese law, suspects held for administration detention can be held for up to 15 days without court hearings or access to lawyers.” Regardless of what the law technically says, however, the Chinese authorities can and do hold suspects for much longer periods of time, sometimes indefinitely. The reason is there is no independent judiciary to require them to release a person. The Chinese judiciary is subservient to the ruling regime and defers to its authority.

Moreover, the regime can and does torture prisoners. Again, there is nothing anyone can do to prevent this. The torture is oftentimes so brutal that some independent minded, courageous individuals who were were protesting come out of the prison process as broken people, ones whose minds have been fixed through brutal and tortuous reeducation.

Before the 9/11 attacks, that sort of thing could not happen here in the United States, at least not legally. If the government arrested someone, it was required to file formal written charges (e.g., an indictment) that would notify the person of what he was being charged with. He also would be entitled to a jury trial instead of judge trial or a tribunal trial. He had the right to an attorney to represent him. He also had a right to an independent judge. And no cruel and unusual punishments, such as torture. That’s all because our American ancestors had the wisdom to guarantee such rights in the Bill of Rights.

What if U.S. officials did to someone what the Chinese government has done to Simon Cheng. In that event, the Constitution enables him to file a petition for writ of habeas corpus, a right that stretches back several centuries in English history and which actually is a lynchpin of a free society. An independent federal judge orders the government to bring the person to court and show cause why he should not be released. At the habeas hearing, the judge orders the government to charge the person with a crime or release him. No indefinite detention, like there is China. And of course no torture.

All that came to an end with the 9/11 attacks. At that point, the national-security branch of the federal government adopted many of the same powers as the Chinese communist regime, and without any amendment to the Constitution. The military and the CIA, two of the principal elements of the national-security state, now wield the power to take anyone, including both Americans and foreigners, into military or CIA custody by simply labeling them a “terrorist,” hold them as long as they want in a military dungeon or secret CIA prison camp, torture them, and even assassinate them. While Americans still have the right to file a petition for habeas corpus, federal judges will customarily defer to the Pentagon and the CIA on their determination that a person poses a threat to “national security.”

This is what all too many Americans still don’t realize — that U.S. officials used the 9/11 attacks to destroy the freedom of the American people by adopting the same type of totalitarian powers that are wielded by the Chinese communist regime and other totalitarian regimes.

Want another example? As those of you who have been reading my articles for some time know, I have continually emphasized that America’s system of immigration controls has brought into existence a police state in the American Southwest. As part of this system, federal officials have been requiring American citizens to turn over cellphones and disclose their passwords so that officials can retrieve all of the information on the cellphone and make a copy of it. No warrant. No probable cause or even reasonable suspicion that a crime has been committed. Just raw omnipotent power to search the cellphone and, for that matter, the American citizen himself, including body cavities.

Now consider this excerpt from the NYT article:

Chinese border officers have stepped up checks on people crossing the border from Hong Kong. They have begun routinely searching the phones of people who enter the mainland from Hong Kong, apparently to identify people sympathetic to the protest movement and to prevent photographs or other information about the demonstrations from spreading to the mainland.

This is what all too many Americans simply will not permit themselves to consider: that the conversion of the federal government from a limited-government republic to a national-security state ended up destroying their liberty and their privacy. Oh sure, Americans can easily recognize tyranny abroad but they just are unable to recognize it at home. At home, they see the tyranny as “freedom” and, even worse, express gratitude for it. Unfortunately, all too many Americans reflect the words of Johann Goethe: None are more hopelessly enslaved than those who falsely believe they are free.

Originally published by the Future of Freedom Foundation.

Categories: Current Affairs

Power over Nature vs. Power over Man

Fri, 13/09/2019 - 20:00

[From Power and Market.]

It is quite common and even fashionable to discuss market phenomena in terms of “power”—that is, in terms appropriate only to the battlefield. We have seen the fallacy of the “back-to-the-jungle” criticism of the market and we have seen how the fallacious “economic-power” concept has been applied to the exchange economy. Political-power terminology, in fact, often dominates discussions of the market: peaceful businessmen are “economic royalists,” “economic feudalists,” or “robber barons.” Business is called a “system of power,” and firms are “private governments,” and, if they are very large, even “empires.” Less luridly, men have “bargaining power,” and business firms engage in “strategies” and “rivalry” as in military battles. Recently, theories of “games” and strategy have been erroneously applied to market activity, even to the absurd extent of comparing market exchange with a “zero-sum game”—an interrelation in which A's loss is precisely equal to B's gain.

This, of course, is the action of coercive power, of conquest and robbery. There, one man's gain is another man's loss; one man's victory, another's defeat. Only conflict can describe these social relations. But the opposite is true on the free market, where everyone is a “victor” and everyone gains from social relations. The language and concepts of political power are singularly inappropriate in the free-market society.

The fundamental confusion here is the failure to distinguish between two very different concepts: power over nature and power over man.

It is easy to see that an individual's power is his ability to control his environment in order to satisfy his wants. A man with an ax has the power to chop down a tree; a man with a factory has the power, along with other complementary factors, to produce capital goods. A man with a gun has the power to force an unarmed man to do his bidding, provided that the unarmed man chooses not to resist or not to accept death at gunpoint. It should be clear that there is a basic distinction between the two types of power. Power over nature is the sort of power on which civilization must be built; the record of man's history is the record of the advance or attempted advance of that power. Power over men, on the other hand, does not raise the general standard of living or promote the satisfactions of all, as does power over nature. By its very essence, only some men in society can wield power over men. Where power over man exists, some must be the powerful, and others must be objects of power. But every man can and does achieve power over nature.

In fact, if we look at the basic condition of man as he enters the world, it is obvious that the only way to preserve his life and advance himself is to conquer nature—to transform the face of the earth to satisfy his wants. From the point of view of all the members of the human race, it is obvious that only such a conquest is productive and life-sustaining. Power of one man over another cannot contribute to the advance of mankind; it can only bring about a society in which plunder has replaced production, hegemony has supplanted contract, violence and conflict have taken the place of the peaceful order and harmony of the market. Power of one man over another is parasitic rather than creative, for it means that the nature conquerors are subjected to the dictation of those who conquer their fellowman instead. Any society of force—whether ruled by criminal bands or by an organized State—fundamentally means the rule of the jungle, or economic chaos. Furthermore, it would be a jungle, a struggle in the sense of the Social Darwinists, in which the survivors would not really be the “fittest,” for the “fitness” of the victors would consist solely in their ability to prey on producers. They would not be the ones best fitted for advancing the human species: these are the producers, the conquerors of nature.

The libertarian doctrine, then, advocates the maximization of man's power over nature and the eradication of the power of man over man. Statists, in elevating the latter power, often fail to realize that in their system man's power over nature would wither and become negligible.

Albert Jay Nock was aiming at this dichotomy when, in Our Enemy the State, he distinguished between social power and State power. Those who properly balk at any terms that seem to anthropomorphize “society” were wary of accepting this terminology. But actually this distinction is a very important one. Nock's “social power” is society's—mankind's—conquest of nature: the power that has helped to produce the abundance that man has been able to wrest from the earth. His “State power” is political power—the use of the political means as against the “economic means” to wealth. State power is the power of man over man—the wielding of coercive violence by one group over another.

Nock used these categories to analyze historical events in brilliant fashion. He saw the history of mankind as a race between social power and State power. Always man—led by the producers—has tried to advance the conquest of his natural environment. And always men—other men—have tried to extend political power in order to seize the fruits of this conquest over nature. History can then be interpreted as a race between social power and State power. In the more abundant periods, e.g., after the Industrial Revolution, social power takes a large spurt ahead of political power, which has not yet had a chance to catch up. The stagnant periods are those in which State power has at last come to extend its control over the newer areas of social power. State power and social power are antithetical, and the former subsists by draining the latter. Clearly, the concepts advanced here—”power over nature” and “power over man”— are generalizations and clarifications of Nock's categories.

One problem may appear puzzling: What is the nature of “purchasing power” on the market? Is this not power over man and yet “social” and on the free market? However, this contradiction is only apparent. Money has “purchasing power” only because other men are willing to accept it in exchange for goods, i.e., because they are eager to exchange. The power to exchange rests—on both sides of the exchange—on production, and this is precisely the conquest of nature that we have been discussing. In fact, it is the exchange process—the division of labor—that permits man's power over nature to extend beyond the primitive level. It was power over nature that the Ford Motor Company had developed in such abundance, and it was this power that the angry job seeker was threatening to seize—by political power—while complaining about Ford's “economic power.”

In sum, political-power terminology should be applied only to those employing violence. The only “private governments” are those people and organizations aggressing against persons and property that are not part of the official State dominating certain territory. These “private States,” or private governments, may either co-operate with the official State, as did the governments of the guilds in the Middle Ages, and as labor unions and cartelists do today, or they may compete with the official State and be designated as “criminals” or “bandits."

Categories: Current Affairs

There's Nothing Natural About Socialism

Fri, 13/09/2019 - 17:00

The socialist idea has many forms and flavors; however, one can observe three main paths toward socialism. They are the socialization of the means of production, wealth redistribution, and collectivization of consciousness. Different socialist movements use these three approaches to varying degrees.

Orthodox Marxists and Marxist-Leninists consider outright expropriation of private property as the primary way toward a socialist society. Italian Fascists and German National Socialists allowed de jure private property, but established de facto  total control over all spheres of economic activities. The subjugation of the individual to the collective, which is collectivization of consciousness, and wealth redistribution were their preferred paths toward socialism. In all of these cases, though, we find totalitarianism is a common denominator, and the most odious regimes of the 20th century utilized collectivization of consciousness to the fullest degree.

"Evolutionary" Socialists

Social democracy, or democratic socialism, as it has become known in the US, chose a middle path. Evolutionary socialists have not explicitly called for the expropriation of private property, nor they have advocated for the establishment of a totalitarian state. On the contrary, they have been supporting democratic institutions and private enterprises, especially while being in opposition. Their modus operandi is to gradually undermine capitalism from within and portray this process as a natural development of human society.

The world wars played a crucial role in establishing social democracy as the main force of the left in post-industrialized countries. Thus, fascism, national socialism, and communism had discredited themselves in the eyes of the majority of people. The former two were burned in the flames of WWII; the latter was suffocated during the Cold War. Thus, left had a clear winner: social democracy. Anarchists, syndicalists, and the residue of Marxists and fascists had not played a significant role in the political life of Europe and North America. Instead, they acted the part of a scarecrow which reminded everyone: “better me (mild socialism) than them.”

Morality and Equality

The philosophical basis of social democracy is the Kantian concept of the self-integrity of the human person from which — they claim — follows ethical justification for socialism. Democratic socialists call for economic equality as a moral principle and seek to gain it through the mechanism of wealth redistribution. Numerous social programs are fueled by wealth redistribution that society ought to support according to the highest moral standards. As soon as a new social-oriented idea finds its way into the law of the land, the next generation of people will consider it as a given and will not even suspect that it was possible to live without those rules. Moreover, it will become almost impossible to roll back some socialist-style laws. For example, the idea of the abolishing of the Social Security Act would be considered absurd by many.

The socialist doctrine based on superior morality has steadily penetrated governments, academia, media, and international institutions over the years. Socialism was being injected in small doses by invoking ethical arguments of the highest degree for the benefit of some groups or individuals or human society as a whole. The key to the success of evolutionary socialism has been its gradualism and steadiness. It has helped to mask socialist transformations as continuous improvements to human society due to the acceptance of ever-higher moral qualities and the defense of noble causes. For example, the contemporary left utilizes a desire to “save the planet" as a pretext to inject even more socialism into the body of free societies.

It's Not a Natural Evolution

The 20th century was the century of spending. All developed countries exhibited a steady growth of social spending from virtually zero at the end of the 19th century up to a maximum of almost 32% GDP, as was the case in France, illustrated in Pic. 1.

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Pic. 1. Public social spending in OECD countries (% GDP)

The international bureaucracy, in reviewing the picture, sees a trend of "progress," the positive changes in society, and the only rational way of human development. However, proponents of economic libertarianism see, as the poet said, “the other side of the rainbow”: the gradual assault on capitalism and the injection of socialism which are camouflaged as actual evolutionary progress. So far, socialists have managed to falsely persuade people that a socialist transformation is a natural form of human evolution.

But it is not. On the contrary, democratic socialism requires constantly intervening in the free choices of human beings in the marketplace.

Nonetheless, the notion of wealth redistribution is the central tenet of democratic socialism, so these socialists become more concerned about the centrally-planned redistribution of wealth rather than the production of wealth. And this illustrates the main difference between free economies and socialist-planned economies. Socialists want to redistribute wealth in a manner fitting to government planners. But advocates of free choices seek to allow free individuals to distribute resources through the marketplace — where wealth is built in proportion to how much one serves others.  The democratic socialists are committed to breaking that naturally-occurring and proportional system through wealth redistribution which is in essence a latent and continuous expropriation of private property.

Consequently, democratic socialism is dangerous like other flavors of socialism and does not constitute a natural development of human society. On the contrary, it is an artificial construct that leads nations into an evolutionary dead end. All countries that practiced socialism of various flavors have never achieved economic equality but rather a sameness in their misery. The history of ex-Soviet republics shows that the only way out of poverty and moral decadence is embracing capitalism again.

Categories: Current Affairs

Why They Keep Trying to Blame Capitalists for Slavery

Fri, 13/09/2019 - 15:15

The resurgent claim that the modern economy was built on slavery is yet another attempt to attack capitalism while also claiming "we are all to blame" for slavery. The slave owners of old tried a very similar tactic.

Original Article: Why They Keep Trying to Blame Capitalists for Slavery.

Categories: Current Affairs

De-Dollarization: Europe Joins the Party

Fri, 13/09/2019 - 12:00

The ongoing “World War of Currencies”, as the German journalist Daniel D. Eckert called it, the battle for the future of the world monetary system is not a shallow action film but more like Game of Thrones – a complex series with hundreds of actors and locations, stretching over decades and demanding full concentration from the viewer.

The bottom line is that what has been true for decades still applies. The US dollar continues to enjoy the confidence of markets, governments, and central banks. But faith in the US dollar weakens a little every year. Europe, China, Russia and many small countries set new initiatives every year to make themselves independent. And gold, too, plays a major role in this slow departure from the US dollar. But for the world financial system, none of their currencies offer a viable, fully-fledged alternative to the US dollar yet, which is why any news of the death of the US dollar is definitely exaggerated.

Europe’s Small Uprising

Since the Greek crisis of 2012, the American media have often given the impression that the EU and the euro have already broken up or are about to break up. This is not the case. Twenty years after its creation in 1999, the euro area is larger than ever. Of course, nothing is perfect in the EU. The debt problems of the southern states have hardly improved. The structure of the euro zone itself is also often criticized and described as being in need of renovation.

Against this backdrop, the celebrations to mark the 20th anniversary of the euro were not particularly large and pompous. But there was a lot of talking going on. In his “State of the Union” speech in September 2018, EU Commission President Jean-Claude Juncker called for a stronger role for the euro in the international monetary system – and he did bring facts: “[The euro] is now the second most used currency in the world with 60 countries linking their currencies to the euro in one way or another. But we must do more to allow our single currency to play its full role on the international scene.”1

The euro currently accounts for around 20% of global currency reserves. This amount exceeds the euro zone’s share of global economic output. Around 36% of global payments are already made in the euro. The US dollar is at 40%. The EU imports oil and gas worth around EUR 300bn annually. But 80% of these are still invoiced in US dollars today. In view of the fact that only 2% of energy imports come from the USA, Juncker commented: “It is also absurd that European companies buy European planes in dollars instead of euros."2 Despite all the economic, political and structural problems within the euro area, this is a statement full of self-confidence.

The US Dollar as a Weapon

Why Europe, China, and Russia are speeding up the process of de-dollarization can be understood only if the significance of the Iran deal is properly understood. Iran is, above all, a case study in what Washington can do to you if you expose yourself to the US dollar for better or for worse.

Tehran would not, of course, be considered particularly US-friendly. But in order to participate in international trade, the Iranians had to rely on the US dollar and the SWIFT system, which handles international payments. SWIFT belongs to an international banking consortium and is even based in Belgium – within the EU. Nevertheless, the USA was able to build up enough pressure to exclude Iran from SWIFT. That’s what the governor of the Oesterreichische Nationalbank (OeNB), Ewald Nowotny, means when he says: “The United States is massively using the dollar as a weapon. […] And with every transaction in dollars one is obliged to follow the American sanctions against Iran, for example. Even if the USA is not directly involved in a trade. For example, when it comes to oil exports to a European country.3

With the Joint Comprehensive Plan of Action (JCPOA) signed this phase was believed to be over. But Donald Trump withdrew from JCPOA in May 2018. What’s more, he has managed to get SWIFT to expel Iran again. That was a shock to the other signers of the deal. Suddenly the EU took action. For the first time since the introduction of the euro, the idea of a separate payment agency was put forward. INSTEX is this agency. The abbreviation stands for “Instrument in Support of Trade Exchanges”. The fact that China and Russia have promised INSTEX support should come as no surprise.4

Central Banks Turn to Gold

For a long time, the gold purchases of the international central banks were rarely an issue for the mainstream media. But when it became known at the beginning of this year that the central banks had recently bought more gold in 2018 than they had since 1971, that revelation was worth some headlines. In 2018 alone they bought 651 tonnes of gold. This figure corresponds to an increase of 74% over the previous year.5 Analysts of the World Gold Council expect purchases of around 750 tonnes again this year.

Gold holdings of central banks, in tonnes, Q4/2000-Q4/2018

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Source: World Gold Council, Incrementum AG

But the numbers alone only tell half the story. You also have to ask yourself why the central banks are such hard-working gold buyers.

The answer is de-dollarization. Gold, which many central banks now include in their balance sheets at market value,6 offers an alternative. It is indeed the only truly neutral asset available to governments and central banks. Around a third of the world’s gold holdings are held in the vaults of central banks. Nobody describes the banks’ rationale better than DNB, the central bank of the Netherlands: “Shares, bonds and other securities are not without risk, and prices can go down. But a bar of gold retains its value, even in times of crisis. […] Gold is the perfect piggy bank – it’s the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.”7

Conclusion

There is one thing one should not forget. The US still hasn’t lost the confidence of the markets despite all the actions of Donald Trump. The US dollar markets are still by far the largest and most important in the world.

Only the next major crisis will show whether the euro, the yuan, or gold will really be able to do any harm to the leading currency status of the US dollar – or whether the US dollar still has enough life left in it to prevail. Until then, the creeping loss of confidence in the dominant currency of the past seven decades is likely to continue.

Categories: Current Affairs

"Libertarian" Is Just Another Word for (Classical) Liberal

Thu, 12/09/2019 - 23:30

Virtually all laws involve "legislating morality." When people use this phrase they often really just mean "I want laws to back my version of morality, not yours."

Original Article: "Libertarian" Is Just Another Word for (Classical) Liberal.

Categories: Current Affairs

Unsound Money, Unsound Economy

Thu, 12/09/2019 - 17:00

Most people who have undertaken a formal study of economics end up accepting such things as the necessity of a central bank to prevent or at least ameliorate recessions. They take as a given the need for government intervention in the economy, or if not as a given, as explained by countless historical incidents of injustice. Perhaps most of all, they regard anyone calling for an unregulated gold coin standard as so hopelessly backward and naïve that refutation seldom goes further than rolling one’s eyes.

[RELATED: "The Fed: Reality Trumps Rhetoric" by Shawn Ritenour]

Everyone “knows” the gold standard fostered those nineteenth-century panics, which high-minded bankers finally addressed by creating the federal reserve system in 1913. Under the federal reserve, the government was able to create enough debt to send our boys into the bloodbath known as World War I to die (116,708) and suffer in horrendous numbers. With the federal reserve engaged in money printing, including Fed chief Benjamin Strong's famous "coup de whiskey" in 1927, stocks soared stupendously from 1922–1929, until they didn't. Following the crash, the very thing the Fed was supposed to prevent, it attempted to inflate us out of the Depression that followed but, as the story goes, was hamstrung in part by the barbarous relic, gold. For this reason President Roosevelt, almost immediately after being elected in 1933, ordered Americans to turn in their gold under threat of fine and imprisonment.

Voila! We then had the Depression and we had no sound money.

And what has happened since? In a speech before The Economic Club of New York on December 19, 2002, Fed Chairman Alan Greenspan told his audience:

Although the gold standard could hardly be portrayed as having produced a period of price tranquility, it was the case that the price level in 1929 was not much different, on net, from what it had been in 1800. But, in the two decades following the abandonment of the gold standard in 1933, the consumer price index in the United States nearly doubled. And, in the four decades after that, prices quintupled. Monetary policy, unleashed from the constraint of domestic gold convertibility, had allowed a persistent overissuance of money. As recently as a decade ago, central bankers, having witnessed more than a half-century of chronic inflation, appeared to confirm that a fiat currency was inherently subject to excess.

But, he went on to say, central bankers are learning to treat the money they print as if it had the restraints of gold, or in his words “a prudent monetary policy … can contain the forces of inflation.” This was in 2002, before the economy blew up in 2007–2008 because of Fed money printing.

The Bernanke solution to the crisis, as the world witnessed, was even more aggressive money printing, creating staggering levels of debt and moral hazard, so that today financial pundits are predicting another crisis, likely worse than the last.

But some economists rejected the perceived need for government intervention in the economy. Specifically, the Austrian-school economists maintain that interventions not only fail but are almost always used to justify further interventions to fix the previous failures. (See Mises's Planned Chaos for a discussion of interventionism.) This continues at enormous cost and suffering until we find ourselves in the mess we are in today, where Democratic candidates in 2019 openly call for socialism to fix the failures of the free market they have spent decades destroying, along with their partners-in-crime, the Republicans.

Where can someone get a straight story on the item that is involved in virtually every economic transaction — money — and how its corruption has led to economic misery and injustice?

One excellent source is Joseph Salerno’s book Money, Sound and Unsound. As Salerno writes in the Introduction:

[T]he new millennium dawned with the Austrian sound money paradigm thriving — but still ignored by the mainstream. The bursting of the housing bubble and the meltdown of financial markets changed all this. A small number of economists and participants in financial markets forecast these events using the Austrian theory of the business cycle, which gives the only coherent explanation of booms, bubbles, and depressions. Word spread quickly through the banking and financial sector and among the general public via the Internet. Soon several high-profile financial pundits and other members of the official media were publicly recognizing and embracing the Austrian analysis. Even a few mainstream financial economists were stimulated to give it a sympathetic hearing.

Prominent (and not-so-prominent) mainstream economists were nonplussed, if not alarmed, by this spreading challenge to their authority and attempted to respond to it by engaging Austrian business cycle theory on blogs and in popular periodicals. But these attempts were little more than hysterical diatribes based on a very inadequate knowledge of the literature and a profound misconception of the nature and claims of the theory. In the meantime, the doctrine of sound money, with Austrian monetary and business cycle theory at its core, has continued to flourish and grow and has emerged as the main challenger to the collapsing Keynesian spending paradigm.

What would monetary policy look like under a gold coin standard? Would Austrians serve on the FOMC to impart their SWAGs? Would they concoct mathematical magic to unswervingly aim for the natural rate of interest? For the answers, Salerno quotes Milton Friedman:

If a domestic money consists of a commodity, a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself.

How about that? Under a true gold standard, monetary policymakers would join the unemployed.

The remainder of his book explains why only a sound money is compatible with sustainable prosperity, individual freedom, and world peace.

I highly recommend it.

Categories: Current Affairs

"Libertarian" Is Just Another Word for (Classical) Liberal

Thu, 12/09/2019 - 16:45

The term "liberalism" is a victim of what historian Ralph Raico has called "conceptual mayhem."

From its original use to describe the ideology of private property and freedom for individuals, the term eventually came to describe ideologies of an entirely different sort. By the mid-twentieth century, "liberal" was being used to describe a wide variety of social democrats and other supporters of government-managed and government-planned economies.

According to Raico, liberalism properly understood is:

The ideology that holds civil society — understood as society minus the state — by and large runs itself within the bounds of the principle of private property.

"Society minus the state," of course, is no simple matter. It is a complex array of civil, religious, social, familial, and market institutions. And according to the liberals, these institutions, if organized according to principles respectful of the principle of private property, could function, mostly in a state of cooperative peace.

In this view, however, the state is an institution separate from the others because it relies on coercion and taxation, unlike the voluntary institutions that otherwise comprise society.

The political economy of these liberals therefore then came to reflect a skepticism toward the state, and a preference for a society dominated by non-state institutions like markets, families, and churches. Liberals sought to minimize state power, and to devise political institutions that might limit its abuse.

Historically speaking, this view of liberalism well describes the theorists commonly regarded as liberals throughout the eighteenth and nineteenth century, and even into the twentieth.

Liberal theorists such as Lord Acton, Gustave de Molinari, Frédéric Bastiat, Herbert Spencer, Benjamin Constant, Richard Cobden, Ludwig von Mises, F.A. Hayek, Adam Smith, and the Marquis de Condorcet, among others all certainly fall within this general description of liberals.

Certainly, these theorists often diverged as to the extent of their radicalism. But the fact that these theorists varied in their radicalism only shows the broad historical, geographical, and intellectual breadth of liberalism as it gained influence throughout much of western Europe and the Americas.

But there were limits. Removed from the core commitment to private property and economic freedom, liberalism ceases to be liberalism. For example, in later times, Raico notes, the term "liberalism" suffered as historians attempted to place more and more theorists of widely diverse views under its banner; theorists such as John Rawls, Karl Popper, John Maynard Keynes, and John Stuart Mill.

But, if theorists such as these are liberals to be placed alongside men like Molinari, then the term "liberalism" ceases to have any useful meaning.

Much of the confusion stems from the fact that historians have often attempted to classify liberals based on their views in regard to subjects outside matters of political economy. It's true ersatz liberals like Mill and Keynes were in favor of freedom when the idea fostered personal expression through certain religious or sexual practices. But Mill and Keynes were notably less liberal when it came to larger issues of taxation, trade, war, and labor issues. Similarly, historians have tried to classify liberalism based on criteria divorced from economic and personal freedom altogether. Instead they grant the title of liberal to those who maintain certain views about the meaning of life or utilitarian ethics. The result was often a defintion of "liberal" that had nothing to do with the private-property-oriented political economy that had dominated liberalism from the beginning.

In other words, it may be easy to make the case that, say, both liberal historian Augustin Thierry and social democrat John Maynard Keynes were skeptical of the idea of organized religion. To conclude that both were therefore necessarily liberals, however, requires one to ignore the prevalence of private property in the views of influential liberals such as Bastiat and Cobden throughout the nineteenth century and beyond.

After all, if a liberal is defined primarily by hostility to traditional Christianity, then how to classify a practicing Catholic and liberal such as Lord Acton? One strategy used has been to arbitrarily re-classify men like Acton as conservatives. Another strategy has been to simply re-define the pro-private property position itself as "conservative," as Raico noted in one especially egregious case:

Helio Jaguaribe, evidently a star of Brazilian political science, describes Hayek, Milton Friedman, and Ludwig von Mises ... as “extremely conservative.” David Spitz likewise refers to the three thinkers as “conservatives,” though what he could understand of their views is unclear, considering  that he believes that Herbert Spencer was their “patron saint.”1

The punchline here is that by virtually any measure, Herbert Spencer was so un-conservative that the suggestion he was was the chief intellectual influence on supposedly "extremely conservative" theorists like Mises and Hayek renders the claim rather absurd.

Te Relationship Between Libertarianism and Liberalism

However, if we do use the principle of private property as a central tenet of liberalism, as Raico sugests, then we do find a quite plausible foundation for classifying liberals properly.

Not surprisingly, then, Raico regards what we now call "libertarianism" to be nothing other than liberalism. Mark Thornton recalls an exchange with Raico on the matter:

Ralph stepped forward and began to explain ... that the word libertarian was relatively new. He said that the term classical liberalism was also used to describe libertarianism. However, he explained, the phrase classical liberalism was also a modern invention. And then he went on to explain why we should be using the word liberalism to describe the true philosophy of individualism.

For Raico, there was no clear distinction between liberalism and libertarianism. Nor does the fact libertarianism might denote a rather more radical strain of liberalism make it somehow non-liberal. After all, by today's standards, the thinking of Herbert Spencer and Gustave de Molinari were all quite radical. Yet few dispute both were liberals.

Some historians have attempted to differentiate libertarians from liberals based on minor policy differences, but even these attempts often fail. Raico notes, for example:

Grappling with this issue causes even as accomplished a historian of ideas as Alan Ryan [author of The Making of Modern Liberalism] to flounder. Ryan concedes a place to Hayek within the category of contemporary liberals, but denies that libertarianism can be a variety of liberalism on the grounds that even classical liberals did not favor decriminalizing victimless crimes. But not only is this libertarian position clearly implied by, for example, Herbert Spencer’s Law of Equal Freedom; it is also the stated view of Ludwig von Mises.2

For his part, Murray Rothbard considered libertarianism to be merely a variety of liberalism, and that the history of this ideology extended back at least to the seventeenth century. In For a New Liberty, he writes:

The object of the classical liberals was to bring about individual liberty in all of its interrelated aspects. In the economy, taxes were to be drastically reduced, controls and regulations eliminated, and human energy, enterprise, and markets set free to create and produce in exchanges that would benefit everyone and the mass of consumers.

The earliest theoreticians of libertarian classical liberalism were the Levelers during the English Revolution and the philosopher John Locke in the late seventeenth century, followed by the "True Whig" or radical libertarian opposition to the "Whig Settlement" — the regime of eighteenth-century Britain.

Moreover, Rothbard considered the American Revolution to be a thoroughly libertarian revolution, and an outgrowth of earlier liberal political and intellectual movements. As with liberalism in general, at the center of the conflict was the matter of private property:

[T]here need be no dichotomy between liberty and property, between defense of the rights of property in one's person and in one's material possessions. Defense of rights is logically unitary in all spheres of action. And what is more, the American revolutionaries certainly acted on these very assumptions, as revealed by their essential adherence to libertarian thought, to political and economic rights, and always to "Liberty and Property." The men of the 18th century saw no dichotomy between personal and economic freedom, between rights to liberty and to property; these artificial distinctions were left for later ages to construct.

Also illustrative of the liberal-libertarian convergence is the case of Ludwig von Mises. Mises always self-identified as a liberal, and he was clearly a liberal within his own social and political milieu in Austria. He wasn't a socialist, and he certainly wasn't an adherent of conservatism, which in nineteenth century Austria was, as Ronald Hamowy trenchantly put it, the ideology of "the rack, the thumbscrew, the whip, and the firing squad." Indeed Mises's views, outlined in detail in his 1927 book Liberalism, supported political freedom, and almost complete laissez-faire in both domestic markets and in international trade. He opposed war, generally supported free migration, and pushed for political decentralization.

These views are what we might call "textbook liberalism," and Mises's student Hayek held similar views, albeit to a far more mild extent. Notably, both Mises and Hayek are today routinely referred to as "libertarians."

Liberalism's Legacy

To say that the effect of liberalism on the world has been profound would be an understatement.

In English-speaking countries, of course, liberal political movements pushed policy rapidly in a liberal direction throughout the nineteenth century, and then served as a much needed-brake on social democratic movements in the twentieth century.

In France and elsewhere in Europe, liberalism served as a crucial counterbalance to the march of socialists and totalitarians. While liberalism has never dominated French politics, for example, the success liberals have had there has not been without effect. Without the liberals, France could very likely have succumbed to to outright socialism in the nineteenth or twentieth century.

For the past two hundred years, liberal activists like Cobden, and liberal intellectuals like Ludwig von Mises have remained the voice of reason in the face of relentless competition from socialists, mercantilists, fascists, and warmongers of every stripe.

Some critics of liberalism often harrumph that liberalism (i.e., libertarianism) is irrelevant because socialists and social democrats continue to be popular in various times and places.

But rest assured, Lew Rockwell reminds us, things could be far worse "were it not for the efforts of a relative handful of intellectuals who have fought against socialist theory for more than a century. It might have been 99% in support of socialist tyranny. So there is no sense in saying that these intellectual efforts are wasted."

Moreover, the success of liberalism is demonstrated in the fact that non-liberals have long attempted to steal the mantle of liberalism for themselves. In the English speaking world, it is no mere accident of history that social democrats and other non-liberal groups often insist on calling themselves liberal. The effort to expropriate the term "liberal" in the twentieth century was a matter of political expediency. Liberalism was a popular and influential ideology throughout the nineteenth and early twentieth century. So it only made sense to attempt to apply the term to non-liberal ideologies and coast on liberalism's past success.3

Today, we continue to see the legacy of liberalism worldwide in discussions over human rights, in efforts to increase freedom in trade, and greater autonomy from state intervention.  The fact that socialists and other types of interventionists win victories proves nothing about theirrelevance of liberalism. They only remind us how much were things would be were it not for occasional successes liberal ideas to win. Moreover, efforts by governments to co-opt liberal vocabulary for purposes of building state power are to be expected. We see this often in the call for government managed "human rights" efforts and in calls for globally managed "free trade." This is just what governments do, and it's partly why Ludwig von Mises noted there is no such thing as a liberal state, because states are anti-liberal by nature.

As always, the answer to gains made by social democrats and socialists lies in strengthening the intellectual movement that is liberalism, which over time translates into political action. If liberalism is eclipsed today by other ideologies, the fault lies with us who have done too little, and with the defeatists who declare intellectual fights to be irrelevant to real life or not worth the trouble.

Liberalism — that is libertarianism — has a long and impressive history that is all too often neglected. But it is, as Raico contended, an indispensable part of "our own civilization." We'd do well to know more about its history.

  • 1. Raico, Ralph, Classical Liberalism and the Austrian School (Ludwig von Mises Institute, Auburn AL, 2012) p. 72.
  • 2. Ibid. p. 75.
  • 3. Raico also notes that in some cases liberal political parties simply abandoned liberalism in response to competition among democratic constituencies. For lack of a better term, liberal politicians found they needed to "buy votes" and acted accordingly. See his Mises University lecture from 2008: https://mises.org/library/liberalism-1
Categories: Current Affairs

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