Blogroll: Mises Institute
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Neil Sedaka said it best – “breaking up is hard to do”. Ask any 16-year-old and they’ll tell you that’s certainly true, but Rep. Marjorie Taylor Greene (R-GA) recently made headlines when she suggested not just a breakup, but a “National Divorce” on social media. Of course, there was the typical incoherent shrieking and pearl clutching from progressives, neoconservatives, and other lizard-people, but there was also general acknowledgement from many regular folks that a “National Divorce” may be the only long-term solution.We Need to Talk…
It should go without saying that our current political arrangement is not working. 2020 saw not just the Covid-19 insanity, but political violence where people were literally shooting each other in the street. Add to that the disturbing new polling data that revealed 48% of Democrats support “quarantine camps” for those who won’t take the recommended “medical interventions” and it seems like the only solution is to exit this abusive relationship.
But the focus on a national divorce perpetuates the same folly that has plagued libertarians and our allies on the right for years: focusing on the national to the exclusion of the state and local. The title of “county executive” may not be as sexy as “President of the United States”, but if the past 22 months have taught us anything, it is that these local offices matter insofar as they can determine how “normal” and free your day-to-day life is. Rather than talking strictly of a national divorce, we should be advocating small-scale secession as well.
Counties leaving their current states and cities leaving their current counties to join neighboring areas that more closely align with their politics should be a part of popular political discourse. Often the biggest barrier secession movements face is the widely held (albeit ludicrous) belief that our current set of lines on a map are sacred and must be preserved, and anyone who would change these lines in any way just pines for the good ‘ole days when they could own other people as property.Secession in the Empire State
New York state has always been ripe for secession movements. Extreme political division between Downstate (“the city”) and Upstate (not “the city”) have prompted several movements aiming to split the Empire State in two. The secessionist movement of 1969 saw New Yorkers unhappy that upstate had so much control over their politics at the state level and proposed that New York City become the 51st state. 2003 and 2008 saw similar pushes from downstate citing “paying more than they receive” in taxes.
Talk of separation didn’t stop there. In 2015, the push for breaking up was led by Upstate, rural and red, against Downstate, urban and blue. Upstate has not been represented in state level politics for some time - the S.A.F.E. Act (a slew of draconian gun control laws) passed in 2013, and in 2014 Governor Cuomo banned hydrofracking (an important industry for upstaters).
Upstate New York is also burdened by the absurd regulatory schema implemented and maintained by downstate voters and politicians – case and point, these people are talking about banning gas powered lawn equipment for God’s sake. Many upstaters blame the region’s decaying economy on these regulations.
In other words, upstate New Yorkers are being governed by urban elites - people who not only have completely different values and worldviews but look upon them with disdain and derision.
This should sound familiar to you. The situation in New York is eerily similar to that of the United States as a whole. Comparing the electoral map of the 2020 presidential election and the 2018 New York gubernatorial election (both victories for the ‘Dems) make this abundantly clear – big cities dictate policy to the detriment of everyone else.
And here is the 2018 New York gubernatorial race electoral map (by county):
The recent secession movement generated three main proposals: the first was the generic two-state solution; the second involved several counties in the Southern Tier (right above Pennsylvania) becoming part of Pennsylvania. Both ideas ran into an enormous roadblock called the Constitution. Per Article IV Section III, anytime a new state is to be created from an existing state, or parts of one state leave for another state, the approval of both state legislatures and Congress must be obtained. This is a daunting task, to say the least.
The third proposal comes from the Divide NY Caucus and would circumvent the Constitution –in a good way…not a “Commerce Clause” sort of way. There are no constitutional barriers if no new state is being created, so the Divide NY plan would split the state into three autonomous regions – New York (NYC), Montauk (NYC’s immediate suburbs), and New Amsterdam (everything else).Partition Instead of Secession?
Each region would basically be its own state, responsible for electing its own governor and legislature, as well as dictating its own policies and taxes. But here’s the kicker, “New York State”, as recognized by the federal government, would still exist. The current “governor” would occupy a position akin to that of the Queen of England, but all federal representation would remain the same. There would be no changes to the number of states in the Union or the territory controlled by each state, so Congress is not involved, and since no other state is involved either, the bill would only need to survive one legislature.
Divide NY’s proposal became NY Senate Bill S5416 and dealt with many of the issues commonly associated with secession movements – namely, who would get what. The exhaustive 24-page bill details how the state’s university system, prisons and courts, and roadways would be divided. Sadly, it didn’t make it out of committee, but has been introduced again for the 2022 legislative session.
The proposal isn’t perfect, since it likely means that awful federal representatives like Chuck Schumer and Kirstin Gillibrand would keep their jobs, but virtually all New Yorkers would be better off. Downstate would free themselves from what they perceive as the “free-loading moochers” Upstate, and Upstate would no longer have to answer to the insane hypochondriacs and left-wing ideologues Downstate. But even if it didn’t make everyone better off, man is entitled to self-determination, and that right should be respected and exercised. Period.
Some might ask what’s the point of an article about a failed proposal aside from it being interesting. The point was not to talk about the success of the movement, but to highlight that there is a hunger for creative and unorthodox solutions in red America. Tens of millions of people feel the tendrils of leftism and authoritarianism tightening around their throat. They are ready to consider solutions they would have scoffed at just a decade ago. They are looking for solutions at every level - solutions that the liberty movement had embraced long ago. It might be up to us to spread the message of separation and rebuilding. A message that says, yes, even though mommy and daddy love you very much, they just can’t live together anymore.
From time to time over the last 30 years, after I have talked or written about some new restriction on human liberty in the economic field, some new attack on private enterprise, I have been asked in person or received a letter asking, "What can I do" — to fight the inflationist or socialist trend? Other writers or lecturers, I find, are often asked the same question.
The answer is seldom an easy one. For it depends on the circumstances and ability of the questioner — who may be a businessman, a housewife, a student, informed or not, intelligent or not, articulate or not. And the answer must vary with these presumed circumstances.
The general answer is easier than the particular answer. So here I want to write about the task now confronting all libertarians considered collectively.
This task has become tremendous, and seems to grow greater every day. A few nations that have already gone completely communist, like Soviet Russia and its satellites, try, as a result of sad experience, to draw back a little from complete centralization, and experiment with one or two quasi-capitalist techniques; but the world's prevailing drift — in more than 100 out of the 111 or so nations and mini-nations that are now members of the International Monetary Fund — is in the direction of increasing socialism and controls.
The task of the tiny minority that is trying to combat this socialistic drift seems nearly hopeless. The war must be fought on a thousand fronts, and the true libertarians are grossly outnumbered on practically all these fronts.
In a thousand fields the welfarists, statists, socialists, and interventionists are daily driving for more restrictions on individual liberty; and the libertarians must combat them. But few of us individually have the time, energy, and special knowledge in more than a handful of subjects to be able to do this.
One of our gravest problems is that we find ourselves confronting the armies of bureaucrats who already control us, and who have a vested interest in keeping and expanding the controls they were hired to enforce.A Growing Bureaucracy
The federal government now embraces some 2,500 different functioning agencies, bureaus, departments, and divisions. Federal full-time permanent civilian employees are estimated to reach 2,693,508 as of June 30, 1970.
And we know, to take a few specific examples, that of these bureaucrats 16,800 administer the programs of the Department of Housing and Urban Development, 106,700 the programs (including Social Security) of the Department of Health, Education, and Welfare, and 152,300 the programs of the Veterans Administration.
If we want to look at the rate at which parts of this bureaucracy have been growing, let us refer again to the Department of Agriculture. In 1929, before the United States Government started crop controls and price supports on an extensive scale, there were 24,000 employees in that Department. Today, counting part-time workers, there are 120,000, five times as many, all of them with a vital economic interest — to wit, their own jobs — in proving that the particular controls they were hired to formulate and enforce should be continued and expanded."The war must be fought on a thousand fronts, and the true libertarians are grossly outnumbered on practically all these fronts."
What chance does the individual businessman, the occasional disinterested professor of economics, or columnist, or editorial writer, have in arguing against the policies and actions of this 120,000-man army, even if he has had time to learn the detailed facts of a particular issue? His criticisms are either ignored or drowned out in the organized counterstatements.
This is only one example out of scores. A few of us may suspect that there is much unjustified or foolish expenditure in the United States Social Security program, or that the unfunded liabilities already undertaken by the program (one authoritative estimate of these exceeds a trillion dollars) may prove to be unpayable without a gross monetary inflation. A handful of us may suspect that the whole principle of compulsory government old age and survivor's insurance is open to question. But there are some 100,000 full-time permanent employees in the Department of Health, Education, and Welfare to dismiss all such fears as foolish, and to insist that we are still not doing nearly enough for our older citizens, our sick, and our widows and orphans.
And then there are the millions of those who are already on the receiving end of these payments, who have come to consider them as an earned right, who of course find them inadequate, and who are outraged at the slightest suggestion of a critical reexamination of the subject. The political pressure for constant extension and increase of these benefits is almost irresistible.
And even if there weren't whole armies of government economists, statisticians, and administrators to answer him, the lone disinterested critic, who hopes to have his criticism heard and respected by other disinterested and thoughtful people, finds himself compelled to keep up with appalling mountains of detail.Too Many Cases to Follow
The National Labor Relations Board, for example, hands down hundreds of decisions every year in passing on "unfair" labor practices. In the fiscal year 1967 it passed on 803 cases "contested as to the law and the facts." Most of these decisions are strongly biased in favor of the labor unions; many of them pervert the intention of the Taft-Hartley Act that they ostensibly enforce; and in some of them the board arrogates to itself powers that go far beyond those granted by the Act. The texts of many of these decisions are very long in their statement of facts or alleged facts and of the board's conclusions. How is the individual economist or editor to keep abreast of the decisions and to comment informedly and intelligently on those that involve an important principle or public interest?
Or take again such major agencies as the Federal Trade Commission, the Securities and Exchange Commission, the Food and Drug Administration, the Federal Communications Commission. These agencies often combine the functions of legislators, prosecutors, judges, juries, and administrators.
Yet how can the individual economist, student of government, journalist, or anyone interested in defending or preserving liberty, hope to keep abreast of this Niagara of decisions, regulations, and administrative laws? He may sometimes consider himself lucky to be able to master in many months the facts concerning one of these decisions.The armies of bureaucrats have a vested interest in keeping and expanding the controls they were hired to enforce.
Professor Sylvester Petro of New York University has written a full book on the Kohler strike and another full book on the Kingsport strike, and the public lessons to be learned from them. Professor Martin Anderson has specialized in the follies of urban renewal programs. But how many are there among those of us who call ourselves libertarians who are willing — or have the time — to do this specialized and microscopic but indispensable research?
In July, 1967, the Federal Communications Commission handed down an extremely harmful decision ordering the American Telephone and Telegraph Company to lower its interstate rates — which were already 20 percent lower than in 1940, though the general price level since that time had gone up 163 percent. In order to write a single editorial or column on this (and to feel confident he had his facts straight), a conscientious journalist had to study, among other material, the text of the decision. That decision consisted of 114 single-spaced typewritten pages.… and Schemes for Reform
We libertarians have our work cut out for us.
In order to indicate further the dimensions of this work, it is not merely the organized bureaucracy that the libertarian has to answer; it is the individual private zealots. A day never passes without some ardent reformer or group of reformers suggesting some new government intervention, some new statist scheme to fill some alleged "need" or relieve some alleged distress. They accompany their scheme by elaborate statistics that supposedly prove the need or the distress that they want the taxpayers to relieve. So it comes about that the reputed "experts" on relief, unemployment insurance, Social Security, Medicare, subsidized housing, foreign aid, and the like are precisely the people who are advocating more relief, unemployment insurance, Social Security, Medicare, subsidized housing, foreign aid, and all the rest.
Let us come to some of the lessons we must draw from all this.Specialists for the Defense
We libertarians cannot content ourselves merely with repeating pious generalities about liberty, free enterprise, and limited government. To assert and repeat these general principles is absolutely necessary, of course, either as prologue or conclusion. But if we hope to be individually or collectively effective, we must individually master a great deal of detailed knowledge, and make ourselves specialists in one or two lines, so that we can show how our libertarian principles apply in special fields, and so that we can convincingly dispute the proponents of statist schemes for public housing, farm subsidies, increased relief, bigger Social Security benefits, bigger Medicare, guaranteed incomes, bigger government spending, bigger taxation, especially more progressive income taxation, higher tariffs or import quotas, restrictions or penalties on foreign investment and foreign travel, price controls, wage controls, rent controls, interest rate controls, more laws for so-called consumer protection, and still tighter regulations and restrictions on business everywhere.
This means, among other things, that libertarians must form and maintain organizations not only to promote their broad principles — as do, for example, the Foundation for Economic Education at Irvington-on-Hudson, New York, the American Institute for Economic Research at Great Barrington, Massachusetts, and the American Economic Foundation in New York City — but to promote these principles in special fields. I am thinking, for example, of such excellent existing specialized organizations as the Citizens Foreign Aid Committee, the Economists' National Committee on Monetary Policy, the Tax Foundation, and so on."It is not merely the organized bureaucracy that the libertarian has to answer; it is the individual private zealots."
We need not fear that too many of these specialized organizations will be formed. The real danger is the opposite. The private libertarian organizations in the United States are probably outnumbered ten to one by communist, socialist, statist, and other left-wing organizations that have shown themselves to be only too effective.
And I am sorry to report that almost none of the old-line business associations that I am acquainted with are as effective as they could be. It is not merely that they have been timorous or silent where they should have spoken out, or even that they have unwisely compromised. Recently, for fear of being called ultraconservative or reactionary, they have been supporting measures harmful to the very interests they were formed to protect. Several of them, for example, came out in favor of the Johnson administration's tax increase on corporations in 1968, because they were afraid to say that that Administration ought rather to have slashed its profligate welfare spending.
The sad fact is that today most of the heads of big businesses in America have become so confused or intimidated that, so far from carrying the argument to the enemy, they fail to defend themselves adequately even when attacked. The pharmaceutical industry, subjected since 1962 to a discriminatory law that applies questionable and dangerous legal principles which the government has not yet dared to apply in other fields, has been too timid to present its own case effectively. And the automobile makers, attacked by a single zealot for turning out cars "unsafe at any speed," handled the matter with an incredible combination of neglect and ineptitude that brought down on their heads legislation harmful not only to the industry but to the driving public.The Timidity of Businessmen
It is impossible to tell today where the anti-business sentiment in Washington, plus the itch for more government control, is going to strike next. In 1967 Congress allowed itself to be stampeded into a dubious extension of federal power over intrastate meat sales. In 1968 it passed a "truth-in-lending" law, forcing lenders to calculate and state interest rates the way federal bureaucrats want them calculated and stated. When, in January, 1968, President Johnson suddenly announced that he was prohibiting American business from making further direct investments in Europe, and that he was restricting them elsewhere, most newspapers and businessmen, instead of raising a storm of protest against these unprecedented invasions of our liberties, deplored their "necessity" and hoped they would be only "temporary."
The very existence of the business timidity that allows these things to happen is evidence that government controls and power are already excessive.
Why are the heads of big business in America so timid? That is a long story, but I will suggest a few reasons:
They may be entirely or largely dependent on government war contracts.
They never know when or on what grounds they will be held guilty of violating the antitrust laws.
They never know when or on what grounds the National Labor Relations Board will hold them guilty of unfair labor practices.
They never know when their personal income tax returns will be hostilely examined, and they are certainly not confident that such an examination, and its findings, will be entirely independent of whether they have been personally friendly or hostile to the Administration in power.
It will be noticed that the governmental actions or laws of which businessmen stand in fear are actions or laws that leave a great deal to administrative discretion. Discretionary administrative law should be reduced to a minimum; it breeds bribery and corruption, and is always potentially blackmail or blackjack law.Schumpeter's Indictment "Discretionary administrative law should be reduced to a minimum; it breeds bribery and corruption."
Libertarians are learning to their sorrow that big businessmen cannot necessarily be relied upon to be their allies in the battle against extension of governmental encroachments. The reasons are many. Sometimes businessmen will advocate tariffs, import quotas, subsidies, and restrictions of competition, because they think, rightly or wrongly, that these government interventions will be in their personal interest, or in the interest of their companies, and are not concerned whether or not they may be at the expense of the general public. More often, I think, businessmen advocate these interventions because they are honestly confused, because they just don't realize what the actual consequences will be of the particular measures they propose, or fail to perceive the cumulative debilitating effects of growing restrictions on human liberty.
Perhaps most often of all, however, businessmen today acquiesce in new government controls out of sheer timidity.
A generation ago, in his pessimistic book, Capitalism, Socialism, and Democracy (1942), the late Joseph A. Schumpeter maintained the thesis that "in the capitalistic system there is a tendency toward self-destruction." And as one evidence of this he cited the "cowardice" of big businessmen when facing direct attack:
They talk and plead — or hire people to do it for them; they snatch at every chance of compromise; they are ever ready to give in; they never put up a fight under the flag of their own ideals and interests — in this country there was no real resistance anywhere against the imposition of crushing financial burdens during the last decade or against labor legislation incompatible with the effective management of industry.
So much for the formidable problems facing dedicated libertarians. They find it extremely difficult to defend particular firms and industries from harassment or persecution when those industries will not adequately or competently defend themselves. Yet division of labor is both possible and desirable in the defense of liberty, as it is in other fields. And many, who have neither the time nor the specialized knowledge to analyze particular industries or special complex problems, can be nonetheless effective in the libertarian cause by hammering incessantly on some single principle or point until it is driven home.Some Basic Principles
Is there any single principle or point on which libertarians could most effectively concentrate? Let us look, and we may end by finding not one but several.
One simple truth that could be endlessly reiterated, and effectively applied to nine-tenths of the statist proposals now being put forward or enacted in such profusion, is that the government has nothing to give to anybody that it doesn't first take from somebody else. In other words, all its relief and subsidy schemes are merely ways of robbing Peter to support Paul.
Thus, it can be pointed out that the modern welfare state is merely a complicated arrangement by which nobody pays for the education of his own children, but everybody pays for the education of everybody else's children; by which nobody pays his own medical bills, but everybody pays everybody else's medical bills; by which nobody provides for his own old-age security, but everybody pays for everybody else's old-age security; and so on. As noted before, Bastiat exposed the illusive character of all these welfare schemes more than a century ago in his aphorism: "The State is the great fiction by which everybody tries to live at the expense of everybody else.""The government has nothing to give to anybody that it doesn't first take from somebody else. In other words, all its relief and subsidy schemes are merely ways of robbing Peter to support Paul."
Another way of showing what is wrong with all the state handout schemes is to keep pointing out that you can't get a quart out of a pint jug. Or, as the state giveaway programs must all be paid for out of taxation, with each new scheme proposed the libertarian can ask, "Instead of what?" Thus, if it is proposed to spend another $1 billion on putting more men on the moon or developing a supersonic commercial plane, it may be pointed out that this $1 billion, taken in taxation, will not then be able to meet a million personal needs or wants of the millions of taxpayers from whom it is to be taken.
Of course, some champions of ever-greater governmental power and spending recognize this very well, and like Professor J.K. Galbraith, for instance, they invent the theory that the taxpayers, left to themselves, spend the money they have earned very foolishly, on all sorts of trivialities and rubbish, and that only the bureaucrats, by first seizing it from them, will know how to spend it wisely.Knowing the Consequences
Another very important principle to which the libertarian can constantly appeal is to ask the statists to consider the secondary and long-run consequences of their proposals as well as merely their intended direct and immediate consequences. The statists will sometimes admit quite freely, for example, that they have nothing to give to anybody that they must not first take from somebody else. They will admit that they must rob Peter to pay Paul. But their argument is that they are seizing only from rich Peter to support poor Paul. As President Johnson once put it quite frankly in a speech on January 15, 1964: "We are going to try to take all of the money that we think is unnecessarily being spent and take it from the 'haves' and give it to the 'have nots' that need it so much."
Those who have the habit of considering long-run consequences will recognize that all these programs for sharing the wealth and guaranteeing incomes must reduce incentives at both ends of the economic scale. They must reduce the incentives both of those who are capable of earning a higher income, but find it taken away from them, and those who are capable of earning at least a moderate income, but find themselves supplied with the necessities of life without working."They will admit that they must rob Peter to pay Paul. But their argument is that they are seizing only from rich Peter to support poor Paul."
This vital consideration of incentives is almost systematically overlooked in the proposals of agitators for more and bigger government welfare schemes. We should all be concerned about the plight of the poor and unfortunate. But the hard two-part question that any plan for relieving poverty must answer is: How can we mitigate the penalties of failure and misfortune without undermining the incentives to effort and success? Most of our would-be reformers and humanitarians simply ignore the second half of this problem. And when those of us who advocate freedom of enterprise are compelled to reject one of these specious "antipoverty" schemes after another on the ground that it will undermine these incentives and in the long run produce more evil than good, we are accused by the demagogues and the thoughtless of being "negative" and stony-hearted obstructionists. But the libertarian must have the strength not to be intimidated by this.
Finally, the libertarian who wishes to hammer in a few general principles can repeatedly appeal to the enormous advantages of liberty as compared with coercion. But he, too, will have influence and perform his duty properly only if he has arrived at his principles through careful study and thought. "The common people of England," once wrote Adam Smith, "are very jealous of their liberty, but like the common people of most other countries have never rightly understood in what it consists." To arrive at the proper concept and definition of liberty is difficult, not easy.1Legal and Political Aspects
So far, I have written as if the libertarian's study, thought, and argument need be confined solely to the field of economics. But, of course, liberty cannot be enlarged or preserved unless its necessity is understood in many other fields — and most notably in law and in politics.
We have to ask, for example, whether liberty, economic progress, and political stability can be preserved if we continue to allow the people on relief — the people who are mainly or solely supported by the government and who live at the expense of the taxpayers — to exercise the franchise. The great liberals of the 19th and early 20th centuries, including John Stuart Mill and A.V. Dicey, expressed the most serious misgivings on this point.An Honest Currency and an End to Inflation
This brings me, finally, to one more single issue on which all those libertarians who lack the time or background for specialized study can effectively concentrate. This is in demanding that the government provide an honest currency, and that it stop inflating.
This issue has the inherent advantage that it can be made clear and simple because fundamentally it is clear and simple. All inflation is government made. All inflation is the result of increasing the quantity of money and credit; and the cure is simply to halt the increase.
If libertarians lose on the inflation issue, they are threatened with the loss of every other issue. If libertarians could win the inflation issue, they could come close to winning everything else. If they could succeed in halting the increase in the quantity of money, it would be because they could halt the chronic deficits that force this increase. If they could halt these chronic deficits, it would be because they had halted the rapid increase in welfare spending and all the socialistic schemes that are dependent on welfare spending. If they could halt the constant increase in spending, they could halt the constant increase in government power.
The devaluation of the British pound, first in 1949 and again in 1967, may as an offset have the longer effect of helping the libertarian cause. It exposes the bankruptcy of the welfare state. It exposes the fragility and complete undependability of the paper-gold international monetary system under which the world has been operating since 1944. There is hardly one of the hundred or more currencies in the International Monetary Fund, with the exception of the dollar, that has not been devalued at least once since the IMF opened its doors for business. There is not a single currency unit — and there is no exception to this statement — that does not buy less today than when the Fund started.
At the moment of writing this, the dollar, to which practically every other currency is tied in the present system, is in the gravest peril. If liberty is to be preserved, the world must eventually get back to a full gold standard system in which each major country's currency unit must be convertible into gold on demand, by anybody who holds it, without discrimination. I am aware that some technical defects can be pointed out in the gold standard, but it has one virtue that more than outweighs them all. It is not, like paper money, subject to the day-to-day whims of the politicians; it cannot be printed or otherwise manipulated by the politicians; it frees the individual holder from that form of swindling or expropriation by the politicians; it is an essential safeguard for the preservation, not only of the value of the currency unit itself, but of human liberty. Every libertarian should support it.
I have one last word. In whatever field he specializes, or on whatever principle or issue he elects to take his stand, the libertarian must take a stand. He cannot afford to do or say nothing. I have only to remind him of the eloquent call to battle on the final page of Ludwig von Mises's great book Socialism, written 35 years ago:
Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping toward destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.This essay is excerpted from chapter 24 of Man vs. the Welfare State (1969).
- 1. I strongly recommend The Constitution of Liberty, by F.A. Hayek (University of Chicago Press, 1960).
Several countries have introduced mandatory “health passes” and made Covid-19 vaccination compulsory since last summer. The vaccination mandates represent a massive infringement of human rights and their medical justification has dwindled over time. Yet, governments are doubling down on their resolution to vaccinate everybody. But, will people accept this abuse and should they let governments decide on individual health matters?What Do Vaccination Statistics Show?
France was among the first countries to announce the introduction of a health pass and mandatory vaccination for healthcare workers in mid-July 2021, despite previous assurances that vaccination would remain a free choice. The health pass proving that the holder was vaccinated, has recovered from the illness or had a recent negative test is necessary to enter cafés, restaurants, shopping malls, cultural places or to board a train or a plane. Life must be very dull for the French lacking a health pass, but this is the price to pay when the government set itself the target to vaccinate everyone. After the health pass announcement, the daily number of first dose vaccinations more than doubled, but fell precipitously to less than 0.1% of the population by early September (Graph 1).
Graph 1: Daily first-dose vaccinations in France
Source: Our World in Data
The cumulative first dose vaccination rate jumped above 70% by early September, but grew only slowly afterwards (Graph 2). With about 80% of the people vaccinated, France is now among the top vaccinated countries in Europe. But, the full vaccination target remained out of reach. In response, the government introduced in the Parliament even tougher legislation against the unvaccinated, by removing the negative test from the health pass. In addition, President Macron sparked public outrage by vowing to “piss off” the unvaccinated, qualifying them as irresponsible people who cannot be considered French citizens. Again, this failed to close the gap.
Graph 2: Cumulative first-dose vaccinations in France
Source: Our World in Data
Italy went a step further and made the health pass obligatory for all workers as of 15 October and announced mandatory vaccination for all people age 50 and above in January 2022. Non-compliant workers face steep fines between EUR 600 and 1,500, while the sanction for employers ranges from EUR 400 to 1000. Vaccination outcomes have nonetheless disappointed officials worse than in France. The daily first dose vaccination rate had actually dropped to almost zero until the beginning of November and remained subdued thereafter (Graph 3). The cumulative share of first dose vaccinations in total population grew only little from an already high 75% to 80% by January 2022 (Graph 4).
Graph 3: Daily first-dose vaccinations in Italy
Source: Our World in Data
Graph 4: Cumulative first-dose vaccinations in Italy
Source: Our World in Data
After introducing a lockdown for the unvaccinated in mid-November 2021, Austria was the first Western democracy to impose mandatory vaccination for all residents age 14 and over, as of February 2022 (later postponed to April 2022). It has also announced fines of up to EUR 3,600 for those who do not comply with the vaccine mandate. But, after a short-lived doubling of daily vaccination rates, the latter fell back close to zero by January 2022 (Graph 5). The cumulative number of first dose vaccinations grew from about 65% of total population in October 2021 to around 73% in January 2022.
Graph 5: Daily number of first-dose vaccinations in Austria
Source: Our World in Data
In September 2021, President Biden announced sweeping mandates requiring all workers in companies with more than one hundred employees be vaccinated or test for the virus weekly and obligatory vaccination for workers in the health sector funded by Medicare or Medicaid. He also made vaccination compulsory for all federal government’s employees and contractors. Despite these strict mandates, the daily number of first-dose vaccinations has trended downwards ever since the introduction of the worker mandate. The total share of the population which received a first jab increased from about 65% in September to 75% in early-January 2022. Again, we see mandates have indeed managed to "convince" more Americans to receive the jab, but universal vaccination remains elusive.
Graph 6: Daily number of first-dose vaccinations in the US
Source: Our World in Data
Meanwhile, following a “zero covid” strategy like China, Australia put all its major cities under draconian lockdowns last Summer. After this “shock therapy”, the share of the population having received a first shot surged from less than 25% in early-July to 70% in October 2021 (Graph 7). When the Delta variant arrived, the Australian government relaxed its “zero covid” strategy, most likely satisfied with the record breaking vaccination campaign.
Graph 7: Cumulative number of vaccinations in Australia
Source: Our World in Data
All these regimes will no doubt continue to push for more and more vaccination, including the jab for increasingly young segments of the population. But "peak vaccination" has clearly already passed. Moreover, it is looking increasingly unlikely that these governments will be able to convince similar numbers of citizens to show up for endless booster shots—the preferred regime strategy for addressing ineffective vaccines.Are Vaccination Mandates Justified?
Initially, governments introducing health passes claimed that Covid-19 vaccination was not mandatory, although the passes were drastically restricting human rights, individual freedoms and the well-being of the unvaccinated. Later on, several governments in countries like the US, Austria, Italy, Germany, Czechia, Greece and Canada (Quebec) stopped beating around the bush and introduced mandatory vaccination for parts or the entire population. The aggressive political push towards vaccination is not only legally and morally unjust, but also increasingly at odds with medical reality. As Ryan McMaken points out, Covid-19 vaccines do not prevent getting sick and do not stop the spread of the virus either. It is therefore obvious that President Biden’s claim that Covid-19 is a “pandemic of the unvaccinated” is just a smoke-screen to hide the inefficiency of the vaccines and of other public health policies. This is particularly true when data shows that despite widespread vaccination, Covid-19 deaths went up in 2021 vs 2020 in both the US and the EU and New York City, for example, faced a surge in Covid-19 cases like other US states, although it had the strictest vaccine mandates in the country.
With the arrival of the Omicron variant, the medical case for compulsory vaccination became even thinner. While the number of Covid-19 cases has increased substantially, hospitalizations and deaths remained relatively low because of the mildness of symptoms. Many experts, including Denmark’s Covid tsar and WHO officials consider the rapid spread of Omicron as a sign that the pandemic is about to end due to a weakened virus that builds up natural immunity. Yet, politicians seem to ignore scientific evidence when it does not suit them and used the Omicron wave as a pretext to accelerate the booster vaccination campaign, although the latter’s efficiency remains uncertain. They also showed no intent to ease up on compulsory vaccination after the authorization of several antiviral pills for Covid-19. The home-based treatments reduce the hospitalization risk by almost 90% and could be a game changer in the pandemic, but the US government only ordered about 10 million of them.
The flawed and deceitful Covid-19 public health strategies have relied almost entirely on mass vaccination to the detriment of early treatments to prevent hospitalizations. Policymakers also ignored the issue of increasing the number of ICU hospital beds—a strategy that would have cost just a fraction of the hundreds of billions of dollars spent on vaccination campaigns. Recently, the EU drug regulator, the European Medicines Agency put into question the feasibility of frequent Covid-19 booster shots, which could adversely affect the immune response. The financial smoking gun still points at Big Pharma being the real beneficiary of the Covid-19 panic and mass vaccinations aggressively promoted in near lockstep all over the World.
Under these conditions, it is not surprising that many people mistrust and resist vaccination mandates, despite having to endure tremendous hardships. The graphs above show that vaccination rates went up in countries which imposed health passes, but they remained below the expectations of public officials. The share of the unvaccinated in total population is still large at about 20-25% and the number of people declining the shot is likely to grow as mass vaccination has been extended to children and additional boosters. In Europe, resistance to compulsory vaccination was primarily driven by huge protests involving tens of thousands of participants. Facing strong opposition, the new Czech government has recently scrapped mandatory vaccination for health workers, police, soldiers and some other professions, as well as those aged over 60. In the US, several Republican-led states, private companies and religious groups filed legal challenges against the vaccination mandates. Many large companies suspended vaccination requirements following court injunctions against federal mandates and labor shortages. Eventually, the US Supreme Court blocked President Biden’s vaccine mandate on large businesses, but upheld the vaccine requirement for healthcare workers. Vaccine sceptic healthcare workers were already getting fired or walking away from their jobs, exacerbating labor shortages. There were also calls for civil disobedience in Australia which had suffered under extreme lockdowns and Belgium where theatres refused to close down in December and eventually won the legal right to stay open.Only Resistance Can Stop Oppressive Government Actions
The examples above illustrate very well that opposition to the vaccination mandates has not been in vain. When governments abuse their prerogatives, it is the right of the people to resist severe encroachments on their liberties and human rights. If today people tolerate that governments scapegoat and punish the unvaccinated for political purposes, it will most likely pave the way for further abuses on the whole society in the future. Both vaccinated and unvaccinated have a common interest to preserve individual freedom and it makes no sense for the former to buy into the official scapegoating propaganda (as revealed by polls in Germany, Europe or Canada). If President Macron’s twisted electoral strategy to annoy the minority of unvaccinated pays off, he would most likely feel emboldened to come up with more abusive measures later on.
In his masterpiece Discourse of Voluntary Servitude, the 16th century political philosopher Étienne de la Boétie advocated the right of subjects to resist unjust rulers. He wisely noted that all rule rests on the consent of the people and concluded that it is not necessary to overturn a tyrant by violence because he is automatically defeated if people refuse to accept their own enslavement. La Boétie’s early call for civil disobedience and mass non-violent resistance against tyranny, is timeless:
Resolve to serve no more, and you are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break in pieces.
Mention “free-market economics” to a member of the lay public and chances are that if he has heard the term at all, he identifies it completely with the name Milton Friedman. For several years, Professor Friedman has won continuing honors from the press and the profession alike, and a school of Friedmanites and “monetarists” has arisen in seeming challenge to the Keynesian orthodoxy.
However, instead of the common response of reverence and awe for “one of our own who has made it,” libertarians should greet the whole affair with deep suspicion: “If he’s so devoted a libertarian, how come he’s a favorite of the Establishment?” An advisor of Richard Nixon and a friend and associate of most Administration economists, Friedman has, in fact, made his mark in current policy, and indeed reciprocates as a sort of leading unofficial apologist for Nixonite policy.
In fact, in this as in other such cases, suspicion is precisely the right response for the libertarian, for Professor Friedman’s particular brand of “free-market economics” is hardly calculated to ruffle the feathers of the powers-that-be. Milton Friedman is the Establishment’s Court Libertarian, and it is high time that libertarians awaken to this fact of life.The Chicago School
Friedmanism can be fully understood only in the context of its historical roots, and these roots are the so-called “Chicago School” of economics of the 1920s and 1930s. Friedman, a professor at the University of Chicago, is now the undisputed head of the modern, or second-generation, Chicago School, which has adherents throughout the profession, with major centers at Chic ago, UCLA, and the University of Virginia.
The members of the original, or first-generation, Chicago School were considered “leftish” in their day, as indeed they were by any sort of genuine free-market criterion. And while Friedman has modified some of their approaches, he remains a Chicago man of the thirties.
The political program of the original Chicagoans is best revealed in the egregious work of a founder and major political mentor: Henry C. Simons’s A Positive Program for Laissez Faire.1 Simons’s political program was laissez faireist only in an unconsciously satiric sense. It consisted of three key ideas:
(1) a drastic policy of trust-busting of all business firms and unions down to small blacksmith-shop size, in order to arrive at “perfect” competition and what Simons conceived to be the “free market”;
(2) a vast scheme of compulsory egalitarianism, equalizing incomes through the income-tax structure; and
(3) a proto-Keynesian policy of stabilizing the price-level through expansionary fiscal and monetary programs during a recession.
Extreme trust-busting, egalitarianism, and Keynesianism: the Chicago School contained within itself much of the New Deal program, and, hence, its status within the economics profession of the early 1930s as a leftish fringe. And while Friedman has modified and softened Simons’s hard-nosed stance, he is still, in essence, Simons redivivus; he only appears to be a free-marketeer because the remainder of the profession has shifted radically leftward and stateward in the meanwhile. And, in some ways, Friedman has added unfortunate statists elements that were not even present in the older Chicago School.2
The Chicago School on Monopoly and Competition
Let us take the leading elements of Simonsian collectivist laissez faire in their turn. On monopoly and competition, Friedman and his colleagues have happily come a long way toward rationality from the old ultra-trust-busting of Simons. Friedman now concedes that the major source of monopoly in the economy is the activity of government, and focuses on repeal of these monopolizing measures.
The Chicagoans have gotten progressively more friendly to large business operating on the free market, and such Friedmanites as Lester Telser have even emerged with excellent arguments on behalf of advertising, previously anathema to all “perfect competitionists.” But while in practice Friedman has become more libertarian on the monopoly question, he still retains the old Chicagoite theory: that in some way, the absurd, unreal, and unfortunate world of “perfect competition” (a world in which every firm is so minute that nothing it does can affect its demand and the price of its products) is better than the real, existing world of competition, which is dubbed “imperfect.”
An infinitely superior view of competition is found in the totally neglected school of “Austrian economics” which scorns the “perfect competition” model and prefers the real world of free-market competition.3 So while Friedman’s practical view of competition and monopoly is not too bad, the weakness of his underlying theory could permit at any time a return to the frenetic trust-busting of the Chicagoans of the 1930s. It was not very long ago, for example, that Friedman’s most distinguished associate, Professor George J. Stigler, advocated before Congress the trust-busting break-up of U.S. Steel into many constituent parts.
Friedman's Chicagoite Egalitarianism
While Friedman has abandoned Simons’s call for extreme egalitarianism through the income tax structure, the basic lineaments of statist egalitarianism still remain. It remains in the Chicagoite desire to lay the tax structure’s greatest stress on the income tax, undoubtedly the most totalitarian of all taxes. Chicagoites prefer the income tax because, in their economic theory, they follow the disastrous tradition of orthodox Anglo-American economics in sharply separating the “microeconomic” from the “macroeconomic” spheres.
The idea is that there are two sharply separated and independent worlds of economics. On the one hand, there is the “micro” sphere, the world of individual prices determined by the forces of supply and demand. Here, the Chicagoans concede, the economy is best left to the unhampered play of the free market. Bu t, they assert, there is also a separate and distinct sphere of “macro” economics, of economic aggregates of government budget and monetary policy, where there is no possibility or even desirability of a free market.
In common with their Keynesian colleagues, the Friedmanites wish to give to the central government absolute control over these macro areas, in order to manipulate the economy for social ends, while maintaining that the micro world can still remain free. In short, Friedmanites as well as Keynesians concede the vital macro sphere to statism as the supposedly necessary framework for the micro-freedom of the free market.
In reality, the macro and micro spheres are integrated and intertwined, as the Austrians have shown. It is impossible to concede the macro sphere to the State while attempting to retain freedom on the micro level. Any sort of tax, and the income tax not least of all, injects systematic robbery and confiscation into the micro sphere of the individual, and has unfortunate and distortive effects on the entire economic system. It is deplorable that the Friedmanites, along with the rest of Anglo-American economics, have never paid attention to the achievement of Ludwig von Mises, founder of the modern Austrian School, in integrating the micro and macro spheres in economic theory as far back as 1912 in his classic The Theory of Money and Credit.4
Milton Friedman has revealed his quintessential pro-income tax and egalitarian position in numerous ways. As in many other spheres, he has functioned not as an opponent of statism and advocate of the free market, but as a technician advising the State on how to be more efficient in going about its evil work. (From the viewpoint of a genuine libertarian, the more inefficient the State’s operations, the better!5) He has opposed tax exemptions and “loopholes” and worked to make the income tax more uniform.
One of Friedman’s most disastrous deeds was the important role he proudly played, during World War II in the Treasury Department, in foisting upon the suffering American public the system of the withholding tax. Before World War II, when income tax rates were far lower than now, there was no withholding system; everyone paid his annual bill in one lump sum, on March 15. It is obvious that under this system, the Internal Revenue Service could never hope to extract the entire annual sum, at current confiscatory rates, from the mass of the working population. The whole ghastly system would have happily broken down long before this. Only the Friedmanite withholding tax has permitted the government to use every employer as an unpaid tax collector, extracting the tax quietly and silently from each paycheck. In many ways, we have Milton Friedman to thank for the present monster Leviathan State in America.
In addition to the income tax itself, Friedman’s egalitarianism is revealed in the Friedman-Stigler pamphlet attacking rent controls. “For those, like us, who would like even more equality than there is at present . . . it is surely better to attack directly the existing inequalities in income and wealth at their source” than to restrict the purchases of particular commodities, like housing.6
The single most disastrous influence of Milton Friedman has been a legacy from his old Chicagoite egalitarianism: the proposal for a guaranteed annual income to everyone through the income tax system—an idea picked up and intensified by such leftists as Robert Theobald, and one which President Nixon will undoubtedly be able to ram through the new Congress.7*
In this catastrophic scheme, Milton Friedman has once again been guided by his overwhelming desire not to remove the State from our lives, but to make the State more efficient. He looks around at the patchwork mess of local and state welfare systems, and concludes that all would be more efficient if the whole plan were placed under the federal income tax rubric and everyone were guaranteed a certain income floor. More efficient, perhaps, but also far more disastrous, for the only thing that makes our present welfare system even tolerable is precisely its inefficiency, precisely the fact that in order to get on the dole one has to push one’s way through an unpleasant and chaotic tangle of welfare bureaucracy. The Friedman scheme would make the dole automatic, and thereby give everyone an automatic claim upon production.
Welfare's "Supply Function"
We have to realize that being on welfare is not, as most people believe, a simple and absolute act of God or nature, a stark given like a volcanic eruption. Being-on-welfare, like all other human economic acts, has a “supply function”: in other words, if you make welfare pay enough, you can produce as many welfare clients as you wish to have. Pay them little enough and you can reduce the number of clients at will. In short, if the government should announce that anyone who signs up at a “welfare” desk gets an automatic annual check of $40,000 for as long as he wishes, we will find soon enough that almost everyone has become a welfare recipient—and what is more, will join a “welfare rights” organization to lobby for $60,000 to offset the rise in the cost of living.
More specifically, the supply function of welfare clients is inversely proportion to the difference between the prevailing wage rate in the area and the level of welfare payments. This difference is the “opportunity cost” of going on welfare—the amount that one loses by loafing instead of working. If, for example, the prevailing wage rises in an area and the welfare payments remain the same, the differential and the “opportunity cost” of loafing rise, and people tend to leave the welfare dole and go to work. If the opposite happens, more people will go on the dole. If being on welfare were an absolute fact of nature, then there would be no relation between this differential and the number on welfare.8
Secondly, the supply of welfare clients is inversely proportion to another vitally important factor: the cultural or value disincentive of going on welfare. If this disincentive is strong, if, for example, an individual or group strongly believes that it is evil to go on welfare, they will not do it, period. If, on the other hand, they do not care about the stigma of welfare, or, worse yet, they regard welfare payments as their right—a right to exert a compulsory, looting claim upon production—then the number of people on welfare will increase astronomically, as has happened in recent years.
There are several recent examples of the “stigma effect.” It has been shown that, given the same level of income, more people tend to go on welfare in urban than in rural areas, presumably as a function of the greater visibility of welfare clients and hence the greater stigma in the more sparsely populated region. More important, there is the glowing fact that certain religious groups, even when significantly poorer than the rest of the population, simply do not go on welfare because of their deeply held ethical beliefs. Thus, the Chinese-Americans, while largely poor, are almost never to be found on welfare. A recent article on Albanian-Americans in New York City highlights that same point. These Albanians are invariable poor slum dwellers, and yet there is no Albanian-American on welfare. Why? Because, said one of their leaders, “Albanians do not beg, and to Albanians, taking welfare is like begging in the street.”9
Another example is the Mormon Church, very few of whose members are on public welfare. For the Mormons not only inculcate in their members the virtues of thrift, self-help, and independence, they also take care of their own needy through church charity programs which are grounded on the principle of helping people to help themselves, and thereby getting them off charity as quickly as possible.10 Thus, the Mormon Church counsels its members that “to seek and accept direct public relief all too often invites the curse of idleness and fosters the other evils of dole. It destroys one’s independence, industry, thrift, and self-respect.”11 Hence, the Church’s highly successful private welfare program is based on the principles that
the Church has encouraged its members to establish and maintain their economic independence: it has encouraged thrift and foster the establishment of employment-creating industries; it has stood ready at all times to help needy faithful members.
Our primary purpose was to set up, in so far as it might be possible, a system under which the curse of idleness would be done away with, the evils of a dole abolished, and independence, industry, thrift, and self-respect be once more established among our people. The aim of the Church is to help the people help themselves. Work is to be re-enthroned as the ruling principles of the lives of our Church membership. . . . Faithful to this principle, welfare workers will earnestly teach and urge Church members to be self- sustaining to the full extent of their powers. No true latter-day Saint will, while physically able, voluntarily shift from himself the burden of his own support.12
The Libertarian approach to the welfare problem, then, is to abolish all coercive, public welfare, and to substitute for it private charity based on the principle of encouraging self-help, bolstered also by inculcating the virtues of self-reliance and independence throughout society.
Incentives under the Friedman Plan
But the Friedman plan, on the contrary, moves in precisely the opposite direction, for it establishes welfare payments as an automatic right, an automatic, coercive claim upon the producers. It thereby removes the stigma effect altogether, disastrously discourages productive work by steep taxation, and by establishing a guaranteed income for not working, which encourages loafing. In addition, by establishing an income floor as a coercive “right,” it encourages welfare clients to lobby for ever-higher floors, thus continually aggravating the entire problem. But Friedman, caught in the Anglo-American separation of “micro” and “macro,” gives very little attention to these cataclysmic effects on incentives.
Even the handicapped are hampered by the Friedmanite plan, for an automatic dole removes the marginal incentive for the handicapped worker to invest in his own vocational rehabilitation, since the net monetary return from such investment is now greatly lowered. Hence, the guaranteed income tends to perpetuate these handicaps. Finally, the Friedmanite dole would pay a higher income per person to welfare families, thereby subsidizing a continuing increase in the child population among the poor—precisely those who can least afford such a population growth. Without joining in the current hysteria about the “population explosion,” it is certainly absurd to deliberately subsidize the breeding of more pauper-children, which is what the Friedman plan would do as an automatic right.Money and the Business Cycle
The third major feature of the New Deal program was proto-Keynesian: the planning of the “macro” sphere by the government in order to iron out the business cycle. In his approach to the entire area of money and the business cycle—an area on which unfortunately Fried- man has concentrated most of his efforts—Friedman harks back not only to the Chicagoans, but, like them, to Yale economist Irving Fisher, who was the Establishment economist from the 1900s through the 1920s. Friedman, indeed, has openly hailed Fisher as the “greatest economist of the twentieth century,” and when one reads Friedman’s writings, one often gets the impression of reading Fisher all over again, dressed up, of course, in a good deal more mathematical and statistical mumbo-jumbo. Economist s and the press, for example, have been hailing Friedman’s recent “discovery” that interest rates tend to rise as prices rise, adding an inflation premium to keep the “real” rate of interest the same; this ignores the fact that Fisher had pointed this out at the turn of the twentieth century.
But the key problem with Friedman’s Fisherine approach is the same orthodox separation of the micro and macro spheres that played havoc with his views on taxation. For Fisher believed, again, that on the one hand there is a world of individual prices determined by supply and demand, but on the other hand there is an aggregate “price level” determined by the supply of money and its velocity of turnover, and never the twain do meet. The aggregate, macro, sphere is supposed to be the fit subject of government planning and manipulation, again supposedly without affecting or interfering with the micro area of indi- vidual prices.
Fisher on Money
In keeping with this outlook, Irvin g Fisher wrote a famous article in 1923, “The Business Cycle Largely a ‘Dance of the Dollar’ ”—recently cited favorably by Friedman—which set the model for the Chicagoite “purely monetary” theory of the business cycle. In this simplistic view, the business cycle is supposed to be merely a “dance,” in other words, an essentially random and causally unconnected series of ups and downs in the “price level.” The business cycle, in short, is random and needless variations in the aggregate level of prices. Therefore, since the free market gives rise to this random “dance,” the cure for the business cycle is for the government to take measures to stabilize the price level, to keep that level constant. This became the aim of the Chicago School of the 1930s, and remains Milton Friedman’s goal as well.
Why is a stable price level supposed to be an ethical idea, to be attained even by the use of governmental coercion? The Friedmanites simply take the goal as self-evident and scarcely in need of reasoned argument. But Fisher’s original groundwork was a total misunderstanding of the nature of money, and of the names of various currency units. In reality, as most nineteenth century economists knew full well, these names (dollar, pound, franc, etc.) were not somehow realities in themselves, but were simply names for units of weight of gold or silver. It was these commodities, arising in the free market, that were the genuine moneys; the names, and the paper money and bank money, were simply claims for payment in gold or silver. But Irving Fisher refused to recognize the true nature of money, or the proper function of the gold standard, or the name of a currency as a unit of weight in gold. Instead, he held these names of paper money substitutes issued by the various governments to be absolute, to be money. The function of this “money” was to “measure” values. Therefore, Fisher deemed it necessary to keep the purchasing power of currency, or the price level, constant.
This quixotic goal of a stable price level contrasts with the nineteenth-century economic view—and with the subsequent Austrian School. They hailed the results of the unhampered market, of laissez faire capitalism, in invariably bringing about a steadily falling price level. For without the intervention of government, productivity and the supply of goods tends always to increase, causing a decline in prices. Thus, in the first half of the nineteenth century—the “Industrial Revolution”—prices tended to fall steadily, thus raising the real wage rates even without an increase of wages in money terms. We can see this steady price decline bringing the benefits of higher living standards to all consumers, in such examples as TV sets falling from $2000 when first put on the market to about $100 for a far better set. And this in a period of galloping inflation.
It was Irving Fisher, his doctrines, and his influence, which was in large part responsible for the disastrous inflationary policies of the Federal Reserve System during the 1920s, and therefore for the subsequent holocaust of 1929. One of the major aims of Benjamin Strong, head of the Federal Reserve Bank (Fed) of New York and virtual dictator of the Fed during the 1920s, was, under the influence of the Fisher doctrine, to keep the price level constant. And since wholesale prices were either constant or actually falling during the 1920s, Fisher, Strong, and the rest of the economic Establishment refused to recognize that an inflationary problem even existed. So, as a result, Strong, Fisher, and the Fed refused to heed the warnings of such heterodox economists as Ludwig von Mises and H. Parker Willis during the 1920s that the unsound bank credit inflation was leading to an inevitable economic collapse. So pig-headed were these worthies that, as late as 1930, Fisher, in his swansong as economic prophet, wrote that there was no depression, and that the stock market collapse was only temporary.13
Friedman on Money
And now, in his highly touted Monetary History of the United States, Friedman his demonstrated his Fisherine bias in interpreting American economic history.14 Benjamin Strong, undoubtedly the single most disastrous influence upon the economy of the 1920s, is lionized by Friedman precisely for his inflation and price-level stabilization during that decade.15 In fact, Friedman attributes the 1929 depression not to the preceding inflation boom but to the failure of the post-Strong Federal Reserve to inflate the money supply enough before and during the depression.
In short, while Milton Friedman has performed a service in bringing back to the notice of the economics profession the overriding influence of money and the money supply on business cycles, we must recognize that this “purely monetarist” approach is almost the exact reverse of the sound—as well as truly free-market—Austrian view. For while the Austrians hold that Strong’s monetary expansion made a later 1929 crash inevitable, Fisher-Friedman believe that all the Fed needed to do was to pump more money in to offset any recession. Believing that there is no causal influence running from boom to bust, believing in the simplistic “Dance of the Dollar” theory, the Chicagoites simply want government to manipulate that dance, specifically to increase the money supply to offset recession.
During the 1930s, therefore, the Fisher-Chicago position was that, in order to cure the depression, the pr ice level needed to be “reflated” back to the levels of the 1920s, and that reflation should be accomplished by:
(1) the Fed expanding the money supply, and
(2) the Federal government engaging in deficit spending and large-scale public works programs.
In short, during the 1930s, Fisher and the Chicago School were “pre-Keynes Keynesians,” and were, for that reason, considered quite radical and socialistic—and with good reason. Like the later Keynesians, the Chicagoans favored a “compensatory” monetary and fiscal policy, though always with greater stress on the monetary arm.
Some might object that Milton Friedman does not believe so much in a manipulative monetary and fiscal policy as in an “automatic” increase by the Federal Reserve at a rate of 3–4 percent per year. But this modification of the older Chicagoans is purely a technical one, stemming from Friedman’s realization that day-to-day, short-term manipulations by the Fed will suffer from inevitable time lags, and are therefore bound to aggravate rather than ameliorate the cycle. But we must realize that Friedman’s automatic inflationist policy is simply another variant in his pursuit of the same old Fisherine-Chicagoite aim: stabilization of the price level—in this case, stabilization over the long run.
Thus, Milton Friedman is, purely and simply, a statist-inflationist, albeit a more moderate inflationist than most of the Keynesians. But that is small consolation indeed, and hardly qualifies Friedman as a free-market economist in this vital area.
Fisher, Friedman, and the End of the Gold Standard
From his earliest days, Irving Fisher was—properly—considered to be a monetary radical and a statist for his desire to scrap the gold standard. Fisher realized that the gold standard—under which the basic money is a commodity mined on the free market rather than created by government—was incompatible with his overpowering desire to stabilize the price level. Hence, Fisher was one of the first modern economists to call for the abolition of the gold standard and its replacement by fiat money.
Under a fiat system, the currency name—dollar, frank, mark, etc. —becomes the ultimate monetary standard, and absolute control over the supply and use of these units is necessarily vested in the central government. In short, fiat currency is inherently the money of absolute statism. Money is the central commodity, the nerve center, as it were, of the modern market economy, and any system that vests the absolute control of that commodity in the hands of the State is hopelessly incompatible with a free-market economy or, ultimately, with individual liberty itself.
Yet, Milton Friedman is a radical advocate of cutting all current ties, however weak, with gold, and going onto a total and absolute fiat dollar standard, with all control vested in the Federal Reserve System.** Of course, Friedman would then advise the Fed to use that absolute power wisely, but no libertarian worth the name can have anything but contempt for the very idea of vesting coercive power in any group and then hoping that such group will not use its power to the utmost. The reasons that Friedman is totally blind to the tyrannical and despotic implications of his fiat money scheme is, once again, the arbitrary Chicagoite separation between the micro and the macro, the vain, chimerical hope that we can have totalitarian control of the macro sphere while the “free market” is preserved in the micro. It should be clear by now that this kind of a truncated, Chicagoite micro-“free market” is “free” only in the most mocking and ironic sense: it is far more the Orwellian “freedom” of “Freedom is Slavery.”
A Return to the Gold Standard
There is no question about the fact that the present international monetary system is an irrational and abortive monstrosity, and needs drastic reform. But Friedman’s proposed reform, of cutting all ties with gold, would make matters far worse, for it would leave everyone at the complete mercy of his own fiat-issuing state. We need to move precisely in the opposite direction: to an international gold standard that would restore commodity money everywhere and get all the money-manipulating states off the backs of the peoples of the world.
Furthermore, gold, or some other commodity, is vital for providing an international money—a basic money in which all nations can trade and settle their accounts. The philosophical absurdity of the Friedmanite plan of each government providing its own fiat money, cut loose from all others, can be seen clearly if we consider what would happen if every region, every province, every state, nay every borough, county, town, village, block, house, or individual would issue its own money, and we then had, as Friedman envisions, freely fluctuating exchange rates between all these millions of currencies. The ensuing chaos would stem from the destruction of the very concept of money— the entity that serves as a general medium for all exchanges on the market. Philosophically, Friedmanism would destroy money itself, and reduce us to the chaos and primitivism of the barter system.
One of Friedman’s crucial errors in his plan of turning all monetary power over to the State is that he fails to understand that this scheme would be inherently inflationary. For the State would then have in its complete power the issuance of as great a supply of money as it desired. Friedman’s advice to restrict this power to an expansion of 3–4% per year ignores the crucial fact that any group, coming into the possession of the absolute power to “print money,” will tend to . . . print it! Suppose that John Jones is granted by the government the absolute power, the compulsory monopoly, over the printing press, and allowed to issue as much money as he sees fit, and to use it in any way that he sees fit. Isn’t it crystal clear that Jones will use this power of legalized counterfeiting to a fare-thee-well, and therefore that his rule over money will tend to be inflationary? In the same way, the State has long arrogated to itself the compulsory monopoly of legalized counterfeiting, and so it has tended to use it: hence, the State is inherently inflationary, as would be any group with the sole power to create money. Friedman’s scheme would only intensify that power and that inflation.
The only libertarian solution, in contrast, is to make the State disgorge its hoards of commodity money. Franklin Roosevelt, under cover of a “depression emergency,” confiscated all of the gold held by the American people in 1933, and nothing has been said for nearly four decades about giving our gold back. In contrast to Friedman, the genuine libertarian must call upon the government to give the people back their stolen gold, which the government had seized from us in return for its paper dollars.Neighborhood Effects
Thus, in the two vital macro fields of taxation and money, Milton Friedman’s influence has been enormous—far greater than in any other area—and almost uniformly disastrous from the point of view of a genuinely free market. But even on the micro level, where his influence has been smaller and usually more beneficial, Friedman has provided to interventionists a theoretical loophole as wide as a barn door. For Friedman maintains that it is legitimate for the government to interfere with the free market whenever anyone’s actions have “neighborhood effect.” Thus, if A does something which will benefit B, and B does not have to pay for it, Chicagoites consider this a “defect” in the free market, and it then becomes the task of government to “correct” that defect by taxing B to pay A for this “benefit.”
It is for this reason that Friedman endorses government supplying funds for mass education, for example; since the education of kids is supposed to benefit other people, then the government is allegedly justified in taxing these people to pay for these “benefits.” (Once again, in this area, Friedman’s pernicious influence has been in trying to make an inefficient State operation far more efficient; here he suggests replacing unworkable public schools by public voucher payments to parents—thus leaving intact the whole concept of tax-funds for mass education.)
Apart from the vitally important realm of education, Friedman would, in practice, limit the neighborhood effects argument to such measures as urban parks. Here, Friedman is worried that if the parks were private, someone might enjoy looking at one from afar and not be forced to pay for this psychic benefit. Hence, he advocates public urban parks only. Rural parks, he feels, can be private for they can be secluded enough to force all users to pay for services rendered.
It is small comfort that Friedman himself would confine this neighborhood-effects argument to a few in stances, such as education and urban parks. In reality, this argument could be used to justify almost any intervention, and subsidy and ta x scheme. I, for example, read Mises’s Human Action; I therefore imbibe more wisdom and become a better person; by becoming a better person, I benefit my fellow man; yet, hang it, they are not being forced to pay for those benefits! Shouldn’t the government tax these people and subsidize me for being so worthy as to read Human Action?
Or, to take another example, whether Women’s Libbers like it or not, many men obtain a great deal of enjoyment from watching girls in mini-skirts; yet, these men are not paying for this enjoyment. Here is another neighborhood effect remaining uncorrected! Shouldn’t the men of this country be taxed in order to subsidize girls to wear mini-skirts?
There is no point in multiplying examples; they proliferate almost endlessly, and expose the total absurdity and the pervasiveness of Chicagoite neighborhood-effect concessions to statism. The only reply that Chicagoites have been able to make to this reductio ad absurdum is that they wouldn’t carry government intervention that far, though they concede the logic. But why not? By what standard, by what criterion, do they stop at parks and schools? The point is that there is no such criterion, and this only points up the intellectual bankruptcy, the lack of logical rigor, at the core of most current-day economics and social science—Friedmanism included.The Impact of Friedman
And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all. Even in the micro sphere, Friedman’s theoretical concessions to the egregious ideal of “perfect competition” would permit a great deal of governmental trust-busting, and his neighborhood-effect concession to a government intervention could permit a virtual totalitarian state, even though Friedman illogically confines its application to a few areas. But even here, Friedman uses this argument to justify the State’s provision of mass education to everyone.
But it is in the macro sphere, unwisely hived off from the micro by economists who remain after sixty years ignorant of Ludwig von Mises’s achievement in integrating them, it is here that Friedman’s influence has been at its most baleful. For we find Friedman bearing heavy responsibility both for the withholding tax system and for the disastrous guaranteed annual income looming on the horizon. At the same time, we find Friedman calling for absolute control by the State over the supply of money—a crucial part of the market economy. Whenever the government has, fitfully and almost by accident, stopped increasing the money supply (as Nixon did for several months in the latter half of 1969), Milton Friedman has been there to raise the banner of inflation once again. And wherever we turn, we find Milton Friedman, proposing not measures on behalf of liberty, not programs to whittle away the Leviathan State, but measures to make the power of that State more efficient, and hence, at bottom, more terrible.
The libertarian movement has coasted far too long on the intellectually lazy path of failing to make distinctions, or failing to discriminate, of failing to make a rigorous search to distinguish truth from error in the views of those who claim to be its members or allies. It is almost as if any passing joker who mumbles a few words about “freedom” is automatically clasped to our bosom as a member of the one, big, libertarian family. As our movement grows in influence, we can no longer afford the luxury of this intellectual sloth. It is high time to identify Milton Friedman for what he really is. It is high time to call a spade a spade, and a statist a statist.
- 1. Henry C. Simons, A Positive Program for Laissez Faire: Some Proposals for a Liberal Economic Policy (Chicago: University of Chicago Press, 1934).
- 2. In this article, I am confining discussion to the politico-economic, and omit- ting the technical problems of economic theory and methodology. It is in the latter where Friedman has been at hi s worst, for Friedman has managed to change the older Chicagoan methodology, in its essence Aristotelian and ra- tionalist, to an egregious and extreme variant of positivism.
- 3. For an excellent introduction to the Austrian view, see of F.A. Hayek, Individualism and the Economic Order (Chicago: University of Chicago Press, 1948), chap. 5.
- 4. Ludwig von Mises, The Theory of Money and Credit, trans. H.E Batson (Indianapolis, Ind.: Liberty Classics, 1980).
- 5. There is a charming anecdote about the distinguished industrialist Charles F. Kettering. Visiting the hospital bed of a friend who was complaining about the growth of government, Kettering told him “Cheer up Jim. Thank God we don’t get as much government as we pay for!”
- 6. Milton Friedman and George J. Stigler, Roofs or Ceilings? (Irvington-on- Hudson, N.Y.: Foundation for Economic Education, 1946), p. 10.
- 7. For a further critique of the Friedman-Nixon guaranteed income doctrine, see Murray N. Rothbard, “The Guaranteed Annual Income,” The Rational Individualist (September 1969); and Henry Hazlitt, Man vs. The Welfare State (New Rochelle, N.Y.: Arlington House, 1969), pp. 62–100.
- *. *Rothbard correctly predicted that this Friedman proposal would be part of the 1972 presidential campaign. Interestingly, and tellingly, it was proposed by Nixon’s Democrat opponent, Senator George McGovern. Voters considered it to be extremely radical, and McGovern was overwhelmingly defeated.—Ed.
- 8. For an empirical demonstration of this relationship, see C.T. Brehm and T.R. Saving, “The Demand for General Assistance Payments,” American Economic Review 54, no. 6 (December 1964), pp. 1002–18.
- 9. New York Times (April 13, 1970).
- 10. This was the same principle as the one guiding the Charity Organization Society in nineteenth-century England. That classical-liberal organization “believed that the most serious aspect of poverty was the degradation of the character of the poor man or woman. Indiscriminate charity only made things worse; it demoralized. True charity demanded friendship, thought, the sort of help that would restore a man’s self-respect and his ability to support himself and his family.” Charles Loch Mowat, The Charity Organization Society (London: Methuen, 1961), p. 2
- 11. Welfare Plan of the Church of Jesus Christ of Latter-Day Saints (The Gen-
eral Church Welfare Committee, 1960), p. 48.
- 12. Welfare Plan, pp. 1–2.
- 13. Irving Fisher, The Stock Market Crash—And After (New York: Macmillan, 1930).
- 14. Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, N.J.: Princeton University Press, 1963)
- 15. See Murray N. Rothbard, America’s Great Depression (Princeton, N.J.: D. Van Nostrand, 1963), for a contrasting view of the 1920s. More on the Fried- manite vs. Austrian view of the business cycle can be found in Murray N. Rothbard, “The Great Inflationary Recession Issue: ‘Nixonomics’ Explained,” The Individualist (June 1970), pp. 1–5.
- **. This is, in fact, exactly what happened within a few years of this article’s original publication. See Murray N. Rothbard, What Has Government Done To Our Money? (Auburn, Ala.: Ludwig von Mises Institute, 1990).—Ed.
With the prices of everything rising at historic rates, no issue is shaping politics more right now than inflation. Unfortunately for Americans, Republicans in Washington appear no more serious on the Federal Reserve than the Biden Administration.
What lessons can be learned from the past? How might the Biden Administration respond? What can be done on the issue? In this Radio Rothbard, Ryan McMaken and Tho Bishop dive into the politics of inflation.Recommended Reading
"How Easy Money Inflated Corporate Profits" by Brendan Brown: Mises.org/RR_65_A
"The Economy May Be Finally Peaking, and the Fed Won't Help Matters" by Brendan Brown: Mises.org/RR_65_B
"How Asset Price Inflation Is Different from Goods Price Inflation" by Brendan Brown: Mises.org/RR_65_C
"Monetary Inflation and Price Inflation" by Robert P. Murphy: Mises.org/RR_65_D
"Ending Fiat Money Won't Destroy the State" by Ryan McMaken: Mises.org/RR_65_E
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
When we ask ourselves the question, “Can states survive without fiat currency?” the answer is clearly yes.
Original Article: "Ending Fiat Money Won't Destroy the State"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
In this week’s column, I’d like to discuss two arguments Murray Rothbard gives that respond to influential criticisms of the free market. His answers to the two arguments follow a common strategy. In each case, he rejects the key premise of the argument.
The first of these arguments has to do with what are called “public” or “collective” goods. It may well be, supporters of the argument claim, that the market can supply efficiently most goods and services. But it cannot supply public goods, such as defense, that are nonrivalrous and nonexcludable. A nation that installs an antimissile defense system, for example, will necessarily protect the whole country, not just individuals who pay for the service of defense. Furthermore, people can’t be excluded from the good: a supplier of the good can’t say to people, “If you refuse to pay for the good, we won’t supply it to you.”
Rothbard’s response is characteristically radical. He denies that goods of this kind exist. He says,
Collective consumption goods, according to Samuelson, are those “which all enjoy in common in the sense that each individual's consumption of such a good leads to no subtraction from any other individual’s consumption of that good.”… we may go further and state that no goods would ever fit into Samuelson’s category of “collective consumption goods.”… “National defense” is surely not an absolute good with only one unit of supply. It consists of specific resources committed in certain definite and concrete ways—and these resources are necessarily scarce. A ring of defense bases around New York, for example, cuts down the amount possibly available around San Francisco. Furthermore, a lighthouse shines over a certain fixed area only. Not only does a ship within the area prevent others from entering the area at the same time, but also the construction of a lighthouse in one place limits its construction elsewhere. In fact, if a good is really technologically “collective” in Samuelson’s sense, it is not a good at all, but a natural condition of human welfare, like air—superabundant to all, and therefore unowned by anyone. Indeed, it is not the lighthouse, but the ocean itself—when the lanes are not crowded—which is the “collective consumption good,” and which therefore remains unowned. Obviously, neither government nor anyone else is normally needed to produce or allocate the ocean.
(Rothbard is talking about Paul Samuelson, the most important theorist of public goods.)
When you first consider this argument, you might think it is open to an objection. Even if there aren’t goods that are completely consumed jointly and are absolutely nonrivalrous, aren’t goods like defense more or less like that? Is Rothbard saying that if a concept doesn’t have instances that precisely meet its terms, it is worthless? That seems overly strict.
This objection ignores the point of Rothbard’s remark. He is saying that unless you use an exact definition that doesn’t rely on individual judgments to apply, you have no scientific basis on which to proceed. You are then in the realm of value judgments, and economics is supposed to be a value-free science. He would say to economists who make such judgments, “You should make clear the value judgments you are using, rather than pretend to be objective scientists.”
Rothbard refutes with equal quickness the other argument I want to consider. It’s often claimed by opponents of the free market that workers are coerced to work for capitalist employers. They aren’t legally compelled to do so, but if they don’t, they will starve. What kind of “freedom” is this?
Rothbard’s response is that even if it’s true that workers have no reasonable alternative to working for capitalist employers (and this is a very doubtful assumption), there is nothing coercive about this situation. An employer who offers someone a job at a certain wage is simply making an offer, even if the offer is a poor one. A worker who takes the offer has judged that it is better for him to accept the offer than to refuse it. The offer does not worsen his situation. If the employer made no offer, he would be leaving the worker in his current state of affairs. Rothbard says this:
What exactly has the employer [who won’t offer higher wages] done? He has refused to continue to make a certain exchange, which the worker preferred to continue making. Specifically, A, the employer, refuses to sell a certain sum of money in exchange for the purchase of B's labor services. B would like to make a certain exchange; A would not. The same principle may apply to all the exchanges throughout the length and breadth of the economy. A worker exchanges labor for money with an employer; a retailer exchanges eggs for money with a customer; a patient exchanges money with a doctor for his services; and so forth. Under a regime of freedom, where no violence is permitted, every man has the power either to make or not to make exchanges as and with whom he sees fit. Then, when exchanges are made, both parties benefit…. “Economic power,“ then, is simply the right under freedom to refuse to make an exchange. Every man has this power. Every man has the same right to refuse to make a proffered exchange.
Defenders of the “economic power” argument might say that Rothbard has made an unsupported assumption. He is assuming that the situation in which capitalists own the “means of production” and workers have the alternative of working for them or starving is just. For reasons that Rothbard and other economists have explained at length, the objection doesn’t accurately portray the real situation. But even if it did, the objection is irrelevant. Certainly, if the situation is unjust, that is a good objection to it, but then the objection is to that injustice, not to the offer by the employer. It’s essential when you are looking at an argument to consider the argument on its own terms, rather than turn from it to other arguments.
Friday's jobs report was weak, but the most alarming datapoint is that real wages are plummeting.
Original Article: "Real Wages Plummet as Inflation Hits the US Recovery"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
For all the great value in Heather Heying and Bret Weinstein’s new book, A Hunter-Gatherer’s Guide to the 21st Century, we find plenty of enmity toward markets and market forces. The market’s avarice and ravenous desire for growth is bad for the planet, and increasingly bad for us; it distorts incentives in health, in medicine, in education, and even mate selection; it doesn’t know what we “truly” want and induces us into bad choices: “What we ‘want,’ and what the market is glad to hand us, is short-term gratification that rarely accounts for what is best for us long term. A market that is unregulated will tend to embody the naturalistic fallacy—the mistaken idea that ‘what is’ in nature is ‘what ought’ to be. When we let such unregulated markets lead, we are fed directly into the naturalistic fallacy. Just because you can doesn’t mean that you should” (final chapter).
As a first-pass public choice argument, we should be very skeptical about such propositions and what they practically involve. Individually, flawed as we are and with limited knowledge about the world and ourselves, we might not know what is objectively “best for us long term.” But the relevant comparison imagined is that somebody else does—and that that somebody can identify it, correctly trade it off against other values and goals we may have, and ultimately enforce it. It’s the mistaken belief to think that governments—that enlightened agency that performs the “regulating” part—can wield magic wands, know what is unknowable for the rest of us, and force us (or nudge us … ) into behaving better. Oh, and that once such a pristine corrective system is in place, it won’t deteriorate into power plays, paternalism, or become corrupted by ideologies or special interests of one kind and another.
The counterfactual against which “poor outcomes in unregulated markets” are pitted against is, to put it mildly, laughably unreal.
As a deeper level, it’s not clear what this argument even identifies. Taken at its best, it means that there’s a conflict between what we think is best for ourselves in the near future versus the longer perspective. I may know that, subjectively, my highest desire is to stay fit over the long term by hitting the gym; this desire is undermined by how comfortable the sofa feels right now, and how yummy that delivery pizza is. This conflict between long-term and short-term ends across different domains is, if anything, a human universal: regardless of social organization or market structure, this conflict emerges. It's not clear that it is created or made worse by markets/greed/ruthless capitalism.
Making matters worse, presumably, the fast-food chain and the sofa maker are equally in competition with the gym or workout gear retailer for the dollars that mark my final spending decision. Why would *the market* only operate on one side of that equation (the short term)? To think that it is the only thing that incites us away from what we today think is beneficial in the long term in favor of things that are satisfactory short term is an odd view of the human condition.
The logic of the market pushes production and consumption patterns toward fulfilling our aims in better, cheaper, or faster ways. It is, at worst, agnostic about whether the things we want are good or bad, healthy or not, beneficial or not—and whether they're good, healthy, or beneficial over short, medium, or long time horizons.
What's fascinating is that it comes out of two eminent evolutionary biologists. This otherwise insightful power couple is ridiculously close to grasping how very little separates economics from the subject of their own studies: ecology. I've made that connection explicit before on mises.org, even pointing to the shared roots of the words. Here are the main points of similarity:
- Interventions don’t usually work, and they often do many more things than their proponents initially foresaw.
- Complex systems are too complex to do much about: the correct policy conclusion from that is to largely leave them alone, or at least to not meddle with them more so than you think absolutely necessary. Micromanaging complex, adaptive systems is a bad idea.
- Everything involves tradeoffs: getting more of one thing means getting less of another or it requires you to expand the production possibilities frontier.
On the last one, interestingly enough, Heying and Weinstein correctly observe in the book that we should lean against the possibility of such explanations/interventions whenever they’re proposed: “We can easily intuit that, if you’re a deer, in order to make a larger set of antlers, something else has to give. You’ve got to borrow from elsewhere in order to get bigger antlers—perhaps you lose some bone density, or spend down other reserves. Under some conditions, perhaps you could just start eating more, and grow more antlers, but this raises the question: if it were that simple, and eating more benefited you in this easy way, what prevented you from doing it before?”
If there is some epistemic or institutional reason why markets can’t solve (or improve upon) an imagined problem, there is little reason to think that a real-world government could either. An ideal, uncorrupt, perfectly knowledgeable government might—remember Madison’s “If men were Angels”—but is that really on the table?
That’s the position in which most intelligent-design governments find themselves—of seeing a flaw and deciding to “fix” it. The correct question, from both an evolutionary and economic perspective, is the one posed by Heying and Weinstein: If it were so easy, “what prevented you from doing it before?” The market test, like ecology’s evolutionary test, tends toward optimization; if it wasn’t doing something, there probably were good reasons against doing it or insurmountable obstacles in the way.
Evolution in ecology, like ruthless competition in economics, leaves very little scraps on the table. If it were possible to expand the ecological production possibilities frontier already, nature is equipped with the two ingredients required to have already found it: adaption and time. If you think you've found something superfluous in nature, like the large intestines of humans or the appendix that seems to give modern humans nothing but trouble, it’s much more believable that your analysis overlooked something crucial.
Markets do expand, economies do grow, and nothing characterizes our modern times more than more and different new things. The point is that the trial and error involved in their generation—like genetic mutation, gene flow, and drift in evolution—set the stage for adaptive selection.
This view of markets as morally corrupt is widespread, old, and largely inaccurate. Largely, I don’t blame Heying and Weinstein for these mistaken beliefs about markets, as their expertise lies in an adjacent field. They do, however, have the tools to see through their own mistake, and since they expertly wield that tool in their own field of evolution, I have lots of hope that they’ll come around on this antimarket point too.
After many months of covid stimulus, there's a bonanza in US pandemic profits. But unlike price inflation, these profits really are likely to be transitory.
Original Article: "How Easy Money Inflated Corporate Profits"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Enough is enough. It is time to stop wearing masks, or at the very least to eliminate mask mandates in all settings.
This is especially urgent for children in schools and universities, who suffer the effects of masks for long hours each day despite being at very exceedingly low risk for death or serious illness from Covid.
We have a responsibility, once and for all, to reject the ludicrous, ever-shifting narratives underpinning masks as effective impediments to the spread of Covid infections.
Seriously people—STOP BUYING MASKS! They are NOT effective in preventing general public from catching #Coronavirus
—former US Surgeon General Jerome Adams in February 2020.
The story changed from "masks don't work," to "masks may work," to "masks work and you must wear one." Now the narrative switches yet again: "cloth masks don't work, so you should wear a surgical or 'well-fitted' mask," or even wear two!
Note that even as Covid evolves into a less dangerous omicron variant, we are supposed to increase the hysteria level by wearing masks intended for surgeons maintaining a sterile environment over open wounds. We are told this by the same political, medical, and media figures who have "frequently wrong but never in doubt" about all things Covid over the past two long years. And they spoke with just as much bogus certainly then as they do now.
Perversely, the Biden administration recently ordered 400 million surgical N95 masks for distribution across the country. Since N95 masks are considered disposable, and meant to be worn at most perhaps 40 hours, it is unclear what happens in a week or two when 330 million Americans run out of their "free" personal protective equipment.
The UK has sensibly ended its mask mandates, both in public places (offices and other workplaces, bars, restaurants, sporting events, theaters) and thankfully schools. One young university student broke down in tears at the news, lamenting the inhumanity of her experience over the past two years. As British Health Secretary Savid Javid stated, "We must learn to live with Covid in the same way we live with flu."
The arguments against masks are straightforward.
- Masks don't work. Or at least cloth masks don't.
Even the CDC now admits what Dr. Anthony Fauci told the world in February 2020: cloth masks don't work and there is no reason to wear one:
"The typical mask you buy in the drug store is not really effective in keeping out virus, which is small enough to pass through material. It might, however, provide some slight benefit in keep out gross droplets if someone coughs or sneezes on you."
I do not recommend that you wear a mask, particularly since you are going to a very low risk location.
CNN's dubious medical expert Dr. Lena Wen, previously an uber-masker, now tells us cloth masks are "little more than facial decorations. And heroic skeptic Dr. Jay Bhattacharya cites both a Danish study and a Bangladeshi study which found cloth masks show little efficacy in preventing Covid.
Are we seriously prepared to wear tight and uncomfortable surgical masks all day to evade Omicron?
- Masks are filthy.
Humans lungs and our respiratory system are designed to inhale nitrogen and oxygen and exhale carbon dioxide. Carbon dioxide is literally a waste product, removed from the blood via our lungs. Masks may not trap injurious levels of carbon dioxide against our nose and mouth, but they certainly get filthy very quickly unless changed constantly. They also encourage mouth breathing, which can cause "mask mouth" symptoms including acne, bad breath, tender gums, and lip irritation.
Why would we ever interfere with natural breathing unless we felt sick, displayed symptoms, and were worried about infecting others? And in that case, why not just stay home?
- Masks are dehumanizing.
Humans communicate verbally and nonverbally, and masks impede both forms. Masks muffle and distort our words. And our expressions are important cues to everyone around us; without those cues communication and understanding suffer. Infants and toddlers may be most affected, as a lack of facial engagement with parents and loved ones impedes the human connections and attachments formed during childhood.
Perhaps most disturbing, however, are the symbolic effects when millions of Americans dutifully wear masks based on flimsy evidence provided by deeply unimpressive people. Facelessness, the lack of individual identity, personality, and looks, is inherently dehumanizing and dystopian. Like prison or military uniforms, they reduce our personal characteristics. Mask are muzzles, symbols of rote acquiescence to an ugly new normal nobody asked for or voted for.
- Risk is inevitable.
Risk is omnipresent, and heavily subjective (e.g. covid risk varies enormously with age and comorbidities). Nobody has a right to force interventions like masks onto others, just as nobody has a right to a hypothetical germ-free landscape. Exhalation is not aggression, short of purposefully attempting to sicken others. People wearing masks arguably shed slightly fewer covid virus particles than those not, but this does not justify banning the latter from public life. As always, the overwhelming burden of justification for any intervention--including mask mandates—must rest on those proposing it, not those opposing it.
In sum, Americans are not children. Tradeoffs are part of every policy, whether government officials admit this or not. We know how to coexist with flu, just as we live with countless bacteria and viruses in our environment. We will similarly coexist with Covid. The goal is not to eliminate germs, and Zero Covid is an absurdity. A healthy immune system, built up through diet, exercise, and sunlight will always be the best frontline defense against communicable disease. But diet, exercise, and sunlight cannot be outsourced to health officials or mandated by politicians.
Whatever slight benefits masks may provide are a matter for individuals to decide for themselves. People who feel sick with symptoms should stay home. We can all wash our hands frequently and thoroughly. Otherwise it is time for Americans to assert themselves against the dubious claims and non-existent legality of government Covid measures.
It is time to get back to normal life, and that starts with visible human faces.
Recently, a relatively new economics called behavioral economics (BE) has started to gain popularity. Its practitioners, such as Daniel Kahneman, Vernon Smith, and Richard Thaler, were awarded Nobel Prizes for their contribution in the field of BE.
The BE framework emerged because of dissatisfaction with the neoclassical theory regarding consumer choices. In the neoclassical theory, individuals are presented as if a scale of preferences is hard-wired in their heads. Regardless of anything else, this scale remains the same all the time.
The practitioners of BE hold that this is unrealistic. To make the mainstream framework more realistic they are of the view that there is the need to introduce psychology into economics.
It is held that individual’s emotional state is a major factor in their decision process. If consumers are becoming more optimistic regarding the future then this is going to be an important message to businesses regarding investment decisions.
According to BE researchers whether consumers are generally patient or impatient determines whether or not they are inclined to spend or save today. If they are more patient and save more, then this can generate funds for entrepreneurs’ new investment projects.
Behavioral economists emphasize the importance of personality. An emphatic person is regarded more likely to make altruistic choices. Impulsive people are more likely to be impatient and not so good at saving up for their retirement. Venturesome people are more likely to take risks—they will be more likely to gamble.1
Whilst the BE criticism of mainstream economics is valid, the question arises whether BE solves the issue of unchanged consumer preferences and presents consumers as real people and not as human machines.
We suggest that the key here is the definition of what human beings are all about. According to the BE, people are not rational in a sense that they are using reason in various decisions. According to BE practitioners, the key driver of consumer choices are emotions. On this, the Nobel Laureate Vernon Smith holds, "People like to believe that good decision making is a consequence of the use of reason, and that any influence that the emotions might have is antithetical to good decisions. What is not appreciated by Mises and others who similarly rely on the primacy of reason in the theory of choice is the constructive role that the emotions play in human action."
Once the importance of reason is dismissed, what is then left is treating human beings like objects. According to this way of thinking, human action is not navigated by reason but by outside factors that act upon individuals. By means of a given stimulus, one can then observe various human reactions and draw all sorts of conclusions regarding the world of economics. According to Ludwig von Mises, however, "It is impossible to describe any human action if one does not refer to the meaning the actor sees in the stimulus as well as in the end his response is aiming at."
By rejecting the importance of the human reason, behavioral and experimental economists treat human beings as another animal. In fact, some of the experimental economists are conducting various experiments on pigeons and rats in order to verify various propositions of mainstream economics.Why Psychology Will Not Make Economics More Realistic
Psychology is an important constituent in behavioral and experimental economics on the ground that human action and psychology are interrelated disciplines. There is however, a distinct difference between economics and psychology. Psychology deals with the content of ends. Economics, however, starts with the premise that people are pursuing purposeful conduct. It does not deal with the particular content of various ends.
According to Murray N. Rothbard, "A man's ends may be 'egoistic' or 'altruistic', 'refined' or 'vulgar'. They may emphasize the enjoyment of 'material goods' and comforts, or they may stress the ascetic life. Economics is not concerned with their content, and its laws apply regardless of the nature of these ends," whereas "[p]sychology and ethics deal with the content of human ends; they ask, why does the man choose such and such ends, or what ends should men value?"
Therefore, economics deals with any given end and with the formal implications of the fact that men have ends and utilize means to attain these ends. Consequently, economics is a separate discipline from psychology. By introducing psychology into economics, one obliterates the generality of the theory.
Contrary to mainstream thinking, the Austrian school of economics always held that valuations do not exist by themselves regardless of the things to be valued. On this Rothbard wrote, “There can be no valuation without things to be valued.” Valuation is the outcome of the mind valuing things. It is a relation between the mind and things.
Now, if preferences are constant then it is possible to compress these preferences into a mathematical formulation, i.e., one can capture people's wishes by means of a formula, so it is held. This is labelled by mainstream economics as a utility function.
Obviously, people do change their minds, so it is not surprising that BE practitioners have "discovered" that real people's behaviour systematically deviates from the one of the human machine as depicted by the mainstream economics.The Misesian Framework of Consumer Choices
Following the Mises’s framework of thinking, we can ascertain the distinguishing characteristic and the meaning of human action. For instance, one can observe that people are engaged in a variety of activities. They may be performing manual work, driving cars, walking on the street or dining in restaurants. The distinguishing characteristic of these activities is that they are all purposeful.
Furthermore, we can establish the meaning of these activities. Thus, manual work may be a means for some people to earn money, which in turn enables them to achieve various goals like buying food or clothing. Dining in a restaurant can be a means for establishing business relationships. Driving a car may be a means for reaching a particular destination.
People operate within a framework of ends and means; they use various means to secure ends. We can conclude from the above that actions are conscious and purposeful.
The knowledge that human action is conscious and purposeful is certain and not tentative. Anyone who tries to object to this contradicts himself for he is engaged in a purposeful and conscious action to argue that human actions are not conscious and purposeful.
Various conclusions that are derived from this knowledge of conscious and purposeful action are valid as well, implying that there is no need to subject them to various laboratory tests as is done in the experimental economics. For something that is certain knowledge, there is no requirement for any empirical testing.
Behavioral and experimental economists such as Nobel Laureate Vernon Smith, reject however the view that human actions are conscious and purposeful. According to Smith,
He [Mises] wants to claim that human action is consciously purposeful. But this is not a necessary condition for his system. Markets are out there doing their thing whether or not the mainspring of human action involves self-aware deliberative choice. He vastly understates the operation of unconscious mental processes. Most of what we know we do not remember learning, nor is the learning process accessible to our conscious experience—the mind…. Even important decision problems we face are processed by the brain below conscious accessibility.Means-Ends and Consumer Choices
Purposeful action implies that people assess or evaluate various means at their disposal against their ends. Individual ends set the standard for human valuations and thus choices. By choosing a particular end, an individual also sets a standard of evaluating various means.
If my end is to provide a good education for my child, then I will explore various educational institutions and will grade them in accordance with my information regarding the quality of education that these institutions are providing. Observe that my standard of grading these institutions is my end, which is to provide my child with a good education.
Alternatively, if my intention is to buy a car, there are all sorts of cars available in the market, and as such, I have to specify to myself the specific ends that the car will help me to achieve. Since an individual's ends determine his evaluations of means and thus his choices, it follows that the same good will be valued differently by the individual as a result of changes in his ends.
At any point in time, people have an abundance of ends that they would like to achieve. What limits the attainment of various ends is the scarcity of means. Hence, once more means become available, a greater number of ends, or goals, can be accommodated—i.e., people's living standards will increase.
Another limitation on attaining various goals is the availability of suitable means. Thus to quell my thirst in the desert, I require water. Diamonds in my possession will be of no help in this regard.
Observe that the means-end framework is the essence of any human action whether the action is in accordance with what is regarded as rational conduct, or not.
Furthermore, once it is accepted that human actions are conscious and purposeful it will not make much sense to extract preferences in a laboratory, or by means of questionnaires, since only something that is constant can be extracted.Conclusions
By casting doubt on the notion that reason is the main faculty that navigates human actions behavioral economics emphasizes the importance of emotions as the key driving factor of human actions.
By means of psychological analysis, the practitioners of behavioral economics have supposedly demonstrated that people’s conduct is irrational.
Consequently, the practitioners of behavioral economics may have unintentionally laid the foundation for the introduction of government controls to "protect" individuals from their own irrational behavior.
For instance, wide fluctuations in financial markets can be attributed to irrational behavior, which can damage the economy. Hence, it will make a lot of sense to restrain this irrationality by a dosage of restraining regulations.
- 1. Michelle Baddley, Behavioural Economics: A Very Short Introduction (Oxford: Oxford University Press, 2017).
Once, when my newborn son was barely back from the hospital, I was holding him in my arms with my wife looking on. I asked him, "Can you say marginal rate of substitution?"
My wife recognized that as a bit of economics jargon and accused me of trying to turn our son into an economist like me.
While it was said as a little joke between the two of us, the longer I teach and write, the more I seriously wish people actually thought in such marginal terms, because many of the times that we confuse ourselves and others are due to our failure to do so.
The marginal rate of substitution (MRS) is the term describing the rate at which a person would willingly give up one good or service in exchange for another, from his current situation (i.e., at the current margin of choice). Its focus is on the trade-offs, made necessary by scarcity, that individuals are willing to make between alternatives, a focus often absent in how we reason, which leads to serious misunderstandings and impaired choices.
The word "need" is a prime example of the failure to think in terms of marginal trade-offs.
Since many choices forced on us by scarcity are between different "needs," calling something a need diverts attention from the actual choices faced. For instance, a person's need for water to drink is irrelevant to virtually every choice they make about water. If the price of water rose from its current level, they would not cut back appreciably on water to drink. Instead, they would cut back on some of the many low-valued uses they put it to (and all of us frequently treat water as nearly valueless, because it is cheaply available, and we use it whenever the benefits of doing so exceed its very low price). That is, people's water needs will not be given up, so discussing water in terms of need adds confusion rather than insight. The same is true for innumerable other supposed needs.
The word "need" is also typically used to imply that someone ought to have something they don't. Therefore, "need" is used to imply that they should therefore be given the good (which is why "need" in political discourse really means "I want it but I do not want to pay for it"). But if you had sufficient resources at your disposal, you would buy something if you really needed it. Further, since to give you a good requires that someone else must have the resources taken from them, to talk in terms of need blinds people to the real choice: how much should A's supposed need force B to pay for A's benefit—when A will not.
The confusion generated by talking in terms of need is often compounded by using the word "we," as well, when things are to be provided to some from tax revenue raised from others. For example, people often argue for goods and services that "we" should provide. But the largest source of tax revenue is the income tax, which comes disproportionately from higher-income earners, while a large number pay zero income taxes (e.g., many students and retired people) or even negative income taxes (particularly those who receive EITC refunds).
As a result, when most people say "we" should pay for something, it really means "you, not I," making such arguments highly misleading, if not duplicitous. And when such spending will be financed not by current taxes but by deficits—which are just delayed taxes whose incidence is kept unknown until after the fact—the same argument applies. One cannot correctly analyze such programs or proposals without knowing who will actually be forced to pay how much, so we can recognize the real marginal trade-offs.
Misusing the word "need" is just one example of the problems caused by thinking in categorical language. For instance, someone might say that good A is more valuable than good B (e.g., food as a category is more important than sleep as a category). However, that is not true: the relative value of various goods in reality depends greatly on circumstances and preferences (e.g., as anyone who does not want to get up when their alarm goes off in the morning is aware, sleeping a few more minutes may often be more valuable to them than eating in the next few minutes). Basing decisions on such erroneous premises makes mistakes inevitable.
Failing to think at the appropriate margins of choice is a staple of politics, with adverse effects. For instance, politicians are always telling people what they are for. But that is typically not what citizens really want to know, since politicians are all "for" pretty much the same things (e.g., peace on earth, our "general welfare," Mom and apple pie, etc.).
Since politics consists of trade-offs, what we really want to know is the rate at which they would trade one thing they are for against other things they are also for, or the rate at which they would accept what they are against in order to get more of what they are for (i.e., at what price in other things that they are for will they "sell us out" on a particular issue). But what they are officially for or against gives us little insight into any of that.
Polls, after money the lifeblood of politics, also typically fail to ask the right marginal questions. One may ask, "Should we add another lane to the 101 freeway in the San Fernando Valley?" But the answer depends on what it is going to cost the person asked. Without knowing what costs respondents think they will pay when they answer, we have almost no idea what a yes or no response means. For that matter, even if the question specifies a cost of, say, $200 per year, we still can't be sure of what their answer means, because they may be answering based on the often very different costs they actually expect to bear, rather than the cost specified in the poll question.
The deceptive mirage of central planning is also a result of failing to think in marginal terms. Those who find the cure for everything in planning ignore the fact that market prices reveal people's MRS between goods, and without market processes to reveal that information, it is unknowable to planners. Central planning, which throws away the process by which relevant trade-offs are revealed, must throw away the wealth and mutual gain that acting on otherwise unknowable information makes possible, as both Mises and Hayek demonstrated.
Assertions of objective efficiency, and the regulatory impositions based on them, represent another failure to think at the margin. Preferences and circumstances differ, and anything that could alter the value of the expected marginal benefits or the marginal opportunity costs of a choice to a decisionmaker could change what people deem efficient. As a result, to regulate away allegedly inefficient options is either redundant (if an option is considered inefficient by everyone, no one will use the option anyway) or itself inherently inefficient (forcing people away from what they consider more beneficial choices).
For instance, where I live, air conditioners cannot be sold if they have less than a minimum level of thermal efficiency. But for someone cooling an infrequently used cabin, the added cost of the more energy-efficient air conditioner may easily be more than the value of the energy saved during use. And there are many other cases where supposedly technically inefficient choices are economically efficient (e.g., the fact that most of us choose to live in our current homes and drive our current cars, instead of "state of the art" new models).
Not only do objective efficiency claims mislead, but they also serve as cover for assertions that someone other than the owner of a good should be given the power to decide for them. Their reasoning is that since the owner isn't making the efficient choice (an oxymoron, from the owner's perspective) their judgment should "obviously" be substituted for that of owners—for their own good. But what they really mean is that effective ownership should be taken away from current owners and given for free to those who "know better," which is just a thinly disguised form of theft.
Failing to think at the margin makes some people blind to why trade is mutually beneficial. They think of market exchanges as involving equal values, so that no wealth is created by supposedly quid pro quo exchanges, rather than recognizing that exchanges take place only when all parties expect their marginal benefit to exceed their marginal cost (i.e., when they have different marginal rates of substitution between the goods or services involved). Failing to see the gains from trade, they also fail to see the harm imposed on society from restricting or penalizing it, a fallacy behind a host of very damaging restrictions on voluntary arrangements.
Marginal misunderstandings appear in all sorts of decisions, especially about public policy (especially because people have far worse incentives to think carefully when they are spending other people's money rather than their own).
For example, the current push to ensure that everyone has health insurance is supposedly motivated by the desire for everyone to have access to health care, but access to health care is a vastly different issue than health insurance (just as the absence of food insurance does not mean people will not eat). Food stamps are supported by people who don't trust recipients to spend assistance on food, yet by substituting for money that would have been spent on food, food stamps act just like money for most recipients, doing nothing toward the underlying rationale for their use.
And the list goes on.
One need not talk in terms of marginal rates of substitution to avoid confusion about issues such as these. However, thinking at the margin about the innumerable choices scarcity has faced us with is a valuable antidote against mistaken reasoning.
It is particularly important insurance against those who would "sell" some political panacea with misleading language and arguments. Given the vast sea of political rhetoric that uses just such misrepresentation and misdirection to win political power at the expense of individual rights (at an MRS that is appalling to lovers of liberty), it is an important part of the arsenal against the continuing expansion of the state. After all, only such careful thinking can force its proponents to defend their real positions to citizens, rather than baffling and befuddling, as they do now.
This article was originally published October 2007.
When one studies the history of money, one cannot help wondering why people should have put up for so long with governments exercising an exclusive power over 2,000 years that was regularly used to exploit and defraud them. This can be explained only by the myth—that the government prerogative was necessary—becoming so firmly established that it did not occur even to the professional students of these matters (for a long time including the present writer)1 ever to question it. But once the validity of the established doctrine is doubted, its foundation is rapidly seen to be fragile.
We cannot trace the details of the nefarious activities of rulers in monopolizing money beyond the time of the Greek philosopher Diogenes, who is reported, as early as the 4th century BC, to have called money the politicians' game of dice. But from Roman times to the 17th century, when paper money in various forms begins to be significant, the history of coinage is an almost-uninterrupted story of debasements, or the continuous reduction of the metallic content of the coins and a corresponding increase in all commodity prices.History Is Largely Inflation Engineered by Government
Nobody has yet written a full history of these developments. It would indeed be all too monotonous and depressing a story, but I do not think it an exaggeration to say that history is largely a history of inflation, and usually of inflations engineered by governments and for the gain of governments—though the gold and silver discoveries in the 16th century had a similar effect.
Historians have again and again attempted to justify inflation by claiming that it made possible the great periods of rapid economic progress. They have even produced a series of inflationist theories of history,2 which have, however, been clearly refuted by the evidence: prices in England and the United States were at the end of the period of their most rapid development almost exactly at the same level as 200 years earlier. But their recurring rediscoverers are usually ignorant of the earlier discussions.Deflation in the Early Middle Ages: Local or Temporary?
The early Middle Ages may have been a period of deflation that contributed to the economic decline of the whole of Europe. But even this is not certain. It would seem that on the whole, the shrinking of trade led to the reduction of the amount of money in circulation, not the other way round. We find too many complaints about the dearness of commodities and the deterioration of the coin to accept deflation as more than a local phenomenon in regions where wars and migrations had destroyed the market and the money economy shrank as people buried their treasure.
But where, as in northern Italy, trade revived early, we find at once all the little princes vying with one another in diminishing the coin—a process that, in spite of some unsuccessful attempts by private merchants to provide a better medium of exchange, lasted throughout the following centuries until Italy came to be described as the country with the worst money and the best writers on money.
But though theologians and jurists joined in condemning these practices, they never ceased until the introduction of paper money provided governments with an even cheaper method of defrauding the people. Governments could not, of course, pursue the practices by which they forced bad money upon the people without the cruelest measures. As one legal treatise on the law of money sums up the history of punishment for merely refusing to accept the legal money,
From Marco Polo we learn that, in the 13th century, Chinese law made the rejection of imperial paper money punishable by death, and twenty years in chains or, in some cases death, was the penalty provided for the refusal to accept French assignats. Early English law punished repudiation as lese-majesty. At the time of the American revolution, non-acceptance of Continental notes was treated as an enemy act and sometimes worked a forfeiture of the debt.3Absolutism Suppressed Merchants' Attempts to Create Stable Money
Some of the early foundations of banks at Amsterdam and elsewhere arose from attempts by merchants to secure for themselves a stable money, but rising absolutism soon suppressed all such efforts to create a nongovernmental currency. Instead, it protected the rise of banks issuing notes in terms of the official government money. Even less than in the history of metallic money can we here sketch how this development opened the doors to new abuses of policy.
It is said that the Chinese had been driven by their experience with paper money to try to prohibit it for all time (of course unsuccessfully) before the Europeans ever invented it.4 Certainly European governments, once they knew about this possibility, began to exploit it ruthlessly, not to provide people with good money, but to gain as much as possible from it for their revenue.
Ever since the British government, in 1694, sold the Bank of England a limited monopoly of the issue of bank notes, the chief concern of governments has been not to let slip from their hands the power over money, formerly based on the prerogative of coinage, to really independent banks. For a time, the ascendancy of the gold standard and the consequent belief that to maintain it was an important matter of prestige, and to be driven off it a national disgrace, put an effective restraint on this power. It gave the world the one long period—200 years or more—of relative stability during which modern industrialism could develop, albeit suffering from periodic crises.
But as soon as it was widely understood some 50 years ago that the convertibility into gold was merely a method of controlling the amount of a currency, which was the real factor determining its value, governments became only too anxious to escape that discipline, and money became more than ever before the plaything of politics. Only a few of the great powers preserved for a time tolerable monetary stability, and they brought it also to their colonial empires. But Eastern Europe and South America never knew a prolonged period of monetary stability."Ever since the British government, in 1694, sold the Bank of England a limited monopoly of the issue of bank notes, the chief concern of governments has been not to let slip from their hands the power over money."
But while governments have never used their power to provide a decent money for any length of time, and have refrained from grossly abusing it only when they were under such a discipline as the gold standard imposed, the reason that should make us refuse any longer to tolerate this irresponsibility of government is that we know today that it is possible to control the quantity of a currency so as to prevent significant fluctuations in its purchasing power. Moreover, though there is every reason to mistrust government if not tied to the gold standard or the like, there is no reason to doubt that private enterprise whose business depended on succeeding in the attempt could keep stable the value of a money it issued.
Before we can proceed to show how such a system would work we must clear out of the way two prejudices that will probably give rise to unfounded objections against the proposal.The Mystique of Legal Tender
The first misconception concerns the concept of "legal tender." It is not of much significance for our purposes, but is widely believed to explain or justify government monopoly in the issue of money. The first shocked response to the proposal here discussed is usually, "But there must be a legal tender," as if this notion proved the necessity for a single, government-issued money believed indispensable for the daily conduct of business.
In its strictly legal meaning, "legal tender" signifies no more than a kind of money a creditor cannot refuse in discharge of a debt due to him in the money issued by government.5 Even so, it is significant that the term has no authoritative definition in English statute law.6 Elsewhere, it simply refers to the means of discharging a debt contracted in terms of the money issued by government or due under an order of a court.
Insofar as government possesses the monopoly of issuing money and uses it to establish one kind of money, it must probably also have power to say by what kind of objects debts expressed in its currency can be discharged. But that means neither that all money need be legal tender, nor even that all objects given by the law the attribute of legal tender need to be money. (There are historical instances in which creditors have been compelled by courts to accept commodities, such as tobacco, which could hardly be called money, in discharge of their claims for money.)7The Superstition Disproved by Spontaneous Money
The term "legal tender" has, however, in popular imagination come to be surrounded by a penumbra of vague ideas about the supposed necessity for the state to provide money. This is a survival of the medieval idea that it is the state that somehow confers value on money it otherwise would not possess. And this, in turn, is true only to the very limited extent that government can force us to accept whatever it wishes in place of what we have contracted for.
In this sense, it can give the substitute the same value for the debtor as the original object of the contract. But the superstition that it is necessary for government (usually called "the state" to make it sound better) to declare what is to be money, as if it had created the money that could not exist without it, probably originated in the naive belief that such a tool as money must have been "invented" and given to us by some original inventor. This belief has been wholly displaced by our understanding of the spontaneous generation of such undesigned institutions by a process of social evolution of which money has since become the prime paradigm (law, language, and morals being the other main instances). When the medieval doctrine of the valor impositus was in this century revived by the much-admired German Professor G.F. Knapp, it prepared the way for a policy that in 1923 carried the German mark down to one-trillionth of its former value!Private Money Preferred
There certainly can be and has been money, even very satisfactory money, without government doing anything about it, though it has rarely been allowed to exist for long.8 But a lesson is to be learned from the report of a Dutch author about China a hundred years ago, who observed of the paper money then current in that part of the world that "because it is not legal tender and because it is no concern of the State it is generally accepted as money."9
We owe it to governments that within given national territories today in general only one kind of money is universally accepted. But whether this is desirable, or whether people could not, if they understood the advantage, get a much better kind of money without all the to-do about legal tender, is an open question. Moreover, a "legal means of payment" (gesetzliches Zahlungsmittel) need not be specifically designated by a law. It is sufficient if the law enables the judge to decide in what sort of money a particular debt can be discharged.
The common sense of the matter was put very clearly 80 years ago by a distinguished defender of a liberal economic policy, the lawyer, statistician, and high civil servant Lord Thomas Henry Farrer. In a paper written in 1895, he contended that if nations
make nothing else but the standard unit [of value they have adopted] legal tender, there is no need and no room for the operation of any special law of legal tender. The ordinary law of contract does all that is necessary without any law giving special function to particular forms of currency. We have adopted a gold sovereign as our unit, or standard of value. If I promised to pay 100 sovereigns, it needs no special currency law of legal tender to say that I am bound to pay 100 sovereigns, and that, if required to pay the 100 sovereigns, I cannot discharge the obligation by anything else.10
And he concludes, after examining typical applications of the legal tender conception, that,
Looking to the above cases of the use or abuse of the law of legal tender other than the last [i.e. that of subsidiary coins] we see that they possess one character in common—viz. that the law in all of them enables a debtor to pay and requires a creditor to receive something different from that which their contract contemplated. In fact it is a forced and unnatural construction put upon the dealings of men by arbitrary power.11
To this he adds a few lines later that "any Law of Legal Tender is in its own nature 'suspect.'"12Legal Tender Creates Uncertainty
The truth is indeed that legal tender is simply a legal device to force people to accept in fulfillment of a contract something they never intended when they made the contract. It becomes thus, in certain circumstances, a factor that intensifies the uncertainty of dealings and consists, as Lord Farrer also remarked in the same context,
in substituting for the free operation of voluntary contract, and a law which simply enforces the performance of such contracts, an artificial construction of contracts such as would never occur to the parties unless forced upon them by an arbitrary law.
All this is well illustrated by the historical occasion when the expression "legal tender" became widely known and treated as a definition of money. In the notorious Legal Tender Cases, fought before the Supreme Court of the United States after the Civil War, the issue was whether creditors must accept, at par, current dollars in settlement of their claims for money they had lent when the dollar had a much higher value.13 The same problem arose even more acutely at the end of the great European inflations after the First World War when, even in the extreme case of the German mark, the principle "mark is mark" was enforced until the end—although later some efforts were made to offer limited compensation to the worst sufferers.14Taxes and Contracts
A government must of course be free to determine in what currency taxes are to be paid and to make contracts in any currency it chooses (in this way it can support a currency it issues or wants to favor), but there is no reason why it should not accept other units of accounting as the basis of the assessment of taxes. In noncontractual payments, such as damages or compensations for torts, the courts would have to decide the currency in which they have to be paid, and might for this purpose have to develop new rules; but there should be no need for special legislation.
There is a real difficulty if a government-issued currency is replaced by another because the government has disappeared as a result of conquest, revolution, or the breakup of a nation. In that event, the government taking over will usually make legal provisions about the treatment of private contracts expressed in terms of the vanished currency. If a private issuing bank ceased to operate and was unable to redeem its issue, this currency would presumably become valueless and the holders would have no enforceable claim for compensation. But the courts may decide that in such a case contracts between third parties in terms of that currency, concluded when there was reason to expect it to be stable, would have to be fulfilled in some other currency that came to the nearest-presumed intention of the parties to the contract.The Confusion about Gresham's Law "It is a misunderstanding of what is called Gresham's law to believe that the tendency for bad money to drive out good money makes a government monopoly necessary."
It is a misunderstanding of what is called Gresham's law to believe that the tendency for bad money to drive out good money makes a government monopoly necessary. The distinguished economist W.S. Jevons emphatically stated the law in the form that better money cannot drive out worse precisely to prove this. It is true he argued then against a proposal of the philosopher Herbert Spencer to throw the coinage of gold open to free competition, at a time when the only different currencies contemplated were coins of gold and silver.
Perhaps Jevons, who had been led to economics by his experience as assayer at a mint, even more than his contemporaries in general, did not seriously contemplate the possibility of any other kind of currency. Nevertheless his indignation about what he described as Spencer's proposal
that, as we trust the grocer to furnish us with pounds of tea, and the baker to send us loaves of bread, so we might trust Heaton and Sons, or some of the other enterprising firms of Birmingham, to supply us with sovereigns and shillings at their own risk and profit,15
led him to the categorical declaration that generally, in his opinion, "there is nothing less fit to be left to the action of competition than money."16
It is perhaps characteristic that even Herbert Spencer had contemplated no more than that private enterprise should be allowed to produce the same sort of money as government then did, namely gold and silver coins. He appears to have thought them the only kind of money that could reasonably be contemplated, and in consequence that there would necessarily be fixed rates of exchange (namely of 1:1, if of the same weight and fineness) between the government and private money. In that event, indeed, Gresham's law would operate if any producer supplied shoddier ware. That this was in Jevons's mind is clear, because he justified his condemnation of the proposal on the grounds that,
while in all other matters everybody is led by self-interest to choose the better and reject the worse; but in the case of money, it would seem as if they paradoxically retain the worse and get rid of the better.17
What Jevons, as so many others, seems to have overlooked, or regarded as irrelevant, is that Gresham's law will apply only to different kinds of money between which a fixed rate of exchange is enforced by law.18 If the law makes two kinds of money perfect substitutes for the payment of debts and forces creditors to accept a coin of a smaller content of gold in the place of one with a larger content, debtors will, of course, pay only in the former and find a more profitable use for the substance of the latter.
With variable exchange rates, however, the inferior quality money would be valued at a lower rate and, particularly if it threatened to fall further in value, people would try to get rid of it as quickly as possible. The selection process would go on towards whatever they regarded as the best sort of money among those issued by the various agencies, and it would rapidly drive out money found inconvenient or worthless.19
Indeed, whenever inflation got really rapid, all sorts of objects of a more stable value, from potatoes to cigarettes and bottles of brandy to eggs and foreign currencies like dollar bills, have come to be increasingly used as money, so that at the end of the great German inflation it was contended that Gresham's law was false and the opposite true.20 It is not false, but it applies only if a fixed rate of exchange between the different forms of money is enforced.
This article is excerpted from chapters 4, 5, and 6 of Denationalisation of Money: The Argument Refined.
- 1. F.A. Hayek, The Constitution of Liberty (London and Chicago: Routledge & Keegan Paul, 1960), pp. 324, et seq.
- 2. See Werner Sombart, Der moderne Kapitalismus, 2nd ed. (Munich and Leipzig, 1916–1917), vol. 2; and before him, Archibald Alison, History of Europe (London, 1833), vol. 2; and others. Cf. on them Paul Barth, Die Philosophie der Geschichte als Soziologie, 2nd ed. (Leipzig, 1915), who has a whole chapter on "History as a function of the value of money," and Marianne von Herzfeld, "Die Geschichte als Funktion der Geldwertbewegungen," Archiv für Sozialwissenschaft und Sozialpolitik 56, no. 3 (1926).
- 3. Arthur Nussbaum, Money in the Law, National and International (Brooklyn: Foundation Press, 1950), p. 53.
- 4. On the Chinese events, see Willem Vissering, On Chinese Currency, Coin and Paper Money (Leiden, The Netherlands, 1877) and Gordon Tullock, "Paper Money — A Cycle in Cathay," Economic History Review 9, no. 3 (1956), who does not, however, allude to the often recounted story of the "final prohibition."
- 5. See Nussbaum, Money in the Law; F.A. Mann, The Legal Aspects of Money, 3rd ed. (London: Oxford University Press, 1971); and S.P. Breckinridge, Legal Tender (Chicago: University of Chicago Press, 1903).
- 6. Mann, Legal Aspects of Money, p. 38. On the other hand, the refusal until recently of English courts to give judgment for paying in any other currency than the pound sterling has made this aspect of legal tender particularly influential in England. But this is likely to change after a recent decision (Miliangos v. George Frank Textiles Ltd. ) established that an English court can give judgment in a foreign currency on a money claim in a foreign currency, so that, for instance, it is now possible in England to enforce a claim from a sale in Swiss francs. See Financial Times, November 6, 1975; the report is reproduced in F.A. Hayek, Choice in Currency, Occasional Paper 48 (London: Institute of Economic Affairs, 1976), pp. 45–46.
- 7. Nussbaum, Money in the Law, pp. 54–55.
- 8.  Occasional attempts by the authorities of commercial cities to provide a money of at least a constant metallic content, such as the establishment of the Bank of Amsterdam, were for long periods fairly successful, and their money was used far beyond the national boundaries. But even in these cases the authorities sooner or later abused their quasi-monopoly positions. The Bank of Amsterdam was a state agency which people had to use for certain purposes and its money even as exclusive legal tender for payments above a certain amount. Nor was it available for ordinary small transactions or local business beyond the city limits. The same is roughly true of the similar experiments of Venice, Genoa, Hamburg, and Nuremberg.
- 9. Vissering, On Chinese Currency.
- 10. Thomas Henry Farrer, 1st Baron Farrer, Studies in Currency (London: 1898), p. 43.
- 11. Ibid., p. 45. The locus classicus on this subject from which I undoubtedly derived my views on it, though I had forgotten this when I wrote the First Edition of this Paper, is Carl Menger's discussion in "Geld," Collected Works of Carl Menger, (London: London School of Economics, 1892), of legal tender under the even more appropriate equivalent German term Zwangskurs.
- 12. Ibid., p. 47.
- 13. Cf. Nussbaum, Money and the Law, pp. 586–92.
- 14. In Austria after 1922, the name "Schumpeter" had become almost a curse word among ordinary people, referring to the principle that "krone is krone," because the economist Joseph Alois Schumpeter, during his short tenure as minister of finance, had put his name to an order-of-council merely spelling out what was undoubtedly valid law, namely that debts incurred in crowns when they had a higher value could be repaid in depreciated crowns, ultimately worth only 1/15,000th of their original value.
- 15. W.S. Jevons, Money and the Mechanism of Exchange (London: Kegan Paul, 1875), p. 64, as against Herbert Spencer, Social Statics, abridged and revised ed. (London: Williams & Norgate, 1902).
- 16. Jevons, ibid., p. 65. An earlier characteristic attempt to justify making banking and note issue an exception from a general advocacy of free competition is to be found in 1837 in the writings of S.J. Loyd (later Lord Overstone), Further Reflections on the State of Currency and the Action of the Bank of England ( London: 1837), p. 49.
- 17. Jevons, ibid., p. 82. Jevons's phrase is rather unfortunately chosen, because in the literal sense Gresham's law of course operates by people getting rid of the worse and retaining the better for other purposes.
- 18. Cf. F.A. Hayek, Studies in Philosophy, Politics and Economics (London and Chicago: Routledge and Kegan Paul, 1967) and F.W. Fetter, "Some Neglected Aspects of Gersham's Law," Quarterly Journal of Economics 46/2 (1931–1932).
- 19. If, as he is sometimes quoted, Gresham maintained that better money quite generally could not drive out worse, he was simply wrong, until we add his probably tacit presumption that a fixed rate of exchange was enforced.
- 20. Cf. C. Bresciani-Turroni, The Economics of Inflation (London: Allen & Unwin, 1937), p. 174: "In monetary conditions characterised by a great distrust in the national currency, the principle of Gresham's law is reversed and good money drives out bad, and the value of the latter continually depreciates." But even he does not point out that the critical difference is not the "great distrust" but the presence or absence of effectively enforced fixed rates of exchange.
The crown jewel of Las Vegas trade shows, the Consumer Electronics Show, just left town having attracted only a quarter of the show’s typical attendance. At the same time, the Consumer Electronics Show was the first big test for Elon Musk’s Boring Company’s one mile underground tunnels running from one end of the Las Vegas convention center to the other, theoretically turning a twenty-minute-walk into a one-minute-ride.
Alissa Walker describes the scene in Musk’s underground tube for New York magazine’s Curbed, “This week, a one-minute video showed the vehicle stuck in traffic for at least that long, as the driver—a human; more on that in a minute—merges into an underground parking garage, where dozens of people are getting into seemingly ordinary cars, all of them also about to get stuck in seemingly ordinary traffic, except they’re trapped inside what looks like the world’s longest MRI machine.”
The Las Vegas’s convention authority, Las Vegas Convention and Visitors Authority, paid Boring Company $50 million for this pair of mile long tunnels. Ms. Walker points out that Musk’s company is contractually obligated to move 4,000 people per hour for 13 hours a day during major trade shows. The penalties can run up to $300,000 per event or a total of $4.5 million.
The assumptions for these penalties were based upon driverless vans holding a dozen passengers, which hasn’t materialized. Walker writes, “it’s plain to any observer that there are not 4,000 people moving through this tunnel per hour, and recent data showed it’s more like 1,300 people per hour—about the capacity of standard (and, often, autonomous) people movers all over Vegas—meaning the Boring Company has massively shortchanged its client.”
And then there is this from a twitter post, “so I rode Musk’s loop at the convention center just once to see it. Never again. Total Death Trap. Can anyone else see the problem with having a tunnel that’s too small to fit a fire engine, filled with Teslas, which have huge batteries in therm (sic)? The plan if one catches fire, I shit you not, the cars behind are to reverse back down the tunnel out.”
The tweeter has a point. There have been so many Tesla fires, a website has been created to keep track and provide details.
Meanwhile, Ms. Walker continues, Boring Company has found more business in Las Vegas. “[I]n October, Musk’s Boring Company won unanimous approval from Clark County to extend his tunnels beneath the Strip, with contracts to build stations at several hotels. The hotels are footing the bills for the next phase, so at least the city’s money won’t continue to be buried in this underground money pit.”
In other Las Vegas Convention and Visitors Authority news, its board of directors approved a $40 million budget to host the 2024 Super Bowl, “the largest noncapital amount ever spent for a single event by the LVCVA,” the Las Vegas Review Journal’s Richard Velotta reports. The committee expects to spend $60 million to host the big game and thus will have to raise $20 million from somewhere. It’s believed the committee will sell corporate sponsorships to fill the gap.
Las Vegas was built by money from suckers. We can now add the Las Vegas Convention and Visitors Authority and the strip hotels to the list.
The Revolution of 1800 removed the Hamiltonians from power, and in Jefferson's first term, America witnessed a major reduction of federal power. In his second term, however, an offer by French Emperor Napoleon to purchase the Louisiana territory would mark the fall of the Old Republicans.
In this episode, Patrick and Tho look at how dreams of conquest in Canada, Spanish Florida, Mexico, and beyond have had tragic consequences for Americans' liberty.Recommended Reading
"The Louisiana Purchase: Jefferson's Constitutional Crisis that Risked Dissolving the Union" by Dave Benner — Mises.org/LP5_A
"Was Thomas Jefferson a Great President?" by Scott Trask — Mises.org/LP5_B
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_CronyTo subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Recently, there has been a debate in Germany on the constitutionality of additional government borrowing of €60 billion. The borrowing is debated because Germany has a constitutional debt brake. The debt brake limits the possibility of the government to indebt itself and pushes it toward a balanced budget in normal times. In times of emergency, however, the debt brake allows for exceptions and higher deficits to fight the emergency. Unsurprisingly, huge amounts of debts were issued to cope with the corona crisis.
The German government plans to present a bill that transfers an unused borrowing authorization of €60 billion covid funds from last fiscal year to a special fund called the "Energy and Climate Fund," even though climate spending by itself would not be excepted from the debt brake. The reasoning to justify the constitutionality of the plan is purely Keynesian. The proponents argue that the state must invest or provide corresponding subsidies to activate private investment in the wake of the corona crisis. The spending shall stimulate the economy. In this way, incomes and jobs are to be saved or secured. And if there must be a Keynesian stimulus plan to overcome the corona crisis, why not spend the tax money on “green projects”? So it is green spending to cope with an emergency.Government Investment to Cope with the Corona Crisis
Let us discuss the Keynesian justification to circumvent the German debt brake. In the case of the present bill, additional government spending is financed by higher debt of €60 billion. The European Central Bank and the European banking system will in all probability monetize this debt (i.e., the money supply will increase). The new purchasing power will allow the German government to benefit from factors of production and to use them for climate projects. These factors of production absorbed by the government will thus no longer available for alternative projects. In other words, a purchasing power of €60 billion will be withdrawn from civil society and will no longer be available for private-sector projects.
The €60 billion in additional spending drives up the prices of factors of production. The factors of production will become more expensive than they would have been without the additional government spending. This will increase costs for private companies, which will have to pay higher wages, energy prices, and other costs. Projects that would have been profitable with lower costs for energy, wages, and other input factors no longer will be, thanks to the €60 billion in additional government spending.
Consequently, there are more government-desired projects and fewer private-sector projects. The direct beneficiaries are the companies favored by the government subsidy. The losers are those entrepreneurs who can no longer realize their projects due to higher costs and their would-be customers. The visible projects supported by the subsidy are offset by prevented, nonvisible projects. The subsidized climate projects will be visible; the prevented projects will remain unknown.
Most importantly, the additional government spending will not help companies struggling in the corona crisis. Imagine a restaurant owner who has lost sales because of covid passports and other restrictions. It does him no good at all that some climate project has been subsidized. What he needs is the abolition of corona restrictions. Or imagine a company that has supply chain problems. Microchips do not arrive because they are not loaded onto containers in Chinese ports. This struggling company doesn't benefit from subsidizing green projects either. It does not bring any of the needed microchips. On the contrary, when these new green projects get off the ground, they are also likely to demand the very same factors of production that the struggling company needs, such as microchips. The bottleneck increases, as well as the price of the factors of production the struggling company needs.
From an economic perspective, there is no connection between additional government spending and overcoming the economic consequences of the corona emergency. Far from activating sustainable private investment, public investment and subsidies discourage it by raising costs for businesses. Instead of being used in private projects desired by consumers, resources are increasingly used in projects desired and protected by the state. To achieve the self-imposed goal of the bill and quickly put Germany on a sustainable growth path, it would be more appropriate to reduce government spending and taxes. This would make resources available to the private sector that are currently being hijacked by the state.
In addition, comprehensive liberalization would be helpful. Far-reaching deregulation would make projects possible that are currently prevented by restrictions and would provide a strong upswing. Just ending corona restrictions would help kick-start growth entirely without emergency debts.Government Resource Management and Consumer Preferences
Now, one could argue that it is important for the state to decide which projects are undertaken with the available factors of production, and which industries thrive and which do not. This implies that consumers can no longer decide on the use of resources (amounting to €60 billion), as would happen in a market economy. In a market economy, entrepreneurs try to anticipate consumers' most pressing needs and allocate their resources accordingly. Entrepreneurs compete with their rivals to best deploy resources to meet consumer needs, to produce better and better products at lower and lower prices. If they succeed, they are rewarded with profits. If they fail, they suffer losses.
The central planning model, on the contrary, involves politicians and bureaucrats deciding how resources are to be used and which projects are worth implementing. This leads to incentive and information problems. Politicians and bureaucrats lack incentives to act efficiently in the interest of consumers. Bureaucrats do not risk their own capital to make profits and avoid losses, but use taxpayers' money. Politicians have the next election in mind. They are insulated from the market competition that compels market actors to innovate and economize.
In addition to the incentive problem, the knowledge or calculation problem weighs even more heavily. Of the infinite number of conceivable projects that could be undertaken with available resources, those that are most pressing or important to citizens should be selected. Competition is a discovery process that dynamically produces this knowledge of what is most pressing using market prices. In contrast, politicians decide the question of the most important projects (“green projects” in this case) according to their preferences, arbitrarily. According to Friedrich A. von Hayek the belief that the state knows best where to invest can be described as a fatal conceit.Implications for the Sovereign Debt Crisis and the Euro
It is true that all EU member states—many to a greater extent than Germany—issue new debt, which is purchased and monetized by the European Central Bank. Since in the intra-European monetary redistribution process, the state that incurs less debt than the other member states is at a disadvantage, one might think that it is now Germany's turn to incur debt.
However, it is Germany's responsibility to set a good example. In the eurozone, Germany's aversion to inflation and deficits has put the brakes on other states' fiscal policies. Admittedly, the German brake has been sometimes more successful, sometimes less. But it has always been there. If the German brake on eurozone government deficits is removed, if Germany itself uses tricks to circumvent fiscal policy rules, actively engages in a debt race and loses its authority, there is a risk that there will be no stopping government spending, government deficits, and inflation in the eurozone.
The German exit option from the euro—if not explicit, then at least implicit—has disciplined the southern member states, keeping them within certain limits, and thus—paradoxically—enabled the cohesion of the euro area. For this modest discipline to continue, an exit option for Germany from the euro area must remain credible. But a German exit from the euro area can only remain realistic and be defended politically if Germany can demonstrate that it has adhered to fiscal policy rules and minimized deficits, while the other states have not done exactly that. Germany could then justify leaving the euro with the desire to have a more stable currency than is possible within the euro area. If, on the other hand, Germany goes the way of the bill creating €60 billion of new debt and the debt race, then this reasoning no longer works and the door closes.Conclusion
The increase in German government spending does not alleviate the economic consequences of the corona crisis as Keynesian economists claim. On the contrary, it reduces the resources available for genuine private initiatives. Furthermore, it contributes to the debt race in the eurozone, putting in jeopardy the future of the common currency. Instead of engaging in stimulus plans and debts, the government should reduce taxes and spending and abolish restrictions to foster economic growth.
Last month, Colorado governor Jared Polis ended statewide mask mandates and social-distancing provisions, stating that "the emergency is over." This, of course, does not mean Colorado is now laissez-faire in terms of covid. Public higher education institutions—thanks to Polis’ tacit approval—still have free rein in terms of imposing vaccine and mask mandates, and in forcing classes to “go online” whenever the college bureaucrats grow sufficiently alarmed about covid. Moreover, local officials were quick to react to the governor’s non-emergency by imposing a variety of mandates of their own. More than 80 percent of the state’s population still lives in counties with mask mandates.
For even this extremely mild and timid move in the direction of personal freedom, Polis was raked over the coals by the state’s left-of-center activists. Within days, The Sentinel, a newspaper out of Aurora, Colorado issued an unsigned editorial declaring “No, Gov. Polis, the pandemic emergency is not over.” The column excoriated the governor for daring to end mask mandates and for categorically refusing the idea of future lockdowns.
Perhaps predictably, the Colorado Association of Public Health Officials opposed the move, as did numerous county government officials. Many of these local health bureaucrats even demanded the statewide imposition of vaccine passports.
In the Colorado Sun, a Democratic Party activist and college professor has now published at least two columns attacking Polis for the lack of statewide mandates, employing words like "abominable ... ignorant ... callus" [sic] to describe Polis's lack of commitment to imposing mandates.
Polis was also forced to walk back comments he made about how it’s not the job of health officials to "tell people what to wear" in an apparent reference to mask mandates. Polis rather unconvincingly "clarified" that what he really meant was this was not the proper role of state health officials; it’s fine for local officials to tell people what to wear.
The fact that Polis himself had earlier claimed this was, in fact, the role of health officials is now beside the point. Incoherence and inconsistency from politicians is a given. The point now is that when a governor—even a Democratic one—tries to slightly scale back covid mandates, he or she is likely to meet furious opposition from the Left.
This was acted out at the federal level as well. When the CDC reduced the recommended quarantine period for those who test positive, the CDC was denounced for allegedly being a tool of corporate interests worried about workers taking too many sick days. Supposed health experts also declared the change in policy "reckless."
The lesson here is that no matter what the policy is, there will be no shortage of covid-obsessed college professors, politicians, and activists who will vehemently demand that more draconian policies be imposed immediately and everywhere. No moderation of any kind is to be tolerated.
Indeed, so many bureaucrats, politicians, and technocrats have doubled down on covid mandate maximalism, it’s difficult to see them ever letting go. We should expect them to search out new ways to extend current "health emergencies" indefinitely into the future by forever moving the goal posts and finding new diseases that justify continued mask mandates and social distancing rules.Moving the Goal Posts
Back in January of 2021, Karol Markowicz at the New York Post warned that there are many out there who want the covid emergency state "to go on forever." Nearly a year after the initial covid panic, when it was clear covid was not a civilization-ending disease and hardly "the plague of the century," these technocrats were pushing for more masks and more isolation for children.
Much of this strategy has long been pushed through constant movement of the goal posts. While vaccines were initially being sold to the public as a cure-all that would allow everything to go back to "normal" this soon evolved into a series of explanations as to why vaccines actually changed nothing. Rather, vaccines might do some good, but the public should nonetheless be prepared to wear masks forever. Then they decided their "uniquely effective" vaccines were so effective that it was necessary to "protect the vaccinated from the unvaccinated." Even lockdowns were still on the table into late 2021. The story was then changed to a narrative in which so long as every single child is not vaccinated, schools must remain closed, and everyone must remain masked.Finding New Diseases to Fear
Mandate maximalists also began to hint that mask mandates might be necessary forever as a means of controlling other diseases as well. The narrative pivoted to one in which the social distancing mandates and mask mandates were preventing the flu. If covid-related mandates worked so well against the flu, why not keep the mandates forever? This position accomplishes two things at once: it sets the stage for keeping mask mandates forever while also setting up the flu as a perennial justification for a perennial health emergency.
These mandates might also come in handy whenever some new bird flu or swine flu crops up. Yes, earlier flu-based “emergencies” had failed to command widespread hysteria as with the swine flu scares of 1976 and 2009. But now the health bureaucrats finally had seized the authority they always wanted: keep emergency “pandemic powers” in place forever so that if the CDC or the WHO identifies a new “threat,” lockdowns, mask mandates, and vaccine passports can be forced upon the population until the “danger” is past.Institute a Warning System
Another key challenge will be to keep the public always on the edge of alarm. On this, the mandate enthusiasts could take a page from the War on Terror propaganda employed in the wake of 9/11. In March 2002, the Bush administration instituted a color-coded terrorism threat advisory scale designed to indicate the terrorism “threat level.” This presumably allowed the public to gauge just how much they should be living in fear of terrorism at any given time. As propaganda it was helpful as a means of constantly reminding the public that the government keeps them safe, and that an all-powerful national security state is a necessity.
A similar scheme could easily be used to address health “threats.” Naturally, the scale would never be moved to “low” because if some actual epidemic did break out, that would make the “experts” look like they were asleep at the switch. So, naturally, the scale would always be at “guarded”—perhaps in the summertime—but would reliably be raised to “elevated” in the wintertime as hospital beds filled up with flu and pneumonia sufferers. Then, if any muttering of some new bird flu out of Asia hit the headlines, the technocrats could raise the threat level to “high.” This could then be used to justify the imposition of new mask mandates, vaccine requirements, or even lockdowns. Then when summer weather returned and the hospital beds emptied, the experts would insist they had prevented disaster by imposing new mandates.
And so on for years and years as the public becomes convinced that without government experts, the nation will be perpetually rife with death and disease.
Finally, the experts would get the esteem they so clearly believe they deserve. Perhaps even they could obtain the adulation showered on military personnel during the high times of the War on Terror—when American soldiers were busy losing two wars at once. Pro sports games will begin with a “salute to health care workers” who “keep us safe.” Indeed, many health care workers already act as prima donnas of this sort, complaining about how public protests over lockdowns were a “slap in the face” or staging walkouts to condescend to the public about how their “patience” with the unvaccinated is “running low.”
The only way these health experts will stop with their perpetual emergency is if they’re forced to. Health bureaucrats must be stripped of their far-too-expansive “emergency powers” and their agencies reined in. Their “scientific” opinions should be treated as the thinly-veiled political statements they so frequently are. As I wrote in 2020, the pandemic only ends when the public decides it is over.
Some politicians have figured out that it’s dangerous to keep pushing the same old covid mandates into election season this fall. This is surely why Polis now appears uninterested in haranguing the public about covid on a daily basis as he was doing back in 2020.
But the academics and technocrats who can afford to live in their echo chamber—thanks to taxpayer money—are unlikely to relent. They’ll be singing the same tune twenty years from now and calling for new mandates—for the disease du jour—every year. Let’s just hope that the world will have finally stopped listening.
In all times of state dominance, the instability of the system gives rise to two types of reformers: the moderates who want to work within the system but end up defending it, and the radicals who have the clarity to see that the only real solution is upheaval. If the latter prevail — and they often have in the history of politics — it is only after having endured the slings and arrows of the former.
The history of liberty is strewn with heroes who courageously championed radical reform, but in every case I can recall, these same people were traduced and reviled not only by the regime, but also by the moderate reformers, who always claimed to be working within the system. The moderates say that their efforts are being frustrated by the voices of the radicals, who are said to discredit the cause they purport to support.
This line of attack was used against the French liberal economist Frdric Bastiat, and still is. So it was with A.R.J. Turgot, the liberal reformer who served as finance minister under Louis XVI — Simon Schama says that his position in favor of radical reform discredited the efforts of the moderates. It was said of Cobden and Bright, as they sought to embarrass and disgrace the government and its bread tax. Their erstwhile allies constantly sought to muzzle them, with the idea that their extremism was harming an otherwise respectable cause.
So it was for Patrick Henry, who was urged to drop his agitations for revolution and, later, his attacks on the Constitution. F.A. Hayek was dogged by complaints that his radicalism was losing liberty more friends than it was gaining. Ludwig von Mises faced a blizzard of critics from German classical liberals, who somehow came to believe that liberalism’s greatest enemy was the scholar who refused to compromise.
Of course Rothbard faced a lifetime of tut-tutting from people who said his libertarianism was dangerously irresponsible. Today it is the same with this website, the Mises Institute, Antiwar.com, FFF.org, the Independent Institute, and every radical libertarian blogger, academic, or journalist who stands accused of harming the cause of reform by holding out an ideal.
The pattern repeats itself so often that it almost seems to be a law of history: the radicals who change history must do so over the resistance of the moderates, who claim to be friendly to the same cause, but somehow always end up on the side of established interests. Thus can we conjure up this conjectural conversation in the Kremlin, circa 1955:
Comrade Liberal: “Khrushchev knows the failures of Stalinism in economics. He should seize the chance and allow full private property in land, give the factories to the workers, allow people to work where they want, and empty the prisons of economic criminals.”
Comrade Conservative: “The way you talk! You are only discrediting the cause of reform! Our plan is to permit more personal production on public land, allow more flexibility in wages, speed up the applications process for permits to move, and give more power to regional economic councils so they can be more responsive to the people. Don’t make the perfect the enemy of the good!”
Comrade Liberal: “But these are just cosmetic changes, and when they do not work, the cause of reform will have lost. We must tell the truth even if the powers that be don’t want to hear it.”
Comrade Conservative: “Don’t enlist me in your disloyal extremist efforts. What you propose is anarchy. You and your ideas remind me of the enemies of socialism we have worked so hard to eradicate. Better that you be silenced, else responsible reformers will never make any progress.”
Of course Khrushchev did reform along the conservative lines, and his failure ended up harming the idea of liberalization, thus delaying the inevitable and much needed upheaval for many decades. The upheaval happened anyway, and it occurred against the wishes and efforts of the moderate reformers, who had made their peace with the regime in the hopes of changing the system from the inside. The radicals on the outside couldn’t help but notice that the reformers seemed to be increasing, rather than reducing, the size of the state.
Concerning the dispute between moderates and radicals, the glaringly obvious is seldom pointed out: it is a heck of lot easier to be a moderate than a radical. To be a moderate means to side, at least partially and often largely or completely, with conventional wisdom. It means that you can be friendly with powerful people because you are no threat to them. It means you accept the legitimacy of the established mechanisms for change, and thereby implicitly approve them.
Think of a prison populated by those who are planning a break and those who seek better food and more exercise time. To look at the two groups, there is no visible difference between the way they treat the wardens, except that internally those who plan to escape regard them as the enemy, while those who seek prison reform reconcile themselves to the warden-prisoner relationship, and try to get the best terms for themselves.
Who do the reformers fear most? Not the wardens, but the radicals whom they believe are setting back their cause. The radicals know that the reformers are not friends at all, but sideliners seeking favors from the privileged elite, for to seek and gain favor from powerful people, even in an ostensibly sensible cause, is to infuse the existing system with a legitimacy it does not deserve.
The analogy works in a huge range of cases from taxes to social security to education to foreign policy. Reformers are forever congratulating themselves for their respectability, etc., but in fact they are part of the problem. If the cause of freedom wins, it will be because of the pressure from the radicals felt by those in power.
As Mises said, no government is liberal by nature. Governments grant liberty only when forced to do so by public opinion. What causes a government to act is fear of opposition. But somehow, against all evidence, moderate reformers continue to believe that the powerful can be influenced by praise, cocktail parties, and the suggestion of marginal reforms.
The difference between the radical and the moderate is not one of degree. It is an intellectual and mental outlook of a completely different sort, one that goes to the very heart of whether one views the people in power as the source of the problem, or the source of the solution.
Let’s consider an example.
A radical says: get the troops out of Iraq now! The implicit message is: the state cannot be trusted, the troops are causing trouble rather than helping, the US never should have invaded, and almost everything you hear from the government about this war is a lie.
A moderate reformer says: yes, get the troops out, but not yet. The implicit message is: we can trust the state to make the right judgment about when to leave, for now the troops are performing a service of some value, the invasion has done some good and we should complete the job, and the state is right that it is a source of some degree of order and justice in Iraq.
Now, this is a small change in words and political orientation that masks a massive difference in world view. The radical doesn’t trust the state to reform itself. The moderate does. The radical does not seek the state’s favor. The moderate depends wholly on it.
History, I believe, is on the side of the radical, for the moderate wants to play it safe. Now, for the most part, the moderate is a harmless creature, neither here nor there in terms of the overall direction of history, except in the following sense: he is useful to the powers-that-be as an instrument to keep the radicals in line.
This is precisely the role that the moderate critics of the Iraq War are now playing. They are blasting away at the antiwar crowd on the ostensible grounds that they too want to end the war, but we are making it harder for them to do so. What they are saying is that they favor the troops staying up until a certain point. This is the same as siding with the warmongers, just with different rhetoric.
The moderates always seem to come down on the side of the prison wardens. Only when the radicals have broken through the wall, and the path is perfectly clear and safe, do they grab the chance and make a run for it. In retrospect, for example, even moderate libertarians grant that the American Revolution, repealing the Corn Laws, and overthrowing Soviet central planning were wonderful things. But they know in their hearts that they would have lacked the courage to do their part.
The historian and economist Deirdre McCloskey often laments the power that pessimism and despair seems to have over us. In her review of Thomas Piketty’s doorstop-sized book on capitalism and inequality—oh, in that long-forgotten blissful past when our media and politics were dominated not by viruses and misinformation and the racist-sexist industrial complex—she noted that “pessimism sells.” More recently, in her 2019 book Why Liberalism Works, she writes even more forcefully that “whatever new pessimism our friends on the left or the right will come up with next,” they will “write urgent editorials and terrifying books until the next ‘challenge’ justifying more government coercion gets their attention. For Lord’s sake, they say, we should do something! Do it with the government, they say, the only ‘we’ in sight.”
Across so many fields, from money to nutrition, I’ve found that the corollary to that government-heavy approach is a desire not to make choices for oneself. We want a board of white-hat experts to look after us, not trusting ourselves with money, morals, information, diseases, sexual dimorphism, or even how many sexes there are in Homo sapiens.
It’s better if someone else tells me how to think and act. I don’t want to look after my own health, either in practice or in theory, much preferring to have some CDC head or state administrator to tell me what I may or may not put into my body; what I should or shouldn't eat; what medicine and experimental treatments I should or shouldn’t take.
Even facing a manmade pandemic, we don't seem to want much responsibility for our own well-being, but rather outsource the quick fix to some of the people involved in its creation. Take the opportunity to go outside and exercise? To eat good food? To get in shape? No, no, have the same authoritarian culprits you should routinely ignore invent a magic fix for you, so that you can comfortably relax and refuse to take much responsibility of your own. Any of the other treatments or precautionary measures available? No, thanks.
Two recent memes—that comical language of our online worlds—that I encountered hit at the essence of this confusion.
The first featured a severely obese man with icons that displayed his daily behavior: cigarettes, soda, fast foods, alcohol, and a refusal to use the treadmill. Do as you please with your body, sir, but until yesterday nobody was surprised at the knowledge that these behaviors weren’t exactly conducive to a healthy living or a long-lasting life (though in our Orwellian world saying so is considered “fat shaming” and is unkind to our “large-bodied” friends).
The caption read: “Get the vaccine, bigot, you’re endangering my health.” No, sir, I think you’re doing a pretty good job of that yourself. The comedic effect is to absurdly insist on others getting a medical treatment—that doesn’t do what the person presumes it does (prevent spread)—while, proof-of-work style, refusing to care even the slightest about one’s own health.
The converse meme, arriving not long after, showed a line outside an overcrowded McDonald’s, with an ironic quotation attached: “Vaccines cause blood clot.”
Perhaps they do, perhaps they don’t, but the connection between blood clots and obesity and hypertension is larger and the latter are well-known risk-factors for that condition. Again, until yesterday it would not have come as a surprise to anyone that fast foods are not the paragon of health. And if your reason for vaccine hesitancy (for a range of perfectly valid reasons) is the risk of blood clots, can you seriously say that while waiting for your McEverything?
And here’s the key: both memes are right—for the same reason I'm advancing here: a refusal to take responsibility for one's own health, a capitulation before having others tell you what to do and an inane desire to tell others how to live their lives. The desire to dominate is strong in the twenty-first century. We don’t want the responsibility that an honest and modern life requires—but we still like to put aggressive judgment on other’s behavior. We want others to decide for us, in some sort of low-key intellectual masochism.How to Make Sense of This?
Vaclav Smil, the prolific Canadian energy theorist, gives us a hint in the risk chapter of his upcoming How the World Really Works by citing Chancey Starr’s classic essay on voluntary versus involuntary risk, “Social Benefit versus Technological Risk.” Risk hunters, like downhill skiers or base jump enthusiasts take risks to their health many multiples of the difference between any conceivable diets, medical treatment, driving, the terrorism fears that routinely dominate our worst imaginations, or the stray lightning strikes that feature prominently in people’s minds.
For voluntary decisions, those which individuals choose on their own, the valuation of how much risk to carry is made by the individual himself and the consequences (usually) carried by that same individual. Even if the decision is made on vastly inaccurate knowledge about relevant risks, we have no way of estimating the individually derived benefit (though the action axiom itself helps).
Almost nobody is aware of how much more dangerous extreme sport is over the baseline of living, but Smil points out that almost everybody behaves as if they did. People dying in “America’s tornado-swept states” implicitly understand that the probability of dying from those events is so small that “continued living in such regions remains acceptable.” With our actions, we stoically carry the risk we want.
The point is that no matter how wrong an extreme individual case, it is unlikely that some organized collective governing body can do better, or even if they can assess it, have the individual comply appropriately with said edicts. Because “the decision-making is separated from the affected individual, society has generally clothed many of its controlling groups in an almost impenetrable mantle of authority and imputed wisdom,” writes Starr in the 1969 article.
The same kind of people who think the unenlightened bigot incapable of making choices for himself think that aggregating such people’s opinions through a ballot box produces leaders capable of making better choices for said bigot.
The level of voluntarily carried risk is thus incomparable to the risks people in power demand of you: your voluntarily carried risk can be orders of magnitude bigger (Starr suggests a thousand times) and still not constitute a right to violate and overwrite your choice.
To invoke an even more politically infected discussion, take climate change. We are routinely encouraged not to fly or eat meat (often for quite poorly evidenced reasons), when there are much bigger environmental fish to fry. But the big conversations in media, academia, and politics are not the low-hanging fruits of food waste and proper insulation in cold climates, not the carbon taxes that would—if you want to do something—be the least damaging. It’s the wide-scope, pie-in-the-sky authoritarianism of government spending on infrastructure, of Green New Deals, of building electricity systems (wind and solar) that don’t work, of carbon-capture initiatives that, even on the best of assumptions, do nothing.
We’ve tried thirty years of hotshots jetlining to luxurious locations from which “leaders” berate the fossil fuel–using inhabitants of the world—with very little to show for it. How about we try something else for the next thirty years, like individual responsibility and markets (i.e., you and me and Ralph's pretty good grocery)?
If climate disasters are as bad as they say, (re)insurance companies will price premiums accordingly (or fairly quickly go bust). If fuel and raw material are as scarce as they say, producers will price them accordingly. If houses along the coasts are subject to (higher) flooding risks, the home buyers will price them accordingly—or distribute the houses in those locations to people least concerned with that risk.
“We are loath to let others do unto us what we happily do to ourselves,” concludes Starr. There is an amount of risk that people will take, and want to take, and it’s overwhelmingly out of the hands of political bureaucrats and academic hotshots to make that call.
We've tried large-scale centralized and political solutions for a few decades (centuries?) now. How about we try individual responsibility next? Maybe—just maybe—the political process does more harm than good; and maybe—just maybe—left to their own devices, people and communities do figure out how to solve the problems they care about.