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Juan de Mariana and Miguel de Cervantes: The School of Salamanca and the Invention of the Modern Novel

Fri, 14/12/2018 - 22:35

ABSTRACT: Given the importance of the School of Salamanca, economists of the Austrian School occupy a privileged position with regard to the study of literature. Specifically, they are well suited to understand a foundational text in the modern history of the novel form. Don Quijote de la Mancha (1605/1615) by Miguel de Cervantes (1547–1616) is steeped in the thinking of the School of Salamanca, especially that of the great late scholastic Juan de Mariana (1536–1624). Just as there are reasons to teach early modern economic thought in literature departments; there are reasons to teach Don Quijote in economics departments. This essay is an introduction to the philosophical, political, and economic commonalities between Cervantes and Mariana in the hopes that more classical liberals will attend to the first modern novel as a reflection of the general contours of our perspective.

KEYWORDS: Miguel de Cervantes, coinage, Don Quijote, inflation, Juan Mariana, monetary policy, scholasticism, School of Salamanca, Spain JEL CLASSIFICATION: B11, B31, N1, N43 INTRODUCTION

Economists from the Austrian School have long argued that the free-market mindset, which reached its peak during the classical liberal period of the eighteenth and nineteenth centuries, traces its origins back to the early modern period, especially the ideas of the late-scholastic thinkers of sixteenth and seventeenth-century Spain known as the School of Salamanca. Men like Domingo de Soto (1494–1560), Martín de Azpilcueta (1491–1586), Diego de Covarrubias (1512–1577), Luis Saravia de la Calle (1500s), Tomás de Mercado (1525–1575), Luis de Molina (1535–1600), Felipe de la Cruz Vasconcillos (1500s), and Juan de Mariana (1536–1624), were keen to define, analyze, debate, and explain topics that have always interested Austrian economists: interest rates, the prices of goods and services, the causes and effects of inflation, the advisability of different monetary policies, and the relation between supply and demand.

In the context of the importance of the School of Salamanca, economists of the Austrian School also occupy a privileged position with regard to the study of literature. Specifically, they are well suited to understand and explain a key text at the beginning of the modern history of the novel form. Don Quijote de la Mancha (1605/1615) by Miguel de Cervantes (1547–1616) is a text steeped in the thinking of the School of Salamanca. Given Thomas Piketty’s recent abuse of novels by Jane Austin, Honoré Balzac, and F. Scott Fitzgerald, Austrians ought to consider using Cervantes’s novel as a kind of riposte to the French neo-Marxist. Just as there are excellent reasons to teach early modern economic thought in literature departments; there are excellent reasons to teach Don Quijote in economics departments.

In the context of the relation between the School of Salamanca and Don Quijote, the great Jesuit thinker Juan de Mariana (1536–1624) was the most important influence. Three books by Mariana are fundamental for understanding Cervantes: 1) Historia general de España (Latin 1592, Spanish 1601), the first modern history of Spain, unsurpassed until the nineteenth century; 2) De rege et regis institutione (1598/1605), a princely advice manual written for Philip III (r. 1598–1621); and 3) De monetae mutatione (1609), the greatest and earliest response to statist inflationary monetary policy.

Now, among Cervantes specialists, consensus defines the novelist as a humanist reformer interested in the private, bourgeois form of Christianity advocated by Erasmus of Rotterdam. Cervantes himself signals this ideological orientation in Don Quijote 2.62 when his protagonist enters a printer’s shop in Barcelona and alludes to La luz del alma cristiana (1554) by the Erasmian friar Felipe de Meneses. Religious reformers like Meneses became targets of the Counterreformation, so it comes as no surprise that in the same chapter, and for the umpteenth time, Cervantes criticizes the Inquisition. The narrator reports that religious authorities order the destruction of the “enchanted head,” a device owned by Antonio Moreno, a character whose liberal values anticipate those of Voltaire, Jefferson, and Twain (all passionate readers of Don Quijote by the way). The classic works of literary criticism that established this interpretation of Cervantes are Américo Castro’s El pensamiento de Cervantes (1925), Marcel Bataillon’s Érasme et l’Espagne, recherches sur l’histoire spirituelle du XVI (1937), and Alban Forcione’s Cervantes and the Humanist Vision (1983).

Given the dominance of the Erasmian interpretation of Cervantes, especially at universities outside of Spain, we still need to demonstrate the extent to which he was influenced by the late scholastics of his own country. And given his status as the leading Salamancan at the beginning of the seventeenth century, Mariana offers the most efficient means of articulating this response. I will go further: among all the intellectuals of the early modern period, Mariana, not Erasmus, is the most useful for unraveling the major metaphorical and sociopolitical aspects of Don Quijote.

Here, then, as much for specialists in economics as for specialists in literature, I offer nine ways to understand the intellectual parallels between Mariana and Cervantes.


The reform-minded humanists of the Low Countries were not the only ones to rail against the Tribunal of the Holy Office. Both the first modern Spanish historian and the inventor of the modern novel rejected the institution’s politics of racial purity and its persecution of individuals like the theological poet Fray Luis de León or the reformist Archbishop Bartolomé de Carranza. In De rege, Mariana defended Jewish converts: “All those families that today shine forth with pure lineage had obscure and humble origins; if the door had been closed to plebes and converts, today we would have no nobility” (3.4). For his part, throughout his literary career, Cervantes mocked the Spanish obsession with blood purity. He does so in episodes in Don Quijote which highlight miscegenation in romantic couples like Aldonza Lorenzo and Don Quijote (1.25–26) and Zoraida and Ruy Pérez de Viedma (1.37). Similarly, he underscores the multiracial status of the Manchegan knight’s supposed lovers, such as Dulcinea (2.10) and Altisidora (2.57). This criticism also appears in so-called exemplary novels like La novela y coloquio de los perros (both c.1605) and in comical interludes like Retablo de las maravillas (p. 1615), where Cervantes questions the racial purity of a pair of talking dogs and just about any Spaniard attending the theater. And Don Quijote’s theory of lineage (2.6) echoes that of Mariana.


Complementing their criticisms of the Inquisition, Mariana and Cervantes were opposed to censorship. Mariana shocked many when he approved of Benito Arias Montano’s edition of the polyglot Biblia Regia (1572). In numerous episodes of Don Quijote, Cervantes links the destruction of books to the persecution of individual human beings: the burning of the mad knight’s books (1.6–7), the defense of similar books by the innkeeper Palomeque (1.32), the criticism of the Inquisition in the printer’s shop of Barcelona (2.62), Altisidora’s vision of devils torturing books in Hell (2.70), and Sancho Panza’s return home with his ass dressed in buckram as a victim of the Inquisition (2.73). Given the other connections between Mariana and Cervantes, the presence of “the Queen Doña Maguntia” in Don Quijote 2.38 likely alludes to the German city where he published the second edition of De rege. The Maguntia edition of De rege of 1605 contained a single new radical chapter on money, which would later serve as the basis for the even more polemical De monetae of 1609, which, for its part, had to be published in Cologne and caused Habsburg authorities to arrest him and put him on trial for lèse-majesté.


Natural law was the essential grounds for late-scholastic thinking. Thus, in De rege Mariana not only defended the right of freemen to bear arms, he argued that they must be allowed “to strengthen their bodies through military exercises” (1.5). Cervantes has Sancho embrace natural law when he rejects the laws of chivalry advocated by his master: “when it comes to defending my person, I’ll not care much about your laws, for others both divine and human allow each of us to defend himself against whomever would seek to do us harm” (1.8). In the second part of Don Quijote, a certain continuity among the characters Antonio Moreno, Claudia Jerónima, and Roque Guinart even hints at the Catalan nobility’s resistance to Habsburg efforts to outlaw a specific type of early modern shotgun (2.60–65). And there is deep irony in the fact that the peasant Sancho wins his physical confrontation with Don Quijote (2.60), because it was his own master who taught him the self-respect required to rebel against the submission demanded of him by medieval norms. Cervantes’s novel indicates that natural law, according to which no freeman deserves to be forced against his will, had subversive implications for the era’s politics, sexual relations, and institutions like feudalism and slavery.


Both Mariana and Cervantes wanted checks on monarchical power. This should come as no surprise: the scholastics emphasized the popular origins of sovereignty and many of their preferred medieval sources, such as Aquinas, approved of tyrannicide. As usual, Mariana was more radical than his peers regarding this issue, not only insisting on the right to kill tyrants but broadening his definition of a tyrant to include the prince who inflates the money supply. In De rege he went so far as to argue in favor of killing kings so that these would recognize the limits of their power and the punishment that awaited them if they turned to tyranny: “It is, however, salutary for princes to be persuaded that if they oppress the realm, if they make themselves intolerable due to their vices and their crimes, then they can have their lives taken from them, not only by right but also thus earning the applause and fame of future generations” (1.6).

For his part, Cervantes establishes a similar tone in Don Quijote by quoting the refrain “beneath my cloak, I kill the king” in the first prologue and referring to “some crime of lèse-majesté” in the second. He also alludes to Calvinism in the pirates of La Rochelle (1.41), suggesting some degree of sympathy for the Monarchomachs, who embraced a Protestant version of the radical Jesuit perspective of men like Mariana.


Another way to understand the mentality shared by Mariana and Cervantes is via their preference for Aristotle over Plato. This early modern polemic is often overstated, but it remains true that, when thinking about governments, the humanists followed Plato in their emphasis on cosmic idealism, abstract speculation, and a curriculum of study designed to improve the character of princes; whereas the scholastics followed Aristotle in their emphasis on realism, historical perspective, economic issues, multiple political systems, and the need for formal limits on the power of kings. For this reason, historians like Joseph Schumpeter, Murray Rothbard, and Quentin Skinner have located the origins of modern political theory in thinkers like Francisco de Vitoria (c.1483-1546), De Soto, Molina, Francisco Suárez (1548-1617), and Mariana. In Don Quijote, Cervantes articulates this same contrast through a series of allusions to Plato’s allegory of the cave, which he renders absurd by way of the Latin scholastic motto in the knight’s letter to Governor Sancho Panza: “Amicus Plato, sed magis amica veritas” (2.51), which means “Plato is a friend, but truth is a better friend.”


In Don Quijote we also encounter anxiety about the lack of constitutionalism in early modern Spain. Before Governor Sancho Panza departs for the Isle of Barataria, Don Quijote gives him extensive political advice. In the end, the knight expresses horror at his squire’s inability to read or write. There is also a play on words between two senses of the term “documents” (2.42–43), which means “instructions” but also “written texts.” Sancho underscores the political importance of the second definition: “it will be necessary that they be given to me in written form.” Later, we have the chaos contained in “The Constitutions of the Great Governor Sancho Panza” (2.51), which present serious moral challenges to any reader with training in constitutional law.

It is Mariana who helps us to understand the specificity of these anticipations of modern constitutionalism in Don Quijote as well as just what all this has to do with Zaragoza, the city most mentioned in the novel. In De rege Mariana articulates tragic nostalgia for the controls on monarchical authority that were once sustained by the charters (fueros) and parliaments (Cortes) of the medieval period. He points to the investiture traditions and the local laws of the Kingdom of Aragón as model institutions and laments the brutal repression of the nobility there by Philip II in 1591. One of the great ironies of the narrative trajectory of Don Quijote is that the hidalgo would have had actual political representation in the Aragonese parliament, whereas he was excluded from the Castilian body, which never granted seats to the low nobility and which had already succumbed to the growing absolutist power of the Habsburgs.


In addition to his princely advice manual and his treatises on monetary policy, Mariana’s influence on Don Quijote can be seen in the protagonist’s tendency to conflate historical events and chivalric fantasies. The harsh realism of Historia de España appears to have caused national psychological trauma. In Mariana’s vision of Spanish History, traditional heroes like Alfonso X ‘the Wise’ and Enrique II ‘the Honorable’ and villains like Pedro I ‘the Cruel’ changed places as per the metallic content of their respective coins. The Jesuit historian discovered that Alfonso X misrepresented the value of his coins and that the coins of Pedro I were superior to those of his rival Enrique II. Don Quijote’s insanity has much to do with the ideological disorientation provoked by the long history of monetary manipulation, a theme which Mariana deployed as a desideratum of political loyalty to the kings of Spain.


The baroque, disillusioned, and anti-imperialist politics shared by Mariana and Cervantes permit us to understand an overlapping metaphor found in their respective magna opera. Both writers took great interest in the classical example of Diogenes of Sinope, one of the founders of Cynic philosophy. Diogenes famously preferred the company of dogs to men and once mocked Alexander the Great by asking him to stand aside and quit blocking the philosopher’s view of the sun. In the prologue to De monetae mutatione, Mariana portrays himself as Diogenes and thus unafraid to speak out against the monetary manipulations of King Philip III and the Duke of Lerma. Similarly, in La novela y coloquio de los perros, written around 1605, coetaneous to Don Quijote, Cervantes signals that the quixotic insanity of ensign Campuzano is intimately related to the philosophy of Diogenes and then proceeds to criticize Habsburg monetary policy. Mariana could have read a manuscript version of Cervantes’s exemplary novel about talking dogs before writing the prologue to his monetary treatise addressing the same themes; or, vice versa, some parts of La novela y coloquio de los perros could have been written closer to 1609, i.e., under the influence of a version of Mariana’s controversial tract.


Mariana and Cervantes grasped the fundamental importance of economic freedom, both as a general moral imperative and a means of enriching the citizens of Spain. Cervantes places free-market and free-labor negotiations at the heart of key episodes. The brutality of slavery in Don Quijote’s encounter with Andrés and Haldudo and his attack on the merchants of Toledo in Don Quijote 1.4 comes full circle and is substituted by the hidalgo’s miraculous agreement to compensate Sancho for his services in 2.71 and 2.74. Then there is the fact that without intense bartering by the narrator for the missing manuscript in the marketplace of Toledo in Don Quijote 1.9, the novel as we know it would not exist.

Mariana and Cervantes considered monetary manipulation to be tyranny. For Mariana this awareness grew to fruition over the course of nearly twenty years of investigation. In his Historia de España of 1592, he examined the coins of medieval kings. In the chapter he added to the 1605 edition of De rege, he announced that Habsburg monetary manipulation was the principal basis for his political disillusionment. Finally, in 1609 he disseminated the same criticism in overwhelming fashion in De monetae. In Don Quijote, Cervantes alludes to the policy of adulterating the coins of Castile on multiple occasions. In the 1605 edition: the description of Rocinante’s hooves (1.1), the themes of robbery and adultery in the Sierra Morena episodes (1.23, 1.33, etc.), and Sancho’s slaver fantasy (1.29). In the 1615 edition: Don Quijote’s adventure with the lions (2.17), Queen Maguntia (2.38), and the first three cases adjudicated by Governor Sancho on the Isle of Barataria (2.45).

In this last context, i.e., that of the early modern relation between the novel and Habsburg monetary policy, Mariana’s chapter “De moneta” in the De rege edition of 1605 deserves far more attention than it has received. It is my thesis that some version of this essay is the most likely source for Cervantes’s attention to monetary manipulation and Habsburg tyranny in La novela y coloquio de los perros and Don Quijote, which were respectively written and published in the same year. In the appendix that follows, translated and published for the first time in English, is Mariana’s first monetary treatise, which stands as one more piece of evidence that these two intellectual giants, the inventor of the modern novel and the climactic figure of the School of Salamanca, read each other very carefully.1

  • 1. Additional explanations for the synchronicities between Cervantes and Mariana would include the general rediscovery of Plato and Aristotle during the sixteenth century, the likelihood that Cervantes also received a Jesuit education, and the fact that both men experienced intense degrees of disillusionment with the policies of Philip II and Philip III.
Categories: Current Affairs

Facing Inflation Alone: Juan de Mariana and His Struggle against Monetary Chaos

Fri, 14/12/2018 - 22:35

ABSTRACT: This is a brief biographical sketch of the heroic late-scholastic thinker Juan de Mariana, with particular attention to his epic confrontation with Philip III and the Duke of Lerma, including a review of the list of charges against him. Around 1600, Mariana produced a series of powerful criticisms of statist monetary policy. From a broad perspective, the Jesuit’s attitude anticipates classical liberal and libertarian opposition to the shenanigans of central bankers (cf. Jefferson, Rothbard, Huerta de Soto, etc.). Furthermore, we continue to learn that Mariana’s analysis of monetary manipulation was disseminated more widely than we once thought, both within Spain and across Europe. This, in turn, supports the general thesis that the School of Salamanca had greater impact than previously believed. Deprived of their silver content, stamped with artificially inflated face values, and mass-produced by way of a hydraulic invention installed at Segovia in the 1580s, the copper billon coins allowed the Habsburgs to implement a form of taxation without consent, and Mariana dissented loudly. Many millions of citizens, from his generation to our own, have benefited from the courageous efforts of this exemplary man who defended private property and freedom against the tyrants of his day.

KEYWORDS: Juan Mariana, coinage, inflation, monetary policy, scholasticism, School of Salamanca, Spain JEL CLASSIFICATION: B11, B31, E42, N1, N43

Until September 8, 1609, Juan de Mariana did not appear to have been fully aware of just how risky it can be to participate publicly in an ideological debate, especially when one places the pillar of private property at the center of one’s political and economic theory. On that day a group of armed men headed by one Miguel de Múgica broke into the Jesuit monastery at Toledo and carried out an arrest warrant against him by order of the Bishop of the Canary Islands, Francisco de Sosa (a Franciscan), whom the King had nominated to adjudicate the controversy over the inconvenient philosopher. Three days prior, a group of officials from the Inquisition had appeared at his chamber and taken him off to make a deposition before that body’s examiners (Ballesteros, 1944, p. 222). It was then that Mariana had acknowledged being the author of his latest book, a volume of seven essays, and indicated surprise that his words had caused so much commotion.

The life of this man from Talavera had always been beset by momentous challenges. Some, such as the composition and publication of the first History of Spain, he had brought about quite consciously in order to highlight certain lacunas which he felt the society in which he lived needed to address. Others, however, were imposed upon him as a consequence of complex events which he had never intended to unleash. Seventy-three years before his arrest, towards the end of summer, a few days after his birth in Talavera de la Reina, he had to be transferred by protectors into a new home in another town, a place where the good name of his father, Juan Martínez de Mariana, the local dean of Talavera, could remain free from any dishonor.

The brilliance of Mariana’s intellect, complemented by his natural facility for languages and his portentous memory, meant that Ignacio de Loyola, always on the lookout for talent, would focus his attention on him during his first year of studying theology at Cardinal Cisneros’s Complutense University at Alcalá de Henares. The year was 1553, and he would officially enter the Jesuit Order the following January, along with other future literati like Luis de Molina and Pedro Rivadeneyra (Ballesteros, 1944, p. 18).

After his novitiate, which he fulfilled at the Castle of Simancas, and having completed his studies at Alcalá, his superiors were anxious to take full advantage of his intelligence, especially his capacity for communicating and his command of Greek and Latin, at which he continued to excel with each passing year. And so it was that Mariana was given the mission of teaching theology in the foreign capitals where the Company of Jesus sought to extend its reach. First, he was tapped to go to Rome, where in 1561 he began teaching theology at Loyola’s new Colegio Romano, attended by exceptional students, such as the future Cardinal Robert Bellarmine. Between our Talaveran and the nephew of Pope Marcellus II there arose a friendship that would last their entire lives (Ballesteros, 1944, p. 247). After four years in the Eternal City, Mariana left, first for Loreto, and two years later he packed his bags again for Sicily.

In 1569, with eight years of teaching under his belt, Mariana left Italy to begin a new phase in his life as a teacher and scholar at the Sorbonne in Paris. There he received his doctorate and became a chaired professor of theology. His courses on Thomism soon made him one of the students’ favorite professors and won him international acclaim. His great gifts as an orator and his profound knowledge of the material meant that attending his courses became a matter of punctuality, for to arrive late typically meant not being able to find a seat for the Spaniard’s lectures.1

On August 24, 1572, after more than five hundred nights of relative tranquility in Paris, Mariana likely awoke with alarm at the noise of the bells of the Church of Saint-Germain-l’Auxerrois. It was the beginning of the Saint Bartholomew’s Day massacre, which marked the bloody end to the Peace of Saint-Germain-en-Laye. Mariana was made eyewitness to the deaths of thousands of Huguenots at the hands of their Catholic rivals. The use of religion for political ends and a murderous rampage resulting in the deaths of some 2,000 citizens of the capital, and between 5,000 and 10,000 in the rest of France, must have had a profound effect on the Thomist teacher, and years later they surely influenced his political philosophy, especially his thoughts on the limits of political power and his defense of tyrannicide.

After five years teaching in Paris, Mariana presented his resignation and asked to return to Spain. The Company of Jesus accepted his petition and that same year of 1574, after thirteen years abroad, the Talaveran arrived back in his native land. His voyage took him by way of Flanders, with a stop in Amsterdam. It is possible that his return to Spain was motivated by poor health. It might also be that he had decided to seek a certain tranquility that he could not find amidst the pupils of Paris, in the hopes of recording the thoughts that had occurred to him during so many years of meticulous academic study. Perhaps these two reasons mutually reinforced each other in the decision to come home.

That same year of 1574 he would also arrive for the first time in Toledo, where he would reside for the remainder of his life. Leaving behind the bustle of two great European capitals, Mariana now had within his grasp a long desired period of rest and calm. In his request to return to Spain he had asked to be allowed to dedicate himself to his ecclesiastic vocation and to preach, and once again his wishes had been approved by Jesuit authorities. In this way, Mariana chose of his own free will to abandon the life of a university teacher.

Nevertheless, this tranquility lasted but a short while. Still in 1574, the Inquisition commissioned him, against his wishes, to be the censor of the Polyglot Bible assembled by Benito Arias Montano, who had been charged with heresy for consulting Judaic and Protestant texts for his edition. The choice of Mariana as censor was logical from the point of view of the knowledge necessary to elaborate a well-founded decision. It certainly would have been difficult to find another person with sufficient command of the theology and languages essential to the task at hand. But it also followed a certain strategic and political logic. For the fact that Mariana was a Jesuit must have made the Inquisition believe that he would harshly censor and sanction Montano in his report. In August of 1579 he finished his work, surprising all involved and society in general with an extensive and detailed study that analyzed several errors but ultimately absolved Montano. The final decision regarding the Polyglot Bible, which took Mariana more than five years to reach, not only laid out the doctrine according to which Catholic exegesis can make rightful use of rabbinical texts, but was also the first indication of an independent attitude, which, although it meant a range of inconveniences at the time for those in search of political privilege, it would also be a source of great moral support for subsequent generations and, as we shall see, for many of his contemporaries.

That intellectual independence and that demonstration of multidisciplinary knowledge which Mariana revealed in his role as censor had an unforeseen effect, one which surely did not please him. For from that moment on, and for many years to come, Mariana would be besieged with Inquisitional assignments.

During the years that the astute theologian was finishing his evaluation of the Polyglot Bible, he began to dedicate himself to researching and assembling diverse episodes for his History of Spain. He worked for seven years on this titanic project. The History of Spain was by no means the first work he had undertaken, but it was the first that he had chosen of his own volition. Mariana had decided to fill an enormous vacuum in the culture of his country, and in his chamber in Toledo he worked nonstop to make it happen. Finally, in June of 1586, he finished the initial version of the History of Spain, which for more than two and half centuries would be no less than the definitive History of Spain, with multiple editions in both Latin and Spanish.2

Owing to a plodding bureaucracy that was already substantial in those days, Historiae de rebus Hispaniae, which is the title Mariana gave to the Latin edition, would not circulate for another seven years, its publication thus coinciding with the centennial of the discovery of America and the Reconquest of Granada, the very episode with which Mariana opted to end his opus.

In 1585, a year prior to finishing the History of Spain, one of his best friends, García de Loaysa, was named the personal tutor of Prince Philip, the son of Philip II. Loaysa relied upon the intellect and the independent judgment of his friend when deciding on the knowledge that he was to impart to the future King of Spain. From then on Mariana served as advisor to Loaysa, and together they maintained a running correspondence regarding the education of the Prince, allowing Mariana to perceive the outlines of a new project, the elaboration of which he undertook of his own initiative. Five years later he had copious notes that would serve him in his work on monarchy. In the summer of 1590 he spent a period in a country house in El Piélago with two friends, sharing with them, chapter by chapter, the entire book with the aim of debating it and polishing it into its final form. The following year the text was essentially finished, but Mariana did not consider it appropriate for publication until after the death of Philip II and the rise to power of the actual Prince to whom he had directed the lessons in which his own political philosophy found formal expression. Standing out among the numerous themes that he analyzed are the genesis of human society, the origin and the essence of political power, the rights of human beings, and the importance of public finance. Among the conclusions that have caused the most sensation, over the course of the more than four centuries that have passed since its writing, are topics such as the anteriority of individual rights to the birth of political power, the subordinated condition of the king, the necessity and advisability of establishing clear limits to the exercise of a constrained power located in the king’s person, the right of individuals to kill a king who has resorted to tyranny, the illegitimacy of establishing a monopoly over military power, the usurping character of laws established without the consent of the people, the importance of maintaining a balanced budget, and the unjustifiable recourse to unlawful practices even for the attainment of the most noble ends.

Coincidental to the analysis he performed in the writing of the chapter on taxation, Mariana began to be intrigued by monetary issues, in particular the relation between money and the important matter of weights and measures. This interest in arduous numismatic and pecuniary topics led him to begin to conduct research toward yet another publication. Around 1590 he commenced a search for texts with which to increase his knowledge on these subjects.

With the change in monarchs upon the death of Philip II in 1598, the Talaveran decided to brush off his book on the education of the prince and attempt its publication. At the same time, he tried to publish De ponderibus et mensuris, the work that had resulted from his investigations of weights and measures, and money in particular. The censor praised De rege et regis institutione, and that same year both De rege and De ponderibus went to press, even though neither would be distributed until 1599. The same year his friend Loaysa died, having been named Archbishop of Toledo just a year earlier and having again taken Mariana as his advisor for his new position. The publication of De ponderibus et mensuris in 1599 represented the first work by Mariana which focused on monetary issues. In all there appeared three monetary texts which would eventually conduct Mariana into the shadows of captivity. Nevertheless, the general and eminently formal approach of the first of these did not yet suggest the problems that the Jesuit scholar would suffer as a result of his later economic theory. In fact, it appears that Mariana himself never even intended to pen anything more on the money issue.

On December 31, 1596, Philip II approved a royal decree by which he attempted to raise funds and escape the consequences of the umpteenth bankruptcy of the public coffers, which had taken place earlier that same year.3 That edict stipulated that the billon coins produced by the new hydraulic machine at Segovia were to contain no silver. The benefit this maneuver had on the Treasury was substantial. On the one hand, the King now issued coins made with the metal that had the least intrinsic value, and, on the other hand, he took advantage of the opportunity to order a recall of all billon coins previously put into circulation in order to extract their silver content and re-stamp them at Segovia with the same face value as before. The measure was not the slightest bit appreciated by the public and resulted in protests. In response to the social unrest, in 1597, the King, perhaps trying to live up to his nickname “Philip the Prudent,” decided to concede and added a grain of silver to each mark of copper in all subsequent issuances.

With the rise to power of Philip III and his advisor, the Duke of Lerma, monetary policy went down a path which we would today term “inflationary.” The five first years of his reign were characterized by a return to the minting of low-grade billon coins or coins with no silver content at all as per the late schemes of his father. In 1602, however, there was a qualitative change in this policy. On July 13, 1602, the Crown decreed the final elimination of silver and simultaneously reduced the coins to half their former size and weight. Given that the new silver-less and lower weighted billon coins maintained their previous face value, in spite of having their weight and size reduced by half, the coins minted previous to the new law suddenly and without warning saw their monetary value double. As one would expect, nobody wanted to turn over their old money in exchange for the new. Thus, on September 18, 1603, it was decreed that all coins minted previous to the new law had to be re-stamped. Accordingly, the coins with a value of two maravedís were now punched with four bars, signifying the duplication of their nominal value, and the same happened with the four maravedís coins, which had “VIII” imprinted over their previous value. In concert with these re-stampings, the treasurers subtly issued new coins officially valued at one, two, four, and eight maravedís, all of them without silver and in accordance with the new weighting system.

This measure allowed the King to collect the old maravedís coins (those with silver as well as those with relatively more copper), re-stamp them, and then pay off his suppliers and creditors using the coins with less metal. The value of the public treasury jumped by 66 percent (Ballesteros, 1944, p. 199). Some studies estimate the King’s windfall via this nifty trick at 875 million maravedís. Given the fact that the act of re-stamping does not generate any real wealth in and of itself, the proceeds that the King obtained had to result, naturally, in an equivalent diminution of the wealth of the citizenry, excepting those individuals and institutions that collaborated with the Crown in putting the new monetary policy into action and who thereby participated in the windfall.4

The vast majority of the population was impoverished and commerce itself was adversely affected by the fiscal chaos, all of which heavily impacted the lower classes and the nation at large. Discontent spread, but the Palace walls seemed deaf to the lamentations of the people. Mariana, who always had a keen sense of morality and justice, immediately set himself to work on an explication of phenomena similar to those playing out in our own day, and he ended up denouncing the political authorities as those ultimately responsible for the situation.

What is certain is that very few people could understand as well as Mariana did the corrosive effects of suddenly changing by decree the weights and measures of money. The investigation that he had carried out while writing De ponderibus et mensuris had helped him to develop an understanding of the importance of always respecting said weights and measures. His historical knowledge offered him multiple examples from the past of the consequences provoked by similar monetary manipulations. What is more, his daily contact with commoners in the streets allowed him to directly assess the theoretical effects of such manipulations. Finally, his theological knowledge and his clear moral vision placed him in a unique position, allowing him to indicate those destructive consequences of the new monetary policy that lay in wait above and beyond its merely material effects.

And so it was that in 1603 Mariana undertook a new philological project on money. This time he focused on the causes and effects of monetary manipulations conducted by the politically powerful. This is the origin of De monetae mutatione as well as his own loss of liberty in 1609. In the words of Manuel Ballesteros Gaibrois, the events of 1602–1603 underscored “the tribune that lay dormant in the man, who converts his chamber into a jumble of written pamphlets and scientific experiments, and gradually conceives of a study—which will be entitled De mutatione monetae” (pp. 199–200).5 It is not clear whether or not Mariana initially imagined this project as an independent treatise on money. If this was the case, he probably thought that the topic was of such importance that he could not wait to see it published along with the rest of the essays that he had already finished or else was in the process of finishing, all of which he had intended to release as a compilation of short meditations on diverse matters. The best indication of this urgency is the fact that the first fruits of this effort came to light well before the actual monetary essay. In effect, in 1605, only two years after the decree that mandated the re-stamping of the billon coins, and with the real consequences already plainly visible, Mariana published an early text, which already contained the heart of the argument that four years later, when published in the amplified form of a treatise, would unleash so much royal fury against his person. The opportunity that presented itself to him in 1605 was perfect. He was preparing the publication of the second edition of De rege and so he decided to insert a chapter on money just after the one dedicated to taxation. What better vehicle than a book dedicated to the education of a prince for an explanation of monetary theory? Here he could counsel against the evils caused by certain policies and try to establish the limits of political power with respect to the same issue.

Mariana began his chapter “De moneta” with an irony denoting his indignation at the policy put into action by Philip III:

Some astute and ingenious men, in order to attend to the needs that continuously overwhelm an empire, above all when it is far-flung, came up with the idea, as a useful way to overcome difficulties, of subtracting from money a certain part of its weight, such that, even if the resultant money were adulterated, it would nevertheless maintain its previous value.

Next, he explained what is concealed by these policies:

As an amount is taken from the money in terms of its weight or quality, a similar amount redounds to the benefit of the prince who mints it, which would be astonishing if it could be done without injury to his subjects.

Finally, he insinuated his own views and took the first steps toward more categorical denunciations, making it patently clear that he is referring to the King’s current policy:

In truth it would be a marvelous art, and not a secret magic but, rather, a public and laudable one, by which means great quantities of gold and silver would be accumulated in the treasury without having need to impose new tributes on the citizens. I always viewed as petulant men those who tried to transform metals, by means of certain occult skills, and make silver out of copper and gold out of silver through some chemical distillation. Now I see that these metals can change their value with no effort and no need of burners, and even multiply it, by means of a princely edict, as if by some sacred contact they were given a superior quality. The subjects will still partake of the common wealth just as much as they possessed before, and the remainder would fall to the benefit of the prince for him to apply toward the public good. Who among us has such a corrupt, or perhaps perspicacious, mindset that he would not approve of this blessing on the state? Above all if he reflects that it is nothing new. (Mariana, 1599c, pp. 339–340)

Mariana continued his exposition by presenting various historical examples of monetary manipulation, but he clarified that the fact that such policies have been carried out in the past does not justify them now. What is more, he concluded: “Under the appearance of great utility and convenience can hide a deception that produces many and worse damages both public and private, and so recourse should not be made to this extreme measure except at the experience of great duress” (p. 341).

After this thunderous introduction, our author established the foundations of his thesis and signaled private property as the principal pillar sustaining his theoretical structure. For Mariana, the point of departure is the fact that “the prince does not have any right over the private property and estates of his subjects that would allow him to take them for himself or transfer them to others,” and he affirmed that those who argue otherwise “are charlatans and flatterers, who much abound in the palaces of princes” (p. 341). Mariana maintained that taxation robs the people of their property and impoverishes them. Just in case it has not been made clear, and taking advantage of the fact that this is the very same book in which he expounds his version of the generally accepted theory of tyrannicide, he explained that to establish new taxes without the formal consent of the people makes the king a tyrant. Then he generated a parallel between inflation and taxes, argued that through the adulteration of money the king keeps for himself a part of the property of his subjects, and concluded that the king cannot devalue money without the consent of the governed.

Next, Mariana addressed the difference between intrinsic value and extrinsic value, arguing that he who would allow this difference between them to exist is a fool. The reason for this, he explained, is as follows: “Men are guided by the common value that is born out of the quality of a thing in conjunction with its abundance or scarcity, and all efforts are in vain when aimed at altering these fundamentals of commerce” (p. 343). To put it another way, men act according to their subjective evaluation of things, which is based on the properties of goods and their relative availability.6 He added that it is futile for the king to go against natural law and the monarch only has the right to a small commission for the minting of money.

Mariana went even further: he set out a range of natural economic laws and exposed the fraud involved in inflationary policy, which consists of altering the weights and measures of money and which he equates with robbery. Following Aristotle, he explained the origin of money and then turned against the principal argument in favor of inflation, namely, that since money has no other use than to provide necessary goods, what is wrong with the prince extracting his share and mandating that the remainder continue to circulate among his subjects with the same face value that it had previous to its devaluation? The answer is immediate: this policy is like robbery, because it destroys the wealth of the citizenry; and it is difficult to restrict because the king has greater control over the production of money than he has over the production of other goods. Moreover, according to the Jesuit, this policy has three obvious consequences. The first is that it will cause shortages and reduce the purchasing power of the people. He adds that the typical remedy on the part of the governing classes is to establish price controls, but that this solution only escalates the evil that it pretends to fix. Second, the debased money debilitates commerce. Price controls do not solve this problem either, because nobody will want to sell at the fixed prices and this will bring about runs on goods, stagnation, and the collapse of commerce. Third, upon the economic collapse, the taxes that the king continues to collect will provoke resentment.

Mariana concluded this new and valiant chapter by saying that he had performed his discussion of inflation in order “to admonish princes against altering those things which are the very foundations of commerce, that is, weights, measures, and currency, if they desire to have a tranquil and stable state, because under the appearance of momentary utility lies untold fraud and harm” (p. 351).

In sum, the daring Jesuit was telling the King that he should not let himself be carried away by those who were telling him that an inflationary policy was an easy solution to the problems of the public treasury, one which he had a right to employ. He explained that this is essentially a matter of property rights and that, if the King cannot make off with the goods of his vassals, neither can he alter the weights and measures of money. Inflationary policy impoverishes the people and hurts commerce, and the benefits of said policy are only superficial.

Mariana must have been conscious that many would consider his stance radical, and yet he was set on influencing the monetary policy of Philip III. For this reason it does not seem to be a coincidence that the second edition of De rege et regis institutione, in which he presented for the first time his anti-inflationary argument, was published together in a single volume with De ponderibus et mensuris, as if he had wished to add a long appendix expounding in detail on the technical foundations of the evil he was denouncing.

Meanwhile, the fiscal situation of the State continued to deteriorate and the monetary games of the King and the Duke of Lerma, the same games Mariana denounced in the chapter recently added to De rege, were ineffective in avoiding a new suspension of payments by the Treasury on November 7, 1607, only a few months after the conclusion of the re-stamping process begun in 1602. By then the Jesuit was already anticipating the publication of his treatise on the adulteration of money.7 Towards the end of the previous year he had finished writing the seven essays that would make up his new book, in which De monetae mutatione was the fourth.8 While the sage priest was awaiting the publication of the Latin version of the essay, he set about translating it into Spanish, once again confirming the priority that he always gave to the battle over money, which was now beginning to spill over into the intellectual world. What he surely did not anticipate was that his enemies would retreat from the public dialogue, instead leveraging political power and physical force against him with the goal of silencing his inconvenient ideas.

Around the middle of 1609 the treatise on the manipulation of money was finally published at Cologne as part of Septem tractatus, and on August 28 the King received a letter signed by one Fernando Acevedo, in which he denounced the work. The mixture of emotions that Mariana felt on September 8, when the group of armed men following the orders of Francisco de Sosa seized him and escorted him to Madrid, must have been particularly bitter. After seventy-three years dedicated to studying, teaching, certifying, and disseminating scientific ideas, the monarch responded to his independent quest for the truth in all of this work by taking away his liberty. After giving of himself to society for the better half of a century, the Government chose to persecute him, accusing him of lèse-majesté and confining him to the Basílica de San Francisco el Grande. The anger that his detailed defense of tyrannicide had failed to unleash suddenly came crashing down on him at his explication of the effects of monetary manipulation. His exposition on the causes and consequences of the inflationary phenomenon seemed more menacing to the King than the actual threat of death should he become a tyrant by not respecting the rights of his subjects.

The basic arguments of De monetae mutatione would turn out to be the same ones he had already used in his chapter on money, except that between 1605 and 1606 he had taken time to add to his historical examples, flesh out his juridical arguments, and develop his economic explications of the causes and effects of the evil that was so clearly afflicting the populace. In the prologue, in case it was not clear enough through a simple reading of the text, he underscored that the issue of monetary policy respecting billon coins was among the most important facing Spain at the time and it was what had motivated him to pen the present work. Furthermore, he implored the King to read carefully the arguments that he was going to present before condemning him for his indiscretion or deciding on whether or not he was correct. Our author made use of these initial pages to explain that the current “disorders and abuses” in the production of billon coins were making the entire populace cry out, and given that nobody dared to denounce the situation, he was taking it upon himself to do so. He even added that after so many books in which he had tried to serve His Majesty, he could think of no greater reciprocation on the part of the King and his ministers and advisors than that they should read with attention this treatise in which he had perhaps displayed an excess of missionary zeal in the denunciation of the abuses that had brought about the chaos affecting the entire country.

At the age of seventy-three, Mariana showed himself determined to rail against what he considered an injustice with grave consequences for the entire nation. He was conscious that he was inserting himself into a matter that might cause more than a few sparks to fly. Nevertheless, as he stated in another of the treatises published alongside De monetae mutatione: “the violence committed up to now will have terrorized many; but not me, for whom it only serves as a call to battle. I have proposed to establish peace between the combatants, and I am going to attempt to do so, no matter what dangers I face. It is in the most brutal and scabrous issues that one must exercise the pen.”9 Thus he began his treatise on money, exercising the pen in the most brutal business of them all, one that would come to be the work’s central question: Whether or not the king is the owner of the property of his subjects. For the Thomist thinker who taught at the Sorbonne, the answer was already clearly in the negative. For the septuagenarian who had developed a profound skepticism for statist solutions and a strong sympathy for the principles of individual liberty and private property, the answer could not be put more roundly, “No!” In the second edition of De rege he had already stated the case in black and white terms. The policy of continually altering the weights, values, and stamps of money, which today we would call inflationary, is a form of robbery, and he was not about to watch the same abuse take place again without decrying it.

This is how Mariana assumed for himself the voice of the people, putting the right to private property at the axis of his anti-inflationary diatribe. Having defined the core problem, he explained that the king neither has the right to establish taxes without the consent of those who will pay them nor to create monopolies, for “either way the prince appropriates part of the wealth of his vassals” (Mariana, 1861, p. 38). More still: if this is indeed the case, then “the king cannot reduce the value of money by changing its weight or its face value without the consent of the people,” and he concludes:

If the prince is not the master but, rather, the administrator of the private possessions of his subjects, then he is not allowed to take away arbitrarily any part of their possessions for this or any other reason, as occurs whenever money is debased, for then what is declared to be worth more is worth less. And if the prince is not empowered to levy taxes on unwilling subjects and cannot set up monopolies over merchandise, then neither is he empowered to make fresh profit by debasing money, because this tactic aims at the same thing, namely, robbing the people of their wealth, no matter how much it is disguised as granting more legal value to a metal than it naturally has. All of this is smoke and mirrors, and it is all doomed to the same outcome, which will be seen with more clarity in what follows. (p. 40)10

Mariana then dedicated the fourth chapter of the essay to explaining the importance of being able to count on a stable currency free from manipulations. His message was clear: political alterations of money bring about price inflation. In the author’s words, the reason for this is that “if money undershoots its legal value, all merchandise irremediably rises in price to the same degree that the value of the money drops, and all accounts are adjusted accordingly” (p. 46). Besides elevating prices, the adulteration of money alters and damages the proper functioning of commerce, because weights and measures are the foundation of all exchange. What is more, monetary interventionism is typically presented as the solution to this and other problems, and yet the sage Talaveran explained that these are “like giving drink to a sick man at the wrong time, which at first refreshes him, but in the end only makes his condition worse and increases his suffering” (p. 48). Here we have Mariana presenting an early version of the analogy between the inflationary solution and the drink used to revive an alcoholic, one which Friedrich Hayek would use roughly five centuries later.

Having analyzed the matter in depth, the philosopher detailed the disastrous effects of monetary manipulation, which, as he explained, goes against all rule, custom, reason, and natural law. In the same way that it would not be licit and nobody would approve if “the king were to break into the granaries of his subjects and take for himself half of all the wheat, and then compensate them by authorizing them to sell the remaining half at twice its previous value” (p. 68), neither is it right that the king take away half the value of the money and then attempt to satisfy its owners by declaring that what was once worth two is now worth four. And the robbery can be even greater still when the king permits or, worse still, orders that debts can be paid with the devalued money.

If injustice is the flipside of adulterated money, the face of it is inflation. Goods “will become costlier in proportion to the debasement of the money supply” (p. 69). This effect provokes popular outrage and what typically occurs is that the ruler, now caught up in the dynamic of his own interventionism, tries to fix prices. Clearly this remedy will be even worse than the disease and, as the first modern historian of Spain does well to point out, this will inevitably bring about shortages, “because nobody will want to sell” (p. 69). And if this reasoning were not remarkable enough, what followed was a compounded explication of the rise in prices in conjunction with the loss of the money’s purchasing power, the one quantitative and the other qualitative. The first phenomenon responded to the fact that, as in the case of any good, the rise in the quantity of money will diminish its value. The second, though, responded to the fact that if the quality of the money deteriorates, then people will want to exchange their goods for money only if there is an increase in the amount of money being offered for those same goods.

As Mariana had explained previously, the ruler, far from reversing course, typically ventures further down his destructive path and now attends to the symptoms, instead of the causes that he himself unleashed. Thus, the fixing of prices, as an attempt to preserve the loss of a money’s purchasing power, distorts the economy even further, bringing about general privation. In other words, shortages are not accidental but, rather, the logical consequence of fixing prices. And sooner or later, the king will be forced to acknowledge the source of the problem by lowering the official value of the money back to its intrinsic value (p. 71). The end result of all of this degradation cannot be anything other than a swelling of “collective rage,” which the prince has only brought upon himself.

If we limit ourselves to material reality, there is no doubt that the king will benefit over the short term from this kind of policy, but over the long term the dynamic effects of the strategy will have forced him to worsen his own situation, via debasement of the money and its subsequent effect on commerce (and the productivity of the nation), always as delicate as milk, “which at the slightest disturbance separates and curdles” (p. 78).

But there is more. Bad money, in this case billon, exiles good money, in this case silver. Mariana described the Spanish experience as a textbook case of Gresham’s Law. This law, popularized via the formula “bad money drives out good money,” was proclaimed in 1558 by Sir Thomas Gresham. First articulated by Nicholas Oresme, it explains the effects caused by maintaining an artificial exchange rate between two currencies despite the one being devalued and the other not.11 Our Jesuit describes the phenomenon just as it was taking place between the new billon coins and the old ones, and he simultaneously denounces that in such situations the king should benefit by ordering that he be paid with money containing silver, precisely while he continues to make his bond payments and dole out salaries with money containing only copper. Finally, as Mariana does well to indicate, foreign creditors and suppliers will not accept this arrangement, and thus silver will flow in their direction (Mariana, 1861, p. 64).

For a man who has dedicated his life to reflecting on moral, political and philosophical problems, at both empirical and abstract levels, for a man who has lived abroad, written the history of Spain, and tried to assist in the education of the Prince, and for a man who has looked hard at the rights that predate the royal institution and even society itself, it is impossible not to see that the manipulation of money, with all of its attendant problems, is first and foremost a means of financing the public debt. Perhaps this is why the last chapter of his treatise is dedicated to the analysis of alternative measures that might resolve the Treasury’s problem without having to make recourse to the destabilizing and destructive “fraud” of debasing the money supply.

According to Mariana, instead of focusing on raising revenues as the way to solve the fiscal imbalance, the first thing that the King and those who govern ought to do is reduce expenditures. His second recommendation is to end subsidies, rewards, pensions, and prizes. This is because—and let us not forget—the King is administering resources that are for the most part not his own. Mariana does not hesitate to put the case simply, so that it will be understood:

Let us look at the matter clearly: If I were to send a representative to Rome and give him money for his expenses, would it be permissible for him to waste it and to give it to whomever he pleased, or for him to go about doling out another’s money in a public display of generosity? The king cannot allocate public money given to him by the citizenry with the same freedom with which a private individual spends the income derived from his own lands and other possessions. (p. 91)

Furthermore, he proposed that “unnecessary ventures and wars be avoided, that incurable cancerous limbs be amputated” (p. 91). In other words, those wars which are not absolutely necessary should cease and there should be no hesitation in allowing Flanders to secede from the Empire. Moreover, he suggested that the King dedicate more energy to keeping outlays in line with revenues, with the purpose of avoiding influence peddling and corruption. Finally, if it becomes necessary to raise taxes, Mariana proposed that these be levied on luxury items, which are purchased principally by the upper classes.

As a final point, he concluded once again that what needs to be avoided at all cost is inflationary monetary policy, because it runs contrary to both ethics and economic efficiency. For if such policy is pursued without the consent of the people, from whom part of their wealth is extracted through the encumbrance, then it is “illicit and wrong,” and even if it be done with their consent, he considered it a mistake and destructive for a variety of reasons.

Mariana was conscious of putting himself at risk by speaking so frankly and loudly, and he indicated as much in the prologue to the reader of De monetae mutatione: “I see very well that some will consider me too bold, others rash, saying that I do not consider the risk that I run. Nevertheless, I dare to speak out, an odd and retired man, against that of which so many wiser and experienced men than me have approved” (Mariana, 1861, p. 27). Even so, it must have been difficult for him to have imagined that the King and the Duke of Lerma would have unleashed their fury in such a virulent and immediate manner. He must have been thinking in such terms when they seized him at the chapter house in Toledo on September 8, 1609, by order of the Bishop of the Canary Islands.12 As he was being conducted from Toledo to San Francisco el Grande in Madrid, he would have had time to conjecture about what they were accusing him of and what would be his principal lines of defense.

Mariana was already seventy-three years old, but it was still not too late for him to learn one of the bitterest lessons of his life: if one is disposed to confront political authority in defense of individual liberty and private property, one should anticipate the likelihood that he will be abandoned by his friends and even by the institutions that he has served his entire life. This was the case, for example, with the Company of Jesus, to which Mariana had dedicated with talent and zeal his last fifty-five years. From the outset of the proceedings, the directors of the order were careful not to defend him if doing so meant compromising their interests.

The King and Lerma had been quick to detain the aged philosopher, but they would take their sweet time presenting their formal indictment. The original claim was presented by Don Fernando Acevedo on August 28. So the King waited seven days before having the Inquisition formally depose the inconvenient author and eleven more before ordering his arrest and transfer to Madrid. Nevertheless, the formal accusation would not arrive until October 27. It consisted of the following thirteen charges:

1. Denying the right of the King to reform the money supply, using formulations with which he tries to discredit and reprove the monetary policy of His Majesty, such as offending ministers and defaming the nation and its customs.

2. Omitting the reasons that justify the reform and using an erroneous methodology, thus making his work more a matter of libel than scientific study.13

3. Trying to provoke and disturb the populace. In other words, trying to foment social unrest.

4. Defaming Court administrators, arguing that they are inept and given to bribery.

5. Maintaining that inflation is a hidden form of taxation, that the King cannot impose taxes without consent, and calling him a tyrant.

6. Not considering information pertaining to the troubles of the State but, rather, inciting them by labeling as “fraudulent infamy” practices similar to those carried out in other countries.

7. Classifying as inept and insolent the decisions made by ministers in the development of the national monetary policy.

8. Accusing ministers of obstruction.

9. Affirming that the nation is poorly governed, because public officials are corrupt.

10. Insisting on the “wicked and imprudent doctrine” which claims that in matters that concern all, all may express their opinions.

11. Comparing the Spanish Empire to the Roman Empire in its decadence and making fearful prognostications, in which are interwoven species of lèse-majesté.

12. Accusing the King of ingratitude toward García de Loaysa, Pedro Portacerrero, and Rodrigo Vázquez.

13. Finally, affirming that at that time and in that realm there coexisted the following grave evils: theft and deception among citizens; lack of honor among magistrates; robbery of public money; continuous imposition of new taxes, which end up paying for private expenditures or superficial expenditures of the Royal House, whereas the commoners cry out, oppressed by the great burden, and “pass their lives in anguish and pain no less brutal than death itself”; the existence of a great “number of poor who, without any hope and without having anything of their own, go about lashed to a stake”; the adulteration of the money supply with the harm this supposes to commerce and the shortage of all kinds of goods. (Fernández de la Mora, 1993, pp. 68–77)

At last Mariana knew the charges against which he would have to defend himself. As soon as the accusations were put before him, he requested several days to prepare his defense, which he decided to undertake personally. The final words of the prosecutor invited him to disavow the written record he had left in his book. How should he confront the situation? The alternatives were clear: either he renounced his principles and declared that he had made an error in judgment, or else he threw himself into defending his ideas at the risk of never being able to convince the tribunal that it was not true that he had committed “capital offenses,” as the prosecutor had claimed. On November 3 his choice was made clear via the thirty-five handwritten folios of exoneration that he introduced, which consisted of a series of formal arguments maintaining: that the publication of his work complied with the law from the moment it was granted the required license to be published; that in no way did it transgress the articles of his faith; and that it was “clear doctrine” that facts which are already public can be restated and that the majority of these had already been judged, referring to the abuses and corruptions that he denounced in the treatise. In addition, Mariana put forth four general arguments: 1) that he was being accused of supposed intentions that only God and he could know and which he had already disclosed in the prologue to the book; 2) that technically his book cannot be considered a defamatory libel because there is nothing surreptitious about it; 3) that it only mentions cases of corruption already punished as such; and 4) that it was printed in Cologne only because the domestic presses had been closed by royal decree and that he had obtained permission for its printing there.

Mounting his defense against the specific charges brought against him by the prosecutor, Father Mariana answered them one at a time with a combination of solid theological arguments and deft political maneuvering.14 To the first accusation he responded that he maintains his opinion that the King has no right to debase the currency without the consent of the people, for the same reasons that he had expounded in his book. To the second, he responded that he never omitted any justification for the monetary reform but, rather, that he continued to believe there is insufficient justification. To the accusation of fomenting unrest, he answered that the existence of corruption does not mean that the King knows of it and consents to it, and that he only reiterated an already public outcry. He refused to disown his affirmation with respect to the fifth accusation, according to which inflation is a tax for which the King has not obtained consent, which is therefore not legitimate, and which casts the monarch in the role of tyrant. Regarding the sixth allegation, he defended himself saying that he did not intend to incite unrest but, rather, to alert the King as to what might happen to him and what, in point of fact, has happened in other countries. Next, Mariana contested the seventh, eighth and ninth charges with a sly prestidigitation by which he tried to maintain that he was not referring to the ministers of Spain but, rather, to certain personages already condemned and to ministers in general who would establish these policies independent of consultation. He also defended himself against the incrimination that he called ministers inept and labeled their decisions insolent by alleging that “inept” means purposeless and that an “insolent” decision is merely an “extraordinary” decision, availing himself of one of the meanings that the adjective still held at the time.15 He responded to the tenth charge with an ardent declaration in defense of freedom of expression. Regarding the eleventh, he said that he had made the comparison between the two empires in order to warn about where we could all end up if the issue is not resolved. He accused the prosecutor of twisting his words in the twelfth accusation and, finally, he said that, regarding the final charge, he was merely referring to the public treasuries of all countries everywhere.

After reading the exculpatory text, the prosecutor levied a new charge against the Jesuit: alleging that the charges of the prosecutor are false. Nevertheless, the prosecutor must not have had much confidence in his accusations, because on December 2 he asked for a delay of the trial, to which Mariana objected. When the oral arguments finally took place, the accused philosopher encountered difficulties calling his seven witnesses, one of whom even refused to appear before the court. The other six defended the courage and honor of Mariana, after demonstrating their familiarity with his work. By contrast, of the ten witnesses called by the prosecutor only two were familiar with the book, but they all nevertheless denounced Mariana, displaying absolute complicity with the powers that be. Five of these went so far as to claim that the King could do as he wished with the money supply as well as the property of his subjects. Eight of the ten stated—without having read the book—that everything the book said is false.

On the day after the Day of the Magi in 1610, Mariana received a written statement of the cause against him and he responded that he will not enter into a discussion of positive laws but, rather, only natural laws. He further added that, if the prosecutor were correct, then private property would not exist, and he requested that all of the witnesses’ testimony against him be disregarded, for they have testified without citing the book in question. So the case was set for sentencing on January 9, 1610.

The King put Mariana’s feet to the fire, trying to condemn him for lèse-majesté, and meanwhile he called for his ambassadors to buy up or take possession of all the copies of the book they could find in order to burn them. Unfortunately, the ambassadors set themselves with such zeal to the task ordered by Philip III that today it is nearly impossible to find a first edition copy of Septem tractatus. Nevertheless, in spite of all the King’s efforts at getting the Vatican to back him in his persecution of the Jesuit, he never achieved an ounce of papal cooperation by which to condemn him.

In light of the impotence of the King, Mariana was freed, without any formal conclusion to the trial. As Gonzalo Fernández de la Mora (1993) does well to point out, contrary to what is usually believed, the episode “makes manifest the fact that the Monarchy’s power was not capricious but, rather, limited not only by the ethical consciences of its affiliates, but also by judicial review” (p. 99). The result of the trial ultimately supports the view advanced by, among others, Murray Rothbard in Economic Thought before Adam Smith, according to which institutional rivalry and jurisdictional overlap limited the power of the State in a relatively effective way, while the Catholic Church continued to enjoy a certain degree of power in Europe.

Juan de Mariana managed to overcome the nightmare in which he found himself all alone. At seventy-four, he returned to Toledo and never again occupied himself with monetary issues. In the years following the trial, he lived long enough to see how those who had persecuted him with their hatred fell from the pedestals to which they had risen. He also lived long enough to see how a new generation of intellectuals would defend his work, which was also attacked in France for its defense of tyrannicide. In spite of the physical disappearance of the book in which he had most clearly articulated his monetary theory, his ideas were defended by other authors, both within and beyond the borders of Spain. And so it was that so many millions of citizens, from his generation to our own, were made the welcome beneficiaries of the valiant efforts of this exemplary man who defended private property and freedom, even under the most adverse of circumstances.16

  • 1. Today Mariana’s name can be seen on a wall of the Parisian university, carved there in commemoration of his work.
  • 2. Historiae de rebus Hispaniae (1592) and its subsequent Spanish version, translated by Mariana himself and entitled A General History of Spain (Historia general de España, 1601), remained without rival in the historiography of Spain until Modesto Lafuente published his own History of Spain in 1850. Over the course of those two and a half centuries numerous editions of the Spanish version were published. Manuel Ayau, the great founder of Guatemala’s Universidad Francisco Marroquín, exhibited with great pride a Spanish edition of 1848 in his personal library.
  • 3. Prior to the bankruptcy of 1596, Spain had already experienced, during the reign of Philip II, bankruptcies in 1557, 1560, and 1575. For more details on these suspensions of payments by the Royal Treasury, see the essay by Drelichman and Voth (2009).
  • 4. This history of monetary maneuvers is well documented at the website, especially the section on re-stampings: Not even this last measure could avoid yet another suspension of payments, which took place in 1607.
  • 5. Ballesteros confuses matters slightly when he says that Mariana set about expanding the content of the chapter on money in De rege, for the latter was not published until 1605.
  • 6. In his Principles of Economics, Carl Menger, the modern founder of the Austrian School of Economics, lists four conditions that convert something into an economic good: 1) the existence of a necessity; 2) the existence of characteristics in a given thing that can causally relate to the satisfaction of that necessity; 3) awareness regarding these characteristics; and 4) awareness of that causal relation on the part of a person with control over that thing.
  • 7. According to Mariana’s own testimony at his trial, he had finished the text by 1605, making only a few minor adjustments afterward (Ballesteros 225).
  • 8. The authorization by the Provincial Father for the publication of these seven treatises was issued on November 24, 1606.
  • 9. This valiant affirmation can be found in the essay entitled “Pro editione vulgata,” the second of the treatises in Mariana’s Tractatus VII.
  • 10. Regarding public consent and taxation, some might dispute whether or not Mariana was actually being contentious here. Nevertheless, it remains quite clear that the simple calling of a session of the Cortes in order to formally ratify new taxes does not satisfy him at all. In the Tratado y discurso, we can also read the following: “It is well understood that little attention is paid to what ought to happen in Spain, and here I refer to Castile, which is to drag the tax collectors before the Cortes, because the majority of them are not all that bright, since they are chosen by lot, being people who are of small minds when it comes to everything and who go about resolved to fill their pockets at any cost to the miserable public” (p. 36).
  • 11. Cf. Oresme’s treatise and Selgin’s essay on Gresham’s Law. For more on Oresme, see Hülsmann, who has positioned him as the origin of the monetary theories of the Austrian School of Economics.
  • 12. Curiously enough, ever since September 8, 1914, this day has been dedicated to celebrating the Virgen del Pino, the patron saint of the Canary Islands diocese.
  • 13. Here the prosecutor accuses Mariana of using deductive logic.
  • 14. This summation of Mariana’s defense is taken from Fernández de la Mora (1993, p. 83).
  • 15. The argument that Mariana utilized in his defense against this charge recalls the one used several years ago by Manuel Ayau (a.k.a. “Muso”) in a famous debate at the highest institutional levels of Guatemala concerning the form that a possible stock market might take there. As told by Eduardo Mayora: “The Central Bank of Guatemala maintained its legalistic opposition to the incorporation of a fully private entity designed to underwrite a stock market. They could not imagine that such a thing could exist without passage of a special law, without the direction of the State, and, of course, without its own blessing. The proposal led to a high-level meeting with the Bank’s most powerful dignitaries, presided over by its Vice President. On the side of those favoring a stock market, there was Muso leading the charge. The Vice President of the Bank of Guatemala welcomed Muso and those in his company, following the customary protocol at that type of formal gathering, with a more or less condescending tone, after which he yielded to Muso, who, without the slightest preamble, said: ‘Well, thank you very much. Today, we are here to tell you all that you are dysfunctional....’ Every one of us froze for a few moments, which seemed like an eternity, until Muso finally added: ‘ the sense that it is not the function of the Central Bank to regulate any stock market.’ After that we all breathed a huge sigh of relief” (personal communication, 2009).
  • 16. Among the authors who knew, defended, and disseminated some of Mariana’s ideas over the years that followed, we should note philosophical, political, economic and even literary giants ranging from Quevedo and Lope to Turgot and Locke. And as can be seen in the following essay by Professor Graf, there is a good argument to be made that Miguel de Cervantes, the author of the first modern novel, was Mariana’s greatest disciple of all.
Categories: Current Affairs

The Economics of the Public Sector

Fri, 14/12/2018 - 22:35

In the real world, it is impossible to separate economic analysis from an understanding the effects of state intervention in the marketplace. Government spending, borrowing, regulating, and bureaucratizing all distort and change the economics of our daily lives.

In this 60-minute talk, Thomas DiLorenzo discusses the effects of government intervention, and the role of democratic politics in leading to more intervention.

How Austrian economics is used to analyze the effects of government spending, borrowing, and bureaucratizing. Recorded at Mises University 2010.

Categories: Current Affairs

A Brief Defense of Mises’s Conception of Time Preference and His Pure Time Preference Theory of Interest

Fri, 14/12/2018 - 22:35

ABSTRACT: In his recent book, Money, Interest and the Structure of Production (Machaj, 2017), Mateusz Machaj advances two significant criticisms of Mises’s theory of time preference and his pure time preference theory of interest (PTPT). First, he claims that time preference only exists under certain unrealistic conditions, and second, that the PTPT, as presented by Mises, is unable to provide a coherent explanation for the spread between the prices of inputs and output that characterizes production processes in a monetary economy. In this paper I present a brief defense of Mises’s conception of time preference and of his PTPT from both of these criticisms. I argue that, contrary to Machaj’s claims, the existence of time preference does not require any unrealistic assumptions and also provide an analysis of how the PTPT can provide a satisfactory explanation of the monetary surplus that permeates the production structure.

KEYWORDS: time preference, interest, production, Austrian economics JEL CLASSIFICATION: B53, E14, E23, E43 I. INTRODUCTION

Mateusz Machaj’s Money, Interest and the Structure of Production (Machaj, 2017) is a welcome addition to the recent groundswell of works on Austrian macroeconomics. In this book Machaj covers a broad range of topics, some of them theoretical, such as the theory of interest, the inter-temporal structure of production, and the relationship between the rate of interest and the length of the production structure, along with others that are more policy-oriented, including an analysis of the cogency and practical relevance of popular macroeconomic concepts such as potential output and full employment, and the implications of the non-neutrality of money for monetary policy. The entire range of topics is covered in a manner that is intellectually courageous, provocative and thought provoking.

In part I of the book, which comprises two chapters on the theory of interest (Machaj, 2017, pp. 3–36) and on the inter-temporal structure of production (Machaj, 2017, pp. 37–86), Machaj advances a number of criticisms of traditional Austrian macroeconomics. In the first chapter, in addition to presenting an original theory of interest, Machaj focuses his critical ire on the theory of time preference as presented by Böhm-Bawerk (Böhm-Bawerk, 1930, pp. 237–281) and Mises (1998 [1949], pp. 476–487), and on the pure time preference theory of interest (PTPT) as advanced by the latter (Mises, 1998 [1949], pp. 521–534).1 And in the second chapter, he presents a detailed and highly critical analysis of a proposition that has long been of great importance to the Austrian of economic growth and business cycles: the inverse relationship between the rate of interest and the length of the structure of production.2

In this paper I present a brief defense of Mises’s theory of time preference and the PTPT from the criticisms advanced by Machaj. In doing so, I do not explicitly address his criticisms of the relationship between the rate of interest and the length of the structure of production.3 Nevertheless, I do so implicitly, since the PTPT, especially as advanced in its most refined form by Mises, is critical to understanding the nature of this relationship. In fact, it is the PTPT that provides the microeconomic, price theoretic foundation to the traditional Austrian position that these two variables share a negative relationship.4 Thus, it is no surprise that Machaj, having rejected the PTPT, is also highly critical of the traditional Austrian position on the relationship between the rate of interest and the length of the structure of production.


There are two main charges that Machaj levels against Mises’s pure time preference theory of interest (PTPT). First, he claims that the theory of time preference, including the one advanced by Mises, can only be worked out under certain unrealistic and unrealizable conditions. “With typical time preference theory,” Machaj notes, “one has to assume very sophisticated and quite unrealistic clauses about the other things being held equal […]” (Machaj, 2017, p. 27). Along with the assumption that “people compare two identical goods that are non-perishable and do not change,” he argues that the theory also makes two patently unrealistic assumptions: first, that “the circumstances surrounding them [the people: GPM] also stay the same, except for the passage of time,” and second, that there is “full certainty and predictability of future states of affairs” (Machaj, 2017, p. 27).5

Two important implications follow from the unrealistic assumption of perfect certainty. First, time preference can only explain the rate of originary interest, or the rate of interest as it appears within the confines of the evenly rotating economy (ERE), where there is a uniform rate of return in every production process. And since the imaginary construct of the ERE is built on the assumption of perfect certainty and predictability of the future,6 it follows that the theory of time preference can only explain the rate of return that appears within the production structure under these artificial conditions, and is unable to explain the price spread between input and output that permeates the production structure in the real world characterized by uncertainty.

Second, adherents of the PTPT cannot explain how the rate of originary interest comes to be what it is. As Machaj notes, if the theorist is confined to explaining interest only in the ERE and has no explanation of the interest rate that appears within the production structure in the dynamic and uncertain world of reality, there is no way for him (or her) to provide any coherent and meaningful explanation of why the rate of originary interest is what it is. In such a scenario, the theorist is forced to acknowledge that the rate of interest within the ERE “is equalized not by the mechanisms of the model but merely by the assumptions of the model: everything is the same because everything is the same” (Machaj, 2017, p. 25).7

Now, this first charge that Machaj levels against the PTPT, while restricting its scope to the imaginary world of the ERE, at least assumes, albeit implicitly, that the theory can actually explain the rate of originary interest that characterizes such an economy. The second and stronger charge that Machaj levels against the PTPT, however, denies even this possibility. The PTPT, he claims, cannot even explain the rate of originary interest. And why is it unable to do this? Because the concept of time preference simply cannot explain why there should be a monetary surplus that characterizes any production process, even in the ERE.

While Machaj accepts that time preference is indeed “an element of a pure theory of action,” he argues that there is “a gap” between accepting this proposition and “making it a prerequisite for physical monetary surplus” (Machaj, 2017, p. 25). In fact, as he goes on to note, “there is no clear bridge between a preference for sooner rather than later and a physical surplus of money in interest payments” (Machaj, 2017, p. 26). Thus, consider a production process where a capitalist-entrepreneur pays out 100 units of money today to hire various factors of production. An acceptance that his actions are guided by the concept of time preference does not in any way imply that he will sell his output tomorrow for a sum that is greater than 100 units, thereby earning some positive rate of return. Instead, “the transaction could well be 100 units of money today in exchange for 100 units tomorrow, such that monetary interest is zero.” Or, in fact, “interest could even be negative: 100 units today for 95 units tomorrow” (Machaj, 2017, p. 26).

Thus, Machaj throws a one-two punch at Mises’s PTPT. The first attacks the conditions under which the concept of time preference holds true, and the second focuses on the implications that can be derived from the concept itself. In the following two sections I will try to defend Mises’s exposition of time preference and the PTPT from both of Machaj’s criticisms. In doing so, I will begin with a defense against the initial blow, regarding the realism or lack thereof of the conditions under which the concept of time preference itself holds true, and will then deal with the second criticism, which focuses on whether the existence of time preference can explain a monetary surplus within a process of production.


Before dealing with the specific criticisms that Machaj advances against the Misesian PTPT, I think it is important to mention and explain some important implications that follow from the existence of human action. These propositions, although they belong, first and foremost, to the realm of praxeology, and thus take us beyond the realm of catallactics, are still worth laying down in some detail since they are essential to my defense of Mises’s exposition of the theory of time preference and the PTPT.

Human action, as Mises defines it (Mises, 1998 [1949], p. 10), is purposeful behavior. It is the purposeful reaction of an individual to his (or her) environment and involves an attempt, on the part of this individual, to alter this given environment and to replace it with a different state or situation.

Such purposeful behavior, as Mises goes on to note (Mises, 1998 [1949], pp. 13–14), implies the existence of certain conditions. Action, to begin with, requires an individual to be less than fully satisfied. He must, in a given situation, be aware of certain unfulfilled wants, and must experience “some uneasiness” (Mises, 1998 [1949], p. 13). Given this lack or insufficiency in the conditions that define his existence, the individual must be aware of alternate states of the world that will enable him to satisfy one or more of these unfulfilled wants. Moreover, these alternate states must, in his eyes, be realizable and worth striving towards.

The ultimate goal or the ultimate purpose of all action, it follows, is the satisfaction of some unfulfilled wants, or the removal of the uneasiness that the actor experiences. Action, however, also requires the actor to choose between alternate states of satisfaction. It forces him to prefer and strive after one possible state of the world and the satisfaction that it opens up, and to renounce another realizable state of the world and the satisfactions that it has to offer.

These preferences, first and foremost, rank the ultimate goals of action: the alternate states of satisfaction that the actor has to choose between in any given situation. One or more unfulfilled wants that offer greater satisfaction are deemed to be of more importance to the actor’s well-being, and of greater value to him, and are ranked above other unfulfilled wants that offer less satisfaction and are valued less. These valuations then guide the conduct of the actor. Of two possible paths of conduct open to him at any given moment, he chooses the one that allows him to satisfy the wants that he values more, while renouncing the path that promises less value.

Now, although the actor attributes value to the possible states of satisfaction that he can bring about, he also necessarily imputes and attributes this value to the means that he uses to attain these states of the world. For, although the attainment of a state of satisfaction is the ultimate goal for an actor, he finds himself in a situation where these states of satisfaction are unattained or unfulfilled. And, it is in this current, given scenario that he plans to employ certain scarce elements in his environment, or means, to try and attain these ultimate ends. As a result, the value that he attributes to these states of satisfaction is also imputed to the means that enter into his action.

This holds true both for actions involving consumer goods, or first order goods, and for actions that involve producer goods, or higher order goods.8 Thus, consider the case of Crusoe, all alone on his island, using a fish in his possession to satisfy a want. Since the fish, by assumption, is a first order good, the value that Crusoe attributes to it will be a reflection of the value that he attributes to the marginal utility that he expects to attain with it. The want that he will use it to satisfy has some importance to his well-being, and this importance is directly imputed to the fish at hand.

Now, consider a situation where Crusoe employs an hour of his labor-time to start producing a raft. When completed, he will use this raft to catch some fish. On what will the value of this first hour of labor devoted to raft production depend? The value of the services of the raft that it helps produce will be imputed to it. Thus, the value of the third order good, the hour of labor-time, reflects the importance that the second order good, the services of the raft, has for Crusoe’s well-being. And on what does the value of this second order good depend? It, in turn, reflects the value of the fish, or the first order good that can be produced with it, and therefore the value of the states of satisfaction that the fish will help Crusoe attain.


Just as action requires the actor to make value judgments, it also implies the existence of time preference. Since the actor strives towards the gratification of an unfulfilled want, it follows that he prefers to satisfy this want in the nearer as compared to the more distant future. And since the attempt to gratify an unfulfilled want is essentially an attempt to attain a state of satisfaction, it follows that, in the eyes of the actor, “other things being equal, satisfaction in a nearer period of the future is preferred to satisfaction in a more distant period” (Mises, 1998 [1949], p. 480). An individual’s actions necessarily reflect time preference: at any given moment, he attributes greater importance and more value to satisfaction that lies relatively close at hand, and less value to satisfaction that lies further away in time.9

Given that time preference is implied in every act, the conditions under which it exists or manifests itself will necessarily be identical to the conditions that necessitate action. Keeping this firmly in mind, let us now analyze Machaj’s first criticism of Mises’s PTPT, i.e., that time preference only exists under the unrealistic conditions that “circumstances…stay the same except for the passage of time” and that there is “full certainty and predictability of future states of affairs” (Machaj, 2017, p. 27).

Let us begin by clarifying the meaning of the first assumption. When Machaj states that “the circumstances surrounding them [the people: GPM] stay the same except for the passage of time” (Machaj, 2017, p. 27), I am going to assume that he means the following: the theory of time preference assumes that, when an individual acts, no changes in circumstances or conditions that are exogenous to the action itself can take place. To be sure, every action itself is an agent of change and implies an alteration in the conditions surrounding the actor. In fact, to effect such changes is the overarching goal of action. But no changes in an actor’s environment that are unrelated to the specific act that he undertakes are allowed.

Now, given that time preference is implied in human action, the veracity of Machaj’s claim can be assessed by answering the following question: does action require such an assumption? Does the existence of action require one to assume that only changes endogenous to action can take place and no changes that are exogenous to it can impact the environment of the actor? For, if this condition is not necessary for the existence of action, it is also not implied in Mises’s theory of time preference.

Turning now to the conditions necessary for the existence of action that I have mentioned earlier (Section III), one finds that action only assumes that there are unfulfilled wants. It does not, however, require any assumption regarding the lack of changes exogenous to action. Indeed, such changes can and indeed necessarily do buffet the world of the actor. But all that action assumes is that, despite such changes, the actor perceives and believes that there will still be certain unfulfilled wants. And it is only the existence of these ungratified wants that are necessary for him to act.

Now, what about the second unrealistic assumption? Does the theory of time preference assume away the endemic uncertainty that characterizes the real world? Once again, given that time preference is implied in the fact that human beings act, we can determine the validity of Machaj’s claim by answering the following question: does action imply perfect certainty? For, if this is not a necessary assumption for the existence of action, then it is also not a necessary assumption for the existence of time preference.

The answer to this question has been given, and given quite emphatically, by Mises in Human Action (Mises, 1998 [1949], pp. 105–106). Far from action requiring full certainty and predictability of the future, it is, in fact, impossible for any action to take place in a world characterized by perfect certainty and predictability of the future. Indeed, as Mises notes, “if man knew the future, he would not have to choose and would not act” (Mises, 1998 [1949], p. 105). Far from being a striving, purposeful creature, man, under these conditions, “would be like an automaton, reacting to stimuli without any will of his own” (Mises, 1998 [1949], p. 105).

Thus, far from perfect certainty being a necessary condition for action, it is the uncertainty of the future that is “implied in the very notion of action” (Mises, 1998 [1949], p. 105). And since the conditions necessary for the existence of action are also those that are necessary for the existence of time preference, it follows that Machaj’s claim that the latter exists only under the unrealistic conditions of “full certainty and predictability of the future state of affairs” is not true. Time preference exists and influences the actions and choices of individuals in the dynamic, real world of change and uncertainty.

Two important implications follow from this. First, since time preference does not appear only in the artificial and unrealistic thought construct of the ERE and does manifest itself in the real world that confronts acting man, it does, assuming that it can explain the price spreads that permeate the production structure, help explain the phenomenon of interest as it appears in the real world. And second, since it does influence the actions undertaken in the real world, and thus does influence the allocation of resources within the production structure, it does play a role in analyzing the step-by-step process by which the ERE would emerge and interest rates in the various processes of production would be equalized, if tastes, techniques and the stock of the original factors of production (land and labor) were assumed to be given.

Thus, the theorist who espouses the Misesian version of the PTPT does not, contrary to what Machaj claims, conclude that price spreads within the production structure are equalized in the ERE “merely by the assumptions of the model,” and “not by the mechanisms of the model.” And he is certainly not forced to conclude “that everything is the same because everything is the same” (Machaj, 2017, p. 25).


1. Time Preference and the Value Spread Between Input and Output: The Case of a Crusoe Economy

The existence of time preference has important implications for the process of value imputation. Let us reconsider the case of Crusoe devoting an hour of labor to the production of a raft. As discussed above, both the value of the labor-time as well as the value of the services of the raft produced with it depend, proximately, on the value of the fish, and ultimately, on the value of the unfulfilled wants that these fish will help satisfy.

Nevertheless, although the services of the raft and the hour of labor-time both ultimately derive their value from the same states of satisfaction, their values will not be equal. The hour of labor that Crusoe plans to devote, right now, to the production of the raft is of less importance to his well-being, and therefore of less value to him, than the services of the raft that it helps produce. The cause of this spread or difference between the value of the input, the hour of labor, and the value of the output, the services of the raft, lies in how far away each of them is, in time, to the ultimate goal of Crusoe’s action: the attainment of satisfaction.10

Assume that it takes two days of labor-time for Crusoe to produce the raft. It follows, therefore, that when he is about to devote an hour to start its production his ultimate goal lies more than two days away. But when he has finished producing the raft, the services of it that this first hour helped produce are a few hours, or maybe just a few minutes away from the attainment of some satisfaction.

Now, as mentioned above, time preference implies that Crusoe, when embarking on a course of action, attributes greater importance and value to states of satisfaction that lie in the nearer future and less importance to those that lie further away in time. In this instance, the hour of labor-time contributes, ultimately, to the gratification of some unfulfilled wants that lie in the more distant future, whereas, the services of the raft, once it has been completed, help him to attain satisfaction in the nearer future. It follows, therefore, that at the moment when he is about to start producing the raft, he values the services of the raft more than the services of the hour of labor-time that help produce them; to the former he attributes the greater value of satisfaction that lies in the nearer future, and to the latter he imputes the lower value of satisfaction that lies in the more distant future.

2. Time Preference and the Price Spread between Input and Output: The Case of a Monetary Economy

Turning our attention now to a monetary economy, consider the case of a capitalist-entrepreneur and his actions in the market for a producer good. Just as in the case of Crusoe, the value that the capitalist attributes to a unit of the good in question is ultimately determined by the contribution that it can make to the ultimate goal of his (or her) actions: the gratification of unfulfilled wants and the attainment of states of satisfaction. However, given the existence of the division of labor and specialization, the path that the capitalist takes to achieve this ultimate goal is very different from the one taken by Crusoe.

In Crusoe’s self-sufficient world, a unit of a producer good is utilized by him to produce a first order good either directly or indirectly, and then attain some satisfaction. As a result, the value of the producer good depends, proximately, on the consumer good that he produces with it, and ultimately, on the satisfaction that he can attain with the latter. The capitalist, acting in a different institutional scenario, uses a unit of the producer good to produce a product that he sells for a sum of money. He then proceeds to use this money to purchase consumer goods produced by other capitalists. These consumer goods, in turn, are used by him to gratify unfulfilled wants and to attain states of satisfaction.

The value of a unit of the producer good to the capitalist, it follows, depends proximately on the value of the sum of money that it helps him attain, and ultimately on the value of the states of satisfaction that it enables him to bring about. The value of the satisfaction that he can ultimately attain is imputed, via the consumer goods, to the sum of money, and finally to the unit of the producer good in question.

Now, the existence of time preference has significant implications for this process of value imputation. Assume that the capitalist, in his estimation, can earn 100 units of money by hiring and employing a unit of the producer good in a process of production. Thus, both the unit of the producer good and the 100 units of money derive their value from the satisfaction that they enable the capitalist to ultimately attain. Nevertheless, due to the existence of time preference, there is a difference in the value that he attributes to these two things. The 100 units of money that he expects to earn at the end of the production process, which is the marginal value product that he expects the unit of the producer good to contribute to his possessions, is of greater importance to his well-being than the unit of the producer good that helps him acquire this sum of money.

As in the case of the labor-time and the services of the raft considered above, there is a difference in how far away in time the 100 units of money and the unit of the producer good is to the capitalist’s ultimate goal of attaining satisfaction. Thus, assume that the production process takes a year to complete. The unit of the producer good, it follows, will take a year to yield the expected marginal value product of 100 units of money. At the moment when the capitalist hires this unit, the attainment of satisfaction lies more than a year away. However, once the product has been produced and the 100 units of money is in the hands of the capitalist, satisfaction lies merely a few days, or only a few hours away.

Thus, at the moment when the unit of the producer good is hired by the capitalist, it contributes to satisfaction in the more distant future, whereas the sum of money that it is expected to yield, once it is in hand, helps the capitalist attain satisfaction in the relatively near future. Given that he attributes greater importance and value to satisfaction that lies in the near future and less value to satisfaction that lies in the more distant future, it follows that he values its services less than he values the 100 units of money that he expects it to yield: at the moment when he hires the unit of the producer good, he attributes to the former the lower value of satisfaction that lies in the more distant future, whereas he imputes to the latter the greater value of satisfaction that lies closer at hand. As a result, the capitalist would only be willing to part with less than 100 units of money to hire the unit of the producer good.

Other capitalists competing to hire the unit of the producer good will be in a similar position. Due to the existence of time preference, they too would only be willing to offer the discounted marginal value product of the unit in question. Each of them would only be prepared to offer a sum that is less than the revenue that the unit of the producer good is expected to yield in the various production processes that they wish to embark upon.

Thus, contrary to the claim made by Machaj, time preference does provide an explanation for the existence for the spread between revenues and costs, or for a monetary surplus, within a production process. Specifically, it explains the ex ante existence of such a surplus or spread when the capitalist-entrepreneurs enter the markets for producer goods and bid for their services. Ex post, or after the product has been produced and sold, however, such a surplus may or may not characterize a production process due to the uncertainty that characterizes the real world. The actual, ex post rate of return consists of a mix of the rate of interest, owing to the influence of time preference, and profit (or loss), owing to the influence of the uncertainty that plagues the estimates of the marginal value products of the various producer goods.11

It is only in the imaginary world of the ERE, where there is no uncertainty, that the ex ante and the ex post align, and where the surplus due to time preference appears in its pure form, distinct from profit and loss.12 Nevertheless, time preference does influence the actions of the capitalists in the markets for producer goods even in the real world and does influence the bids that they are willing to make for their services, even in the presence of uncertainty regarding their estimations of the marginal value products involved.


In his recent book, Money, Interest and the Structure of Production (Machaj, 2017), Mateusz Machaj advances two significant criticisms of Mises’s theory of time preference and his pure time preference theory of interest (PTPT). First, he claims that time preference only exists under certain unrealistic conditions, and second, that the PTPT, as presented by Mises, is unable to provide a coherent explanation for the spread between the prices of inputs and output that characterizes production processes in a monetary economy.

In this paper I present a brief defense of Mises’s conception of time preference and of his PTPT from both of these criticisms. I argue that, contrary to Machaj’s claims, the existence of time preference does not require any unrealistic assumptions and also provide an analysis of how the PTPT can provide a satisfactory explanation of the monetary surplus that permeates the production structure.

  • 1. It should be noted that Machaj is not alone in doing so. Prominent recent critics of the theory of time preference and of the PTPT also include Lewin (1997), Hülsmann (2002) and Gunning (2005).
  • 2. In doing so Machaj builds on the critical analysis of this proposition advanced by Fillieule (2007) and Hülsmann (2008; 2010).
  • 3. See Newman (2014) for a recent defense of the traditional Austrian position of this subject.
  • 4. This, for example, is the position advanced by Hayek (2008 [1931]), Mises (1998), Rothbard (2009) and Garrison (2001).
  • 5. To support these claims, Machaj, immediately after the passage cited here, provides a reference to a paper by Peter Lewin (Lewin, 1997). In order to avoid any potential misunderstandings, I would like to clarify that the criticisms offered in this paper only address the claims made by Machaj and not those made by Lewin in the paper that is referenced.
  • 6. For a detailed explanation of the assumptions underlying this imaginary construct see Mises (1998 [1949], pp. 247–251) and Rothbard (2009, pp. 320–329).
  • 7. Mises advances a similar criticism of economists who focus purely on an analysis of the ERE, thereby assuming uncertainty away from their analysis. See Mises (1998 [1949], pp. 352–354).
  • 8. For a detailed analysis of the valuation of first and higher order goods in a scenario of economic self-sufficiency, see especially Menger (2007 [1871], pp. 114–174), Böhm-Bawerk (1930, Bk. III) and Rothbard (2009, pp. 17–46).
  • 9. As Mises argues, individuals “value fractions of time of the same length in a different way according as they are nearer or remoter from the instant of the actor’s decision…. If any role at all is played by the time element in human life, there cannot be any question of equal valuation of nearer and remoter periods of the same length” (Mises, 1998 [1949], p. 480).
  • 10. For a more detailed discussion of this point see Böhm-Bawerk (1930, pp. 179–185).
  • 11. See Rothbard (2009, pp. 509–516) for an insightful discussion of this point.
  • 12. See Rothbard (2009, pp. 367–410) for a detailed analysis of how the interaction of the valuations of the various participants in the time market that permeates the production structure gives rise to the rate of originary interest within each production process in the ERE.
Categories: Current Affairs

Renew Your Membership and Receive a Copy of "Social Democracy"

Fri, 14/12/2018 - 22:35

Polls in recent years suggest that young people are growing more enamored of socialism. But, they’re not embracing the socialism of Lenin or Mao. Instead, like many other Americans, they are attracted to what seems to be a kinder, gentler version of socialism: social democracy.

In fact, in a world that has largely admitted that soviet-style socialism has failed, social democracy may very well be the dominant ideology of our age. We encounter it everywhere, and we’re hearing constantly about how markets and capitalism are inhumane and unfair. Social democracy, we are told, offers something new and something better.

But this has never been true, and we fortunately have Hans-Hermann Hoppe to explain why.

This year, we’re giving away booklets of Hoppe’s essay “Social Democracy” to all our supporters who give $25 or more.

In it, readers will find Hoppe’s clear and concise explanation of social democracy, where it comes from, and why it fails as an economic system. Far from being a real departure from the socialist experiments of old, social democracy is simply a different way of bringing about what socialists have always wanted: the end of capitalism.

Secure your copy today with your donation!

Categories: Current Affairs

Carmen Dorobăț: A Young Scholar on Mises's Legacy and Impact

Fri, 14/12/2018 - 22:35

Professor Carmen Dorobăț grew up in Romania—too young to remember Ceaușescu, but deeply aware of what socialism did to her country. Fortunately, she discovered Ludwig von Mises during her university years and found her passion for economics. She joins Jeff Deist to discuss how Mises's work and legacy paved the way for her and an entire generation of younger scholars.

Categories: Current Affairs

Soviet Dissidents and the Weaponization of Psychiatry

Fri, 14/12/2018 - 19:25

The New York Times obituary opened with a simple recitation of facts: “Zhores A. Medvedev, the Soviet biologist, writer and dissident who was declared insane, confined to a mental institution and stripped of his citizenship in the 1970s after attacking a Stalinist pseudoscience, died … in London.”

Zhores Medvedev, his twin brother Roy (still alive at 93), the physicist Andrei Sakharov, and the Nobel Prize-winning novelist Aleksandr Solzhenitsyn were leading dissidents. They courageously put their lives on the line to smuggle manuscripts out of the Soviet Union. They wanted the wider world to learn the truth about the “the workers’ paradise” that so many Western intellectuals (some deluded, others having gone over to the dark side) praised.

A generation of Americans has been born since the Soviet Union, the USSR that President Ronald Reagan boldly labeled “the evil empire,” ceased to exist. They have little to no concept of how ferociously the USSR’s communist tyranny suppressed dissent. As the Times obit of Dr. Medvedev illustrates, one Soviet technique of oppression was to declare that political dissidents were insane. They were then incarcerated in psychiatric hospitals where they were tormented and tortured. Some were used as human guinea pigs for dangerous experiments. (Shades of Hitler’s buddy, Dr. Mengele.) Some even succumbed to the not-so-tender ministrations of those “hospitals.”

I recall one particular example of the disgusting abuse of human beings in Soviet psychiatric hospitals. Vladimir Bukovsky, who will turn 76 later this month, spent a dozen years being shuffled between Soviet jails, labor camps, and psychiatric hospitals. One of the “therapies” administered in a psychiatric hospital was putting a cord into Bukovsky’s mouth, then threading it from his throat up through his nasal passages, and then drawing it out through one of his nostrils. (Maybe the cord went in the opposite direction; I’ve never been interested in memorizing torture techniques.) Alas, this communist “treatment” did not “cure” Bukovsky of his rational (NOT irrational) abhorrence of tyranny and brutality.

The warped thought process that led to the perversion and weaponization of psychiatry in the Soviet Union can be traced back to communist icon and thought leader Karl Marx. Marx propounded a spurious doctrine known as “polylogism” to justify stifling dissent. According to Marx, different classes of people had different structures in their minds. Thus, Marx declared the bourgeoisie to be mentally defective because they were inherently unable to comprehend Marx’s (allegedly) revelatory and progressive theories. Since they were, in a sense, insane, there was no valid reason for communists to “waste time” arguing with them. On the contrary, communists were justified in not only ignoring or suppressing bourgeois ideas, but in liquidating the entire bourgeois class.

The practice of categorizing one’s enemies as “insane” became a ready tool of suppression in the Soviet state founded by Lenin and developed under Stalin. The USSR’s infamous secret police energetically wielded quack psychiatry as a club with which to destroy political dissidents. If you want more information about how the Soviets kidnapped and misused psychiatry, here is a link to a document that describes what American agents of the USSR were taught about psycho-political techniques in the late 1930s. (The provenance of the booklet is murky, and Soviet apologists have long tried to discredit it, but in light of numerous psychiatric abuses known to have been committed with the approval of the USSR’s rulers, the content of the book is highly plausible.)

The incarceration of Zhores Medvedev in psychiatric hospitals in the 1970s was a monstrous injustice. His “crime” was having exposed the bizarre pseudoscience of Lysenkoism that Stalin had embraced in the 1950s. Lysenko’s quack theories led to deadly crop failures and widespread starvation. Nevertheless, Stalin backed him by executing scientists who dared to disagree with Lysenko. Millions of innocents lost their lives because “truth” in the Soviet Union wasn’t scientific, but political.

Another vivid example of the destructive consequences of politicizing truth is related in Solzhenitsyn’s exposé of Soviet labor camps, The Gulag Archipelago. Certain Soviet officials decided to increase the steel shipped to a certain area. When the planners issued orders for trains to carry double the steel to the designated destination, conscientious engineers informed them that it couldn’t be done. They pointed out that the existing train tracks could not support such great weights. The politicians had the engineers executed as “saboteurs” for opposing “the plan.” What followed was predictable: The loads were doubled, the tracks gave out, and the designated area ended up getting less steel, not more.

This episode shows where the true insanity was in the USSR. The central planners believed that constructing their ideal country was simply a matter of will. Alas, reality doesn’t conform to the whims or will of any human being, but the arrogance of central planners remains stubbornly impervious to that inescapable fact of life. Instead, as the havoc wrought by Soviet central economic planners repeatedly demonstrated, the communist central planners refused to abandon their insufferable self-delusion and mystical belief in the power of their own will to alter reality. This was the true insanity, compounded by the error of persecuting competent scientists like Zhores Medvedev.

Sadly, the practice of branding political opponents as “insane” is not confined to the now-defunct Soviet state. In 1981, when I was completing my master’s thesis on Solzhenitsyn, I telephoned an American college professor of history to ask whether he recalled if Solzhenitsyn had been granted honorary U.S. citizenship. (He hadn’t. President Ford didn’t want to offend the Soviet leadership.) The reply to my question was this: “Aleksandr Solzhenitsyn belongs in an insane asylum.” The virus of Marx’s polylogism is, unfortunately, alive and well in American academia.

As for Zhores Medvedev, may he now rest in peace and receive his reward for his integrity and courage.

Categories: Current Affairs

French Protestors Fume over Climate Taxes and a Rising Cost of Living

Fri, 14/12/2018 - 16:25

French protests over a new climate-change-inspired fuel tax highlight high costs imposed on ordinary people by climate-change policies.

Original article: "French Protestors Fume over Climate Taxes and a Rising Cost of Living".

Categories: Current Affairs

Gun-Free Zones at School: George H.W. Bush’s Questionable Gun Control Legacy

Fri, 14/12/2018 - 13:15

George H.W. Bush’s recent death has had the DC chattering classes up all night discussing his legacy and accomplishments. President Bush’s track record was standard fare for a 20th century politician. Bush was a consummate advocate of the conservative branch of political universalism which pushed for a muscular foreign policy and a relatively generous welfare program at home.  

Some of the highlights of his presidency included his questionable invasion of Iraq which played a significant role in destabilizing the region during the last few decades. Additionally, Bush gained notoriety for reneging on his promise of “no new taxes” when excise and income taxes were raised after signing the Omnibus Budget Reconciliation Act of 1990 into law.

One overlooked aspect of the Bush presidency was his administration’s continuance of gun control. Gun control was placed on the map in 1968 with the passage of the 1968 Gun Control Act. The 1968 GCA was the largest, federal expansion of gun control and laid the basis for modern gun politics in the U.S.

Gun control quickly re-entered the political scene in the 1980s with anti-gun figures like then-San Francisco mayor Dianne Feinstein and organizations like the Brady Campaign rose to prominence.  With the right political winds blowing, the political class was ready for bipartisan action on the issue of gun violence. As 20th century history has shown, any legislative efforts involving bipartisanship generally do not end well for American’s civil liberties. And Bush’s gun control foray would be no exception.

Gun-Free Zones: Bush’s Worst Kept Secret

The House and Senate finally came together and passed the Gun-Free School Zones Act of 1990, which ended up earning Bush’s signature. The GFSZA prohibited the possession or carry of firearms within one thousand feet of public, private, and parochial elementary and high schools. This piece of gun control legislation has been at the forefront of gun control debates ever since, and for good reason.

Despite the presence of gun-free zones like ones stipulated in the GFSZA, 98 percent of mass shootings have occurred in gun-free zones since 1950. School venues have been the target of choice for mass shooters given their questionable security measures and large concentration of people which allows for high body counts.

To make matters worse, law enforcement is simply not reliable in responding to these shootings. Research from the Department of Homeland Security shows that the “average duration of Active Shooter incidents in Institutions of Higher Education within the United States is 12.5 minutes. In contrast, the average response time of campus and local law enforcement to these incidents is 18 minutes.” Under these circumstances, gun-free zones are a soft target galore for deranged shooters.

A quick glance at recent school shootings demonstrates this:

  • Columbine High School (1999): 15 killed
  • Virginia Tech (2007): 33 killed
  • Sandy Hook (2012): 28 killed
  • Parkland Highland School (2018): 17 killed

Unfortunately, there is very little interest to change this gun control status quo.

Secure Schools by Repealing Gun-Free Zones

Even though the evidence shows how gun-free zones are not conducive for school security, the political class has done nothing to address this issue. With few exceptions such as Rep. Thomas Massie, who has introduced the Safe Students Act that would repeal gun-free zones, nothing has been done to address this problem. President Trump has signaled his support for certain measures such as arming teachers.

Trump’s bonus incentives to arm teachers are well-intentioned but miss the mark when it comes to the problem at hand—school’s inability to set their own security policies. Jeff Deist eloquently explains how arming as many people as possible doesn’t have to be the one-size fits all policy for schools:

“The libertarian response to mass shootings, in particular school shootings, is to allow teachers and other personnel to carry weapons on campus. In fact, the broader libertarian program is to have most people armed, or at least potentially armed, to create a safer (not to mention more polite) society. If we cannot snap our fingers and produce crime-free cities and neighborhoods where nobody needs to carry a gun, then at least we allow everyone the ability to dissuade or defend against criminal shooters.

This is all well and good, but ignores the market impulse to outsource services to specialists. This is why neighborhoods hire private security patrols, and why celebrities hire professional bodyguards. Not everyone wants to carry a gun or train themselves in gun proficiency. And there is the issue of scale, where individuals might find themselves arrayed against organized criminal gangs.”     

For a start, gun-free zones should be repealed. From there, schools can set security policies as they see fit, which may include arming teachers or outsourcing armed duties to private security agencies.

Politics as Usual

The presence of gun-free zones is a major problem, and any serious proposal to reform gun laws should consist of the repeal of the 1990 GFSZA. But in today’s era of non-stop government growth, this is no easy feat. Bush’s decision to compromise on gun control was not a bug, but rather a feature of the “statist quo” Americans have lived in over the past century.

Even with new faces in office, Bush’s gun control project remains in place.  Conservative Inc has done a fantastic job in covering up Bush’s Second Amendment blind spot, but that is to be expected from a movement that is essentially “progressivism driving the speed limit.”

This is certain: Bush’s policies have not made the world safer for democracy, nor the U.S. safer domestically. But to the political punditry, ambitious foreign policy and domestic programs are what’s in vogue, policy consequences be damned.

Categories: Current Affairs

50. Thieves of Virtue: How Bioethics Stole Medicine

Fri, 14/12/2018 - 00:45

Did bioethics emerge to defend the interests of patients or to rationalize the needs and actions of the state and its corporate allies? Are bioethicists too complacent about their grasp of economics? Do they have sufficient understanding of the complexities of medical decisions to weigh in on them? Are Hippocratic ethics so inadequate that they needed to be replaced by ever-morphing "Kantian" ethics? A fascinating discussion with our guest, Tom Koch, a man whose resumé and whose many books read like great adventure stories.

Professor Koch is an author, journalist, historian, philosopher, and educator. He holds an inter-disciplinary PhD in medical cartography, ethics and medicine. He has taught medical ethics to medical students at the University of Toronto. He is a consultant in gerontology. And he has written numerous books both for an academic audience as well as for the general public. His books include Cartographies of Disease, Ethics in Everyday Places, The Wreck of the William Brown, and the volume that will be the focus of our discussion today, Thieves of Virtue: When Bioethics Stole Medicine.

Categories: Current Affairs

The Morals of Human Cooperation

Thu, 13/12/2018 - 21:35

[The Freeman, 1973]

The many contradictions among different philosophical theories have caused much confusion over the years. Unfortunately, too few teachers and textbooks explain the basic principles that could help students discriminate intelligently among them and understand the ethical code which fosters freedom, morality and social cooperation.

Thus, Henry Hazlitt deserves special credit for bringing logic and clarity to the subject.

His book, The Foundations of Morality, was first published in 1964. After having been out of print for several years, it is again available thanks to Nash and the Institute for Humane Studies. [The Mises Institute offers an edition published by the Foundation for Economic Education in 2007.]

The author is primarily an economist, a student of human action. As a result, he is a strong advocate of individual freedom and responsibility. He has long been a close personal friend and associate of Professor Ludwig von Mises, the "dean" of free market economics, to whom he acknowledges a great intellectual indebtedness.

With this background, he is well qualified to discuss the ethics of social cooperation. His many years of "apprenticeship" as essayist, book reviewer and columnist (New York Times, Wall Street Journal, Newsweek, The Freeman, National Review and many others) prepared him well for explaining complex matters simply.

The reader may wish to pause, ponder and reflect from time to time on the ideas and concepts presented, but the author's reasoning is clear, his prose unambiguous and most chapters delightfully short.

Mr. Hazlitt's position is that "the interests of the individual and the interests of society," when "rightly understood" are in harmony, not conflict. His goal in writing this book was "to present a 'unified theory' of law, morals and manners" which could be logically explained and defended in the light of modern economics and the principles of' jurisprudence.

This reviewer believes most readers will agree that Mr. Hazlitt succeeded. He has marshalled the ideas of many philosophers and analyzed them with careful logic. He has explained many of the contradictions among them, thus disposing of much confusion. He has formulated a consistent moral philosophy based on an understanding of the ethical principles, so frequently ignored in today's "permissive" climate, which promote peaceful social cooperation and free enterprise production.

Mr. Hazlitt points out that our complex market economy requires peaceful and voluntary social cooperation. The preservation of the market is essential for large scale production and thus for the very survival of most of us. Therefore, social cooperation is the very most important means available to individuals for attaining their various personal ends. This means that social cooperation is also at the same time a well worthwhile goal. Let Mr. Hazlitt speak for himself.

For each of us social cooperation is of course not the ultimate end but a means. … But it is a means so central, so universal, so indispensable to the realization of practically all our other ends, that there is little harm in regarding it as an end in itself, and even in treating it as if it were the goal of ethics. In fact, precisely because none of us knows exactly what would give most satisfaction or happiness to others, the best test of our actions or rules of action is the extent to which they promote a social cooperation that best enables each of us to pursue his own ends.

Without social cooperation modern man could not achieve the barest fraction of the ends and satisfactions that he has achieved with it. The very subsistence of the immense majority of us depends upon it.

The system of philosophy outlined in the book is a form of utilitarianism, "insofar as it holds that actions or rules of action are to be judged by their consequences and their tendency to promote human happiness."

However, Mr. Hazlitt prefers a shorter term, "utilism," or perhaps "rule utilism" to stress the importance of adhering consistently to general rules. He suggests also two other possible names — "mutualism" or "cooperatism" — which he thinks more adequately reflect the central role of social cooperation in the ethical system described.

The criterion for judging the consistency or inconsistency of a specific rule or action with this ethical system is always whether or not it promotes social cooperation. Mr. Hazlitt reasons from the thesis that social cooperation is of benefit to everyone. Even those who might at times like to lie, cheat, rob or kill for personal short-run gain can usually be persuaded of the longer-run advantages of social cooperation, i.e., of refraining from lying, cheating, robbing or stealing.

Even the most self-centered individual, in fact, needing not only to be protected against the aggression of others, but wanting the active cooperation of others, finds it to his interest to defend and uphold a set of moral (as well as legal) rules that forbid breaking promises, cheating, stealing, assault, and murder, and in addition a set of moral rules that enjoin cooperation, helpfulness, and kindness.

The predominant moral code in a society is compared with language or "common law." Society does not impose a moral code on the individual. It is a set of rules, hammered out bit by bit over many centuries:

[O]ur moral rules are continuously framed and modified. They are not framed by some abstract and disembodied collectivity called "society" and then imposed on an "individual" who is in some way separate from society. We impose them (by praise and censure, approbation and disapprobation, promise and warning, reward and punishment) on each other, and most of us consciously or unconsciously accept them for ourselves.

This moral code grew up spontaneously, like language, religion, manners, and law. It is the product of the experience of immemorial generations, of the interrelations of millions of people and the interplay of millions of minds. The morality of common sense is a sort of common law, with an indefinitely wider jurisdiction than ordinary common law, and based on a practically infinite number of particular cases. … [T]he traditional moral rules … crystallize the experience and moral wisdom of the race.

But what about religion, you say? Doesn't a moral code have to rest on a religious basis? The fundamental thesis of this book, as noted, is that reason and logic are sufficient to explain and defend the code of ethics which fosters and preserves social cooperation.

Yet, the author does not ignore religion. He calls attention to similarities among the world's great religions and the contradictions in some of them. Religion and morality reinforce one another very often, he says, although not always and not necessarily. Here is his description of their relationship.

In human history religion and morality are like two streams that sometimes run parallel, sometimes merge, sometimes separate, sometimes seem independent and sometimes interdependent. But morality is older than any living religion and probably older than all religion. [W]hile religious faith is not indispensable [to the moral code] …, it must be recognized in the present state of civilization as a powerful force in securing the observance that exists.

The most powerful religious belief supporting morality, however, seems to me … the belief in a God who sees and knows our every action, our every impulse and our every thought, who judges us with exact justice, and who, whether or not He rewards us for our good deeds and punishes us for our evil ones, approves of our good deeds and disapproves of our evil ones.

Yet it is not the function of the moral philosopher, as such, to proclaim the truth of this religious faith or to try to maintain it. His function is, rather, to insist on the rational basis of all morality, to point out that it does not need any supernatural assumptions, and to show that the rules of morality are or ought to be those rules of conduct that tend most to increase human cooperation, happiness and well-being in this our present life.

Mr. Hazlitt discusses many perplexing ideas and concepts such as natural rights, natural law, justice, selfishness, and altruism; right, wrong, truth, honesty, duty, moral obligation, free will vs. determinism, politeness, and "white lies." Anyone who has speculated on these problems without reaching satisfactory conclusions, as has this reviewer, will no doubt find his analyzes and comments both stimulating and enlightening.

The book contains numerous quotations from the works of early and recent philosophers, which the author always analyzes for their consistency with social cooperation. Except for a few technical philosophical terms — such as tautology (repetition of the same idea in different words), eudaemonism (the doctrine that happiness is the final goal of all human action) and teleotic (an adjective derived from the Greek meaning end, design, purpose or final cause) — readers should not find anything in the book really difficult to understand.

As they follow the author's line of thought, they will discover that reason and logic come to the defense of morality; order and a common sense ethical code evolve from philosophical chaos.

Mr. Hazlitt has long been a noted free market economist — one of the very best. His introductory Economics In One Lesson is a long time best seller. The Failure of the "New Economics," a careful critique of Keynes, is a real contribution to economic theory. With the publication of The Foundations of Morality in 1964, he added another very important feather to his cap as a moral philosopher. It is good to have it in print again.

To summarize, the author explains again and again, in the course of the book under review, that the rules of ethics are neither arbitrary nor illogical. They are not mere matters of opinion. They are workable, acceptable, moral rules developed over long periods of time. They must be adhered to consistently and may not be willfully violated without detriment to social cooperation.

In this age of permissiveness, when everyone is encouraged "to do his own thing" and few see any urgency in respecting the rights of others, it is a rare philosopher who recognizes that the consistent adherence to a set of ethical rules promotes social cooperation and benefits everyone in society.

Perhaps a free market economist, whose very field of study encompasses the role of social cooperation, is the most appropriate person to explain the logic of this position. This book should live through the centuries.

Categories: Current Affairs

Did Baby Boomers Ruin America?

Thu, 13/12/2018 - 18:25

Referring to someone as a sociopath is strong language. After all, just between 3 and 5 percent of Americans are really sociopaths , people who initially seem charming, but, due to bad neurological wiring, lack a conscience and are unable to feel remorse. They are exceptional liars and cheats, and have no capacity to feel guilt.

But according to author and multi-millionaire tech hedge fund manager, Bruce Cannon Gibney, anyone born between 1946 and 1964 (baby boomers) that are still living are sociopaths.

“There is something wrong with the Boomers and there has been for a long time,” writes Gibney in the forward to A Generation of Sociopaths: How the Baby Boomers Betrayed America and the author’s beatings continue for 400-plus pages.

He doesn’t let any of us Boomers off the hook, but really focuses on “generational representatives like Bill Clinton, Newt Gingrich, George W. Bush, Donald Trump, and Dennis Hastert--a stew of philanderers, draft dodgers, tax avoiders, incompetents, hypocrites, holders of high office censured for ethics violations, a sociopathic sundae whose squalid cherry was provided in 2016 by Hastert’s admission of child molestation, itself a grotesque metaphor for Boomer policies.”

Gibney’s point being us Boomers are molesting younger generations because Social Security and Medicare might remain solvent just long enough for Boomers, but no one else, to collect. And, the author preaches from the environmentalist good book every chance he gets. Any skepticism about climate change is viewed as having “negative feelings about reality and science” because, for Boomers, sacrifices for the environment are, “incompatible with sociopathic desires.”

Boomers didn’t have a chance because their moms read Dr. Spock, were too easy on their kids, and parked us in front of the television. “TV’s essential characteristics make it the perfect education for sociopaths, facilitating deceit, acquisitiveness, intransigence, and validating a worldview only loosely tethered to reality,” the author opines. The current president’s obsession with TV watching is thrown in as a prime example.

Along comes chapter six, “Disco and the Roots of Neoliberalism,” and who is quoted in the chapter’s pre-matter? Ludwig von Mises. “Everybody thinks of economics whether he is aware of it or not. In joining a political party and in casting his ballot, the citizen implicitly takes a stand upon essential economic theories.”

Gibney writes that Boomer neoliberalism “is more free market à la carte.” Who knew that Boomers had the government doing “a dead minimum, limiting itself to arbitration of disputes, national defense, and the supply of a few public works like the post.”

The author would have us believe that Boomer liberalism was put in place coast-to-coast and laissez faire has ruled the day. Gibney writes of the “capitalist utopia...the omega point of the modern neoliberal revolution. This is what the various neoliberal acolytes (the saints Paul: Ryan, Rand, Ron) are excited about, smacked on the head by Atlas Shrugged on their roads to Washington.” He even contends the Mont Pelerin Society has been influential.

Mention is made of “Austrians” and the “Chicago School” that both believe government should get out of the way and let individuals take care of themselves. The author contends that “neoliberalism depends upon key and problematic assumptions: that individuals are rational, prudent, and informed, and that they therefore can be relied upon to meet their own needs.”

However, citing Amos Tversky and Daniel Kahneman, not all humans are rational. Humans are not homo economicus, but insteadhomo sapiens, with Boomers being, in his view, homo sociopathicus.

However, Gibney’s lumping together of the Chicago School and Austrians misses the mark. In Mises's view, economics doesn't deal with homo economicus at all, but with homo agens: man "as he really is, often weak, stupid, inconsiderate, and badly instructed."

In Epistemological Problems of Economics, Ludwig von Mises explains that the homo economicus would be the perfect businessman, conducting an enterprise for maximum profit: “By means of diligence and attention to business he strives to eliminate all sources of error so that the results of his action are not prejudiced by ignorance, neglectfulness, mistakes, and the like.”

However, Mises continued, “It did not escape even the classical economists that the economizing individual as a party engaged in trade does not always and cannot always remain true to the principles governing the businessman, that he is not omniscient, that he can err, and that, under certain conditions, he even prefers his comfort to a profit-making business.”

Government and its budgets, debt, and intrusiveness have done nothing but grow under Boomer leadership, despite Gibney’s chapter musing about free market philosophies.

The author rants that Boomers don’t save enough, while aborting, divorcing, and overeating too much. Boomers caused; high inflation, crime, poor educational standards, the setting of corporate tax rates, the hiring of adjunct professors, not replacing the crumbling infrastructure, and avoided doing their wartime duty.

He summarizes, “the whole idea of Boomers as Good People is absurd,” and “The Boomers deserve America’s displeasure and they ought to repay what they can.” What the author most wants is for Boomers to pay higher taxes.

Ironically, in his hedge fund days Gibney worked for Peter Thiel who, just so happens to have more than a passing interest in the work of Hans-Hermann Hoppe. Rather than blame Boomers for all of America’s societal ills, Hoppe blames democracy and its increasing of society’s time preference in his book Democracy: The God that Failed.

Government’s taxing with impunity, violating its citizen’s property rights, “affect individual time preferences systematically differently and much more profoundly than does crime,” Hoppe writes, explaining that future property rights violations become institutionalized.

Instead of a societal falling time preference, government intrusion causes an increased time preference. Instead of savings, capital formation and increasing civilization, the process is “reversed by a tendency toward decivilization: formerly provident providers will be turned into drunks or daydreamers, adults into children, civilized men into barbarians, and producers into criminals.”

Not every government decivilizes equally, Hoppe points out. Democracy, with its constant changing of government, has a president, who doesn’t own the capital value of government resources, but “will use up as much of the government resources as quickly as possible, for what he does not consume now, he may never be able to consume,” professor Hoppe writes. “For a president, unlike for a king, moderation offers only disadvantages.”

The illusion of democracy, that the government is us, means “public resistance against government power is systematically weakened.”

So, what has caused America’s demise: Dr. Spock, TV and the Boomers, or was it democracy?

I’ll take Hoppe’s argument over Gibney’s. However, I’m just a lowly Boomer.

Categories: Current Affairs

After #MeToo, Men Begin Avoiding Female Co-Workers

Thu, 13/12/2018 - 15:25

When the Americans with Disabilities Act was passed, employers hired fewer disabled workers, because they feared lawsuits. We may now be seeing a similar trend in the face of more sexual harassment claims.

Original Article: "Men Begin Avoiding Female Co-Workers in Age of #MeToo".

Categories: Current Affairs

What Is Economic Growth? (And What Is It Not?)

Thu, 13/12/2018 - 15:25

There is severe confusion about the meaning of economic growth.  Many seem to mistakenly think that it has to do with GDP or producing stuff. It does not. Economic growth means that an economy's ability to satisfy people's wants, whatever they are--that is, to produce wellbeing -- increases.

GDP is a rather terrible way of capturing this using [public] statistics, and is thus corrupted by those benefiting from corrupting such figures. GDP is not growth. 

Likewise, having more stuff in stores isn't growth. Producing increasing quantities of stuff that nobody is willing to buy is the very opposite of economic growth: it is wasting our limited productive capacity. But note the word 'willing'. Wellbeing is not about [objective] needs, but about being able to escape felt uneasiness. It can turn out to be right or wrong, but that's beside the point. Economic growth is the increased ability to satisfy whatever wants people have, for whatever reasons they have it. 

Examples of economic growth aren't the newest iPhone or plastic toy made in China as much as it is the availability of quality housing, food and nourishment, and the ability to treat disease. 

One obvious example of economic growth since the days of Malthus is the enormous increase in our ability to produce food. The quantity and quality has increased immensely. We use less resources to satisfy more wants--that's the meaning of economic growth. Economic means simply economizing, or finding the better use of scarce resources (not only natural such.) Economic growth is thus better economizing, meaning we have the ability, which means se can afford, to satisfy more wants than just the basic needs. 

The beautiful thing with economic growth is that it applies to society overall as well as to all individuals: increased productive capacity means more ways of satisfying wants but also cheaper ways of doing so. But this does not, of course, imply that the distribution of access and ability to consume is equal and instantaneous. It spreads in stepwise fashion and will reach everyone. 

Also, increased productivity really increases the purchasing power of all money, including (and most importantly) low wages, thus making it much more 'affordable' to satisfy one's needs and wants. But note that the distribution of such prosperity cannot be equal or instantaneous: any new innovation, new good, new service, etc will be created somewhere, by someone--it cannot be created for seven billion plus people instantaneously. So anything new, including new jobs and new productive abilities, has to spread --as ripples-- across the economy.

As new things are created all the time, it means we'll never actually get to a point where everyone enjoys exactly the same standard of living. It cannot be any other way because economic growth, and the wellbeing it generates through the ability to satisfy wants, is a process. Perfect equality is possible only by not having growth: to pull the breaks, not increase wellbeing. In other words, not to increase convenience and living standards, not figure out how to treat diseases that we would otherwise soon be able to cure. 

Those are our options, not the fairytale of "equal access to the outcome of growth." 

This doesn't mean, of course, that we should be satisfied with inequalities. It only means we should recognize that some inequality is inescapable if we want everyone to enjoy higher living standards. But we should also recognize that much of the inequality we are seeing today is not of this 'natural' kind: it's inequality of political rather than economic origin. This comes in two forms: inherited from privileges enjoyed by a few in the past, reinforced by contemporary political and social structures, and privileges created today through policies creating winners (cronyism, favoritism, rent-seeking, etc.) 

From the point of view of economic growth as an economic phenomenon, policy-originated inequality has effects on both the creation and distribution of prosperity:

  1. Policy creates winners by (a) protecting some from the competition of new entrants and future winners and (b) restricting (monopolizing) the use of new technologies thereby propping up incumbents. 
  2. Policy creates losers by redistributing value and economic capabilities to those favored politically. 

This means policy has two primary effects on economic growth: it limits the creation of value and distorts its distribution. Needless to say, this inequality is not beneficial for society overall, but only for those favored. It is the creation of winners by creating losers. 

This is not economic growth, which is accomplished by better economizing: increased ability to satisfy wants. In a sense, political favoritism and the inequality it causes is the opposite of economic growth, since it creates winners (rich) at the expense of others (generally spread out on a larger population). It's just a redistribution of value already created by, at the same time, introducing inefficiencies in the system: allocation of productive capabilities that is not based on the creation of wellbeing but on political clout. 

Over time, the economy is actually worse off because of this, and so the process of economic growth suffers. It is important to keep these two 'sides' of the inequality coin in mind when discussing the problem. Simply pushing the 'stop' button on economic growth will only accomplish increased influence by politics over economizing. That's hardly beneficial, at least not for others than the political class and 'insiders' in the corporatist system. 

Rather, a solution would be to get rid of politically created and reinforced privilege and allow economic processes to readjust to reality: to target production of wellbeing instead of favors and influence. This will not do away with inequality as such, but will significantly decrease it--and will do away with most of its harmful effects. It would mean an economy where entrepreneurs and workers alike would benefit from producing value for others. In other words, economic growth and higher living standards. 

The alternatives are rather easy to understand, yet what's commonly on the agenda of pundits and political commentators are made-up alternatives, often ignorant utopias, that distort the meanings of both privilege and economic growth. The alternatives we have are the ones stated above, nothing else. Make your pick. Striving to realize impossible fairy tales is a waste of time, effort, and resources. That's not how we increase wellbeing and raise the standard of living. 

To me, the solution is quite obvious. Most people seem to pick the fairy tale.

Formatted from Twitter, @PerBylund
Categories: Current Affairs

We Need Unilateral Free Trade with Post-Brexit Britain

Wed, 12/12/2018 - 23:55

As the EU tries to exploit the UK in Brexit negotiations, the US should adopt total unilateral free trade with the UK.

Original article: "We Need Unilateral Free Trade with Post-Brexit Britain".

Categories: Current Affairs

Keynesianism and World Inflation

Wed, 12/12/2018 - 20:45

Keynes believed that all economic problems could be overcome with global inflation. This would bring about a new utopian age in which only social and scientific problems would remain.

In this 38-minute talk, Joseph Salerno discusses Keynes's beliefs in how economic systems could be manipulated by the state to the point at which scarcity would disappear, and our primary problem would be figuring out how to spend all our free time. How Would this be done? That has always remained unclear since Keynes was apparently untroubled by problems of economic calculation.

From the Keynes and Keynesianism Conference, sponsored by the Mises Institute and held in Harvard Square, Massachusetts; April 28-29, 1989.

Categories: Current Affairs

Supporters Summit 2019

Wed, 12/12/2018 - 20:45
Categories: Current Affairs

Italy: A Brewing Storm Within the EU

Wed, 12/12/2018 - 17:45

Over the last couple of years, the main challenge to EU cohesion has been Brexit, with the media sharply focused on the negotiations and all relevant developments. Since the release of the draft withdrawal agreement, largely perceived as a victory for the EU, those who support the European project and believe in a strong leadership from Brussels have projected confidence and optimism for the future. According to these voices, the divisions caused by the rise of nationalism and populism in the past years are healing, the relationship between member states is normalizing, while a future of stability and harmony awaits.

However, such a vision might prove naive, as it discounts a much greater risk to the EU than Brexit ever was: the political and economic powder keg that is Italy.

The Budget Fight

For over three months, Italy’s 2019 budget plans and the resulting friction with Brussels have made been making headlines and bringing to the surface numerous concerns over the country’s economic stability and relationship with the EU. The Italian government, aiming to honor its heavily populist pre-election promises, has presented a budget that is sharply at odds with the plans and goals of EU officials. Hailed by the Italian coalition government as a budget that will “end poverty,” the plan includes (among various other spending programs and tax cuts), a lower retirement age and a state-guaranteed basic income of €780. In order to finance its ambitious spending spree, the new Italian government plans to increase the budget deficit to 2.4% of GDP, a number that EU officials found very difficult to reconcile with, especially since the previous government’s plans only required a 0.8% deficit. Given Italy’s extreme national debt levels, Eurozone officials saw a clear threat of future instability in the new government’s plan that could easily spread throughout the bloc.

In October, the tensions culminated in an unprecedented move by the EU Commission: Italy’s draft budget was rejected and revisions were mandated. Italy defiantly announced it would stick to its plans, and in response, the Commission said that significant fines and sanctions against the country were “warranted.” The fines that the Commission threatened could amount to 0.5% of Italy’s GDP, while additional disciplinary measures could include a freeze on development funds. At this stage, a last-minute compromise solution could be hammered out in order to avoid the sanctions, however, the entire incident has heavily bruised the already strained relationship between Italy and the EU.

A History of Friction

While the rejection of the Italian budget by the Commission was seen by many as an unusually aggressive step, it is useful to remember that this was not the first time that the new coalition government has been strong-armed by Brussels into towing the line. In June, when the new government was still in negotiations to fill its key posts, Paolo Savona emerged as the first choice for finance minister. A professor of economics with experience at the Bank of Italy, Savona was summarily railroaded by pressure from the EU, as his positions were hardly in line with the European project and even less so with the common currency, which he described as “a German cage.” The nascent government quickly conceded and instead made him minister of European Affairs, placing a much less controversial candidate as finance minister.

However, it is important to note that the two parties that the Italian government consists of together won over 50% of the vote in this year’s election. The most outspoken member of the government, Matteo Salvini, leader of the nationalist Lega party, Deputy Prime Minister and Minister of the Interior, has repeatedly expressed his opposition to the Euro which he called “a crime against humanity” and to EU overreach, as he said only last month that “people like Juncker and Moscovici have ruined Europe and our country.” Going a step further and moving from mere discontent with the status quo to actionable plans, the coalition also made clear that, should the EU push them too far and attempt to micromanage their policies, they will not follow the surrender paradigm of Greece, even if that means turmoil in the markets. Instead, they will drop the Euro and adopt a parallel currency; a move also known as "Plan B."

A Ticking Time Bomb

Italy is the third-largest economy in the Eurozone, but it carries the second largest debt-to-GDP, only surpassed by Greece. At 131% of its entire economic output, Italy’s debt stands at over €2.3 trillion. The country last year spent 3.7% of its GDP just on interest payments, a figure that is projected to rise to 3.9% by 2020.


To make matters worse, economic growth has also essentially flat lined. The government’s projections foresee a 1.5% growth for 2019, a sharp contrast with Morgan Stanley’s latest forecast of just 0.5%. These figures might sound dismal, but they are consistent with Italy’s growth record in recent years. Since 2008, the country has gone through a triple-dip recession, from which it has yet to recover. Today’s GDP per capita, inflation- adjusted, is lower than in 2000.

Furthermore, the country is facing a severe demographic problem, that is bound to exacerbate its debt crisis. A report by Italy’s national institute of statistics revealed that the country’s birth rate once again declined in 2017. This persistent downward trend of recent years raises significant concerns, as, after Japan, Italy is the world’s second-oldest country in terms of elderly people as a ratio of the total population.

Also, Italian banks are still a major weak link. Overall, European banks have amassed about €944 billion in bad and non-performing loans that clog up their balance sheets. Italian banks are at the top of the list, holding the lion’s share of this bad debt, with €224.2 billion ($255.9B) weighing down the country’s banking sector.

It is thus clear that, apart from the political friction and the rift with the EU, Italy’s problems are multifaceted, compounded over decades and run very deep, posing a real systemic risk not just to the country itself but also to the entire bloc. Anemic growth, an ailing banking sector, skyrocketing national debt, unfavorable demographic trends and increasing financing costs form a toxic combination that can seriously destabilize the Eurozone.

“Too Big To Save”

Last time Italy found itself near bankruptcy, it was saved by the ECB’s decision to launch into a decade of money-printing, heavy intervention and massive government bond purchases.

However, the ECB is now set to stop and reverse the measures that facilitated this favorable environment that supported the entire European economy after the last recession. This might prove catastrophic for Italy. Rising interest rates will make the debt near-impossible to service without impacting major spending programs and government services. Without external, systemic and extensive support, the country is bound to struggle heavily over the next years. Unlike Greece, Italy will be a far greater challenge to bail out and the failure to do so will have far grimmer implications.

While the economic problems have a slow-burning fuse and will inevitably lead to a serious crisis eventually, it’s the political troubles that might actually speed up that process. The recent tensions have drawn attention to the capacity that Brussels actually has in interfering with national policies and member state affairs. It has also served, to many, as evidence of how far it is willing to go and to exercise these powers, should a member state refuse to tow the line.

On top of this, issues such as the increasingly wide divide with the EU over migration have also heightened the public’s discontent. The real, on-the-ground implications of the multifaceted challenges that burden Italy have taken a toll on the average citizen’s life and this is strongly reflected in their views and outlook on the future. According to a study released in August by Ipsos and the More in Common initiative, only 16% of Italians believe that globalization has had a positive impact on the economy, while 73% say that traditional parties and politicians do not care about people like them. As more and more voters are attracted to the extremes of the political spectrum, the rift between Left and Right keeps growing.

It might not be yet clear exactly what kind of move by the EU the Italian government would interpret as “a step too far” and cause them to make good on their warning to launch their Plan B. However, what we can tell for sure, is that the European project, the common currency and the Brussels bureaucracy will definitely not be able to sustain the blow of another exit, especially if it’s Italy that decides to leave.

That being said, it should also be obvious that the systemic problems that existed since 2008 have not disappeared; on the contrary, they just became worse. Although we can’t predict the future, we can certainly prepare for it. Therefore, I would like to close with a quote from Prof. Dr. Anthony C. Sutton who once said:

“Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort.”

Reprinted with permission from

Categories: Current Affairs

Building a Blockade

Wed, 12/12/2018 - 17:45
Season 3, Episode 35 

In this episode, Chris Calton details how technological innovations changed the course of naval warfare. By taking advantage of this new technology, the Union Navy was able to easily capture Hatteras Inlet and Port Royal Sound, which would prove strategically important in the establishment of their blockade.

Chris Calton recounts the controversial history of the Civil War. You may support this podcast financially at Subscribe today at Spotify, Google PlayiTunes, SoundCloud, Stitcher, or via RSS.

Categories: Current Affairs

Elon Musks's Taxpayer-Funded Gravy Train

Wed, 12/12/2018 - 14:35

Elon Musk and his corporate empire, much of it financed by taxpayer dollars, is very much in the news. Most of it is not good. And it may be getting worse.

Tesla spends $1 million annually on Washington lobbyists. Its cars are financed by over $280 million in federal tax incentives, including a $7,500 federal tax break and millions more in state rebates and development fees. SpaceX has also received over $5 billion in government support. It has over promised and under delivered. SpaceX rockets, for example, are far less reliable than many of its competitors. This is outlined in reports from December 2017 and January 2018 in which the Department of Defense Inspector General and NASA's Aerospace Safety Advisory Council described a list of security concerns they have with SpaceX, among them 33 significant non-conformities.

Bloomberg Business News reported in November about a Tesla solar factory for which the State of New York paid $750 million based on a commitment to create 1,500 jobs. The factory had been developed for another Musk-run company, SolarCity, which Tesla bought in 2016 in a $2.6 billion deal. SolarCity had been $2.9 billion in debt. Only a relative handful of jobs have been created, and New York officials are expressing dismay. Raymond Walter, a Republican in the New York State Assembly, says he is concerned that the state "has too many eggs in the Tesla basket, which doesn't seem like a very strong basket." John Kaehny, executive director of Reinvent Albany, a nonprofit focused on government accountability, says, "It's a complete hoo-ha! These mega-subsidy deals take place in complete secrecy without scrutiny from the public."

Bloomberg News declares that this is "...a familiar playbook for Musk, start with wild promises followed by product delays, production hell, shareholder anger and finally, hopefully, redemption."

Things, however, may be even worse than they appear. Some are even speculating that Elon Musk, SpaceX and Tesla may be on their way to becoming the new Enron. Enron, the energy giant, employed approximately 20,000 people and claimed revenues of $111 billion at its peak by 2000. As it turned out, Enron used shady accounting practices to hide its losses and report profits which, in fact, did not exist. Andrew Fastow, the chief financial officer, created the scheme to falsify Enron's real financial status. In April 2001, the fraud began to unravel as analysts began to question Enron's numbers. In the end, Enron was found to have losses of $591 million and debt totaling $628 million. Stock prices declined from $90 in 2000 to less than one dollar when the scandal was exposed. Senior managers, who kept selling their stock while encouraging others to continue buying, were convicted of insider trading. In December 2001, the company declared bankruptcy.

In the view of many, Elon Musk has been engaging in similar behavior. A Bloomberg report in November suggests that SpaceX may be less than honest with its numbers, giving a false illusion of profitability. According to Bloomberg , "While SpaceX is burning through cash, disclosures to potential lenders showed the company had positive earnings before interest, taxes, depreciation and amortization of about $270 million for the 12 months through September, people with knowledge of the matter said. But that's because it included amounts that customers had prepaid and because it excluded costs related to non-core research and development...Without those adjustments, earnings were negative, they said.”

According to Bloomberg , "This shouldn't come as a shock. A Wall Street Journal report from a few years ago showed that its profit margins were laser-thin. But if Musk is now going to these lengths to pad SpaceX's books to secure a loan, it appears there's a serious problem."

In the case of Tesla, the Wall Street Journal reports that, "Federal investigators are probing whether Tesla's stated information about production of its Model 3 electric sedans had misled investors about the company's business. Under examination is Tesla's public statements about Model 3 productions as compared to the number of vehicles that were actually built."

Elon Musk and his companies have a very questionable record when it comes to truth and honesty. Overstating prices to qualify for higher state tax credits seems to fit a pattern. According to a recent report in The Oregonian/Oregon Live, "The state of Oregon has recovered $13 million it paid to Tesla for solar power projects, after an investigation conclude the company inflated prices to qualify for higher tax credits."

Whether Elon Musk, Tesla and SpaceX will go the way of Enron is impossible to know, but that they should not be the recipients of taxpayer dollars seems clear. And whatever the future holds, speculation has already begun.

Marketwatch reports: "Is Tesla the next Enron? One hedge fund manager charts a gloomy path. Harris Kupperman of Praetorian Capital recently compared Tesla to one of the biggest falls Wall Street has ever seen."

Time will tell, but in the interim, the government should put its cozy relationship with Musk on a long, if not permanent, hiatus.

Categories: Current Affairs


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