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Anyone watching a little TV these days will see the adverts. The starving polar bear, the heartfelt pleas for money to stop this happening. Then the larger insistence that climate change is threatening the very survival of that species.
Which it might even do but it isn’t as yet:
Too many polar bears are roaming the Canadian Arctic, and the growing population is posing an increasing threat to Inuit communities, according to a controversial new government report which has been bitterly contested by environmental scientists.
The bitterly contested is that climate change is changing hunting grounds thus pushing those bears extant closer to humans. The alternative explanation is simply that there are more bears.
This should be easy enough to work out, count the bears as best we can and see whether there are more of them now than there used to be. The answer being yes.
Thus we should view this insistence on the damage climate change is already doing to polar bears as disinformation.
Do note what we generally say about the larger subject around here - let’s have a carbon tax as that’s the solution to the basic problem. What irks in this instance is the claim which turns out not to have substance.
As with the pictures of polar bears swimming far from land - yes, that’s what polar bears do. Similarly the images of starving such. Yes, that’s how apex predators die. Unlike everything else in the food chain they don’t become lunch as soon as the rheumatics kick in, they die sans teeth sans everything. There are no hospice beds, no Liverpool Pathway, to ease the passing. There’s the inability to hunt then starvation.
It’s the demonstrably untrue claims about climate change that annoy. The propaganda. As they should annoy those who desire greater action - if you base your justifications upon things that can be proven wrong then when they are people are going to more than wonder about the underlying claim you’re making, aren’t they?
[This article is excerpted from Conceived in Liberty, volume 1, chapter 6, "The Social Structure of Virginia: Bondservants and Slaves". An MP3 audio file of this article, narrated by Floy Lilley, is available for download.]
Until the 1670s, the bulk of forced labor in Virginia was indentured service (largely white, but some Negro); Negro slavery was negligible. In 1683 there were 12,000 indentured servants in Virginia and only 3,000 slaves of a total population of 44,000. Masters generally preferred bondservants for two reasons. First, they could exploit the bondservants more ruthlessly because they did not own them permanently, as they did their slaves; on the other hand, the slaves were completely their owners’ capital and hence the masters were economically compelled to try to preserve the capital value of their human tools of production. Second, the bondservants, looking forward to their freedom, could be more productive laborers than the slaves, who were deprived of all hope for the future.
As the colony grew, the number of bondservants grew also, although as servants were repeatedly set free, their proportion to the population of Virginia declined. Since the service was temporary, a large new supply had to be continually furnished. There were seven sources of bondservice, two voluntary (initially) and five compulsory. The former consisted partly of “redemptioners” who bound themselves for four to seven years, in return for their passage money to America. It is estimated that seventy percent of all immigration in the colonies throughout the colonial era consisted of redemptioners. The other voluntary category consisted of apprentices, children of the English poor, who were bound out until the age of twenty-one. In the compulsory category were: (a) impoverished and orphaned English children shipped to the colonies by the English government; (b) colonists bound to service in lieu of imprisonment for debt (the universal punishment for all nonpayment in that period); (c) colonial criminals who were simply farmed out by the authorities to the mastership of private employers; (d) poor English children or adults kidnapped by professional “crimps”—one of whom boasted of seizing 500 children annually for a dozen years; and (e) British convicts choosing servitude in America for seven to fourteen years in lieu of all prison terms in England. The last were usually petty thieves or political prisoners—and Virginia absorbed a large portion of the transported criminals.
As an example of the grounds for deporting political prisoners into bondage, an English law in force in the mid-1660s banished to the colonies anyone convicted three times of attempting an unlawful meeting—a law aimed mostly at the Quakers. Hundreds of Scottish nationalist rebels, particularly after the Scottish uprising of 1679, were shipped to the colonies as political criminals. An act of 1670 banished to the colonies anyone with knowledge of illegal religious or political activity, who refused to turn informer for the government.
During his term of bondage, the indentured servant received no monetary payment. His hours and conditions of work were set absolutely by the will of his master who punished the servant at his own discretion. Flight from the master’s service was punishable by beating, or by doubling or tripling the term of indenture. The bondservants were frequently beaten, branded, chained to their work, and tortured. The frequent maltreatment of bondservants is so indicated in a corrective Virginia act of 1662: “The barbarous usage of some servants by cruel masters being so much scandal and infamy to the country... that people who would willingly adventure themselves hither, are through fears thereof diverted”—thus diminishing the needed supply of indentured servants.
Many of the oppressed servants were moved to the length of open resistance. The major form of resistance was flight, either individually or in groups; this spurred their employers to search for them by various means, including newspaper advertisements. Work stoppages were also employed as a method of struggle. But more vigorous rebellions also occurred especially in Virginia in 1659, 1661, 1663, and 1681. Rebellions of servants were particularly pressing in the 1660s because of the particularly large number of political prisoners taken in England during that decade. Independent and rebellious by nature, these men had been shipped to the colonies as bondservants. Stringent laws were passed in the 1660s against runaway servants striving to gain their freedom.
In all cases, the servant revolts for freedom were totally crushed and the leaders executed. Demands of the rebelling servants ranged from improved conditions and better food to outright freedom. The leading example was the servant uprising of 1661 in York County, Virginia, led by Isaac Friend and William Clutton. Friend had exhorted the other servants that “he would be the first and lead them and cry as they went along who would be for liberty and freed from bondage and that there would be enough come to them, and they would go through the country and kill those who made any opposition and that they would either be free or die for it.”1 The rebels were treated with surprising leniency by the county court, but this unwonted spirit quickly evaporated with another servant uprising in 1663.
This servant rebellion in York, Middlesex, and Gloucester counties was betrayed by a servant named Birkenhead, who was rewarded for his renegacy by the House of Burgesses with his freedom and 5,000 pounds of tobacco. The rebel leaders, however,—former soldiers under Cromwell—were ruthlessly treated; nine were indicted for high treason and four actually executed. In 1672 a servant plot to gain freedom was uncovered and a Katherine Nugent suffered thirty lashes for complicity. A law was passed forbidding servants from leaving home without special permits and meetings of servants were further repressed.
One of the first servant rebellions occurred in the neighboring Chesapeake tobacco colony of Maryland. In 1644 Edward Robinson and two brothers were convicted for armed rebellion for the purpose of liberating bondservants. Thirteen years later Robert Chessick, a recaptured runaway servant in Maryland, persuaded several servants of various masters to run away to the Swedish settlements on the Delaware River. Chessick and a dozen other servants seized a master’s boat, as well as arms for self-defense in case of attempted capture. But the men were captured and Chessick was given thirty lashes. As a special refinement, one of Chessick’s friends and abettors in the escape, John Beale, was forced to perform the whipping.
In 1663 the bondservants of Richard Preston of Maryland went on strike and refused to work in protest against the lack of meat. The Maryland court sentenced the six disobedient servants to thirty lashes each, with two of the most moderate rebels compelled to perform the whipping. Facing force majeure, all the servants abased themselves and begged forgiveness from their master and from the court, which suspended the sentence on good behavior.
In Virginia a servant rebellion against a master, Captain Sisbey, occurred as early as 1638; the lower Norfolk court ordered the enormous total of one hundred lashes on each rebel. In 1640 six servants of Captain William Pierce tried to escape to the Dutch settlements. The runaways were apprehended and brutally punished, lest this set “a dangerous precedent for the future time.” The prisoners were sentenced to be whipped and branded, to work in shackles, and to have their terms of bondage extended.
By the late seventeenth century the supply of bondservants began to dry up. While the opening of new colonies and wider settlements increased the demand for bondservants, the supply dwindled greatly as the English government finally cracked down on the organized practice of kidnapping and on the shipping of convicts to the colonies. And so the planters turned to the import and purchase of Negro slaves. In Virginia there had been 50 Negroes, the bulk of them slaves, out of a total population of 2,500 in 1630; 950 Negroes out of 27,000 in 1660; and 3,000 Negroes out of 44,000 in 1680—a steadily rising proportion, but still limited to less than seven percent of the population. But in ten years, by 1690, the proportion of Negroes had jumped to over 9,000 out of 53,000, approximately seventeen percent. And by 1700, the number was 16,000 out of a population of 58,000, approximately twenty-eight percent. And of the total labor force—the working population—this undoubtedly reflected a considerably higher proportion of Negroes.
How the Negro slaves were treated may be gauged by the diary of the aforementioned William Byrd II, who felt himself to be a kindly master and often inveighed against “brutes who mistreat their slaves.” Typical examples of this kindly treatment were entered in his diary:
2-8-09: Jenny and Eugene were whipped.
5-13-09: Mrs. Byrd whips the nurse.
6-10-09: Eugene (a child) was whipped for running away and had the bit put on him.
11-30-09: Jenny and Eugene were whipped.
12-16-09: Eugene was whipped for doing nothing yesterday.
4-17-10: Byrd helped to investigate slaves tried for “High Treason”; two were hanged.
7-1-10: The Negro woman ran away again with the bit in her mouth.
7-15-10: My wife, against my will, caused little Jenny to be burned with a hot iron.
8-22-10: I had a severe quarrel with little Jenny and beat her too much for which I was sorry.
1-22-11: A slave “pretends to be sick.” I put a branding iron on the place he claimed of and put the bit on him.
It is pointless to criticize such passages as only selected instances of cruel treatment, counterbalanced by acts of kindness by Byrd and other planters toward their slaves. For the point is not only that the slave system was one where such acts could take place; the point is that threats of brutality underlay the whole relationship. For the essence of slavery is that human beings, with their inherent freedom of will, with individual desires and convictions and purposes, are used as capital, as tools for the benefit of their master. The slave is therefore habitually forced into types and degrees of work that he would not have freely undertaken; by necessity, therefore, the bit and the lash become the motor of the slave system. The myth of the kindly master camouflages the inherent brutality and savagery of the slave system.
One historical myth holds that since the slaves were their masters’ capital, the masters’ economic self-interest dictated kindly treatment of their property. But again, the masters always had to make sure that the property was really theirs, and for this, systematic brutality was needed to turn labor from natural into coerced channels for the benefit of the master. And, second, what of property that had outlived its usefulness? Of capital that no longer promised a return to the master? Of slaves too old or too ill to continue earning their masters a return? What sort of treatment did the economic self-interest of the master dictate for slaves who could no longer repay the costs of their subsistence?
Slaves resisted their plight in many ways, ranging from such nonviolent methods as work slowdowns, feigning illness, and flight, to sabotage, arson, and outright insurrection. Insurrections were always doomed to failure, outnumbered as the slaves were in the population. And yet the slave revolts appeared and reappeared. There were considerable slave plots in Virginia in 1687, 1709–10, 1722–23, and 1730. A joint conspiracy of great numbers of Negro and Indian slaves in Surry and Isle of Wight counties was suppressed in 1709, and another Negro slave conspiracy crushed in Surry County the following year. The slave who betrayed his fellows was granted his freedom by the grateful master. The 1730 uprising occurred in five counties of Virginia, and centered on the town of Williamsburg. A few weeks before the insurrection, several suspected slaves were arrested and whipped. An insurrection was then planned for the future, but was betrayed and the leaders executed.
Joint flight by slaves and servants was also common during the seventeenth century, as well as joint participation in plots and uprisings. In 1663 Negro slaves and white indentured servants in Virginia plotted an extensive revolt, and a number of the rebels were executed. The colonists appointed the day as one of prayer and thanksgiving for being spared the revolt. Neither slave nor indentured servant was permitted to marry without the master’s consent; yet there is record of frequent cohabitation, despite prohibitory laws.
It has been maintained in mitigation of the brutality of the American slave system that the Negroes were purchased from African chieftains, who had enslaved them there. It is true that the slaves were also slaves in Africa, but it is also true that African slavery never envisioned the vast scope, the massive dragooning of forced labor that marked American plantation slavery. Furthermore, the existence of a ready white market for slaves greatly expanded the extent of slavery in Africa, as well as the intensity of the intertribal wars through which slavery came about. As is usually the case on the market, demand stimulated supply. Moreover, African slavery did not include transportation under such monstrous conditions that a large percentage could not survive, or the brutal “seasoning” process in a West Indies way station to make sure that only those fit for slave conditions survived, or the continual deliberate breaking up of slave families that prevailed in the colonies.
From the earliest opening of the New World, African slaves were imported as forced labor to make possible the working of large plantations, which, as we have seen, would have been uneconomic if they had had to rely, as did other producers, on free and voluntary labor. In Latin America, from the sixteenth century on, Negro slavery was used for large sugar plantations concentrated in the West Indies and on the north coast of South America. It has been estimated that a total of 900,000 Negro slaves were imported into the New World in the sixteenth century, and two and three-quarter million in the seventeenth century.2
Negroes came into use as slaves instead of the indigenous American Indians because: (a) the Negroes proved more adaptable to the onerous working conditions of slavery—enslaved Indians tended, as in the Caribbean, to die out; (b) it was easier to buy existing slaves from African chieftains than to enslave a race anew; and (c) of the great moral and spiritual influence of Father Bartolome de Las Casas in Spanish America, who in the mid-sixteenth century inveighed against the enslavement of the American Indians. Spanish consciences were never agitated over Negro slavery as they were over Indian; even Las Casas himself owned several Negro slaves for many years. Indeed, early in his career, Las Casas advocated the introduction of Negro slaves to relieve the pressure on the Indians, but he eventually came to repudiate the slavery of both races. In the seventeenth century two Spanish Jesuits, Alonzo de Sandoval and Pedro Claver, were conspicuous in trying to help the Negro slaves, but neither attacked the institution of Negro slavery as un-Christian. Undoubtedly one reason for the different treatment of the two races was the general conviction among Europeans of the inherent inferiority of the Negro race. Thus, the same Montesquieu who had scoffed at those Spaniards who called the American Indians barbarians, suggested that the African Negro was the embodiment of Aristotle’s “natural slave.” And even the environmental determinist David Hume suspected “the Negroes to be naturally inferior to the whites. There scarcely ever was a civilized nation of that complexion, nor even an individual, eminent either in action or speculation. No ingenious manufacturers amongst them, no arts, no sciences. On the other hand, the most rude and barbarian of the whites... have still something eminent about them.... Such a uniform and constant difference could not happen, in so many countries and ages, if nature had not made an original distinction between these breeds of men.”
Contrary to the views of those writers who maintain that Negroes and whites enjoyed equal rights as indentured servants in Virginia until the 1660s, after which the Negroes were gradually enslaved, evidence seems clear that from the beginning many Negroes were slaves and were treated far more harshly than were white indentured servants.3 No white man, for example, was ever enslaved unto perpetuity—lifetime service for the slave and for his descendants—in any English colony. The fact that there were no slave statutes in Virginia until the 1660s simply reflected the small number of Negroes in the colony before that date.4 From a very early date, owned Negroes were worked as field hands, whereas white bondservants were spared this onerous labor. And also from an early date, Negroes, in particular, were denied any right to bear arms. An especially striking illustration of this racism pervading Virginia from the earliest days was the harsh prohibition against any sexual union of the races. As early as 1630 a Virginia court ordered “Hugh Davis to be soundly whipped, before an assembly of Negroes and others for abusing himself to the dishonor of God and shame of Christians by defiling his body in lying with a Negro.” By the early 1660s the colonial government outlawed miscegenation and interracial fornication. When Virginia prohibited all interracial unions in 1691, the Assembly bitterly denounced miscegenation as “that abominable mixture and spurious issue.”5
Other regulations dating from this period and a little later included one that forbade any slave from leaving a plantation without a pass from his master; another decreed that conversion to Christianity would not set a slave free, a fact which violated a European tradition that only heathens, not Christians, might be reduced to slavery.
By the end of the seventeenth century, the growing Virginia colony had emerged from its tiny and precarious beginnings with a definite social structure. This society may be termed partly feudal. On the one hand, Virginia, with its abundance of new land, was spared the complete feudal mold of the English homeland. The Virginia Company was interested in promoting settlement, and most grantees (such as individual settlers and former indentured servants) were interested in settling the land for themselves. As a result, there developed a multitude of independent yeomen settlers, particularly in the less choice up-country lands. Also, the feudal quitrent system never took hold in Virginia. The settlers were charged quitrents by the colony or by the large grantees who, instead of allowing settlers to own the land or selling the land to them, insisted on charging and trying to collect annual quitrents as overlords of the land area. But while Virginia was able to avoid many crucial features of feudalism, it introduced an important feudal feature into its method of distributing land, especially the granting of large tracts of choice tidewater river land to favorite and wealthy planters. These large land grants would have early dissolved into ownership by the individual settlers were it not for the regime of forced labor, which made the large tobacco plantations profitable. Furthermore, the original “settlers,” those who brought the new land into use, were in this case the slaves and bondservants themselves, so it might well be said that the planters were in an arbitrary quasi-feudal relation to their land even apart from the large grants.
Temporary indentured service, both “voluntary” and compulsory, and the more permanent Negro slavery formed the base of exploited labor upon which was erected a structure of oligarchic rule by the large tobacco planters. The continuance of the large land tracts was also buttressed by the totally feudal laws of entail and primogeniture, which obtained, at least formally, in Virginia and most of the other colonies. Primogeniture compelled the undivided passing-on of land to the eldest son, and entail prevented the land from being alienated (even voluntarily) from the family domain. However, primogeniture did not exert its fully restrictive effect, for the planters generally managed to elude it and to divide their estate among their younger children as well. Hence, Virginia land partly dissolved into its natural division as the population grew. Primogeniture and entail never really took hold in Virginia, because the abundance of cheap land made labor—and hence the coerced supply of slaves—the key factor in production. More land could always be acquired; hence there was no need to restrict inheritance to the eldest son. Furthermore, the rapid exhaustion of tobacco land by the current methods of cultivation required the planters to be mobile, and to be ready to strike out after new plantations. The need for such mobility militated against the fixity of landed estates that marked the rigid feudal system of land inheritance prevailing in England. Overall, the wealth and status of Virginia’s large planters was far more precarious and less entrenched that were those of their landowning counterparts in England.
- 1. Abbot E. Smith, Colonists in Bondage.
- 2. Over the seventeenth and eighteenth centuries, only about one-fifteenth of the total Negro imports into the New World arrived in the territory of what is now the United States. That the slaves fared even worse in the Latin American colonies is seen by the far higher death rate there than in North America.
- 3. Cf. Winthrop D. Jordan, “Modern Tensions and the Origins of American Slavery,” Journal of Southern History (February 1962), pp. 17-30.
- 4. Ibid. Jordan cites many evidences of Negro slavery—including court sentences, records of Negroes, executions of wills, comparative sale prices of Negro and white servants—dating from 1640, before which time the number of Negroes in Virginia was negligible.
- 5. “Spurious” in colonial legislation meant not simply illegitimate, but specifically the children of interracial unions.
In a slave system, threats of brutality underlay the whole relationship.
Narrated by Floy Lilley. This article is excerpted from Conceived in Liberty, Volume 1, Chapter 6, "The Social Structure of Virginia: Bondservants and Slaves".
With the 2007-8 financial crisis came a splendid alphabetical soup of central bank interventions to stimulate financial markets, lower interest rates, provide astonishing amounts of liquidity to banks and, allegedly, prevent another Great Depression. Likening the failure of big banks to falling elephants crushing even the smallest grass, former Fed Chairman Bernanke argued that consequences from bank failures would have caused much more havoc to the economy than the liquidity provision and bailouts his Fed oversaw.
Now, do banks really deserve special consideration in this sense? Let me illustrate by comparing the fates of two imaginary entrepreneurs:
Our first entrepreneur — let’s call him John — sees an opportunity in the beverage business. Specifically, he’s convinced that he can source high-quality Brazilian coffee beans, roast and serve impeccably aromatic coffee in downtown Manhattan. He draws up the business plan, estimates what he believes coffee-craving New Yorkers would be willing to pay for his coffee and assesses how many customers he could reasonably serve per day.
Setting his plan in action, he borrows some money from friends and family, rents an appropriate space, hires a construction team and interior designers to create the coffee-scented heaven he imagines, finds some competent baristas to staff it and finally opens his doors to hesitantly curious customers. From here, as in all entrepreneurial ventures, there are two paths John’s business may take:
- If customers love his coffee and willingly part with their dollars , enough so that John can cover costs as well as offer some return to his shareholders/creditors, we consider John’s venture successful. The profits describe the added value for consumers, regardless of whether you see John as a Misesian uncertainty-carrying and future-appreciating speculator or a Kirznerian arbitrageur, alert to discrepancies between prices of higher and lower-order goods.
- If customers scoff at his atrocious coffee-like concoction, and refuse to buy drinks in the amounts John estimated, we consider John’s venture unsuccessful. The losses he is bound to incur similarly describe the (negative) value his venture created by combining scarce producer goods into less-valuable consumer goods.
When John, under the second scenario, closes up shop, fire-sells his remaining inventory at prices far below those at which he bought them, defaults on his loans and outstanding rent obligations to his landlord, there are losses all around. His creditors lost the money they invested; the property owner lost the remaining unpaid rent, and the wholesale provider of coffee beans might not see his last invoice paid in full. We may call them and other losses externalities. Losses may bankrupt John’s suppliers. For example, John's failed venture might drive other entrepreneurs out of business by ending their access to an important customer.) But we accept them as part of the creative flux of markets where profits and losses indicate consumer valuations, validating the entrepreneur’s prior and speculative actions. Even if these losses would be huge (say the wholesaler of coffee beans goes bankrupt and all her employees lose their jobs), we lament their personal fates, but don’t call for government to subsidize John, keep the wholesaler from bankruptcy, or provide liquidity so they can stay in business.
Enter our second entrepreneur — Jane. Jane is somewhat more financially savvy and spots an underappreciated opportunity in an entirely different market. Majoring in finance, she knows that the yield curve (the difference in yields between bonds of long maturity and bonds of short maturity) is generally upward-sloping. For a variety of reasons investors require a term premium for holding long-dated debt. Jane knows this, but believes that the input prices of her proposed business are still undervalued: she raises a sizable amount of money, offers slightly better short-term rates than prevailing in the market — by overbidding other entrepreneurs gains access to an even larger pool of funds — combines it all into an efficiently-staffed office with the latest credit-rating models and starts offering long-term loans to home-owners at attractive rates.
Careful not to make John’s mistake in his second scenario, she ensures that the margins between her input costs (what she pays her investors and wholesale funders in interest) and output prices (the annual interest rates she earns from her large and suitably diversified portfolio of mortgage lending) are markedly positive, earning a serious amount of income for herself and her shareholders.
Even though she is aware of the liquidity risk she incurs (“My clients won’t pay me back for a very long time: what happens if I can’t repay – roll over – my 3-month wholesale funding?”), she judges it a minor worry and decides not to take out any kind of interest-rate hedges or liquidity insurance. She’s confident that her initial disbelief at other market actors’ pricing is incorrect. In any case, she can always find new short-term funding at suitable rates should some of her funders refuse to roll over their loans.
At this point, let’s briefly summarize our two entrepreneurs: they both entrepreneurially speculated on an uncertain future, believing they could provide a product (coffee or loans) at certain prices above their cost of operation (office, overhead, employees) plus their input costs (coffee-beans wholesale or wholesale funding). The economic analysis, similarly, is no different: profit-and-loss statements indicate whether John and Jane serve their customers well, adding value through their business ventures. That’s also where the comparison allegedly ends.
For where John’s mistaken entrepreneurial decisions over coffee preferences, wholesale prices and consumers’ willingness to pay warrant no particular attention from governments, central banks and economists, Jane’s case is, for some unfathomable reason, entirely different.
When Jane one day wakes up to wholesalers refusing to rollover her funding and she’s urgently in need of liquid assets to pay the debt that’s falling due, the trust in profit-and-loss statements for revealing consumer value creation is entirely absent. Calls for alphabet-soup government agencies are heard from central bank offices to Treasury departments and New York Times columns: fire-selling Jane’s remaining assets (mortgage loans) at low prices will bankrupt her, not to mention all other Jane-like ventures that hold similar assets, creating a devastating downward spiral. Jane’s business is simply too important to go bankrupt. Letting her successful banking business go under would be catastrophic for all her employees, clients, suppliers as well as for the financial system.
The analytical mistake in arguing for public assistance to Jane — but not John — seems obvious, but well-read economists might still disagree, offering versions of the three following arguments:
- Jane’s business is solvent but illiquid, whereas John’s coffee store is insolvent.
- There is an externality aspect to Jane’s business model not present in John’s; when Jane’s assets are liquidated, the prices of all other such assets are likely to fall, thus hurting anyone who hold them, including innocent third parties.
- Jane’s employees have unique information about her clients; she knows their creditworthiness better than anyone, even other banks. Part of the value she creates is unique to her firm and cannot be sold as easily as the title to the assets she’s holding. Since this information is socially valuable, letting Jane’s bank fail would amount to a societal loss.
All of these claims are mistaken. First, like all banks, Jane’s business is to manage liquidity. Banks’ business model, in addition to appropriately evaluate clients’ creditworthiness, is to correctly manage the maturity transformation they are engaged in. The amount of liquidity risk a financial institution takes on is part of its entrepreneurial decision; it is not an accidental exogenous event as most of the banking literature seems to believe. Heavily exploiting the yield curve, earning hefty interest rate margins between illiquid long-dated assets and liquid short-term liabilities without (costly) risk-mitigating interest rate hedges, is no different from high entrepreneurial risk-taking in other industries.
The second reason equally applies for John: when he sells his left-over coffee inventory he greatly depresses the going market price of unused coffee beans, threatening all other wholesalers of coffee beans with bankruptcy; should John’s supply be large enough and the market for coffee beans thin enough, he could be depressing the prices for longer than those suppliers can stay in business. In the exact same way Jane’s fire-selling threatens other businesses “through no fault of their own,” John’s liquidation depresses prices for others, threatening their businesses. There is, in other words, no special reason why banks deserve public support for their business models when coffee stores do not.
As for the third objection, John’s coffee bean store also has particular enterprise-unique information; his baristas knows which variety of coffees their regular customers want. A new coffee store may only imperfectly replace the detailed and intricate coffee desires John satisfied. The fact that John’s store could not cover its costs is evidence enough that this unique knowledge was not sufficiently valuable.
In sum, banking and banks’ liquidity are not subject to other economic laws than are coffee stores, and they should not be given special consideration.
Ever since winning the Nobel Memorial Prize in “Economic Science” in 2001, Joseph Stiglitz has been a one-man advocacy band for growth of the state. After 9/11, for example, he called for the formation of a federal agency to provide security for airline passengers, which he claimed would send a “signal” for quality. (Stiglitz won his prize for “proving” that free markets are “inefficient” and always result in less-than-optimal outcomes because of asymmetric information. Only government in the hands of Really Smart People like Stiglitz can direct production and exchange consistently to efficient and “just” results.)
More than a decade ago, Stiglitz lavished praise for the socialist government of the late Hugo Chavez in Venezuela, declaring:
Venezuelan President Hugo Chavez appears to have had success in bringing health and education to the people in the poor neighborhoods of Caracas, to those who previously saw few benefits of the country’s oil wealth.
He went on to claim that the Chavez policies of expropriating the capital structure of private oil companies in Venezuela would result in a more “equal” distribution of wealth in that country, something he believes is desirable everywhere. Interestingly, since Venezuela’s socialist “experiment” went south, complete with hyperinflation and one of the worst financial and economic crises ever seen in the Western Hemisphere, Stiglitz has been silent, at least when it comes to explaining why the so-called economic miracle in Venezuela was unsustainable.
Although Stigliz no longer is lavishing praise on Venezuelan socialism, he hardly is silent about his belief that only expanded state power can “save” the U.S. economy from self-destruction. In a recent article in Scientific American, he declares that “The American Economy is Rigged.” However, he adds in the title, “And what we can do about it.”
Those familiar with the public declarations of Stiglitz, Paul Krugman, and others in the “markets are internally destructive” camp, nothing Stiglitz writes in the article is surprising. For that matter, it is pure Stiglitz to have it in Scientific American, since he can claim he is engaged in scientific discourse, something he can prove with a lot of mathematical equations that “prove” free markets are bad :
From Stiglitz’s perspective, markets are rife with failure in processing and conveying information, and government must be ready to correct these failures. In his Nobel lecture, Stiglitz spoke of having “undermined” the free-market theories of Adam Smith, asserting that Smith’s “invisible hand” either didn’t exist or had grown “palsied.” He noted that major political debates over the past two decades have tended to focus on the “efficiency of the market economy” and the “appropriate relationship between the market and the government.” His approach favored government.
Furthermore, he declared in his Nobel lecture that “perfect competition is required if markets are to be efficient” (italics his). To Austrian economists, his statement raises the question as to why we are to assume that governments somehow possess the necessary information to produce “efficient” outcomes in economic exchanges, but Stiglitz never has tried to go there. He simply assumes governmental superiority regarding information and then runs with that assumption.
Stiglitz’s latest article lays out the theme that markets systematically produce inequality, and that over time we are faced with the situation in which only a privileged few people benefit from the capitalist system while the vast majority slip into the economic abyss. He writes:
In his celebrated 2013 treatise Capital in the Twenty-First Century, French economist Thomas Piketty shifts the gaze to capitalists. He suggests that the few who own much of a country's capital save so much that, given the stable and high return to capital (relative to the growth rate of the economy), their share of the national income has been increasing. His theory has, however, been questioned on many grounds. For instance, the savings rate of even the rich in the U.S. is so low, compared with the rich in other countries, that the increase in inequality should be lower here, not greater.
An alternative theory is far more consonant with the facts. Since the mid-1970s the rules of the economic game have been rewritten, both globally and nationally, in ways that advantage the rich and disadvantage the rest. And they have been rewritten further in this perverse direction in the U.S. than in other developed countries—even though the rules in the U.S. were already less favorable to workers. From this perspective, increasing inequality is a matter of choice: a consequence of our policies, laws and regulations.
In the U.S., the market power of large corporations, which was greater than in most other advanced countries to begin with, has increased even more than elsewhere. On the other hand, the market power of workers, which started out less than in most other advanced countries, has fallen further than elsewhere. This is not only because of the shift to a service-sector economy—it is because of the rigged rules of the game, rules set in a political system that is itself rigged through gerrymandering, voter suppression and the influence of money. A vicious spiral has formed: economic inequality translates into political inequality, which leads to rules that favor the wealthy, which in turn reinforces economic inequality.
All of this results in what he calls a “feedback loop” that results in the downward spiral. We are to assume that the growth in income inequality will grow until we are at the Marxian state of “the reserve army of the unemployed,” or at least a reserve army of people that are unable to find work that will allow them to support themselves.
Like so many others who have claimed capitalism is destroying the middle class, Stiglitz turns to the policies created during the Great Depression and after World War II for salvation, seeing the time from the 1930s to the late 1950s as a supposed golden era of prosperity. He writes:
After the New Deal of the 1930s, American inequality went into decline. By the 1950s inequality had receded to such an extent that another Nobel laureate in economics, Simon Kuznets, formulated what came to be called Kuznets's law. In the early stages of development, as some parts of a country seize new opportunities, inequalities grow, he postulated; in the later stages, they shrink. The theory long fit the data—but then, around the early 1980s, the trend abruptly reversed.
To reverse this trend of rising inequality – and rising poverty – Stiglitz calls for a return to the Depression-era policies of high marginal taxes and using the regulatory structure to recreate the financial and business cartels built by New Deal regulations that dominated American production, finance, and transportation at that time. Indeed, apart from the anti-discrimination laws that now are part of the modern legal landscape, Stiglitz believes that the only hope for our future is to return to the past:
…we need more progressive taxation and high-quality federally funded public education, including affordable access to universities for all, no ruinous loans required. We need modern competition laws to deal with the problems posed by 21st-century market power and stronger enforcement of the laws we do have. We need labor laws that protect workers and their rights to unionize. We need corporate governance laws that curb exorbitant salaries bestowed on chief executives, and we need stronger financial regulations that will prevent banks from engaging in the exploitative practices that have become their hallmark. We need better enforcement of antidiscrimination laws: it is unconscionable that women and minorities get paid a mere fraction of what their white male counterparts receive. We also need more sensible inheritance laws that will reduce the intergenerational transmission of advantage and disadvantage.Challenging Stiglitz’s Logic
Stiglitz hardly is the only modern economist that wants the American economy to be restructured to resemble how it looked in 1939. Paul Krugman many times called for a “New New Deal” and actually claims that the U.S. middle class didn’t even exist until President Franklin D. Roosevelt created it with his policies.
In reading the Stiglitz “we need” rant, it is clear that he sees the economy as both mechanistic and deterministic. Capital will have increasing returns because, well, capital has increasing returns, which means that over time, capital will increase the incomes of its owners and everyone else will become poorer. In fact, as one goes through the entire article, one can conclude that he believes, like Marx, that a market system is internally unstable and that it always will implode because a few people will see their incomes increase, but only at the expense of the masses, who will see their incomes decrease.
Indeed, if one follows Stiglitz to his logical conclusions, one would have to assume that the U.S. economy is a trap of exploitation and misery for American workers, as they toil longer hours and watch their standard of living slip away. He writes:
At the time of the Civil War, the market value of the slaves in the South was approximately half of the region's total wealth, including the value of the land and the physical capital—the factories and equipment. The wealth of at least this part of this nation was not based on industry, innovation and commerce but rather on exploitation. Today we have replaced this open exploitation with more insidious forms, which have intensified since the Reagan-Thatcher revolution of the 1980s. This exploitation…is largely to blame for the escalating inequality in the U.S.
Like Krugman, Stiglitz uses an array of statistics and graphs to “prove” that before Ronald Reagan and Margaret Thatcher took power, the American and British economies were ensconced in “equality” and prosperity. For some unknown reason, however, free-market ideas suddenly emerged seemingly from nowhere to influence politicians to create a new economic system that undid the carefully-crafted structured post-New Deal economy which had created the American middle class and turned them into poverty-stricken serfs.
There is a problem with the Stiglitz analysis: It is wrong both theoretically and empirically. First, the 1970s were a decade both of inflation and economic decline in both the USA and Great Britain. In the USA, the economy wavered between inflationary booms (with inflation reaching well over 10 percent) and devastating busts, including the 1974-75 recession, and in Great Britain, the situation was even worse, as demonstrated in a 1977 “60 Minutes” broadcast, “Will There Always Be An England?”
The sad thing is that Stiglitz is trying to claim that Americans were better off economically in 1980 than they are now, which only can mean he believes Americans had a better standard of living 40 years ago than today. Yet, as pointed out by Philip Brewer, it is easy to confuse something like income equality to higher living standards. The so-called Golden Age of the 1950s was a time when a third of Americans lived in poverty. Writes Brewer :
In the 1950s and 1960s, a working man could support a family at a middle-class standard of living with just one income. It might surprise you to learn that one person working full-time, even at minimum wage, can still support a family of four at that standard of living. Nowadays we call that "living in poverty."
Theoretically, Stiglitz holds that capital and resource owners over time receive increasing returns to capital which has the effect of raising the owners’ income over time, but only at the expense of everyone else. Thus, in his view, capital is the culprit, and as an economy accumulates increasing amounts of capital, income inequality — and poverty — logically follow. The only way to reverse this trend, he believes, is for the state to confiscate huge amounts of income from capital and resource owners and transfer it to lower-income people through welfare payments or availability of government services.
If Stiglitz is correct, it would be the first time in recorded history that capital accumulation gained through a profit-and-loss system would be responsible for decreasing the overall standard of living in an economy. Furthermore, Stiglitz seems to be oblivious to the economic role of capital: increase the supply of goods and services in an economy. By looking only at the income which capital owners gain and by failing to understand the real economic significance of capital accumulation, Stiglitz is left with applying a crabbed Marxist analysis in which the “rich” gain increasing shares of income, thus leaving everyone else with smaller income shares – with the result being an overall “glut” of goods that cannot be sold, leading to increasing numbers of layoffs, unemployment, and ultimate economic collapse. That economists from Jean Baptiste Say to Ludwig von Mises — and, may I add, the historical record — have debunked his arguments fails to keep Stiglitz from repeating them.
By publishing his article in Scientific American and couching his analysis in the language of science, Stiglitz wants us to believe that his viewpoints are systematic and have the aura of inevitability, as though he were describing the results of the Law of Gravity. In reality, Stiglitz simply repeats the fallacies of Thomas Malthus, Karl Marx, and John Maynard Keynes and presents a stiff, mechanistic, and utterly false view of how an economy works.
Throughout history, we have seen how socialism takes an economy backward, whether it is practices in the former U.S.S.R., Mao’s China, Cuba, and now Venezuela. He was unable to comprehend how Venezuela’s “socialist miracle” would fall apart, and now he intellectually is unable and unwilling to engage the truth as to why the deterioration of a socialist economy results in wealth for a few and real poverty for the masses. In other words, he cannot comprehend why the socialist economy is rigged.
Or rather, an accurate critique of it from the Labour side. Clive Lewis tells us of what we consider the most pernicious of Brown’s personal taxation policies. The manner in which he deliberately drove that income tax system ever deeper into the wallets of the poor. For this is indeed what he did, insisted that people ever lower down the income scale must be paying:
He accused Tony Blair and Gordon Brown’s New Labour of “leaning on those further down the income scale”, while leaving “almost untouched” the “huge fortunes of those at the very top” – citing cuts to corporation tax, and fiscal drag, which brings more people into higher tax bands by leaving thresholds unchanged.
Leave aside that taxation of the rich part and concentrate on that of the poor. This is the part of the system - and Brown made it worse - which we’ve long regarded as actually being immoral. Not just inefficient, or not likely to work well, or constrained by reality, but actively immoral.
For we agree with Adam Smith, that the better off should contribute more than in proportion to their income. Which means to us that the poor not contribute at all as a function of their income. If we have taxes upon apples then people who buy apples, whatever their incomes, should be paying the apple tax. But not income taxes upon low incomes.
What Brown did was that fiscal drag. Wages tend to rise faster than inflation. So, rises in the personal allowance which are only at the level of inflation drag ever more into that fiscal net - fiscal drag. You can see Brown’s performance on that here. At least once he didn’t raise the personal allowance at all and that at a time of strong wage growth. That’s reaching ever further down into the poor to pay for the British state, not what we think should be done. The effects in real terms - before that background of rising incomes - are here. Incredibly, in those real terms, Brown reduced the value of the personal allowance.
There are many things to criticise over Brown’s tenure as Chancellor. But this is the one we think unforgivable, his deliberate - and obviously complicated and disguised - insistence that the army of Labour voters to be bought by the beneficence of the state be paid for on the backs of the poor. Even if it’s only Clive Lewis who has woken up to this so far that is an advance for the Labour Party, that one understands it. Even if only the one.
If those disaffiliating want to be committed to that fundamental consequence of being Anglican in Aotearoa New Zealand, then they must stay in these constitutional and Treaty-based relationships.
In his criticism of imperialist policies in the service of socialism, labor-unionism, and the socialist war economy Ludwig von Mises could restate many conventional arguments. He faced an unprecedented task in confronting the claim that imperialism can enhance the welfare of a nation. His pioneering analysis brilliantly confirmed Carl Menger’s insight that methodological individualism is able to analyze even large collective phenomena.
The main thesis in the first chapter of Nation, State, and Economy is that governments are incapable of improving the condition of the nations they rule. The reason is that the origin, emergence, growth, flower, and decline of nations are subject to natural laws. The operation of these laws can be modified by government power but not abrogated, and any alteration will play out to the detriment of the nation. Mises proved his case by first analyzing nations in a free society and then turning to examine the impact of government power on their evolution. His practical conclusions called for the denationalization of the nation, or more precisely, for keeping government intervention as far as possible out of the life of language communities.
Following Scherer, Grimm, and Otto Bauer, Mises defined nations as language communities. He stressed that as far as democratic regimes are concerned, this definition is more than a mere convention. In democracies, communication—and thus language—is the primary political means. Language communities are therefore of critical political importance.12 What were the natural laws determining the rise and fall of language communities? Mises considered various objective factors determining their evolution.3 But his decisive considerations start from the fact that the membership in a language community is not something unalterable. Each human person can decide to leave his former nation and join another. In a free society, Mises stressed, nations would be purely voluntary associations:
No people and no part of a people shall be held against its will in a political association that it does not want. The totality of freedom-minded persons who are intent on forming a state appears as the political nation; patrie, Vaterland becomes the designation of the country they inhabit; patriot becomes a synonym of free-minded.4
Liberalism knows no conquests, no annexations; just as it is indifferent towards the state itself, so the problem of the size of the state is unimportant to it. It forces no one against his will into the structure of the state. Whoever wants to emigrate is not held back. When a part of the people of the state wants to drop out of the union, liberalism does not hinder it from doing so. Colonies that want to become independent need only do so. The nation as an organic entity can be neither increased nor reduced by changes in states; the world as a whole can neither win nor lose from them.5
What, then, determines individual membership in a language community? Neglecting objective factors such as the familial, historical, cultural, and political environments of the individual, Mises focused on the voluntary factor of assimilation. He asserted that, for practical reasons, language minorities tend to assimilate to the language majorities with whom they are affiliated through trade and other forms of social intercourse. Therefore, local minority nations ceteris paribus tend to disappear in the course of time. Mises stressed that this assimilation process was dependent on individual membership in certain social classes because social contacts were class-dependent. Minorities could preserve a separate existence for as long as spatial and social mobility were heavily controlled through custom and laws. Things changed radically when classical liberalism abolished such laws. The result was a dramatic migration—both physical and social—that disrupted the established balances between nations. Mises gave special attention to the impact of the increased spatial mobility, which by the late nineteenth century had already reached a massive scale. These migrations constantly produced areas of mixed cultures, threatening the established groups with their disappearance through assimilation, thus prompting political rivalry and conflict.6
Mises did not believe these movements could be stopped because they reflected the self-interest of the migrants.7 What could be done, then, to alleviate the national conflicts that were the necessary consequence of those migrations? The only viable solution, Mises argued, was to reduce the role of the state within society, because the political conflicts between nationalities primarily concerned control of the state apparatus:
Of course, the struggle of nationalities over the state and government cannot disappear completely from polyglot territories. But it will lose sharpness to the extent that the functions of the state are restricted and the freedom of the individual is extended. Whoever wishes peace among peoples must fight statism.8
The way to eternal peace does not lead through strengthening state and central power, as socialism strives for. The greater the scope the state claims in the life of the individual and the more important politics becomes for him, the more areas of friction are thereby created in territories with mixed population. Limiting state power to a minimum, as liberalism sought, would considerably soften the antagonisms between different nations that live side by side in the same territory. The only true national autonomy is the freedom of the individual against the state and society. The “statification” of life and of the economy leads with necessity to the struggle of nations.9
Mises offered here a radical alternative to the prevalent models for solving national conflicts. Austria had the longest experience with national struggles within a common state, and its intellectual, political, and institutional history was therefore richer than that of any other country in analyzing and solving this problem.10 For example, the constitution of the Austrian great-dukedom of Siebenbürgen, which existed until 1848, provided for separate parliaments and administrations for Saxons (Germans), Hungarians, and Szeklers. Affairs of general interest were dealt with in a common parliament, which debated in Latin. The ugly side of this otherwise charming arrangement was that the Romanians, who were in the numerical majority in Siebenbürgen, had no representation.11 During the revolution of 1848, a promising approach was developed to overcome this and similar problems. On March 4, 1849 the deputies of the constitutive assembly (which had by then moved to the city of Kremsier) voted on the proposed Kremsier Constitution, the point of which was to abolish the old territorial units composing the empire (the “kingdoms and lands”) and to replace them with administrative counties, the boundaries of which would be drawn according to the national affiliation of the inhabitants. The German nationalists reacted on the very same day with a counter-proposal presented by Prince Schwarzenberg. From then on, the principle of equal legal treatment of the different languages was on the defensive and finally defeated.12
The failure of the revolution prevented the practical application of the Kremsier Constitution, but the idea lived on, especially in the various programs of the social-democratic party. At their 1899 convention in Brünn, the social democrats decided to tackle the problem of national conflicts by creating parallel state organizations along national lines. This approach, they believed, would ensure “national autonomy” to each nation and thus prevent struggles between the nations once and for all. To serve as a model for the rest of Austria, they transformed their own party, creating parallel national organizations.13 In the following years, its intellectual leaders, Karl Renner and young Otto Bauer, revived and refined and popularized the idea of replacing the old territorial units with new national counties.14 It turned out however, that nationalistic passions were too strong to be tamed even by the spirit of socialist solidarity. After the introduction of universal suffrage in 1907, the party quickly dissolved into national organizations and lost all impact on Austrian politics. With hindsight, and with the help of Mises’s theory, we can identify the root cause of these failures. All of his predecessors had tried to use government to solve the problem of national struggles. None of them recognized (or admitted) that coercive association—the sine qua non of the state—was the very source of national conflicts. A different government scheme cannot possibly be a solution for a conflict caused by the nature of government itself.
But how far could one go in keeping the state out of society? How far should one go? Mises argued that the only limits are of a technical-administrative nature:
The size of a state’s territory...does not matter. It is another question whether a state is viable when its population is small. Now, it is to be noted that the costs of many state activities are greater in small states than in large ones. The dwarf states, of which we still have a number in Europe, like Liechtenstein, Andorra, and Monaco, can organize their court systems by levels of jurisdiction, for example, only if they link up with a neighboring state. It is clear that it would be financially quite impossible for such a state to set up as comprehensive a court system as that which a larger state makes available to its citizens, for example, by establishing courts of appeal.15
Hence, Mises advocated a complete liberalization of society. There should be no political limits to this process. And it would in practice be limited only by banal technical considerations. In other words, Mises welcomed the unhampered competition among national territories, which in a free “inter-national” society would be a peaceful competition between language-based cultures, in which each individual, through his assimilation choices, would determine the fate of the various language communities. Mises sensed that the only dignified attitude toward the reality of cultural competition was national self-confidence:
A nation that believes in itself and its future, a nation that means to stress the sure feeling that its members are bound to one another not merely by accident of birth but also by the common possession of a culture that is valuable above all to each of them, would necessarily be able to remain unperturbed when it saw individual persons shift to other nations. A people conscious of its own worth would refrain from forcibly detaining those who wanted to move away and from forcibly incorporating into the national community those who were not joining it of their free will. To let the attractive force of its own culture prove itself in free competition with other peoples— that alone is worthy of a proud nation, that alone would be true national and cultural policy. The means of power and of political rule were in no way necessary for that.16
Mises argued not only that political rule is unnecessary to improve the condition of a nation, but also that it is incapable of doing so. In a free society people constantly migrate to those locations offering the most favorable conditions for production. Every individual has an incentive to migrate from a relatively poor area to a relatively rich area. These migrations would continue until wage rates and interest rates are equal in all locations.17 In a liberalized world, therefore, there would be a tendency away from differences in income. There would eventually be no rich or poor countries in the world. There would only be countries that are more densely populated, and other countries that are less so.
Mises pointed out that government intervention does not change anything about people’s motives to migrate from relatively poor areas into relatively rich ones. On the contrary, if government tries to keep its people in the land through a system of protective tariffs, it only exacerbates the problem. Protective tariffs might prevent the emigration of those who would be most affected by foreign competition, but they reduce the per capita income of all the other members of society, further multiplying the incentives for emigration. Again, a dispassionate suitability analysis comes out against government intervention. Mises concluded that the only rational approach in matters of political nationalism was to follow classical-liberal precepts: shrink the state, open borders, and face the cultural competition of international migrations.Excerpted from Chapter 8 of Mises: The Last Knight of Liberalism
- 1. See Mises, Nation, Staat und Wirtschaft, pp. 9f. He stated that a nation’s specific language generated specific “political constructions” and in particular specific foundational ideas determining the operation of their governments (Staatsgedanken); see ibid., pp. 12, 38, 41, 87.
- 2. Mises did not argue that language communities are the only factor, or the most important one, in modern politics. He speculated that racial communities were far more important. The problem was that the sociology of race and of race relations was not sufficiently developed to warrant scientific statements. He acknowledged, however, that it had become a “principle of modern political world law” that it is “no longer acceptable to use force on peoples of the white race.” That is, the use of force against dark-skinned people in the European colonies was considered legitimate, but not the use of force against fellow-whites. German imperialism made enemies in all quarters by violating this distinction. See Mises, Nation, Staat und Wirtschaft, pp. 62, 64f.; Nation, State, and Economy, pp. 76, 79f.
- 3. For example, he examined the role of written language and stated that it had played a crucial role in the competition between dialects. The first written dialect became the standard language. See Mises, Nation, Staat und Wirtschaft, pp. 17ff.
- 4. Mises, Nation, Staat und Wirtschaft, p. 27; Nation, State, and Economy, p. 34.
- 5. Mises, Nation, Staat und Wirtschaft, pp. 31f.; Nation, State, and Economy, pp. 39f.
- 6. See Mises, Nation, Staat und Wirtschaft, p. 48
- 7. En passant he mentioned his contribution to the economics of migration by highlighting the importance of relative overpopulation, in distinction to already-known absolute overpopulation. See Mises, Nation, Staat und Wirtschaft, pp. 45ff. He had developed the concept of relative over-population in his “Vom Ziel der Handelspolitik,” Archiv für Sozialwissenschaft und Sozialpolitik 42, no. 2 (1916): 576.
- 8. Mises, Nation, Staat und Wirtschaft, p. 62; Nation, State, and Economy, p. 77.
- 9. Mises, Nation, Staat und Wirtschaft, pp. 78f.; Nation, State, and Economy, p. 96.
- 10. For surveys on Austrian language legislation, see Alfred Fischel, ed., Materialien zur Sprachenfrage (Brünn: Irrgang, 1902); idem, ed., Das österreichische Sprachenrecht, 2nd ed. (Brünn: Irrgang, 1910); Sieghart, Die letzten Jahrzehnte einer Grossmacht, pp. 421ff.
- 11. See Eduard Bernatzik, Die Ausgestaltung des Nationalgefühls im 19. Jahrhundert (Hannover: Helwing, 1912), p. 30.
- 12. See Sieghart, Die letzten Jahrzehnte einer Grossmacht, p. 323; RöskauRydel, “Galizien, Bukowina, Moldau,” p. 97.
- 13. The social-democratic faction in the central parliament thereafter called itself “union of social-democratic deputies.” See Sieghart, Die letzten Jahrzehnte einer Grossmacht, pp. 351ff.
- 14. See Otto Bauer, Die Nationalitätenfrage und die Sozialdemokratie (Vienna: Verlag der Wiener Volksbuchhandlung, 1907); translated as The Question of Nationalities and Social Democracy (Minneapolis: University of Minnesota Press, 2000). Before World War I, Karl Renner published his ideas on the nationality question under the pseudonyms “Synoptikus” and “Rudolf Springer.” See Synoptikus, Staat und Nation (Vienna: Dietl, 1899); Rudolf Springer, Die Krise des Dualismus und das Ende der Déakistischen Episode in der Geschichte der Habsburgschen Monarchie: eine politische Skizze (Vienna: published by the author, 1904); idem, Grundlagen und Entwicklungsziele der Österreichisch-Ungarischen Monarchie (Leipzig: Deuticke, 1906). At the end of World War I, he published under his true name: Das Selbstbestimmungrecht der Nationen: in besonderer Anwendung auf Oesterreich (Leipzig: Deuticke, 1918).
- 15. Mises, Nation, Staat und Wirtschaft, pp. 66f.; Nation, State, and Economy, p. 82.
- 16. Mises, Nation, Staat und Wirtschaft, p. 61; Nation, State, and Economy, p. 76.
- 17. With this consideration Mises complemented the Ricardian analysis of free trade, which was based on the assumption that capital and labor were mobile only within the borders of the state. See Mises, Nation, Staat und Wirtschaft, pp. 51ff.
Entrepreneurs face decisions in the free market for any good or service. Entrepreneurs may enter new markets, leave existing markets, or adjust the quality or price for goods offered in markets. These decisions are based on anticipation of future prices and costs. The entrepreneur assumes the risk of loss for bad decisions and is entitled to the profits realized from good decisions.
Entrepreneurs must compete with other suppliers either on the basis of lower price or improved quality. Copying existing items and offering them at lower prices is a common means of competition. Copying is not stealing as long as the raw materials, labor, and the capital necessary for production belong to the producer.
Monopoly defined as barrier to entry cannot exist in a free market. Monopoly requires an agent to prevent competitors from competing. In the US pharmaceutical market, the government creates monopolies through licenses to sell drugs and patents that make copies of drugs illegal. The monopoly privilege permits the supplier to charge a higher price than would be possible on the free market. The excess profit achievable via monopoly privilege is an unearned rent characteristic of cronyism rather than free market capitalism.
Since monopoly rents are unearned, there must be some justification for monopoly privilege. One justification is the protection against the “theft” of an idea or intellectual property. Stephan Kinsella has made a free market argument against intellectual property. A car can be used to illustrate the argument. A car is property. Property rights are assigned to the car. If a thief stole my car, I would be aware of the theft when the car was no longer available for my use. I cannot use the car because it has been stolen. Ideas do not have this characteristic, so ideas should not be considered as property with property rights attached to them. If someone “copies” a drug molecule, nothing has been stolen. The idea has not been wiped from the inventor’s mind. The copycat does not restrain or impair use of the idea by the inventor in any way. The only loss suffered by the inventor is the ability to realize monopoly rents, but these monopoly rents are unearned and their loss cannot be considered to have been stolen.
Another justification for monopoly privilege is that without the guarantee of monopoly rents, new pharmaceuticals would not be brought to market. This is an assertion without any evidence. It is undoubtedly true that more pharmaceuticals are brought to market with patent monopolies than would be without patent monopolies, but the same can be said for subsidies. The goal of a market is not maximization of transactions, but rather the increase in wealth via mutually beneficial exchanges. If a drug will not be brought to market without the ability to charge monopoly prices, then the market is telling society that consumers have more pressing needs than the new drug.
Another justification is that the costs of satisfying Food and Drug Administration (FDA) requirements to bring new drugs to market are so high that no new drugs would be developed without monopoly rents. This may be true, but this is a reason to abolish the FDA rather than grant monopoly patent privileges. The FDA mission is to ensure the safety and efficacy of drugs. There are examples of drugs approved by the FDA that were not efficacious (Xigris) or safe (Vioxx). Since the value of efficacy and safety are subjective, it is not even possible to ensure efficacy and safety under all circumstances.
Every use of a drug by every patient is an experiment with an uncertain outcome. Neither the efficacy nor the safety of the drug is known ahead of time. We can only estimate efficacy and safety based on past experience. Use of a drug may lead to a good result the first time and anaphylactic shock the next time. Use of drug may lead to good results most of the time and a catastrophic side effect on rare occasion. Aplastic anemia following the use of chloramphenicol, an antibiotic, is a rare side effect occurring 3–6 weeks after dosing and it is usually fatal. Some drugs become less efficacious with repeat use. The efficacy of antibiotics will depend on the sensitivity profile of the offending bacteria which change over time. Adverse side effects of drugs may not become apparent for decades. Daughters of women who received diethylstilbestrol (DES) during pregnancy developed clear cell cancer of the vagina up to 40 years after birth. No matter what standards are used to define efficacy and safety, there will remain outlier risks to the public.
Safety and efficacy cannot be considered in a vacuum. Safety and efficacy must be compared to available alternatives. Patients are far more willing to take a chance on a new treatment if there are no good alternatives. In a world without the FDA, new drugs would have to be significantly less expensive than available alternatives. Pharmaceutical companies might very well have to give new drugs away for free or even pay patients to take them in order to establish a record of safety and efficacy. Over time, drugs would establish a record of safety and efficacy. Drugs with significant advantages to safety or efficacy would permit price premiums for brand recognition. The market should determine the price premium that consumers pay for improvements in quality.
Some drugs continue to be used despite known risks. Some of these risks are dose dependent and require individual monitoring by drug level testing. Some of these risks are idiosyncratic and require periodic testing for toxicity. There is no objective way to balance the potential benefits and uncertain risks of a drug. Individual patients should assume the risks (and costs) in order to realize potential benefits. The market should determine the tradeoff between efficacy and safety.
"I am assessing the implications of the statement and will make determinations about appropriate actions soon."
In his writings, Professor Milton Friedman blamed central bank policies for causing the Great Depression. According to Friedman, the Federal Reserve failed to pump enough reserves into the banking system to prevent a collapse in the money stock. In response to this failure, Friedman argued the money stock M1, which stood at $28.264 billion in October 1929; fell to $19.039 billion by April 1933 — a decline of almost 33%.1
Because of the fall in the money stock argued Friedman, economic activity followed suit. By July 1932 year-on-year industrial production fell by over 31%. Also, year-on-year the consumer price index (CPI) had plunged. By October 1932, the CPI fell by 10.7%.
Contrary to Friedman's conclusions, the fall in the money stock was a result — and not the cause — of the shrinking pool of wealth brought about by the previous loose monetary policies of the central bank.The Essence of the Pool of Wealth
Essentially, the pool of wealth is the quantity of consumer goods available in an economy to support future production. In the simplest of terms — a lone man on an island is able to pick 25 apples an hour. With the aid of a picking tool, he is able to raise his output to 50 apples an hour. Making the tool however, takes time.
During the time he is busy making the tool the man will not be able to pick any apples. In order to have the tool, therefore, the man must first have enough apples to sustain himself while he is busy making it. His pool of wealth is his means of sustenance for this period — the quantity of apples he has saved for this purpose.
The size of this pool determines whether or not a more sophisticated means of production can be introduced. If it requires one year of work for the man to build this tool, but he has only enough apples saved to sustain him for one month, then the tool will not be built — and the man will not be able to increase his productivity.
The island scenario is complicated by the introduction of multiple individuals who trade with each other and use money. The essence, however, remains the same — the size of the pool of wealth sets a brake on the introduction of more productive stages of production.
Trouble erupts whenever the banking system makes it appear that the pool of wealth is larger than it is in reality. When a central bank expands the money stock, this does not enlarge the pool of wealth. It gives rise to the consumption of goods, which is not preceded by production. It leads to less means of sustenance.
As long as the pool of wealth continues to expand, loose monetary policies give the impression that it is actually the key factor for economic growth. That this is not the case becomes apparent as soon as the pool of wealth begins to stagnate or shrink. Once this happens, the economy begins its downward plunge. The most aggressive loosening of money will not reverse the plunge (for money cannot replace apples).Introducing Money to our Analysis
The existence of the central bank and fractional reserve banking permits commercial banks to generate credit, which is not backed up by wealth, i.e., credit out of "thin air." Once the unbacked credit is generated, it sets in motion activities that give rise to the production of goods and services that are not on the highest consumers’ preference list. As long as the pool of wealth is expanding and banks are eager to expand credit, then various activities that in a free unhampered economy would most likely not emerge continue to prosper.
Whenever the extensive creation of credit out of "thin air" lifts the pace of wealth consumption above the pace of wealth production this starts to undermine the pool of wealth. Consequently, the performance of various activities starts to deteriorate and bank’s bad loans start to rise. In response to this, banks curtail their loans and this in turn sets in motion a decline in the money stock.
Does every curtailment of lending result in a decline in the money stock?
Let us assume Tom places $1000 in a saving deposit for three months with Bank X. The bank in turn lends the $1000 to Mark for three months. On the maturity date Mark repays the bank $1000 plus interest. Bank X in turn, after deducting its fees, returns the original money plus interest to Tom. Therefore, what we have here is that Tom lends for three months $1000. He transfers the $1000 through the mediation of Bank X to Mark.
On the maturity date Mark repays the money to Bank X — who in turn transfers the $1000 to Tom. Observe that in this case, existent money moved from Tom to Mark and then back to Tom via the mediation of Bank X — the lending is fully backed here by $ 1000. Obviously, the $1000 here does not disappear once the loan is repaid to the bank and in turn to Tom.
Things are, however, different when Bank X lends money out of thin air. For instance, Tom exercises his demand for money by holding some of his money in his pocket and placing $1000 with Bank X in a demand deposit.
By placing $1000 in a demand deposit, he still maintains total claim on the $1000. However Bank X may decide to take $100 from Tom's deposit, and lend this $100 to Mark. The money stock has now increased by $100. Because of this lending, we now have $1,100, which is only backed by $1000 proper. Observe that in this case the $100 loaned does not have an original lender as it was generated out of “thin air” by the Bank X. On maturity date, once Mark repays the borrowed $100 to Bank X, the money disappears. Obviously if the bank is continuously renewing its lending out of thin air then the stock of money will not fall. The existence of fractional reserve banking (banks creating several claims on a given dollar) is the key instrument as far as money disappearance is concerned. However, it is not the cause of the disappearance of money as such. There must be a reason why banks do not renew lending out of thin air.What Causes Banks to Curtail Lending?
The main reason is the weakening of the process of wealth generation that makes it much harder to find good quality borrowers. This in turn means that monetary deflation emerges because of prior monetary inflation that has diluted the pool of wealth. It follows then that a fall in the money stock is just a symptom as it were. The fall in the money stock is in response to the damage caused to the process of wealth formation by the previous monetary inflation.
Note that between December 1920 and August 1924 the Fed was pursuing a very easy interest rate policy and as a result the yield on the 3-months T-Bill fell from 5.88% in December 1920 to 1.9% by August 1924. The yearly growth rate of M1 money supply shot up from minus 2.2% in January 1927 to almost 8% by October 1929.
Furthermore, it is not the fall in the money stock, and the consequent fall in prices, that burdens borrowers but the fact that there is less real wealth. The fall in the money stock is because of the money out of “thin air,” puts things in proper perspective.
Additionally, because of the fall in the money stock various activities that sprang up on the back of the previously expanding money now find it hard going.
It is those non-wealth generating activities that end up having the most difficulties in serving their debt since these activities were never generating any real wealth and were really supported or funded, so to speak, by genuine wealth generators.
With the fall in the money out of thin air, their support is cut-off. (Remember an increase in money out of thin air sets the transfer of wealth from wealth producers to the holders of the newly increased money.)
Contrary to popular view then, a fall in the money stock as a result of banks curtailing fractional reserve lending is precisely what is needed to set in motion the build-up of real wealth and revitalize the economy.
Printing money only inflicts more damage and therefore should never be considered as a means to help the economy.
In addition, even if the central bank were to be successful in preventing a fall in the money stock, this would not be able to prevent an economic slump if the pool of wealth is falling. Remember money is just the medium of the exchange.
Contrary to popular thinking, the lifting of the money stock to prevent an economic slump undermines the process of wealth generation and sets the platform for a prolonged economic slump. Being the medium of exchange money can only facilitate the flow of goods and services in an economy. It however cannot cause the expansion in goods and services as such. The key for this expansion is the expansion in the pool of wealth.
- 1. Milton Friedman and Rose Friedman, Free To Choose (Macmillan Company of Australia, Melbourne), pp. 70–90.
We’ve made this point before but it’s one that bears repeating. A protectionist is someone who argues that you should be poorer so that they can be richer. Your access to lovely cheap and useful stuff made by foreigners must be restricted so that they can overcharge you for the tat they manufacture.
With that in mind we can now evaluate this suggestion:
Britain must take advantage of Brexit to spur a renaissance in its industrial heartlands by setting tougher standards for renewable energy projects, according to a major Conservative party donor.
Ukraine-born businessman Alexander Temerko has urged Greg Clark, the Business Secretary, to insist that new wind power projects contain at least 60pc British-made components.
Mr Temerko, who was formerly deputy chair of offshore engineering group OGN, warned that the engineering yards of the North East risk losing out to companies in Spain and Germany for lucrative contracts building the parts which will be used to construct giant offshore wind turbines in the early 2020s.
Maybe we do want wind turbines and maybe we don’t want birdchoppers. But if we do we’d like them nice and cheap and made by the most efficient at doing so. If that’s UK onshore producers then good for them, if it ain’t then we don’t want to be buying their tat anyway.
For the call here is that those who own, those who work in, onshore producers should be protected from foreign competition so that they can overcharge us. The argument is indeed that we should be made poorer so they can be richer. At which point the answer is obvious - go boil yer heads.
Politicians will be heartily applauded for saluting American’s soldiers today. But if citizens had better memories, elected officials would instead be fleeing tar and feathers. Politicians have a long record of betraying the veterans they valorize.
Veterans Day 2018 has been dominated by the confab of political leaders in Paris to mark the 100th anniversary of the end of World War One. American media coverage fixated on President Trump’s cancellation of one of his two visits to U.S. military cemeteries. In his speech yesterday at a U.S. military cemetery in France, Trump declared that it is “our duty … to protect the peace they so nobly gave their lives to secure one century ago.” But that peace was sabotaged long before the soldiers’ corpses had turned to dust. Though the American media exalted French President Emmanuel Macron’s denunciation of nationalism at the armistice anniversary, it was conniving by French leader George Clemenceau at the Versailles Peace Treaty that helped assure that U.S. sacrifices in 1917 and 1918 were for naught.
Lying about American wars is a venerable presidential tradition. Four years ago, in a visit to Flanders Field Cemetery in Belgium, President Obama saluted the Americans who died in World War One – “the soldiers who manned the trenches were united by something larger — a willingness to fight, and die, for the freedom that we enjoy as their heirs.” In reality, that war was a disaster for freedom practically everywhere. Thanks to conscription, young American men had the choice of going to prison or being sent to fight a war on false pretenses.
Neither Trump nor Obama can compete for the title of Supreme Fabulist on World War One - an honorific that President Woodrow Wilson locked up a century ago. After he was narrowly re-elected in 1916 based on a campaign slogan, “He kept us out of war," Wilson pulled America into the war because "the world must be made safe for democracy." Wilson acted as if Congress’s declaration of war against Germany also declared war on the Constitution, and he ruthlessly censored and persecuted anyone who did not cheer the war effort. Wilson even urged Congress to authorize detention camps for "alien enemies." More than a hundred thousand American soldiers died in the war effort, and another half million Americans perished from the Spanish flu epidemic spurred and spread by the war. Rather than a new birth of idealism, World War One unleashed chaos and led directly to the rise of Lenin, Mussolini, and Hitler – and a host of tinhorn dictators elsewhere in Europe.
World War One exemplified the deceptions that propelled U.S. conflicts abroad. Veterans Day should be a time to recognize that the history of America’s wars is also a history of political rascality:
In 1846, President James Polk took Americans to war after falsely proclaiming that the Mexican army had crossed the U.S. border and attacked a U.S. army outpost — “shedding the blood of our citizens on our own soil,” he claimed. But he never produced evidence to support his causa belli for a conflict that placed vastly expanded the nation’s boundaries and paved the way for the Civil War.
In 1898, when President William McKinley took the nation to war against Spain, he pledged not to annex foreign territory. He changed his mind after deciding to “Christianize” the Filipinos (a Catholic nation). Four thousand U.S. troops and hundreds of thousands of Filipinos perished in the merciless crackdowns required to place those islands under the Stars and Stripes.
In 1940, President Franklin Roosevelt capped off his reelection campaign by promising voters: “ Your president says this country is not going to war. ” Though FDR portrayed World War Two as an fight for democracy, he secretly signed off on Stalin’s demand for control of almost all of eastern Europe. The result was decades of oppression for Czechs, Hungarians, Poles, and others.
President Lyndon Johnson vastly expanded the Vietnam War purportedly to prevent the domino-like spread of communism (which the CIA concluded would not happen regardless). A secret 1965 Pentagon memo admitted that 70% of the U.S. aim in Vietnam was simply to “ avoid a humiliating US defeat (to our reputation as a guarantor).” Almost 60,000 American troops died so politicians could ravage the national credibility they pretended to preserve.
After 9/11, the U.S. invaded Afghanistan to vanquish Al Qaeda. After top Al Qaeda leaders escaped, President George W. Bush pledged to help create a democracy and modernize that nation. Unfortunately, subsequent Afghan elections have been utterly fraud-ridden while corruption multiplied thanks largely to U.S. aid.
President Bush justified invading Iraq in 2003 because of Saddam Hussein’s Weapons of Mass Destruction. The WMDs were never found, so Bush claimed the U.S. would bring democracy to Iraqis. But the U.S. government helped rig subsequent elections and supported Iraqi rulers’ brutal repression of their opposition, helping spur pervasive conflicts that continue to ravage that nation.
Politicians disdain the soldiers they claim to adore. U.S. troops are currently fighting in 14 foreign nations, from Afghanistan to Iraq and Syria to Chad, Yemen, and other locales. When 4 U.S. troops were killed last Fall in Niger, many members of Congress were stunned to learn of the U.S. deployment . Congress was similarly negligent regarding rat-infested, unsanitary conditions at Walter Reed Army Medical Center in 2007. Politicians had time for hundreds of speeches touting their devotion to veterans but few congressmen noticed the dilapidated state of the showcase military hospital in their back yard.
General Patton said that an ounce of sweat can save a pint of blood. Similarly, a few hours studying the lessons of history can prevent heaps of grave-digging in the coming years. President Trump has saber-rattled against Iran, North Korea, Syria, and other nations. His bellicose rhetoric should spur Americans to review the follies and frauds of past wars before it is too late to stop the next pointless bloodbath.
The best way to honor veterans is to cancel politicians’ prerogative to send troops abroad to fight on any and every pretext. And one of the best steps towards that goal is to remember the lies for which soldiers died.
Once they manage to get control of a state, socialists quickly set to work increasing state power as much as they can. One of the most useful tools in doing this is centralizing all political power within the state. This makes it easier to put all political power into the hands of the party and to carry out the goals of the socialist state.
One the other hand, laissez-faire liberals have long sought to prevent the accumulation of power in the hands of a few by decentralizing the state and the political system. Frequently, this takes the form of federalism.
Although political power has now been almost totally consolidated in the hands of a small ruling party, Venezuela has historically benefited from various sorts of federalism and decentralization. But the road has often been rocky.
In its early years, Venezuela had twenty-seven constitutions between 1811 and 1999. Juan German Roscio and Cristobal Mendoza wrote the 1811 constitution, proclaiming the first Republic to be inspired by the US constitution and the political liberalism of that historical period. The "United States of Venezuela" was a Federalist government but it did last more than a few months when when the revolutionary leader Francisco de Miranda capitulated to the royalists in San Mateo in 1812. Subsequently, liberalism and federalism were highly criticized even by many heroes of the independence. Bolívar in Cartagena said, referring the 1811 constution, “these gentlemen believe they are in Greece, building air republics that are not consistent with the situation and reality of the Venezuelan people, not prepared for the supreme good of freedom” [emphasis added].
Later, each constitution was made to cover the desires and needs of the “caudillo” that ruled the country. Some experts in constitutionalism say that the most federalist was the 1864 constitution, which mandated a high degree of regionalism and localism. Juan Crisóstomo Falcón, member of the liberal party, ruled The United States of Venezuela — in 186 — but by 1881, the dictator Antonio Guzmán Blanco began to significantly centralize power again. After that, federalism was increased and decreased depending on the interests of the government. In 1961, when the 26th Constitution was written by the most recognized socialists of Venezuela — Rómulo Betancourt, Rafael Caldera, Jóvito Villalba, and others — the federalism had been practically eradicated, they ensured the political freedom and the democratic system but the economic freedoms were diminished almost to nothing.
Nonetheless, Venezuela seemed in the 1990s headed toward embracing a federal system once again. A decentralization process began: it transferred sovereignty and power to each governor of the state, and for the first time in the Venezuela history, the people directly elected the state governors through free elections. It was a limited attempt to redistribute the total control and power that presidents have traditionally held in Venezuela. But the main reason was to calm the social situation that worsened after the “Caracazo,” which was a series of violent protests during the late 1980s.
When people elected Hugo Chavez as president in 1998, the country's third-rate military had promised — among other things — a new and “better” constitution. The new constitution eradicated the possibility of continuing with the decentralization process and, worst of all, increased the size of the state overall, while further concentrating power with the president. Allan Brewer Carías, a member of the assembly that wrote the 27th constitution — the 1999 or "Chavista" constitution — eventually voted against it, calling it a "missed opportunity to improve Venezuela," but which resulted in more executive power for the presidency.
This move toward more executive power will not shock Americans, who are familiar with this trend. We've seen much of it in the US during recent presidential administrations — especially with the War on Terror. Although this is a trend, as Tom Woods tells us, that goes back more than a century.
Venezuela is but one example, but it helps to illustrate how the undoing of federalism, and the centralization of political power, has often been a prelude to the advent and implementation of a stronger state in the name of carrying out socialist agenda items. The US has certainly moved more slowly than Latin American countries that have gone down similar paths. But Americans should not think themselves immune from what now plagues Venezuela.
On the morning of November 11, 1918, fighter pilot and leading American ace Eddie Rickenbacker quietly ambled to the hangar of his aerodrome in France. The night before, in anticipation of the Armistice, all Allied flights were grounded. But Rickenbacker was not known as a rule-follower. He told his crew to roll out his SPAD XIII fighter plane and "and warm it up to test the engines." He climbed into the cockpit, took off, and headed to the trenches of the Western Front. Low clouds kept him low, around five hundred feet. He could see flashes of rifle and machine gun fire from the German trenches.
And then it was 11:00 A.M., the eleventh hour of the eleventh day of the eleventh month. I was the only audience for the greatest show ever presented. On both sides of no-man's-land, the trenches erupted. Brown-uniformed men poured out of the American trenches, gray-green uniforms out of the German. From my observer's seat overhead, I watched them throw their helmets in the air, discard their guns, wave their hands. Then all up and down the front, the two groups of men began edging toward each other across no-man's-land. Seconds before they had been willing to shoot each other; now they came forward. Hesitantly at first, then more quickly, each group approached the other.
Suddenly gray uniforms mixed with brown. I could see them hugging each other, dancing, jumping. Americans were passing out cigarettes and chocolate. I flew up to the French sector. There it was even more incredible. After four years of slaughter and hatred, they were not only hugging each other but kissing each other on both cheeks as well.
Star shells, rockets and flares began to go up, and I turned my ship toward the field. The war was over.
In memoirs, diary entries, and letters, we find that for the fighters of the First World War, the Great thing about the War was its end. In victorious countries, schools let out, impromptu parades and rallies erupted. These outbursts recognized victory, to be sure, but they chiefly celebrated the end of the war. My own grandmother recounted to me, more than once and each time luminously, the ecstatic celebration in her little town of Murray, Kentucky, where school was cancelled and virtually everyone in town gathered in the courthouse square to celebrate. In my recollection, she never mentioned the word "victory" once. In Rickenbacker's squadron, everyone from pilot to cook joined in a mad celebration, but not of victory, "many of them shouting 'I survived the war! I survived the war!"
In the defeated countries, people at home were, if more subdued, at least relieved for the end, but they were also incredulous that they had lost when only days before, the newspapers had proclaimed they were winning. Above all, they were apprehensive about what was to come. Spontaneity among the vanquished was more often a matter of revolution, strikes, and mutinies, often accompanied by gun battles in the streets of Berlin, Budapest, and other cities, as revolutionary groups clashed with each other and with returning soldiers. Of course, some ten or eleven million dead soldiers and sailors would never return to join in the joy or the revolt on either side. Nor would the eight million civilian dead of the war be rejoining their loved ones in any country.
But the shooting war was in some ways hardly over. The Russian Civil War raged. Sixteen countries, including the United States, invaded Russia to try to shape the outcome of the brutal Russian war. The Greek army invaded Turkey. Poland fought a regular war with the Soviets in 1920. Large-scale violence scarred postwar societies in Ireland, on the German-Polish border, in the Middle East. And the British maintained the Hunger Blockade on Germany for many more hungry months.
Nor was the notable wartime inflation at an end. This massive transfer of wealth by belligerent governments through inflation impacted both winners and losers. Immediately after the war, inflation escalated to society-bludgeoning hyperinflation in Germany, Hungary, Poland, Austria, and the Soviet Union, creating heightened poverty and misery.
Yet the elites of the war, especially those on the winning side, were already taking advantage of the war's drastic restructuring of international affairs and domestic politics to plan for "the salvation of the empire," or economic hegemony, or control of vast supplies of raw materials and fuel, or "greater" Serbia (or Greece, or Poland, or Romania), or "a new diplomacy." Intellectuals in the victorious countries likewise saw the war as the "fulfillment" of domestic and social goals, a subject which Murray Rothbard has analyzed in detail. Above all, the international banking houses (many of them connected intimately with the armaments industry (which had lobbied for, sponsored, and organized the complex loans for "modernization" before 1914, and for war loans thereafter) looked forward to the fees and the financial power which the interwoven loans of billions presented. The famous scheme of reparations from Germany and Austria enshrined in the Paris Peace would emerge from American banking agents on the Finance Committee at the Paris Peace Conference. Before long, New York banks would be loaning billions to Germany so that it could pay billions in reparations to Britain, France, and Belgium, so that they could repay millions in war debt to U.S. banks.
Nor would the statist total war systems that had in some degree marked all the belligerents cease at on the eleventh day of the eleventh month. The most extreme of these systems--in the Soviet Union, Italy, and Germany--would produce a new phenomenon, totalitarianism, which would reek havoc with the lives of millions in their own countries and with those of many others throughout the twentieth century and beyond. And even among the previously liberal regimes, total war social and political organization would extend in many ways into the future.
But little of all this could be foreseen as the German Armistice representative, Matthias Erzberger, made his way to the Forest of Compiègne in November 1918, with a little band of Germans commissioned with ending the fighting. Erzberger was the leader of the Progressive branch of the German Center Party, the political party of German Catholics. Early in the war, Erzberger was as enthusiastic about "fulfillment" of German dreams through war as most German politicians were. But he came to see that the aggressiveness of all sides, including the German reintroduction of unlimited submarine warfare, was producing an unlivable world. He managed to push a Peace Resolution through the German parliament in mid-1917, calling for peace negotiations. But the chancellor (a front man for the military dictatorship of Hindenburg and Ludendorff) had been able to rob the Resolution of any meaning. Yet by August 1918, the German High Command was demanding that civilian politicians save Germany by making peace, by ending the war which the generals and imperial bureaucrats had lost. A liberal prince from Baden assembled a moderately liberal cabinet (including Erzberger) at the beginning of October and sent messages to Woodrow Wilson, proposing cease-fire negotiations on the basis of Wilson's famous Fourteen Points peace proposal from the previous January. Wilson hesitated, since the Allies were now driving the Germans from their positions on the Western Front. But at last the Allies agreed to talk. A highly reluctant Erzberger was appointed head of a negotiating team which he assembled hastily: a brigadier general, an upper diplomat, a naval officer, and two translators.
The small group drove--yes drove--to the trench lines, reaching the French outposts in darkness on the evening of November 7, and by the middle of the night had been conducted through the desert of the Western Front to a train at Tergnier, south of St. Quentin. The train conveyed the Germans over the thirty miles to the middle of the Forest of Compiègne. A French railway car soon arrived, carrying the Allied Commander-in-Chief, French Field Marshall Ferdinand Foch and British First Sea Lord, Admiral Sir Rosslyn Weymyss, and their staffs.
In the morning, Erzberger and his small group walked to the French railway car. Foch and Weymyss appeared. Foch asked, "What do you want of me?" And the three-day conversation began. Before Erzberger had left Germany, Chancellor Max of Baden had written to Erzberger, "Obtain what mercy you can, Matthias, but for God's sake make peace." This Erzberger proceeded to do, though Foch refused to budge on any issue. Erzberger wired Berlin that the terms were draconian, essentially disarming the German military and providing for Allied occupation of all German territory west of the Rhine. Berlin replied: accept the terms. Erzberger did so, and the Armistice was arranged for November 11, at 11:00 French time. Diplomats from the Allied countries immediately started making arrangements to gather in Paris in January for the peace conference.
On reflection, as Paul Fussell made clear in his masterpiece, The Great War and Modern Memory, the multi-layered ironies of the conflict created the war's most lasting legacies. And none of the ironies was quite as striking as the fact that those groups of politicians, bureaucrats, generals, and bankers on all sides who created the war and directed it, had had a mortality rate of zero, more or less, at least until the Spanish Flu emerged late in the war to kill with a little less social and demographic selectivity.
It is fitting to end this short contemplation of November 11, 1918, with a song that emerged from the soldiers who fought the war, performed here [LINK
in a recent recording by a modern musical organization that thrives on ironies, both present and past, the Ukulele Orchestra of Great Britain. The performance is a spare and thoughtful rendition of a British soldier's ditty from the war, "Hanging on the Old Barbed Wire," a reference to that little-celebrated fate of Great War fighters who made it to the killing zone of the enemy's barbed wire in No Man's Land, only to be killed by the interlocking machine gun fire which everyone knew would be zeroed in on that simple but effective obstacle.
Like many soldiers' perceptions, this simplistic view did not tell the whole truth (in most armies, lieutenants died at a higher rate than privates since they led the attacks "over the top," for example) and it did not extend to the political and economic structures which created the war to begin with. The German sailors in Kiel, who had by early November already started the German Revolution of 1918 by carrying out a mutiny at the Kiel naval base, understood only peace. And they called for it in the shorthand expression: "We want Erzberger!" (And a footnote. Matthias Erzberger would pay dearly for his courageous call for peace negotiations and his grim duty in carrying out the first step when he was assassinated by an ultra-nationalist terrorist group in 1921.)
Yet there was a kernel of truth in the cynical but simplistic perceptions of many Great War soldiers. The personal bravery and the sacrifices on all sides belonged chiefly to the soldiers. The postwar costs would be paid by societies which had had little to do with bringing about the massacres. The victory was in the hands of gentlemen in ornate rooms in the financial and political capitals of the "great powers," the representatives of the modern state, an entity which collectively perceived the results of the war as its own fulfillment.
- 1. If you want to find the General
- 2. I know where he is.
- 3. He's pinning another medal on his chest.
- 4. I saw him, I saw him,
- 5. Pinning another medal on his chest
- 6. If you want to find the Colonel
- 7. I know where he is.
- 8. He's sitting in comfort stuffing his bloody gut.
- 9. I saw him, I saw him,
- 10. Sitting in comfort stuffing his bloody gut.
- 11. If you want to find the Seargent
- 12. I know where he is.
- 13. He's drinking all the company rum.
- 14. I saw him, I saw him,
- 15. Drinking all the company rum.
- 16. If you want to find the private
- 17. I know where he is.
- 18. He's hanging on the old barbed wire.
- 19. I saw him, I saw him,
- 20. Hanging on the old barbed wire,
- 21. Hanging on the old barbed wire.