Blogroll Category: Current Affairs

I read blogs, as well as write one. The 'blogroll' on this site reproduces some posts from some of the people I enjoy reading. There are currently 376 posts from the category 'Current Affairs.'

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Does the spread of mobile phones indicate a rising need for personal communications?

Adam Smith Institute - 4 hours 39 min ago

To ask that question is to betray a certain Forrest Gump-like innocence. For clearly that’s not what has happened. Instead we’ve found - or developed - a new technology to meet an extant human desire or need. That is, the spread of an activity, or manner of achieving something, can be because of one of those technological developments rather than any change in human desires. Therefore proof of the spread cannot be taken as an increase in the need:

A decade ago, the emergence of mass food banks in the UK could genuinely be described as shocking. The image of families queueing in their local church for a box filled with pasta and beans has not only since been normalised, it has spread.

This does not simply mean the number of food banks has grown in recent years – there are now more than 1,300 such places in the Trussell Trust’s network, compared to fewer than 100 in 2010, as well as hundreds more independent ones – but also that these have opened the door for other types of donation centres, each set up by community groups and charities in response to growing need.

Food banks are a technology, for all methods of organising something are a technology. They arrived in Britain after the turn of the century. It is not logically sound to assume, or as above insist, that the spread is due to increasing need. It could be, note could be, that we are now able to meet an extant need or desire.

Which is what we think it is. One advantage of that increasing speed toward the grave is that memories and experience are long enough to recall what it used to be like. The British welfare system always did have holes in it. Payments sometimes did get delayed - we directly and specifically recall an 8 week wait for unemployment benefits that happened to one acquaintance.

That is, food banks are a solution to the efficiencies of the state run welfare state. At which point the insistence that they must be nationalised seems more than a little odd. Why would we want to put the solution into the hands of those who caused the original problem?

Categories: Current Affairs

Russell Kirk's "Libertarians, the Chirping Sectaries"

Mises Institute - Fri, 30/07/2021 - 23:15

Professor Bradley Birzer from Hillsdale College joins the show to dissect Russell Kirk's famous 1981 essay condemning libertarians. Is libertarianism necessarily utopian and unworkable, as Kirk suggests? Is it hubris to imagine we don't need the state—or even God—to prevent social chaos? Do libertarians have more in common with Communists than conservatives? Or was Kirk simply attacking an absurd strawman of the atomistic individual, with Rothbard as the particular (unstated) target of his ire? Dr. Birzer is a thoroughgoing scholar of Kirk, and provides great insights into the context and thinking behind this critique.

Russel Kirk's "Libertarians, The Chirping Sectaries": Rothbard's "Myth and Truth About Libertarianism": Dr. Birzer's "Kirk and the Libertarians": Hornberger's "An Open Letter to Russell Kirk":
Categories: Current Affairs

We’re in the Middle of a Long War with the State

Mises Institute - Fri, 30/07/2021 - 20:00

The term “the state” is a term that gets thrown around a lot with various meanings. Even excluding the confusing American terminology in which the United States is composed of “states,” we’re still left with many other meanings. For example, in the international relations literature, most independent countries are generally referred to as states. Historically, governments and polities of all types have been referred to as states.

Moreover, the audience here will certainly be familiar with the term in the context of opposing the state. In libertarian circles, we often hear—although perhaps not often enough—about the need to fight the state, smash the state, abolish the state, etc. Certainly, one doesn’t have to spend an enormous amount of time reading Murray Rothbard to be familiar with this position.

Why We Must Be Precise about the State

But often, when the “smash the state” position is invoked—especially among those less familiar with the state as an institution—further investigation often reveals a dangerous lack of precision about what exactly the state is.

In many cases, “the state” is (wrongly) understood as all forms of civil government, or any institution that employs coercion such as law courts and other legal institutions. “The state” can include everything from the highest levels of the national security apparatus right on down to your local dog catcher. Or historically, it can mean everything from the local feudal lord to the grandest imperial despot.

This vague and all-inclusive notion of the state, however, exposes the antistate position to a pretty convincing objection from others.

That is, if “the state” is any and all types of government, then the state is as old as mankind and apparently endemic to the human condition. By this definition, no group of human beings has ever existed without a state, because even the most primitive tribal elders have “coerced” members, in the form of forcing guilty parties to pay retribution to wronged parties. Or in extreme cases, local leaders have sometimes imposed exile or enslavement on others in their community. No human association simply lets people do whatever they want whenever they want and still remain members of that group in good standing.

If this is true, then eliminating the state—defined as any organization using coercion—this would strike many if not most reasonable people as utopian in the extreme. If “the state” has always existed and is found in every human society, then its elimination is about as likely or wise as eliminating the family.

This objection can be addressed by being more precise and clear about what we mean by “the state.”

By better understanding what the state is, we can perhaps also better see why it is an especially damaging and dangerous institution. And once we understand that, we can better see how to fight and unravel the state more effectively.

What I want to do here today is 2 things. I want to show how the state—which I will sometimes call “the sovereign state” or the “modern state” is a very specific type of government, and not at all eternal or necessary in ordering human affairs. Its abolition is by no means utopian.

Secondly, I want to discuss what is the role of liberal—that is the “classical liberal” or libertarian—in advocating for the radical reining in and ideally, the elimination of the state altogether. (As a side note: I agree with historian Ralph Raico, one of our late senior fellows here who regarded what we now call libertarianism as simply a modern variant of so-called classical liberalism or more correctly, simply liberalism. Raico used all three terms interchangeably, and I’ll do the same

What Is the State?

So, when I say, “the state” what do I mean?

First, we can briefly note what the state is not. Rothbard covers this well in his essay “The Anatomy of the State,” so there’s no need to belabor the point here, but the jist of it is this:

Rothbard uses the standard Weberian definition for the most part: the state is an organization with a monopoly on the means of coercion within a specific territory. Even if we don’t quite agree with it in every respect, it is at least a good starting point.

As Rothbard points out, the fact that it is a specific organization means it is not us. The state is not society overall. The old classical liberals made this distinction. In fact they invented the notion of using the word “society” to be something distinct from the state. “Society” is all those things that are not the state. Families, churches, the marketplace, even arguably some local governments where power is more localized and specific rather than centralized and general. But society is certainly any voluntary institution built on voluntary relations.

Now, this can be confusing for readers of older writers. St Augustine uses the term “the state” to mean something closer to society in general. Or more correctly, he uses a Latin term rem publicum—or other variants—which are generally translated as “the state.” But what St Augustine means by this is better understood as the word “polity” which is a community of human beings and all its institutions, including its governmental institutions.

So, in our usage here the state is not the same thing as a polity, a community, or even a civil government.

So we’ve declared what the state is not—is not the community, or the polity in which we live.

And what is the nature of this organization?

There are four main aspects of what the state is that I want to discuss here.

ONE: the first point is that the state exists in the people’s minds.

Martin van Creveld, for instance, states

The state … is an abstract entity which can be neither seen, nor touched.

Van Creveld’s observation takes us back to Joseph Strayer, author of On The Medieval Origins of the Modern State, who reiterates that the state exists in the minds of people. And the crucial step takes place when people start to believe that they need a state.

Now, neither Van Creveld not most other historians of the state would deny that the tools of the state are obviously real and tangible. We can touch and see the state’s prisons, its armies, its execution chambers, its nuclear bombs, its bureaucrats, its judges, its courtrooms, and so on. But nonstate organizations (with the exception of nuclear weapons–only states have ever owned those) have controlled these other state amenities in history.

But the fact that these are all held together toward the pursuit of certain goals, is evidence that there is a unifying idea, in the minds of the people who use these tools—and the populations who accept their usage.

TWO: a second important aspect is the fact the state is impersonal and bureaucratic, and permanent. The prestate princes of Europe were expected to provide a provided an actual service in that he led soldiers in battle and he often traveled around his domains personally acting as judge in legal cases.

Charles Tilly paints an important picture here—the medieval king before the age of states was personally provided security services. He could be found on the field of battle.

The monarch after the rise of state—say in the sixteenth century—sat behind a desk. He headed an enormous, permanent, and impersonal apparatus designed to impose his edicts across a large territory. He did paperwork.

THREE: this takes us to the next crucial and more dangerous step: when people start to believe the state is sovereign.

Strayer says that yes, people must believe the state exists in order for it to exist. But critical in creating a state is that people must believe the state is sovereign in that the state gets the final say on everything within its borders. There is no peer or higher organization that can challenge is decisions. As we will see, sovereignty is a key issue here. It’s one of two key differences that makes the state what it is.

FOUR: but there is one final key step in understanding the state, and this, along with sovereignty, is what truly makes the state different and modern and distinct from other types of civil government.

This is the fact that morality does not apply to the state the way it applies to you and me.

Van Creveld provides a key insight here:

Hobbes deserves the credit, for inventing the `state' … Bound by no law except that which [the sovereign ruler] himself laid down (and which, of course, he could change at any moment), Hobbes's sovereign was much more powerful than … any Western ruler since late antiquity.

That is, between the end of the Roman Empire and the rise of the state, European society did not, in theory, buy into the idea that the state could do whatever it wanted regardless of ordinary morality. Notions like “there are not rules in war” or the basic idea, loved by politicians that if you want to make an omelet you have to break some eggs. Certainly, there were abuses. Certainly many princes acted at times like they could do whatever they wanted. But it was not generally accepted on a theoretical level—as it is today—that it was a positive good that states and state agents be freed from the inconveniences of morality for the sake of statecraft. That came later with theorists like Machiavelli

So, this gives us some basic clues as to identifying a state when we see one, but its these last two characteristics that I want to focus on here, because they’re the most dangerous. The sovereignty of the state, and the state’s detachment from ordinary morality.

Let’s let Luigi Bassani and Carlo Lottieri explain why this is important:

One of the central axioms of libertarianism is the idea that the same morality applies to every person, whether acting on behalf of a public apparatus or in his individual capacity. Society and individuals must be judged as a whole: if something is morally unacceptable, it should be so for everybody. In Human Action, Mises affirms that the most weighty revolt against reason can be found in the idea that “there is no such thing as a universally valid logic.” Mises calls this polylogism: “Marxian polylogism asserts that the logical structure of mind is different with the members of various social classes. Racial polylogism differs from Marxian polylogism only insofar as it ascribes to each race a peculiar logical structure of mind.” The rise of the State brought about a different kind of polylogism, whose paramount importance for the general theory escapes no one: the division between the mass of subjects and the elite of political rulers.

So that’s the state in theory.

Law before the State

But it’s important to remember we’re not dealing with mere theory here. These are real institutions that exist in real history.

The state really came into its own in the sixteenth and seventeenth century, with the rise of the Westphalian state or modern state, and especially with the rise of absolutism.

But understanding what came before the state in western Europe remains difficult for people to understand, largely because people have been so completely indoctrinated into the idea that there must always be a final sovereign authority within a specific territory.

But prior to the state, this was not the case.

Prior to the rise of the state and notions of patriotism and national identity, the medieval Europeans were much more pragmatic in their view of government power. The prince or king existed to address problems in emergencies. Moreover, he and the many other lords, dukes, and other members of the warrior class existed to be arbitrators in disputes, and to exact retribution from wrongdoers.

Naturally, this sort of work required violence, and these groups used coercive means in their work.

But these groups were not strong enough to claim sovereignty or a true monopoly on the means of coercion, and each prince had to compete with other princes. Indeed, kings were, in the words of Hendryk Spruyt, just a first among equal princes within their realms.

Political units tended to be very small. Moreover, as described by Spuyt, human beings were in the West subject to overlapping legal claims—people could be vassals of more than one prince. This meant an attempt to tax a city, a bishopric, an individual local lord, could encounter stiff resistance from the church, from a city council, or from another prince. Spruyt writes:

One could simultaneously be the vassal of the German emperor, the French king, and various counts and bishops, none of whom necessarily had precedence over the other. … a vassal might recognize different superiors under different circumstances.

The effect this meant that various competing powers sought consensus, negotiation, and other means of dispute resolution other than simply calling upon a sovereign to impose his will through the power of physical force.

Obviously, this placed substantial limits on the power of political leaders. For examples, historian Charles McIlwain who writes:

[P]roperty which a subject had of legal right in the integrity of his personal status, and the enjoyment of his lands and goods, was normally beyond the reach and control of the King.… At the opening of the fourteenth century John of Paris [a Dominican philosopher] declared that neither Pope nor King could take a subject’s goods without his consent.

Moreover, Bruno Leone concluded:

[A]n early medieval version of the principle, “no taxation without representation,” was intended as “no taxation without the consent of the individual taxed,” and we are told that in 1221, the Bishop of Winchester, “summoned to consent to a scutage tax, refused to pay, after the council had made the grant, on the ground that he dissented, and the Exchequer upheld his plea.”

Power was divided up among local princes, the Holy Roman emperor, and the Church. All competed with each other for power. Over time, this means that all these different groups also were careful to define their own rights within the legal system.

This didn’t mean lawlessness, of course, just as there is not lawlessness today in today’s anarchic world of international relations. There is international law. There are countless agreements among sovereign states. Similarly, in the prestate world of nonsovereign governments, there was law, there was conflict resolution, there was enforcement of legal rulings, and negotiations among semi-independent powers were commonplace. Yet there was no sovereign, final power. Kings existed to settle disputes, to subdue violent aggressors, and engage in conflict resolution. They often succeeded they often failed. Just as in any age of mankind.

These legal systems were often systems of restorative justice designed to offer a means of obtaining payment from those who committed offenses against others. It wasn’t perfect, but it would be hard to argue that the age of absolutism in the seventeenth century, or the age of total war in the twentieth century, was less chaotic or bloody.

Nor were regular people on their own and at the mercy of grand organizations. Human beings and households were affiliated with many organizations. City governments, guilds, churches, family clans, (and more) provided shelter to individuals which could offer legal and physical protection from outsiders and criminals. The untethered, atomistic individual did not really exist.

This of course, was the world that Machiavelli and other “modern” thinkers wanted to do away with.

And they succeeded.

What they got instead was the state, absolutism, and sovereignty.

In the prestate world, no politicians could be confident that he would not be challenged by a party of equal legal stature.

In the state system, every sovereign, whether a king, president, or parliament excises final and total authority within his jurisdiction. Just as important is the fact that most other states, most of the time, recognize the sovereignty of other states.

Not surprisingly, absolutism followed soon thereafter, which is described by absolutism’s defender Jean Bodin:

The sovereign, furthermore, must be unitary and indivisible, the locus of command in society … we see the principal point of sovereign majesty and absolute power to consist in giving laws to subjects in general, without their consent.

So, in both theory and practice, consent if of no importance in the mind of the absolutist. So to this, of course, Machiavelli would give a knowing nod.

Liberals versus the State

It is not surprising that during this period we see a multiplication of efforts to assign “divine right” to monarchs. This is often attributed to the middle ages, but few monarchs in prestate Europe could credibly claim such a title. It was also during this period when absolutists made other outlandish claims, such as the notion that “"God ordains all magistrates." Or that to disobey the king is to disobey God. We can contrast this with the idea of St. Thomas Aquinas, who sanctioned the killing of tyrant kings, or St. Augustine, of course, who declared that an unjust law is no law at all.

But it wasn’t just in the stylings and claims of the ruling class that communicated the growing power of those who ruled in this period.

Absolutism manifested itself in many ways. The most remembered today, perhaps, is the economic system of absolutism, known as mercantilism. Mercantilism, as described by Rothbard, was simply the everyday expression of absolutism, and a system of special favors and interest group politics that naturally grew up around absolutist rulers. Rothbard writes:

Mercantilism, which reached its height in the Europe of the 17th and 18th centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state. 

This was the natural outcome of the sovereign state. No longer bound by any law other than its own will, the state could dole out favors to its supporters, redistributing property and granting monopoly powers at will.

This is where the liberals come in. In many ways liberalism is a reaction against the rise of the state and absolutism.

Rothbard writes that the Levellers of England in the seventeenth century were likely the first self-conscious and true libertarian movement. They explicitly opposed both the mercantilist system of favors, and the absolute power of the monarch. They explained the impoverishment imposed on ordinary people by trade restrictions. They advocated for decentralizing the armed forces into militias.

In the Americas, the Antifederalists carried on this tradition, to an even greater extent. They often nurtured a deep distrust of centralized power, and opposed the idea of federal sovereignty altogether in many cases. In practice, even the state legislatures in America lacked sovereignty, especially since the means of coercion was so diffuse and in the hands, in many cases, of local militias. Decentralization, of course was a key issue.

By the nineteenth century, liberalism gained ground in France, in England, an in Italy. These placed obstacles in the path of the state, in efforts to reduce abuses and to more greatly decentralize power. The Jacksonians and Cleveland Democrats in America carried on this tradition as well, into the very late nineteenth century. But in many cases this failed to address the two most dangerous aspects of the state: sovereignty and moral polylogism. But some liberals did in deed zero in on the central problem of the state.

Systematic opposition to the very idea of state sovereignty among liberals likely reached its most sophisticated level in this period with Gustave de Molinari.

Specifically, he explicitly opposed the very idea of state sovereignty even to the extent of opposing a monopoly over military power and security services. This, of course, was long the main claim the state made in favor of sovereignty—it must be the last word on matters of security, and war and peace.

But at the foundation of Molinari’s opposition to monopoly was his rejection of the idea that the state could apply its own version of morality. He writes:

It offends reason to believe that a well established natural law can admit of exceptions. A natural law must hold everywhere and always, or be invalid.

Just as natural law—i.e., basic moral laws—dictated people were free to choose providers or shoes or food, the same was true for security services. This position would have appeared quite reasonable to many prestate Europeans. Today, however, many consider it to be outlandish.

Unfortunately, few liberals since Molinari go this far. Some Rothbardians qualify, of course, but most assume the state as a given. Even the most seemingly radical theorists, either miss the key problem of state sovereignty and moral exceptionalism, or are simply unwilling to address it.

So What Is to Be Done?

If we accept the idea that the state does not exist on its own moral plane, or that the state should be ultimately be sovereign above all other possible challengers, what is to be done?

First, is to not buy into the grift. And it is a grift.

If the state relies on the perpetuation of the idea of the state, we need to at least stop believing the idea ourselves. But most important is to reject the idea that the state gets to function on its own moral plane. We hear this all the time from regime supporters of course. We shouldn’t complain too much, we’re told, because poiticians make “the hard decisions” and we can’t hold state actors to the same standards as mere ordinary people whose only function should be, apparently, to pay all the bills. This is poisonous thinking, and should be treated with the contempt it deserves.

Moreover, we must fight the historical myths that back the state, such as the regime narrative that the state is a progressive force for humanity and human rights. The state has been immensely successful in writing its own history in which it is both inevitable and highly beneficial. Both of these claims must be rejected.

Support Secession

The second step is to support secession and radical decentralization.

It’s very hard for people to wrap their minds around the idea of competing sovereignties, and this is an obstacle to winning them over in the fight against state sovereignty. But one thing people do understand is the right to self-determination, self-government, and local autonomy. People don’t want to be ruled by a culturally alien force imposing the will of the majority on powerless minorities within a large state.

The answer to this problem of course, lies in secession, and in making government power more polycentric, more dispersed, more decentralized. This by itself brings us closer to the prestate model even without requiring a direct attack on the idea of sovereignty.

Moreover, secession does act as a de facto indirect attack on sovereignty in 2 ways. First of all, because a regime that fails to impose perpetual unity on its subjects is a weakened regime. And secondly, because secession creates smaller states, and secession prone, small states are less able to exercise sovereignty. The smallness of the state, and the relative ease with which people may leave that state, mean that it is more constrained in its ability to raise taxes and impose regulations, and to abuse the population in general.

Build up Other Institutions

And lastly—but perhaps most importantly, because it’s the right thing to do in all circumstances, is build up nonstate institutions.

What are these institutions? They’re the institutions that predate the state. The family, the church, the market. Even local governments are key in this equation.

As Van Creveld has explained the rise of the state required the triumph over all these institutions. It has been the decline of these institutions—encouraged by the state itself—that has paved the way for state dominance of society in so many cases.

And it’s easy to understand why. Society naturally organizes around kinship, around religious groups, around economic ties, professional associations, guilds, town governments, and even neighborhoods.

The work of the state for centuries has been to destroy and impoverish these natural organizations, replacing them with the artifice of the state, claiming the whole time that the state can better provide what these institutions once provided. But all the while creating a more fragile society. The project of the state and its intellectuals has been to run down especially families and churches and local allegiances because these groups have been so fundamental in creating parallel institutions that have competed with the state for loyalty and for resources.

Ultimately, it’s not enough to just oppose the state and call it a day because society has to organize itself around some institutions other than the state. If these alternative institutions don’t exist, people will turn to the state and it will only be strengthened.

Most importantly, these other institutions of the marketplace and private society are nothing like the state. They aren’t above morality. They aren’t sovereign, handing down immutable edicts to the rest of us to obey. In fact, these nonstate institutions help to illustrate just how different, and dangerous the state is. It’s a lesson we must not forget.

Categories: Current Affairs

Finnis on a Problem for Property Rights

Mises Institute - Fri, 30/07/2021 - 17:00

John Finnis, for many years a professor at Oxford, is one the world’s greatest legal philosophers. Along with the late Germain Grisez, he is the foremost defender of a version of natural law theory called “new classical natural law theory.” In his fullest account of his legal theory, Natural Law and Natural Rights (Oxford 1980), he argues that the right to acquire property, as defended by Robert Nozick, is subject to limits that severely weaken its force. Although he does not consider Murray Rothbard in the book, his argument would if correct apply to Rothbard’s theory as well. In what follows, I’ll attempt to explain Finnis’s argument and to show why it does not succeed.

To be clear, Finnis does not reject private property. He says,

And in all those areas of activity, including economic activity, where individuals, or families, or other relatively small groups, can help themselves by their own private efforts and initiatives without thereby injuring (either by act or omission) the common good, they are entitled in justice to be allowed to do so, and it is unjust to require them to sacrifice their private initiative by demanding that they participate instead in a public enterprise…. The principle of subsidiarity … is a principle of justice.

Finnis thus allows private property and enterprise, indeed even insists on it, but the right to acquire property is limited by the “common good.”

Finnis makes evident in his discussion of Nozick what he has in mind by the “common good.” He says,

A primary concern of Nozick’s Anarchy, State, and Utopia is to argue that once anyone has justly acquired capacities, endowments, or holdings (property, etc.), it is unjust for anyone, including the State, to deprive him of any of these holdings, or to conscript any of his capacities, for the purpose of aiding other persons. Systems of taxation for purposes of redistribution and social welfare are therefore unjust; they amount to the imposition of forced labour, an unwarrantable infringement of a man’s rights over his own body, effort, and property, his rights not to be forced to do certain things.

Finnis’s objection to Nozick is different from what you probably expect. He doesn’t say that coercion by the state overrides individual rights. He instead contends that Nozick’s argument rests on a false polarization. In line with most modern thinkers, Nozick contrasts individual rights with state redistribution. Unlike John Rawls and his many followers, Nozick thinks the state ought not to engage in redistribution, but he shares the common contemporary view that if redistribution were justified, this would be a matter for the state to undertake.

This assumption is what Finnis challenges. He says that the polarization between the individual and the state wrongly neglects the fact that individuals, apart from the state, have duties of distributive justice. Finnis, a scholar of immense erudition, traces the polarization to the fifteenth- and sixteenth-century scholastic theologian Cardinal Thomas Cajetan, and once we reject the antithesis between the state and the individual, distributive justice appears in a new light.

“Nozick is far indeed,” Finnis says,

from the tradition of the scholastic textbooks, pre- or post-Cajetan. But the plausibility of his argument comes entirely from its focus on the coercive nature of the State’s intervention as the agent of (re)distributive justice. Suppose we abandon this perspective. That is to say: leave the State out of consideration for a moment, and ask instead whether a private property holder has duties of redistributive justice. (The question is strictly inconceivable in the post-Cajetan tradition.) Then we will find that Nozick indeed has little to say in favour of his assumption that what one has justly acquired one can hold without regard for the needs, deserts, or other claims of others…. If we see no reason to adopt his assumption that the goods of the earth can reasonably be appropriated to the substantial exclusion of all others and if we prefer instead the principle that they are to be treated by all as for the benefit of all according to the criteria of distributive justice though partly through the mediation of private holdings, then the question of State coercion, which dominated Nozick’s argument, becomes in principle of very secondary importance.

It soon transpires that state coercion is by no means excluded. The duties of redistribution individuals have are not created by the state, but if someone does not obey these requirements, the state may compel him to do so. “For in establishing a scheme of redistributive taxation, etc., the State need be doing no more than crystallize and enforce duties that the property-holder already had” (emphasis in original).

Finnis’s prolix style should not occlude from our vision the crucial premise of his argument that property acquisition is to be “treated by all as for the benefit of all according to the criteria of distributive justice”? Why should we accept this premise?

Finnis’s defense of this premise proceeds by uncovering what he takes to be a false assumption of Nozick’s defense of unlimited acquisition. Nozick thinks that coercive redistribution is contrary to justice because it violates claims that people have on these resources. “On what is this principle based? Well, in a nicely ironical passage of Anarchy, State, and Utopia, Nozick remarks: ‘Things come into the world already attached to people having entitlements over them.  . . .’” But, Finnis says, Nozick is wrong. “The decisive fact is that in our own world the natural resources from which all ‘things’ or ‘objects’ are made did appear ‘out of nothing’ and did not come into the world already attached to people having entitlements over them. This basic fact conditions all the entitlements subsequently derived from labour contribution, purchase, or other just sources of private title” (emphasis in original).

Finnis has started from a fact that supporters of Lockean theories of property acquisition do not deny, but instead incorporate as part of their own position. Land and other natural resources start out unowned: it is precisely this fact that enables acts of acquisition to proceed. The passage by Nozick that Finnis quotes is intended only to apply to items that have already been justly acquired. It is these that come into the world already attached.

From the premise that resources come into existence unowned, Finnis’s contention that individuals have duties of distributive justice does not follow. It amounts simply to a rejection of the view held by Nozick and Rothbard, rather than an argument for it. “Resources start off unowned. Therefore people who own property have individual duties of distributive justice.”  I wish Finnis had supplied the missing premises in this argument.

Categories: Current Affairs

The Q2 Impact Report Is Here

Mises Institute - Fri, 30/07/2021 - 16:00

Spring at the Mises Institute has been busy, with our incredible Rothbard Graduate Seminar week and events in Birmingham and New Hampshire. We are excited by the response to our Medical Freedom Summit, which featured an incredible lineup of speakers.

But we have much more happening, and planned—so please take a moment to open our Impact Report and stay current on everything the Mises Institute is doing!

Thank you as always for your support and commitment to our mission.

second_quarter_2021.png Q2 report


Categories: Current Affairs

Toilet Paper Rolls Are Getting Smaller. Blame the Fed.

Mises Institute - Fri, 30/07/2021 - 12:00

A term has been coined for product sellers who shrink their packages, and thus, the amount of product in those packages, keeping the package price the same: shrinkflation. Anyone with a bit of good sense or economics training knows this is another form of price inflation, caused by what used to be the dictionary meaning of inflation; an increase in the supply of money. 

For example, while the average American behind continues to widen, toilet paper has narrowed. A friend’s mother busted out a ruler to confirm her theory. Last year John Hebbe of Fairfax, Virginia, provided photographic proof to the Washington Post: an old roll was 4.5 inches wide, a new roll, 3.75 inches. Of course the new rolls are fatter, for now, causing annoyance with home owners with toilet paper dispensers with the roller too close to the wall to accommodate the fatter rolls. 

Greg Rosalsky wrote for, “The original Charmin roll of toilet paper, [Edgar Dworsky, former Massachusetts assistant attorney general,] says, had 650 sheets. Now you have to pay extra for "Mega Rolls" and "Super Mega Rolls"—and even those have many fewer sheets than the original. To add insult to injury, Charmin recently shrank the size of their toilet sheets. Talk about a crappy deal.” 

tp Source: WBUR.

"Downsizing is really a sneaky price increase," Dworsky told NPR. "Consumers tend to be price conscious. But they're not net-weight conscious. They can tell instantly if they're used to paying $2.99 for a carton of orange juice and that goes up to $3.19. But if the orange juice container goes from 64 ounces to 59 ounces, they're probably not going to notice."

Homo economicus is assumed to notice this trickery pokery in neoclassical economics theory. Oliver Kim wrote in The Crimson, “But here’s a confession: Homo economicus is at most a useful fiction—in economic jargon, a model. Human beings do not actually think like Scrooge McDuck, but, in approximation and in aggregate, we often behave like we do.”

“Over the years, Edgar Dworsky has documented the downsizing of everything from Doritos to baby shampoo to ranch dressing. ‘The downsizing tends to happen when manufacturers face some type of pricing pressure,’ he says. For example, if the price of gasoline or grain goes up,” Rosalsky explained.

What the NPR scribe misses is inflation’s breakdown of the division of labor. Average folk, not savvy Homo economicus types, have to pump their own gas, scan their own groceries, and, probably worst of all, manage their own retirement funds.

Since the government has deemed its paper tickets and computer digits to be money, Murray Rothbard wrote, “then the government, as dominant money-supplier, becomes free to create money costlessly and at will. As a result, this ‘inflation’ of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy.” That would include the division of labor. 

“As we're seeing inflation picking up now, that's why I think you're going to see more items being downsized," Dworksy told Rosalsky. "And maybe it's going to be a double-whammy: We're going to see some products going up in price at the same time that you're actually getting less in the package.”

A Charmin spokeswoman, when confronted by reporters at WBUR about shrinking the size of their toilet sheet squares, pulled an explanation out of her you-know-what, suggesting it was the result of “innovations” allowing “consumers to, basically, wipe their butts more efficiently.” 

Rosalsky, writing from NPR La La Land believes, “consumers will start to notice and voice concern and the power of consumer demand will force companies to listen and right-size their products.” Right-size? What’s the right size? 

Don’t blame Charmin, as Ludwig von Mises explained. “[I]f the ruling party does not want to imperil its popularity by heavy taxation, it takes recourse to inflation.”

Consumers should complain to those working at the Eccles Building producing money, not to those in the private market producing toilet paper. 

Categories: Current Affairs

So, just what is ethical fashion then?

Adam Smith Institute - Fri, 30/07/2021 - 06:01

The Guardian tells us that cheap, or fast, fashion is unethical. The reason being that those working in the factories are making less than some think they should be making. This strikes us as being remarkably obtuse about ethics.

We bow to no one in our insistence that of course the consumer should express their preferences. If a label claiming “sustainability” or “ethical” adds to utility maximisation then not only go for it if you wish to, you should go for it. And yet:

In 1970, for example, the average British household spent 7% of its annual income on clothing. This had fallen to 5.9% by 2020. Even though we are spending less proportionally, we tend to own more clothes. According to the UN, the average consumer buys 60% more pieces of clothing – with half the lifespan – than they did 15 years ago. Meanwhile, fashion is getting cheaper

Clearly this process is making us, us here, richer. We are gaining more - much more - for a smaller portion of our income. Clothing poverty was, after all, a real thing. “Sunday best” is now just a phrase and one that we expect to drop out of the language as the actual experience - of having just the two sets of clothes, workaday and that Sunday set - rolls on to being a century and more old.

We’d also essay a supposition. Those collarless shirts that have been so popular these past few years. An older phrase for them is “grandad shirts” when shirts were made with detachable collars. So that one could wear the same shirt for several days but with a clean collar each one. A generation before that there were also detachable cuffs. Both shirts and the washing of them were expensive. Or read old novels, the phrase “fresh shirt” and the putting on of it. No one writing now would emphasise that for it’s assumed rather than the event it used to be.

So, our experience is better. What about those factory workers?

Their research suggested that the textile factory in Izmir received just €1.53 for cutting the material, sewing, packing and attaching the labels, with €1.10 of that being paid to the garment workers for the 30-minute job of putting the hoodie together. The report concluded that workers could not have received anything like a living wage, which the Clean Clothes Campaign defined, at the time the report was released, as a gross hourly wage of €6.19.

The Clean Clothes Campaign has some very odd ideas about what a living wage is. In Turkey they seem to think that it’s 120% or so of the average national wage. Well, OK, maybe that is the income required to gain the lifestyle that the campaign thinks all should live at. It rather becomes an ethical question as to how to get there, doesn’t it?

At which point, Paul Krugman:

.... the wages earned in one industry are largely determined by the wages similar workers are earning in other industries....(...)...Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn't happen, it is a sign that something has gone wrong...(...)...It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.

Those numbers are a little old but the points still stand. Wage rates are set across an economy, not by individual factory. Krugman again:

But matters are not that simple, and the moral lines are not that clear. In fact, let me make a counter-accusation: The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers.

Those textile factory jobs are better than a life staring at the south end of a north moving water buffalo. Which is why people voluntarily take them. This biggest advertisement for the process being Bangladesh, the country most reliant upon the schmutter trade. Yes, wage rates are low by our standards. They’re also double what they were a decade back and quadruple those of the turn of the century. As one of us put it in somewhat salty fashion, this does actually work as a method of reducing poverty.

Those Third Worlders are becoming less mired in destitution. We benefit too. Perhaps that second shouldn’t matter ethically but it is the vital ingredient that makes the process self-supporting. That we gain is the feedback that keeps the development cycle going.

Which gives us two very different possible ethical approaches. To purchase less but more expensively, thereby paying those living wages to whatever small number of people is required to produce that restricted consumption. Or, when passing that shop of £1 t-shirts, looking at that screen of 50 pence bikinis, buying the second and the third selection because why not aid the poor?

We insist that the ethical choice here is the hyperconsumption of fast fashion. As we’ve been known to remark, ethics require that we buy those things made by poor people in poor countries. For who wouldn’t - or perhaps who shouldn’t - prefer to make entire countries rich?

Categories: Current Affairs

If the US Wants to Beat China, Why Is It Copying China's Socialism?

Mises Institute - Thu, 29/07/2021 - 20:00

If the US wants to strengthen its economic and geostrategic position versus China, it needs to apply the same free market principles that made it prosperous and powerful in the first place. 

Original Article: "If the US Wants to Beat China, Why Is It Copying China's Socialism?"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Categories: Current Affairs

1789: The Electoral College Meets for the First Time

Mises Institute - Thu, 29/07/2021 - 20:00

With all but two relatively obscure states—Rhode Island and North Carolina—having ratified the Constitution, the Confederation Congress was now ready to put the new federal government in place. As soon as New Hampshire became the ninth state to ratify, Congress dutifully created a committee to get the new Constitution up and running. Only the doughty Abraham Yates dissented—in a sense, the last attempt to block the Constitution as a whole. To the determined Antifederalists throughout the county, their next tack was forcefully imposed upon them by the very course of the ratification struggle: they must mobilize and put their plans into Congress in order to fulfill their pledge for restrictive amendments, preferably by calling another constitutional convention that would redress the imbalance of the first.

It was relatively easy for the old Confederation Congress to decide to hold elections and choose electors for the president the following January 7, to assemble the Electoral College to vote for a president on February 4, and to assemble the new U.S. Congress on March 4, 1789.

Attendance at, and interest in, the old Confederation Congress drifted away, and its last day with a quorum was October 10, 1788. There was a flurry of hope in January of the new year, when everyone awaited the new government, and members began to drift into the old Congress, where the faithful Charles Thomson, secretary ever since the opening of the glorious first Continental Congress, sat waiting for the old Congress to meet yet another time, and also to preserve its tenuous existence so that he could hand over the reins to the new government. When March 4 arrived, the old executive departments of Congress were passed into the new Congress for a traumatic period—the nation could not be permitted to live for a few days without the continuity of an executive bureaucracy. Poor old Thomson lounged around for several months and hopefully expected to find a place in the swollen bureaucracy of the New Order. But he found it not, and resigned his office at the end of July to sink into a life of obscurity. In a sense, the passing of Charles Thomson from the political scene paralleled the passing of the Confederation Congress: both met the end of their days humbly, passively, resignedly, and making not a peep.

The old Congress’ most important problem was to decide where the site of the national capital would be. Every large city wanted the honor, and of the two leading Federalists, Hamilton wanted the site to be in New York, and Madison wanted to see it located on the Potomac. Wherever it was, the Federalists would undoubtedly be strong at that location, and the Federalists of that location would correspondingly control the levers of power in the national government. Baltimore, pushed by the southern states, was accepted in early August 1788. However, within a month Hamilton had succeeded in changing the vote to have the capital be New York City. Shrewdly, he was able to argue that since the capital site was agreed by all to be strictly temporary, there was no point in moving the Confederation Congress to another location. As a result, Madison repeated his bitter accusation that Hamilton and the New York Federalists’ shrewd acceptance of the convention’s circular letter was made to have the state ratify in time to retain the capital in New York City.1

The capital would be temporary because the nationalists had made a proviso that the Constitution empowered the Congress to receive a district no larger than one hundred square miles of land, which its governing state or states may cede to it; Congress might then treat the District as its fief—its seat of national government over which it can exclusively rule. This specter of such a protected Federal city, an enclave for super-government unique in the world, was one of the points of contention by the Antifederalists. But, as the new government loomed on the horizon, Maryland, at the end of December 1788, offered to cede a district that Congress might decide upon for the eventual capital.

The Constitution provided that at the meeting of the Electoral College, the person garnering the majority number of votes would be chosen president; the person with the second highest to be vice-president and presiding officer of the Senate. It was a foregone conclusion that George Washington would be the president, but the victorious Federalists had to decide on whom they would choose for the second post. Since Washington was a Virginian, the vice-president must obviously be from the North, which meant either New York or Massachusetts. New York was out of the question, for while the Federalists now grew more powerful in the state and were able to control the choice of U.S. senators, Governor Clinton was still the commanding personality. Clinton, who had abstained from the final vote at the New York Convention, was the Antifederalist candidate for vice-president and planned on pushing for restrictive amendments. Due to political gridlock, New York was to cast no electoral votes in 1789.

Massachusetts it was, then; here, there were clearly only two possibilities: Governor Hancock, who had been promised the post, and John Adams, who had returned from his term as minister to England in the spring of 1788 and chosen as a member of the House of Representatives for Massachusetts. The Federalists realized full well that Hancock was a vain, flighty opportunist whose views, such as they were, differed greatly from their own, so it was a pleasure for them to double-cross the Massachusetts governor. This left John Adams.

Adams, of course, was a hard pill for Hancock and the Federalist leaders to swallow, for they remembered all too well Adams’ radical role during the Revolutionary War and the powerful Left leadership of the Adams-Lee faction in Congress. But Adams had come a long way since those days. As Hamilton wrote to the Massachusetts Federalist Theodore Sedgwick: “his further knowledge of the world seems to have corrected those jealousies which he is represented to have once been influenced by.”

Adams, conservative enough in the postwar period, had indeed shifted staunchly and significantly rightward during his term in England—rightward enough to take his full place in the “high mounted” new Federalist order. Away in England from 1785 to 1788, he found there in the British imperial monarchy the model of ideal government, and his admiration for monarchical statism deepened and intensified under the shock of Shays’ Rebellion. During his stay in London, Adams published in 1787–1788 his newly developed views in his A Defense of the Constitutions of Government of the United States of America. In this original work, Adams developed and advocated what would later be called the social philosophy of “Bonapartism”—from Napoleon’s role in French politics. In the analysis of Bonapartism, Napoleon was supposed to have maintained himself in power by playing off against each other the two great power groups in France: the masses and the aristocracy. John Adams’ theory was an exalted and precursory view of essentially the same process. Adams, too, saw the world as basically divided into the aristocracy and the democracy, or “the common people,” and these two great classes, he believed, were permanently destined to war against each other. The fundamental task of government, for Adams, was to hold the equal balance between these two vast groups and to enforce impartial justice upon them both. Both groups should be equally represented in government, i.e., the rich in an upper house, the common man in a lower house, of the country’s legislature. Where, then, shall the all-important, impartial arbiter of justice come from? He is to appear, according to Adams, in the pen of the executive, the great man who, with an absolute veto over the legislature, is to be exalted above all mere conflicting groups and classes in society and to dispense equal justice for all.

But by what mysterious process is this noble deus ex machina to appear and perform his great work? What is to ensure that the Great Man will really perform in this exalted way? The traditional solution to this problem, of course, was the Divine Right of Kings; the king operating as the vehicle of divine wisdom by definition, so that takes care of that. But John Adams, after all, as a man of the eighteenth century, couldn’t accept this kind of solution. Instead, he thought he saw the answer in sheer self-interest. In a kind of parody of the theory of the free market, the king (or president) was to advance the social interest by serving his own:

It is the true policy of the common people to place the whole executive power in one man, to make him a distinct order in the state, from whence arises an inevitable jealousy between him and the gentlemen; this forces him to become a father and protector of the common people.

Assuming, as we must, that John Adams was serious in this apologetic for executive power, the naïveté of this interesting theory is staggering. In the first place, it is by no means given that the self-interest of the dictatorial Chief Executive is to spend his days as the supreme balancing agent of impartial justice. On the contrary, as the head and will of the full-time executive bureaucracy, the Chief and his followers constitute an independent class interest of their own and will exploit the rest of the population for his and their own benefit. Secondly, in order to catapult himself into power, the Chief will undoubtedly purchase allies among either of the two classes, more profitably so among the influential aristocracy. We can only conclude that the vaunted “realism” of John Adams’ conservative social theory is actually the worst naïve kind of utopian fancy, a fancy, however, that does perform the required function of spinning plausible apologies for executive depredation and oligarchical statism.

The chief executive, Adams believed, should have the absolute power to appoint, make war, and conclude treaties. Only with a single chief executive at the helm with the entire nation looking up to him can one “hope for uniformity, consistency, and subordination …” In fact, Adams, as his ultimate ideal, yearned for a hereditary monarchy and aristocracy. Privately he wrote that hereditary monarchy and aristocracy are

the only Institutions that can possibly preserve the Laws and Liberties of the People, and I am clear that America must resort to them as an Asylum against discord, Seditions and Civil War, and that at no very distant period of time. … Our Country is not ripe for it, in many respects … but our ship must ultimately land on that shore or be cast away.

Adams felt that the English government exemplified his ideal: it was, he wrote grandiosely, “the most stupendous fabric of human invention.” Only ancient Macedonia could come close to this standard. In this admiration, derived from Montesquieu, Adams did not realize that England at the time was far less of an absolute monarchy and far more of a parliamentary oligarchy than what Adams desired.

Adams was particularly enamored of titles of nobility, and even for elective officers, Adams held titles to be absolutely necessary to maintain the dignity and honor of the federal government, and above all “to make offices and laws respected.” Apparently, the real choice was between titles of nobility and anarchy: “I do not abhor Titles, nor the Pageantry of Government. If I did I should abhor Government itself—for there never was, and never will be, because there never can be, any government without Titles and Pageantry.”2 So enamored was Adams of the title, indeed, that he spent a good part of his first year as vice-president trying to persuade the Senate to adopt a system of titles.

It is apparent that Alexander Hamilton was right; John Adams had indeed learned much, and his ideological worldview had matured compared to so many years ago. He was obviously as ready as any man could be to assume the exalted post of vice-president of the United States of America.

The way the electoral system worked, then, was along the design that the vice-presidential and presidential nominees might tie, so it was obviously expedient to arrange the “throwing away” of a few votes so that the agreed upon vice-presidential choice might place second. Hamilton, however, still suspicious of Adams, secretly threw himself into this task with excessive relish, and Adams ended with thirty-four electoral votes to Washington’s sixty-nine. The latter vote was unanimous except for New York, which, due to a clash between a Federalist New York Senate and Clintonian Assembly, never agreed on a choice of electors. Adams was bitterly upset at the results, for he thought he had a real chance to be the supreme arbiter of justice.

While Washington and Adams were elected in February, the Constitution could not go into effect until the opening of the new Congress, scheduled for March 4, 1789. But a quorum of the new Congress did not appear until April 6 when the electoral votes were officially counted; the presidential inauguration then took place on April 30, 1789, the effective starting date of the new government.

This passage is excerpted from Murray N. Rothbard's Conceived in Liberty, vol. 5, The New Republic: 1784–1791.

  • 1. [Editor’s footnote] E. Wilder Spaulding, New York in the Critical Period, 1783–1789 (New York: Columbia University Press, 1932), pp. 270–71.
  • 2. Manning J. Dauer, The Adams Federalists (Boston: Johns Hopkins Press, 1953), p. 48n. [Editor’s remarks] Ibid., pp. 37–54, 78–83.
Categories: Current Affairs

Mises University 2022

Mises Institute - Thu, 29/07/2021 - 17:30
Categories: Current Affairs

Rothbard Graduate Seminar 2022

Mises Institute - Thu, 29/07/2021 - 17:15
Categories: Current Affairs

Recession and Recovery: W.H. Hutt’s View

Mises Institute - Thu, 29/07/2021 - 17:00

There is a considerable Austrian literature on the unsustainable boom driven by credit expansion. When the boom ends, a depression begins. The depression is a transitional period of reduced production that lasts until entrepreneurs restructure capital and labor into sustainable uses. During the depression, there is unavoidable unemployment of both people and productive assets. The recovery is marked by an increase in production and the employment of resources that were idle during the bust.

What happens during a depression? Should we expect it to end, or can an economy remain stuck at the bottom? Is “stimulus” required to start the recovery? The British Austrian economist “W.H.” Hutt In The Keynesian Episode: A Reassessment, provided a coherent theory of the downturn and recovery, driven by the market price system. Hutt incorporated the ideas of coordination through entrepreneurial forecasting and Say’s law to answer these critical questions.

If prices adjust to balance supply and demand, how can there be so many unemployed resources, both capital and labor? If entrepreneurs are reasonably good at forecasting, why should many business firms fail at more or less the same time? Mises’s Austrian theory of the business cycle identifies the banking system issuing excess credit leveraged on deposits as the cause. The interest rate does not accurately reflect the scarcity of savings. The system as a whole sets off in a direction that would only make sense if there were more complementary labor and capital goods than exist in reality. Entrepreneurs set out to produce the wrong mix of capital goods of different types. 

The depression begins as some producers, somewhere in the supply chain, inevitably suffer losses. In some cases the inputs they need are not available in quantity and at a price that was expected; shortages and bottlenecks of scarce inputs drive the prices up. In others cases, the demand for their products is not what was expected. Planned allocations are found to be misallocations; continued progress in the same direction is unsustainable. Some businesses will experience losses, others fail entirely. Inventories must be marked down and even sold at a loss. Hutt used the term “discoordination” to describe the state of affairs. The first wave of unemployment comes at this point, as some firms realize their mistakes.

An example of this is the notorious 90s tech bubble incarnation of They were unable to economically ship heavy items such as bags of pet food. According to Investopedia, “Given the choice between ordering online and waiting for delivery or walking into the nearest store to buy the product and take it home immediately, the majority of people preferred the latter.” Today, most people prefer the former. Delivery times are almost as fast as going to the store, and the ease of home delivery predominates over driving, parking, and lugging a heavy bag of cat food back and forth to your car. The present success of this sector is due to the build-out of complementary capital in the form of logistics and transport systems to move the goods. The complementary infrastructure to get the products to the customer did not exist in 1999. Considerable savings and capital investment over the intervening years were necessary to make this business feasible today. 

The productive assets that were used for loss-generating activities during the boom were wasted. These resources had alternative uses. If more of the wrong thing was produced, then somewhere else, fewer goods that people did want and could pay for were not produced. Entrepreneurs in other industries were not able to expand as they otherwise would have, because they could not hire the labor or obtain the capital goods that were diverted into malinvestment. The office space, machinery, energy and workers were otherwise engaged. We can not say for sure what those industries were, but some neglected sectors such as tobacco products, gold mining, and energy boomed during the collapse of the dot-com bubble. Other firms were able to take advantage of the surplus of unemployed financial analysts and tech workers to grow.

The recession brings to a halt those projects that should never have been started in the first place. But the impact of the recession is not limited to the industries where the misallocation took place. There is a secondary impact as the bubble unwinds. Hutt explained that “unemployment is infectious.”1 A self-reinforcing cycle amplifies the downturn. The feedback is driven by two reinforcing principles: inflexible prices and Say’s law.

Say’s law is a modern term for principles that originated in the general glut debate. This was a historical controversy between two explanations of the post-Napoleonic war depression in England. Thomas Malthus blamed an overproduction of goods in general (a “general glut”); or, when looked at from the other direction, the purchasing power of the public could not keep up with production of goods and services.2 He advised what we would now call a “stimulus package.” Unproductive consumption should be encouraged to make up the difference.

James Mill, Jean-Baptiste Say, and David Ricardo responded that there can never be such a thing as a deficiency of demand. The power to demand is derived from production. Everyone has the role of both a producer and a consumer. A good offered for sale constitutes a demand for a different good. When this is understood, it is obvious that demand as a whole and supply as a whole are only different ways of looking at the same thing—the two sides of the totality of market exchanges.

The classical economists did not suggest that any production at all, of anything, creates the power to demand. Businesses must produce things that people want, and are willing to pay for. Even a good that can only be sold at a loss still provides the seller with some revenues. But when there are mistakes in production, not as much power to demand is created as was used up. If a good has no value to anyone, or perhaps creates greater liabilities than it can be sold for, then it does not contribute to demand at all. As Mises observed many years after the original controversy:

With regard to economic goods there can never be absolute overproduction…. With regard to economic goods there can be only relative overproduction…. The attempts to explain the general depression of trade by referring to an allegedly general overproduction are therefore fallacious.

Hutt applied Say’s law in reverse to the process of unemployment. Unemployed workers pause in their contribution to supply and so lose their power to demand. Workers not only demand consumer goods, but indirectly all of the higher-order capital goods required to produce them and the chain of services such as marketing and retailing that bring them to the consumer. The loss of demand for consumption goods ripples up the supply chain. As supply slows down, by Say’s law demand weakens as well. The sales revenues of firms in other industries decreases, and they may have to lay off workers as well. As these second-order layoffs decrease supply, they further decrease demand in a chain reaction. 

Hutt explained the process this way:

[T]he individual firm is working at low pressure because other firms are working at low pressure. Each is inactive because the general power to consume has fallen; and the general power to consume has fallen because of and in proportion to the general decline in the activity of production.3


In a situation in which widespread layoffs of men are occurring, and physical assets are being thrust into idleness, the withholding of supplies … appears as a sort of evaporation of demands or as a sort of redundancy of excess of supplies, not as a withholding of supplies. Keynesian teaching accepts that appearance as reality.4

Hutt’s language might sound superficially like the Keynesian circular flow in which the spending of one party is the income of another. Hutt would agree that there is an interdependence between all participants in the market. We are all consumers and we are all producers. The interdependence is through production. As each consumer-producer stops producing, he loses his power to demand, and therefore to consume. Hutt would agree with Keynes that demand is depressed, but not for lack of consumption.

The reinforcing nature of rigid prices contributes to the depressionary feedback cycle. “Each group of producers in pricing itself out of the market, priced out others also.”5 In a recession, “the self-aggravating process under which prices in key activities come to diverge still further above market-clearing levels can get almost completely out of hand.”6

Demand is lacking because production is not taking place. Production is depressed because firms can or must no longer accept the losses that result from producing the wrong things. But it takes time for entrepreneurs to figure out what the right things are. In many cases a different set of people will make the decisions about what to produce for the economy to recover than the ones who drove up the boom. Some assets need to change hands in bankruptcy. Prices must fall, but the new bids for capital and labor will come from a different set of firms producing a different mix of goods than during the prior boom.

Must the disruption of production go on forever? Is there a bottom to the valley? The depression exists so long as the market for capital goods and idle labor does not . Once a place is found for the assets within the price system, production, and therefore supply, will resume. Prices must be restructured—mostly lowered—to enable the idle resources to be brought back into use. At each stage of production, costs must fall more than prices to give clear profit opportunities to entrepreneurs. This may be on top of a general deflation affecting all prices due to an increase in money demand, or, in the days before the Fed, a contraction of money supply.

During the depression, Hutt explained, revenues are lower than during the boom. This means that businesses derive less revenue from each unit of labor and of capital. Yet as Hutt emphasized, any valuable productive resource has some use, somewhere, at some price. The equilibrium price theory, in which labor earns its discounted marginal value product, still applies, but the expected revenues are lower, and so the wage that a business can pay for the same work is lower during the depression than it was in the boom.7

[Businesses] are justifiably pessimistic, faced with low prospective yields. Hence the market-clearing prices of potentially profitable inputs are very much lower at that moment than they are destined ultimately to be.8

Hutt explains why the transition from recession to recovery is not instantaneous: “[I]n the course of entrepreneurial decision making, what we now call ‘market signalsneed time to be observed, and acted upon.”9 Many factors can influence a fall in demand for particular products. It can take weeks or months for a firm to determine that a fall in demand is not temporary, that they have more inventory than needed and price cuts will be necessary. Firms will to some extent try to wait it out, to avoid the costs of laying off and then rehiring and retraining competent employees.

If the process takes longer, Hutt blamed mainly sellers for not accepting the changed reality. They are pulled by inertia toward keeping the memories of the boom. For a business that was not in the epicenter of the misallocations during the boom, this may be a good strategy. Demand for everyday products, housing, clothing, and transport will return to its former levels. Demand for the exemplars of the worst excesses of the boom may be permanently gone.

Seen in a clear light, can houses in two dozen coastal cities really be worth 20 or 50 percent more each year for six years running, from 2000 to 2008? Or like, failures in one bubble may become economic years later, when substantial savings and investment have been realized to create the complementary capital goods that were missing the first time around.

Anything that impedes the market price system will slow the recovery: “[S]uch things as subsidized unemployment compensation and the maintenance of wage rates under private coercion or governmental edict…. Welfare activities often have deplorable effects; but worst of all … subsidize the “occupation of being unemployed.”10

[A]t wages rates equal to the “marginal prospective product” all labor is immediately employable. And I argued further that in the reemployment of labor (through pricing for market clearance) in any particular sector “will set in operation the required ‘groping’ process; this process will lead, in subsequent periods, to a rise in labor scarcity; and that scarcity will, in turn, result in the entrepreneur being forced to offer real wage rates which correspond to labor’s rising realized marginal product.”11

The adjustment will happen more rapidly to the extent that the sellers of inputs (labor and inventories in the supply chain) will accept price cuts. Lower costs, in the face of lower prospective demand will create the possibility for a profit margin even in the depths of the depression. Entrepreneurs who are rationally pessimistic require a greater margin of safety.

Even when matters are at their worst, even when entrepreneurs generally fear that if they provide jobs for the unemployed, they might connect vocover their additional costs … they might still be prepared to shoulder the risks if only labor were generally prepared to accept wage rates which equated with labor’s temporarily low marginal prospective product.12

With profit margins opened up by lower costs, entrepreneurs tentatively begin to employ more of the idle resources. And then, Say’s law operates in the forward direction. The newly employed workers, or those who stayed in their jobs are able to produce, and to supply. This supply constitutes a demand for other noncompeting products, which contributes to the recovery of output in other industries:

[Keynesians do not understand that the fall in the rigid asking prices of idle resources] does not always mean that prospective yields are bound to rise in [the same industry]. Yields will tend to rise for all noncompeting industries.13

Rigid prices can be caused by sellers being unsure of how to adapt to the fall in demand for their products. Hutt explained that it can take some time for a firm to determine if a decline in business is temporary or of a longer duration, and to estimate the best selling prices for their inventories under worse market conditions than expected when the inventories were acquired. Longer established firms may try to hold on to their employees to avoid the cost of laying off and rehiring.

Institutional arrangements that prevent prices from falling serve only to prolong the adjustment period, or prevent it from happening at all. In Britain at the time of Keynes, there were efforts as a matter of policy to maintain nominal wages at or above their boom-time levels. In the American Great Depression, the National Recovery Administration sought to prevent both wage and price adjustments. The inability of these regulated markets to clear by lowering prices kept them stuck in surplus. Unemployed workers, by not producing, withdrew their power to demand other goods from other industries, prolonging the depression.

Say’s law shows that when production is impaired, demand is weakened—only because the supply is not forthcoming. The Keynesian program of “stimulating” consumption can only make the process worse by squandering scarce consumption goods. Putting idle resources to work with stimulus only slows the process of price adjustment. The consumer’s ability to pay comes from his own production. What is needed is coordination through the price system so that all willing labor and useful resources may be used for the greatest contribution to supply. Production must be reorganized in such a way that scarce labor and capital are used to supply things that people want.

  • 1. W.H. Hutt, The Keynesian Episode: A Reassessment (Indianapolis, IN: Liberty Fund, 1980), p. 52. Hereafter cited as KER.
  • 2. Malthusian thinking was later resurrected by Keynes as the basis for his theory of “macro economics.
  • 3. KER, p. 150.
  • 4. W.H. Hutt, A Rehabilitation of Say’s Law (Athens: Ohio University Press, 1974), p. 8.
  • 5. KER, p. 59.
  • 6. KER, p. 55.
  • 7. Murray N. Rothbard, Man, Economy, and State, with Power and Market, 2d scholar’s ed. (Auburn, AL: Ludwig von Mises Institute, 2009), chap. 7.
  • 8. KER, p. 162.
  • 9. KER, p. 53.
  • 10. KER, p. 54.
  • 11. KER, p. 284.
  • 12. KER, p. 55.
  • 13. KER, p. 151.
Categories: Current Affairs

The next billionaires

Adam Smith Institute - Thu, 29/07/2021 - 16:05

Most of us have taken on board the coming reality that will involve such technologies as self-driving electric cars, people-carrying drones, lab-grown meats and artificial intelligence, and we fully expect that some people in the forefront of these developments will become billionaires, if they are not already. It is worthwhile, however, to look beyond these innovations to speculate what might be the next breakthroughs that could generate a subsequent crop of billionaires.

One approach is to look at the problems that afflict some people’s lives, and which they would happily pay to resolve, or which others might pay for on their behalf. Malaria, for example, kills an estimated million people each year, a majority of them being children under five years old. Its fatalities have been reduced by the spread of insecticide-impregnated mosquito nets, and promising experiments have been conducted using mosquitos genetically-modified to kill the plasmodium parasite. The real breakthrough, though, will be a vaccine that makes people resistant to it. The team that develops one could become very rich because this is something that the world will pay for. And Nobel prizes would be an added bonus.

Worldwide obesity is a problem awaiting a solution. Governments have tried behaviour changes such as sugar taxes and advertising bans on so-called junk foods, but these do not seem very effective. There will be huge rewards if someone can come up with a non-surgical medical solution, perhaps a treatment that alters the body’s response to food, or a medication that changes the metabolic rate.

Dementia has become a progressively more serious problem as people’s life expectancy has increased, and has huge resulting financial as well as emotional costs. If anyone can develop an effective treatment to prevent and reverse the degenerative process, it would be a huge commercial success as well as a boon to humanity.

A less destructive problem is male pattern baldness. Men might accept its inevitability, but no-one likes it. Present transplant technology is invasive, and there might be a solution by growing hairs in lab dishes from modified cells and inserting them to fill the bare patches. Even better would be a treatment that persuades the body’s own cells to grow hairs in the places required. Men the world over would pay to retain or regrow their youthful hair.

Many people would prefer to stay younger-looking for longer in life, and people pay fortunes for cosmetic treatments that postpone the appearance of age. They would pay for a medical treatment that achieved this, perhaps by lengthening the telomeres, perhaps by CRISPR technology. Fortunes will be made when this is achieved.

The pandemic has led to great strides being made in the understanding of how viruses work, and it is entirely possible that there might finally be the elusive cure for the common cold. It might be that as strains are identified each year, a vaccine could be administered alongside the annual flu vaccine (and possibly now the annual covid vaccine) that will give immunity for most recipients to the common cold as well.

Allergies can blight the lives of those afflicted by them, including pollen allergies such as hay fever. Present treatments work to suppress the symptoms in some people, but what is really needed is a process that can make people resistant. It might be done using nano gene technology of the type now being used to target certain cancer cells.

On a lighter note, there are riches to be gained for someone who develops an instant hangover cure. It might be a pill left at the bedside table before a night out that would prevent a hangover emerging in the morning, or it might be one taken in the morning that delivers recovery within minutes. Again, this could be a business worth billions.

Midges, the little biting insects that blight the West of Scotland’s summers, cost the Scottish economy billions of pounds in lost tourist income as potential visitors are deterred. If a biological process could be developed to extirpate them, it would be a major boon to the local inhabitants as well as to the economy. Some environmentalists might object, but the niche occupied by the pests would soon be filled by less offensive insects.

Terrorism will remain a problem as long as there are terrorists, and there are possible avenues that might lead to technological ways of combating it. It might be possible in principle to develop a type of radiation that could prematurely detonate explosives, including bullets, within its range. It might even be possible to detect the subtle changes in the brain that take place when someone goes down the route of extremist fanaticism. Since these will probably be developed, if at all, by military establishments, neither of these are likely to make people rich.

It would be good for the country if these, barring the last one, could be developed in the UK, and government could play a role by making such initiatives easier to undertake, to attract investment funding, and made more rewarding to those who put in the effort and take the risks of developing them.


Categories: Current Affairs

Why Europe's Highly Regulated Power Market Is So Bad for Growth

Mises Institute - Thu, 29/07/2021 - 15:00

In Europe, there is no competitive market for electrical power. And since power is an important factor of production, it also means the overall marketplace is wasteful, inefficient, and sluggish. 

Original Article: "Why Europe's Highly Regulated Power Market Is So Bad for Growth"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Categories: Current Affairs

Private Investment Is the Answer to Declining Postindustrial Towns

Mises Institute - Thu, 29/07/2021 - 12:00

My town, Tallassee, Alabama, is an old mill town. It straddles the Tallapoosa River, which is dammed at that point by the Thurlow Dam to generate electricity. On both sides of the river are the ruins of a massive complex of textile mills which employed a significant portion of the town’s population until 2005. In fact, the current mayor, Johnny Hammock, worked in the mills as a young man, and his father and grandfather also worked there. Today, the town is somewhat stagnant: some of the mills, which were burned in a massive fire in 2016, are in shambles; the bridge connecting the two sides of the town is rusty and the paint flakes off in the wind; and there are many empty storefronts and houses. Many people think that the way to restore the town is for the government to take an aggressive role, and one of the mayor’s main strategies has been to apply for grants to undertake the projects that he thinks would benefit the town most. In light of this approach, it is important to take a look at how Tallassee developed into the bustling little city it once was. Private industry had a strong hand in the town’s development.

Tallassee is one of many examples of towns that were developed by private industry. Although large landholders and small-scale businesses contributed to the town’s development, arguably the most significant changes were spurred by the cotton mills. The Tallassee Manufacturing Company built the first mill on the west side of the river in 1844.1 It constructed a larger, four-story mill nearby in 1852. In this early period, the company also built “grist and flour mills, a gin, a sawmill, a foundry, and a blacksmith shop” to serve its employees (many part-time farmers) and local people.2 These mills were powered by electricity generated by a dam that the company had built partway across the river.3

In the earliest years of the mills’ existence, before 1850, Tallassee was a hamlet with a few stores and plain, unpainted log houses.4 As the operation grew, however, the mills undertook the development of a local infrastructure. A third mill was built on the east side of the river in 1897. In the 1890s, the company created a new division and built a railroad to connect the town to the Western Railway of Alabama, which made the town less isolated than before. To power its growing operation, it also built a larger dam, this time spanning the whole river, and a new power plant, which also lit other businesses, the streets, and a few select residences.5 Unfortunately, in 1916, the Alabama Power Company, a state utility, took the mills to the Supreme Court for its rights to the land and water, seeking to build its own dam at the location, and the court ruled hydroelectric power manufacture a public use of property, opening the structure to eminent domain. Alabama Power only took over the dam in 1924, however, it and the mills having finally agreed to share the electricity generated at the Tallassee Falls the year before.6

The company also built a bridge across the river in 1896 to connect the west mills to the new mill it was going to build on the east bank of the river. Although a covered bridge had existed a mile downriver, built privately in 1845 by John H. McKenzie (in fact, he bequeathed the bridge and all toll proceeds from it to his daughter as part of her dowry), this bridge had collapsed of old age in 1863 and had not been replaced.7 For decades, the only way to cross the river to the other side of town was by a ferry that was pulled across the river by a cable. The ferry was maintained by the mills but operated by “Old George.”8 When the mills undertook to build the bridge, the State of Alabama “relieved and released [the company] from all penalties now provided by law for failing hereafter to maintain and operate said ferry.”9

The bridge, of course, was built to make it easier for the company to receive materials and transport goods, but it was also a boon to the community. The company allowed people associated with the company to cross for free, as well as people transporting cotton, the company’s key raw material. Everyone else paid a toll, and the company used the proceeds to maintain the bridge. Unfortunately, the state quickly encroached on private infrastructure. After protests that the tolls were too high, the judge probate of Tallapoosa County (where the east side of town is) claimed the power to control toll rates, and the state legislature backed him on it. Market pricing was snuffed out after an appeal before the Supreme Court of Alabama failed in 1909.10 Although the company had tried to sell off the bridge in 1908—who wouldn’t?—the county commissioners, so helpfully forcing nonsensically low toll rates on the true owners of the bridge, could not afford to purchase it outright. The tolls remained. After 1925, the company continued to maintain the bridge, but the people indirectly paid the company a rental fee to use the bridge through their counties instead.11

In the 1920s, the mills, by this time incorporated as Mount Vernon-Woodberry Mills, embarked on a new spate of updates to the mills and “the villages” (the developments on either side of the river, which were each complete with a company store, housing, and increasing amenities over time12). In 1923, a new bridge replaced the temporary 1920 bridge, which had been built after a flood damaged the old bridge in 1919.13 The mills also built “the Mt. Vernon Theater, the school buildings, the Community Hospital, and the . . . Guest House.”14 At least as late as the 1940s, the mills maintained the town’s water supply and sewage system.15 The company also built the town’s library (est. 1921) and expanded its collection over the years, donating it to the city in 1978, just after adding a new wing to it.16

The mills also built most of the houses in the town, including my own, which are referred to as mill houses. Employees initially lived in these simple pine houses rent-free, but later, probably as living standards improved and costs rose, the company sold them to employees instead.17 Initially served by wells and outhouses, and lit by carbon and kerosene, the mills’ 1920s improvements brought electricity, running water, and finally “sanitary toilets” to Tallassee homes.18 In an era of state-enforced racial segregation, the mills also maintained “a Negro village to the south of West Tallassee . . . [with] a twelve-grade school with a cafeteria, an athletic field, a lodge hall and a church building” in addition to the East and West Tallassee villages.19 Local historian W.C. Bryant, writing in the 1930s, also noted that the mills planned many cultural and entertainment events for the town, such as carnivals, circuses, parades, and patriotic celebrations. In fact, the book by Virginia Noble Golden that I’ve been citing here was published by the company in 1949, showing the depth of their investment in the town. The wealth that Tallasseeans created in the mills put money in their pockets, and consequently the town had over 150 private businesses in the 1940s.20

No benevolent motives were needed to encourage this long record of contributions. The town’s physical and social integrity benefitted the business’s operations, improving efficiency and likely encouraging the best laborers to remain with the company long term. By the same token, since the market is constantly adjusting, the west mills ceased operation in the 1960s, leaving only the newer east mills active. These mills remained open until 2005, when Mount Vernon was forced to downsize and close its Alabama mills for good (it still maintains other mills in the South).

It might seem like the market burned Tallasseeans in the end, leaving them with aging infrastructure, less jobs, and a bunch of empty buildings, but that is not the case. The market, being an aggregation of individual human choices, does not change things overnight, but people see value in the mills and not long after they closed down, other entrepreneurs moved in on them.

The west mills sat for some time, but were finally purchased in 1991 by Montgomery speculators who wanted to take them apart gradually to sell the materials for reuse. They “removed the window sash and gutted the five-story wooden interior structural system,” but the rest of the project seems to have fallen by the wayside. The owners may be waiting for the right moment to act on the remains. (Oddly enough, I could not find a sale record for the site, and the plot is not acknowledged by the Alabama GIS.)

The east mills were purchased by Process Knowledge in 2006; they deconstructed some cotton warehouses on the site for resale and sold the property to Mount Vernon Pine in 2016. Mount Vernon Pine planned to salvage the valued long-leaf heart pine in Mill No. 2. In fact, when these mills burned down later that year, the owner says they already “had hundreds of thousands of dollars of orders for which we received deposits. One man bought $230,000 of wood. He sent us by wire transfer $45,000 because he found the wood to be so desirable.” They had also intended to improve the other mill on the property, added in the 1920s, to lease as warehouse space and also planned to make part of it a museum. The fire was a major setback, of course. The company bought the property for $1,088,000 but only had a $1 million insurance policy on the place. There is very little reclaimable wood left in the remains, ruining the original business plan. The insurance also would not cover the cleanup, which was estimated to run $1 million. 

Although the owners of the eastern mills were looking for a new use for their property (their most recent plan was to crush the rubble and convert it into construction aggregate), the mayor of the town was eager to purchase it to put it to the use that he and other prominent townsmen think best. Finally, not able to get the company to sell voluntarily, the city sued Mount Vernon Pine in 2019, for “public nuisance after the property was not properly cleaned up” following the fire. As a “resolution” to the case, Mount Vernon Pine “donated” the east mills to the city this year, basically coerced but at least getting a tax advantage to help defray its massive sunk costs.

Given that private industry built Tallassee and that the market was already in the process of recycling the mills, making room for new opportunity, politicians should have stood down. The process of market renewal takes time, and although it may be thwarted by unexpected events like the fire, it is inexorable given leeway. Entrepreneurs would have found a good use for the remains and the land. Instead, the city is flying blind, asking the people what they think it should do with its ill-gotten property. The result will be arbitrary, whether based on nothing but the whims of people with no financial skin in the game. Those who will inevitably be hired to do the actual work of revitalization will charge a pretty penny, knowing they’re dealing with a big spender, and will enrich themselves. Some locals may clamor for a fancy new shopping district or housing—they’ll order the caviar, because, hey, it’s not their land. 

The reality is that after the fire it may not be worth moving forward in any way for the foreseeable future—it all depends on what people are willing to invest in voluntarily. No one had to beg Mount Vernon Pine to drop over $1 million dollars on buildings that to some probably seemed worthless. In time, people would have identified new opportunities in the seemingly worthless rubble. They would have been willing to put their money where their mouth is to put one of those ideas to the test, and people would have voted on it with their dollars.

Bleeding local taxpayers to repurpose the area based on the decisions of people with no financial skin in the game is a bad idea and, like all central planning, will be proven a failure in time. Instead of applying for so many grants, Tallassee should place the mills, the rusty infrastructure, the schools, the “substandard” rental properties, and the other buildings it has seized back in the care of the market that sprouted them. Doing so will lead to less costly and likely quicker outcomes that are tailored to the acting preferences of the people of the town themselves.

  • 1. Virginia Noble Golden, A History of Tallassee for Tallasseeans (Tallassee, AL: Tallassee Mills, 1949), pp. 17–18.
  • 2. Golden, A History of Tallassee for Tallasseeans, p. 27.
  • 3. E.W. Wadsworth, A History of Tallassee, ed. Olivia Solomon (1940; repr., Montgomery, AL: Blount Foundation, 2005), pp. 31–32.
  • 4. Golden, A History of Tallassee for Tallasseeans, p. 22.
  • 5. Golden, A History of Tallassee for Tallasseeans, pp. 40 and 42; and Wadsworth, A History of Tallassee, p. 50.
  • 6. William E. Goss and Karen Pell, Tallassee (Charleston, SC: Arcadia Publishing, 2008), pp. 8–9; and Wadsworth, A History of Tallassee, p. 72.
  • 7. Wadsworth, A History of Tallassee, p. 29.
  • 8. Golden, A History of Tallassee for Tallasseeans, pp. 16–17; and Wadsworth, A History of Tallassee, pp. 55–57.
  • 9. An Act to Authorize the Tallassee Falls Manufacturing Company to Discontinue a Ferry across the Tallapoosa River near Tallassee, Elmore County, Alabama (approved Feb. 5, 1897), qtd. In Wadsworth, A History of Tallassee, p. 57.
  • 10. Wadsworth, A History of Tallassee, pp. 57–58.
  • 11. Golden, A History of Tallassee for Tallasseeans, p. 59; and Wadsworth, A History of Tallassee, p. 58.
  • 12. Wadsworth, A History of Tallassee, pp. 61–62 describes the laying out and building of the East Tallassee village, which occurred in the early 1900s, soon after the new east mill was built. See also pp. 71–73.
  • 13. Golden, A History of Tallassee for Tallasseeans, pp. 64 and 66.
  • 14. Golden, A History of Tallassee for Tallasseeans, p. 68.
  • 15. Golden, A History of Tallassee for Tallasseeans, p. 54.
  • 16. Golden, A History of Tallassee for Tallasseeans, p. 56.
  • 17. Wadsworth, A History of Tallassee, pp. 52.
  • 18. Wadsworth, A History of Tallassee, pp. 52 and 70.
  • 19. Golden, A History of Tallassee for Tallasseeans, p. 74.
  • 20. Golden, A History of Tallassee for Tallasseeans, p. 58.
Categories: Current Affairs

How the justification changes in only a generation or two

Adam Smith Institute - Thu, 29/07/2021 - 06:01

Apparently it’s necessary to abolish capitalism in order to beat climate change:

Alas, it’s easier to imagine the end of the world than the end of capitalism.


... it’s the obsession with economic growth at any cost.

This is, of course, untrue. As the basic analysis underlying all climate change murmuring insists - and yes, this underpins Nordhaus and his Nobel, the Stern Review, the IPCC, COP this and that, all of it - beating climate change is entirely consistent with the continued existence of capitalism. Indeed, given that the task is to foster technological change then that mixture of capitalism and free markets is exactly what is required, for that’s the system which best fosters technological change.

It’s also untrue that capitalism - or markets for that matter - demands economic growth at any cost. It’s an efficient manner of gaining that growth, true, but the growth itself is something more generally desired. Humans do like economic growth. After all, few of us like the abject poverty which is the alternative.

But here’s the bit we find fascinating. A generation and two back that socialism that is touted as the alternative to capitalism was so touted on the basis that it was more efficient. That scientific planning, scientific socialism, would produce more growth than that horrible wastefulness of capitalism and market competition. This was the argument for both the horrors of the Soviet system and the dreary boredom of post-WWII nationalisations alike. More growth through socialism.

Well, that didn’t work out well. So now the argument is that we must have socialism in order not to have growth. At which point the argument can be seen to be as threadbare as it actually is. If the answer is still that we must have socialism but the reason why has reversed polarity then clearly we’re in the grip of a religious mania, not a logical analysis. It’s now as with the insistence that yes, but you didn’t put enough virgins into the volcano.

Categories: Current Affairs

Cuba: The Dictatorship and the "Blockade" Lie

Mises Institute - Wed, 28/07/2021 - 20:00

Cuba is a dictatorship that uses terror and propaganda to repress its people. It locks citizens up, strips them of the most basic human rights, silences them, and confronts families using extortion and threats. The regime’s constant practices of illegal detention, the personal ruin of political dissidents, and limitation of fundamental rights have nothing to do with any blockade or embargo but everything to do with the totalitarian Communist dictatorship.

All the propaganda that whitewashes the Cuban dictatorship is based on two lies: the nonexistent “blockade” and the allegedly excellent “public health.”

Cuba only suffers from one blockade: that of the dictatorship against its people, which limits imports of food, medicine, use of the internet, and freedom to travel. We have seen the evidence this week, when the regime “temporarily lifted” the limitation on imports of food and medicine.

Dismantling the lie of the so-called excellent Cuban public services is easy. You just have to go to Cuba to see it.

The healthcare system that the regime advertises so much is a failed and dilapidated system that only provides quality service to wealthy foreigners and to the regime’s leaders. Cuba suffers the “most expensive free healthcare in the world,” as they told me in Havana.

The myth of the quality of healthcare has been debunked on several occasions. María Werlau, from the NGO Archivo Cuba (Cuba Archive), explained that “healthcare in Cuba is terrible for the ordinary citizen. There is an apartheid that favors the ruling elite and foreigners who pay in US dollars,” and it has been shown that “the Cuban health system lacks transparency and capacity.” Its health policies not only have not yielded good results but also limit the basic rights of patients; “it is hardly a model to follow.”

Anyone who travels to Cuba can see that the often-repeated “nonexistence of child malnutrition” that some say UNICEF shows is a lie and only masks a regime that still uses ration cards and misery as tools to keep the population under its boot.

However, UNICEF never stated that Cuba had ended child malnutrition, but that the “incidence of underweight children has dropped to 4%,” a record that was broken by Costa Rica and Chile, for example, which reached 1 percent. Tracking Progress on Child and Maternal Nutrition: A Survival and Development Priority (UNICEF, November 2009, p. 102 et seq.) shows clearly how other countries have done significantly better than Cuba.

The actual data on infant mortality is twice the official figure and much worse than in countries such as Chile or Costa Rica, according to studies (for example, “Infant Mortality in Cuba: Myth and Reality,” by Roberto M. Gonzalez).

The myth of the blockade is even more hilarious. The nonexistent blockade is a lie that serves as an excuse to whitewash the dictatorship.

Cuba’s international trade over GDP was 27 percent of GDP in 2020, compared, for example, with Brazil’s, which is 32 percent. Its exports are 14.5 percent of GDP compared to 16 percent in Brazil (World Bank data).

The United States is Cuba’s ninth-largest trading partner, with 3 percent of imports. Cuba has more than twenty-seven bilateral treaties with more than ninety countries, and exports to Canada (22 percent), China (21 percent), Venezuela (13 percent), Spain (11 percent), Holland (7 percent), Germany, Belgium, Switzerland, Cyprus (2 percent each), and France (1 percent) among others (Cuban Statistical Office, 2020 ed.).

The exports of food and agricultural products from the United States to Cuba increased by 74.7 percent in March 2021, an increase of 54.3 percent annualized (Cuba Trade).

Cuba, in turn, imported in 2020 from Venezuela (crude at cost or free), China, Spain, Russia, Mexico, Italy, Argentina, Brazil, the United States, and Germany, among others. Some “lockdown.”

The only thing Cuba has is an embargo on those items that the dictatorial regime uses for military purposes.

What the Left hides about the embargo: the embargo was implemented in 1958 with the Batista regime to limit the sale of weapons. The 1960 embargo on US exports to Cuba did not include food or medicine. Since 2000, there has not been any type of embargo on US exports either in food or in medicine.

More than ninety North American multinationals have exported to Cuba since 2001. Since 2014, sixty North American companies have been operating directly in Cuba (Cuba Trade Economic Council)

Cuba exported $14.9 million worth of goods to the United States and imported $176.8 million in 2020 according to the Department of State. Imports and exports to China are also particularly important.

The United States is the largest supplier of food and agricultural products to Cuba, according to the Department of State, with exports of those goods valued at $220.5 million in 2018. The United States is also a major supplier of humanitarian goods to Cuba, including medicines and medical products, with a total value of $275.9 million in 2018. Remittances from the United States, estimated at $3.5 billion in 2017, are the dictatorship’s largest source of foreign exchange.

What has destroyed Cuba is communism. A destructive and wasteful dictatorial regime.

The Castro regime is a machine for squandering subsidies. It consumed aid from the Soviet Union between 1960 and 1990 equivalent to six Marshall Plans and failed to improve its growth pattern or take advantage of huge subsidies to improve productivity. Between 1960 and 1990, Cuba received more than $65 billion from the Soviet Union, not counting what it received from other socialist countries.

The Cuban dictatorship has also squandered subsidies and aid from China, Russia, and Venezuela.

For the Cuban medical program, Misión Barrio Adentro, alone the Havana dictatorship received $120 billion dollars in sixteen years, an official figure revealed by Nicolás Maduro in 2019 and confirmed by Julio García, head of the Cuban missions in Venezuela.

Cuba obtained more money from Venezuela for other concepts, other missions, for sales of power plants, for triangulation in food imports, and even for the sale of millions of light bulbs.

In the past eighteen years, China has forgiven nearly $5 billion in debt to Cuba, nearly half of the total debt it has forgiven its trading partners. Of course, trade with China has declined due to the constant defaults of the Cuban dictatorial regime.

Russia has donated billions of dollars to Cuba, with donations through, for example, the representation of the World Food Program (WFP) and the write-off of 90 percent of the debt contracted with Russia (2014), about $25.8 billion.

Between 2011 and 2014 alone, Mexico, Japan, China, and Russia together exempted the Cuban dictatorship from $40 billion dollars of debt, which is equivalent to 50 percent of Cuba’s current GDP, according to Forbes.

The Paris Club creditors in 2015 also canceled $8.5 billion in outstanding debt

The Cuban dictatorship always does the same: borrow, squander money, impoverish the population, and default on its commitments. And then it complains about a nonexistent “blockade.”

If we add donations, debt cancellation, and financial support, Russia, China, Venezuela, and Cuba’s main trading partners have given financial aid and donations to the Cuban dictatorship that exceed $200 billion in the last sixteen years. 

Despite all this, and with a monetary policy as destructive as that of Venezuela, printing Cuba pesos without value or demand while squandering the reserves it receives, inflation in 2021 will reach 500 percent according to Reuters

What has the Cuban dictatorship done with all this money? Fritter it away while condemning the Cuban people to misery.

Cuba has a poverty level that, calculated independently, reaches 50 percent. According to figures from the ONEI (Oficina Nacional de Estadísticas e Información), 35.6 percent of the working-age population is unemployed or unemployed. The monetary and economic disaster would lower the Human Development Index position for Cuba from seventy-three to the last places among the countries of the world.

What is it that destroyed Cuba? Communism, not the nonexistent blockade.

Categories: Current Affairs

Government Debt Is Starting to Look Almost as Sketchy as Payday Loans

Mises Institute - Wed, 28/07/2021 - 20:00

As government seek ever larger amounts of debt to finance more spending, they're embracing huge debt levels in the way a broke consumer might embrace payday loans. In the end, we're left with nothing but a flimsy promise to pay. 

Original Article: "Government Debt Is Starting to Look Almost as Sketchy as Payday Loans"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Categories: Current Affairs

This Is a Weak Jobs Recovery

Mises Institute - Wed, 28/07/2021 - 15:00

The United States’s jobs recovery is extremely poor, especially if we consider the size of the monetary and fiscal stimulus and the spectacular upgrade to GDP estimates.

Original Article: "This Is a Weak Jobs Recovery"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Categories: Current Affairs

Shrinkflation, Inflation’s Sneaky Cousin, Is on the Rise

Mises Institute - Wed, 28/07/2021 - 12:00

Inflation has been on the rise for the past year and in the last few months it has accelerated. In June 2021, inflation, measured by the Consumer Price Index (CPI), hit the highest level since 2008. By inflation, economists refer to the increase in the general level of prices, which means that prices on average are increasing. The Bureau of Labor and Statistics (BLS) has a basket of goods and services that it tracks and uses to create a measure of the CPI. While inflation is the topic of the day in the news media and everyday conversations, many have not heard about its sneaky cousin, shrinkflation.

The term shrinkflation, is credited to British economist Pippa Malmgren, and refers to the shrinking weight of the products while the price for the package remains the same. This is in effect another form of inflation, since the per unit price of goods increases when products shrink. However, shrinkflation is trickier, since most consumers do not notice it (see here for a few examples of shrinkflation). Shrinkflation is an ongoing process, but we are seeing more of it in the past year, and especially the first half of 2021, as businesses scramble to catch up with increasing costs of production. Shrinkflation is so widespread today that there is a dedicated Reddit page for it.

Many complain about businesses resorting to shrinkflation and regard it as a sneaky way to increase prices. Yet many of the critics do not realize that businesses have no choice but to increase prices. Anyone who is paying attention to prices in the first half of 2021 will know that it is not only the price of consumer goods that it is increasing but also the prices of producer goods. In other words, the inputs used in the production of the goods we consume, including labor, have been getting more expensive. Consequently, businesses in a fight to maintain their profit margins have resorted to increasing prices or shrinking the size or weight of their products.

Normally, the BLS accounts for the weight of the products it tracks, which would allow them to account for shrinkflation, but as the Washington Post reports, the BLS has not been able to do this very well during the pandemic. This means that the current inflation measure, as measured by CPI, is most likely underreporting the extent of current inflation.

What is causing this increase in shrinkflation? Well, since shrinkflation is in fact a form of inflation, the short answer is that the same factors have caused inflation. As you may already be aware, many are blaming shortages and disruptions in the supply chain for the recent increases in inflation, but that hardly explains the whole story.

The two main candidates to blame are the Fed and the government. The Fed has printed tremendous amounts of money, which has led to the doubling of its balance sheet since March 2020. This is in fact what inflation is, and this is the cause of what we normally refer to as inflation, which, to be more accurate, is price inflation. In general, we know that the more money we print, holding all else equal, the more inflation we will get, and that is part of what we are seeing now.

On the other hand, we have had the federal government spend money at record levels for a peacetime period. This also has led to an increase of demand beyond what one would expect in the circumstances we have been in since spring of 2020. For example, retail sales have increased rapidly and have been above trend since late 2020. While some of this can be seen as catching up after the decrease we saw in the second quarter of 2020, it is definitely gone beyond catching up, as is clear from the graph below. Government spending has become a topic of concern even for mainstream economists like Larry Summers, who is now worried about the economy overheating because of it.Retail Sales

Lastly, while the supply chain disruptions are blamed on covid-19, it is the lockdowns instituted by governments, in the US and other countries, that are the main culprit behind these supply chain disruptions. The problem with the lockdowns was that they completely ignored the cost-benefit analysis by arbitrarily determining what constituted an essential business and what did not. As you may well know, one can ignore the laws of economics, but not their consequences, and we are now suffering the consequences of these arbitrary lockdowns.

The million-dollar question today is, How long will this rising inflation and shrinkflation last? The Fed insists that this inflation is transitory, but many, including BlackRock’s CEO, are concerned that this may not be the case. With the inflation data from June, we have some evidence that inflation may be more than transitory. As can be seen from the graph below, the transitory portion of inflation (base effects) was expected to retreat for June (the bar after the dashed line), but CPI advanced beyond the increase in May (reflected in the green portion of the bar added to the predicted June CPI by Oxford Economics).US Headline CPI Inflation   (The graph is modified to show the actual CPI change for June, by adding the green portion of the bar.)

Hence, with all the money that the Fed has printed and is continuing to print, and the increased spending by the federal government, we may well end up seeing higher inflation over the next few years. Whether this will happen or not remains to be seen, but one thing is for sure: the shrinking size and weight of the products is here to stay and it will only get worse as inflation pressures continue to worsen.

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