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“The business of buying weapons that takes place in the Pentagon is a corrupt business — ethically and morally corrupt from top to bottom. The process is dominated by advocacy, with few, if any, checks and balances. Most people in power like this system of doing business and do not want it changed.” – Colonel James G. Burton (1993, 232)

In countries such as the United States, whose economies are commonly, though inaccurately, described as “capitalist” or “free-market,” war and preparation for war systematically corrupt both parties to the state-private transactions by which the government obtains the bulk of its military goods and services.

On one side, business interests seek to bend the state’s decisions in their favor by corrupting official decision-makers with outright and de facto bribes. The former include cash, gifts in kind, loans, entertainment, transportation, lodging, prostitutes’ services, inside information about personal investment opportunities, overly generous speaking fees, and promises of future employment or “consulting” patronage for officials or their family members, whereas the latter include campaign contributions (sometimes legal, sometimes illegal), sponsorship of political fund-raising events, and donations to charities or other causes favored by the relevant government officials.

Reports of this sort of corruption appear from time to time in the press under the rubric of “military scandal” (see, for example, Biddle 1985, Wines 1989, Hinds 1992, “National Briefing” 2003, Pasztor and Karp 2004, Colarusso 2004, Calbreath and Kammer 2005, Wood 2005, Babcock 2006, Ross 2006, and “Defense Contractor Guilty in Bribe Case” 2006). On the other, much more important side, the state corrupts business people by effectively turning them into co-conspirators in and beneficiaries of its most fundamental activity — plundering the general public.

Participants in the military-industrial-congressional complex (MICC) are routinely blamed for “mismanagement,” not infrequently they are accused of “waste, fraud, and abuse,” and from time to time a few of them are indicted for criminal offenses (Higgs 1988, 1990, xx-xxiii, 2004; Fitzgerald 1989; Kovacic 1990a, 1990b).

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Central Planning Failed in the USSR, but Central Banks Have Revived It

September 20, 2018

Central Planning Failed in the USSR, but Central Banks Have Revived It

The Federal Reserve’s changing of the guard — the end of Janet Yellen’s tenure and the beginning of the Jerome Powell era — has me remembering what it was like to grow up in the former Soviet Union.

Back then, our local grocery store had two types of sugar: The cheap one was priced at 96 kopecks (Russian cents) a kilo and the expensive one at 104 kopecks. I vividly remember these prices because they didn’t change for a decade. The prices were not set by sugar supply and demand but were determined by a well-meaning bureaucrat (who may even have been an economist) a thousand miles away.

If all Russian housewives (and house-husbands) had decided to go on an apple-pie diet and started baking pies for breakfast, lunch, and dinner, sugar demand would have increased but the prices still would have been 96 and 104 kopecks. As a result, we would have had a shortage of sugar — a common occurrence in the Soviet era.

In a capitalist economy, the invisible hand serves a very important but underappreciated role: It is a signaling mechanism that helps balance supply and demand. High demand leads to higher prices, telegraphing suppliers that they’ll make more money if they produce extra goods. Additional supply lowers prices, bringing them to a new equilibrium. This is how prices are set for millions of goods globally on a daily basis in free-market economies.

In the command-and-control economy of the Soviet Union, the prices of goods often had little to do with supply and demand but were instead typically used as a political tool. This in part is why the Soviet economy failed — to make good decisions you need good data, and if price carries no data, it is hard to make good business decisions.

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Three New Deals: Why the Nazis and Fascists Loved FDR

September 17, 2018

Three New Deals: Why the Nazis and Fascists Loved FDR

[Three New Deals: Reflections on Roosevelt’s America, Mussolini’s Italy, and Hitler’s Germany, 1933-1939. By Wolfgang Schivelbusch. Metropolitan Books, 2006. 242 pgs.]

Critics of Roosevelt’s New Deal often liken it to fascism. Roosevelt’s numerous defenders dismiss this charge as reactionary propaganda; but as Wolfgang Schivelbusch makes clear, it is perfectly true. Moreover, it was recognized to be true during the 1930s, by the New Deal’s supporters as well as its opponents.

When Roosevelt took office in March 1933, he received from Congress an extraordinary delegation of powers to cope with the Depression.

The broad-ranging powers granted to Roosevelt by Congress, before that body went into recess, were unprecedented in times of peace. Through this “delegation of powers,” Congress had, in effect, temporarily done away with itself as the legislative branch of government. The only remaining check on the executive was the Supreme Court. In Germany, a similar process allowed Hitler to assume legislative power after the Reichstag burned down in a suspected case of arson on February 28, 1933. (p. 18).

The Nazi press enthusiastically hailed the early New Deal measures: America, like the Reich, had decisively broken with the “uninhibited frenzy of market speculation.” The Nazi Party newspaper, the Völkischer Beobachter, “stressed ‘Roosevelt’s adoption of National Socialist strains of thought in his economic and social policies,’ praising the president’s style of leadership as being compatible with Hitler’s own dictatorial Führerprinzip” (p. 190).

Nor was Hitler himself lacking in praise for his American counterpart. He “told American ambassador William Dodd that he was ‘in accord with the President in the view that the virtue of duty, readiness for sacrifice, and discipline should dominate the entire people. These moral demands which the President places before every individual citizen of the United States are also the quintessence of the German state philosophy, which finds its expression in the slogan “The Public Weal Transcends the Interest of the Individual”‘” (pp. 19-20). A New Order in both countries had replaced an antiquated emphasis on rights.

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John Law and the Mississippi Bubble – 300 Years Later

September 9, 2018

John Law and the Mississippi Bubble – 300 Years Later

Most people are aware that historically there have been speculative bubbles. Some of them can even name a few – the South Sea bubble, tulips, and more recently dot-coms. Some historians can go even further, quoting the famous account by Charles Mackay of the South Sea bubble, the tulip mania and the Mississippi bubble, published in the mid-nineteenth century.

The most valuable bubble empirically for the purpose of our elucidation has to be the Mississippi bubble, whose central figure was John Law. Law, a Scotsman whose father’s profession was as a goldsmith and banker in Edinburgh, set up an inflation scheme in 1716 to rescue France’s finances. He proposed to the Regent for the infant Louis XIV a scheme that would be based on a new paper currency.

Law was a somewhat louche character, who in his Continental travels had spent his mornings studying finance and the principles of trade, and the evenings in the gaming-houses of Europe. He was a successful gambler, because of his ability to calculate odds.

Some similarities with the personality of Keynes two hundred years later are striking. Keynes was a mathematician first, and an economist second. Their approach was also similar: see a problem and try to find a solution, instead of seeing a problem and trying to understand why it existed before solving it. Both Law and Keynes felt that sound money was too restrictive for the enhancement of an economy.

Consequently, much of what Law proposed and then enacted in France rhymes with our neo-Keynesian world today. The difference, perhaps, is that when given the opportunity, Law seized it, and had ultimate financial and monetary power. He harnessed the roles of a central bank, monopolist in international trade, stock promoter and finance minister.

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John Law–300 Years On

August 30, 2018

JOHN LAW – 300 YEARS ON

Consequently, much of what Law proposed and then enacted in France rhymes with our neo-Keynesian world today. The difference, perhaps, is that when given the opportunity Law seized it, and had ultimate financial and monetary power. He harnessed the roles of a central bank, monopolist in international trade, stock promoter and finance minister.

…click on the above link to read the rest of the article…

Turkey’s Crisis and the Dollar’s Future

August 26, 2018

Turkey’s Crisis and the Dollar’s Future

Last week’s collapse of the Turkish lira has dominated the headlines, and it is widely reported that this and other emerging market currencies are in trouble because of the withdrawal of dollar liquidity. There are huge quantities of footloose dollars betting against these weak currencies, as well as commodities and gold, on the basis the long-expected squeeze on dollar liquidity is finally upon us.

Doubtless Triffin’s dilemma is dominating these speculators’ thoughts, telling them demand for the dollar as the reserve currency is infinite. This article points out that foreign financial entities as a whole already possess most of the excess liquidity created by monetary expansion of the dollar since the Lehman crisis. Admittedly, ownership of dollars is unlikely to be evenly distributed across correspondent banks representing all foreign nations. But this is no reason to say dollars are not under-owned by foreign users, and we must not forget dollars are also available in the foreign exchanges, as always, for credible buyers. Nor must we forget that the reason for the enormous quantity of currency derivatives ($75 trillion in US dollars alone1) is that future demand for dollars is already significantly hedged.

No, the reason certain EM currencies are losing purchasing power is the fault of individual governments and their central banks, who do not seem to realize that their unbacked fiat currencies are valued purely on trust, both that of their own people and on the foreign exchanges. And as we should know, trust is not something to be toyed with.

Furthermore, comments that China is in trouble from trade tariffs and being undermined by a strong dollar are wide of the mark. Geopolitics dominates here. America’s occasional successes in attacking the rouble and yuan are no more that transient pyrrhic victories.

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Liberty Defined

August 22, 2018

Liberty Defined

Liberty means to exercise human rights in any manner a person chooses so long as it does not interfere with the exercise of the rights of others. This means, above all else, keeping government out of our lives. Only this path leads to the unleashing of human energies that build civilization, provide security, generate wealth, and protect the people from systematic rights violations. In this sense, only liberty can truly ward off tyranny, the great and eternal foe of mankind.

The definition of liberty I use is the same one that was accepted by Thomas Jefferson and his generation. It is the understanding derived from the great freedom tradition, for Jefferson himself took his understanding from John Locke (1632–1704). I use the term “liberal” without irony or contempt, for the liberal tradition in the true sense, dating from the late Middle Ages until the early part of the twentieth century, was devoted to freeing society from the shackles of the state. This is an agenda I embrace, and one that I believe all should embrace.

To believe in liberty is not to believe in any particular social and economic outcome. It is to trust in the spontaneous order that emerges when the state does not intervene in human volition and human cooperation. It permits people to work out their problems for themselves, build lives for themselves, take risks and accept responsibility for the results, and make their own decisions.

Our standards of living are made possible by the blessed institution of liberty. When liberty is under attack, everything we hold dear is under attack. Governments, by their very nature, notoriously compete with liberty, even when the stated purpose for establishing a particular government is to protect liberty.

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When LBJ Assaulted a Fed Chairman

August 1, 2018

When LBJ Assaulted a Fed Chairman

In his column today, Ron Paul mentions that those who insist the Fed functions with “independence” tend to forget — or at least not bring up — the numerous historical episodes in which the Fed did not exercise any such independence.

As an example, Paul mentions the time President Lyndon Johnson

summoned then-Fed Chairman William McChesney Martin to Johnson’s Texas ranch where Johnson shoved him against the wall. Physically assaulting the Fed chairman is probably a greater threat to Federal Reserve independence than questioning the Fed’s policies on Twitter.

For those unfamiliar with the episode, I thought it might be helpful to look at some of the historical context surrounding the situation. In his book The Man Who Knew: The Life and Times of Alan Greenspan, Sebastian Mallaby writes:

Johnson had pushed Kennedy’s economic policies to their logical extreme. In 1964, he had delivered a powerful fiscal stimulus by signing tax cuts into laws, and he had proceeded to bully the Federal Reserve to keep interest rates as low as possible. When the Fed made a show of resistance [in 1965], Johnson summoned William McChesney Martin, the Fed chairman, to his Texas ranch and physically showed him around his living room, yelling in his face, “Boys are dying in Vietnam, and Bill Martin doesn’t care.”

This was the 1960s version of “you’re either with me or you’re with the terrorists.”

Of course, Johnson didn’t stop at pushing around a central banker. Mallaby continues:

If the tax cuts and low interest rates caused inflationary pressure, Johnson believed he could deal with it with more bullying and manipulation. When aluminum makers raised prices in 1965, Johnson ordered up sales from the government’s strategic stockpile to push prices back down again. When copper companies raised prices, he fought by restricting exports of the metal and scrapping tariffs so as to usher in more imports.

…click on the above link to read the rest of the article…

Three Economics Lessons I Learned from My Dad

July 26, 2018

Three Economics Lessons I Learned from My Dad

As long as I’ve known him, my father has always been the entrepreneurial type. Even now, in his seventies, he picks up side jobs both to keep busy and to have a little extra spending money.

Throughout my childhood and youth, he had always been an independent insurance broker and salesman. He often employed one or two people to help with the phones and the paperwork. But also often just worked alone.

Growing up, the idea of going to work for a big company for 30 or 40 years, and then retiring to a golf course or rocking chair somewhere, was something completely alien to me. People my age nowadays mostly expect to work full time until age 75 or more. We can forget about pensions and Social Security. But even when a multi-decade retirement seemed like a viable option in the old days, that wasn’t something to aspire to in my house.

In short, Dad has always been part of a small minority group in America: people who make their living from running their own business. It is estimated that only about 10 percent of Americans actually make their living from businesses they own. The numbers are higher if we look at people who have some small-business income on the side. But when we’re talking about people whose main source of income is their own business, the numbers are smaller.

Not surprisingly, people who are in this minority group have a different way of looking at the world.

For them, there’s no boss or manager to complain about when your income isn’t as high as you like. If there’s not enough money to make payroll at the end of the month, business owners stare failure in the face, and they know they may even be taking some other families down with them.

…click on the above link to read the rest of the article…

All Is Not Well In Financial Markets

July 25, 2018

All Is Not Well In Financial Markets

It seems to be a hard time for those expressing concern about the build-up of risks in the economic and financial system: the major economies in the world are expanding at a decent clip, credit default concerns are very low, and stock and housing prices keep going up, driven by investor optimism and supported by an ongoing low interest rate environment.

Moreover, cyclical indicators do currently not suggest that something terrible is just around the corner. But of course, there is good reason not to get carried away by the “all is well” mentality that has gripped financial market action. For central banks have, by way of their monetary policies of exceptionally low interest rates, set into motion an artificial upswing (“boom”).

While the boom leads to higher output and employment levels, it also causes — beneath the surface, so to speak — malinvestment on a grand scale: the development of the economies’ production and employment structure is getting diverted from the path it would have taken had there not been a downward manipulation of interest rates on the part of central banks.

Some Theory

This becomes obvious once a sound theory of the interest rate is taken into account, as put forward by the Austrian School of Economics, in particular by Ludwig von Mises. To explain this in some detail, we have to make a distinction between the “pure,” or “originary,” interest rate and the “nominal market” interest rate.

The originary interest rate is inseparably tied to human action: each and one of us value an early satisfaction of a want more highly than a later satisfaction of the same want. In other words: we as human beings value a good that is presently available more highly than the same good available at a future point in time. This is the direct outcome of our time preference.

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Can Sophisticated Technology Prevent Severe Economic Slump?

July 19, 2018

CAN SOPHISTICATED TECHNOLOGY PREVENT SEVERE ECONOMIC SLUMP?

Most economic commentators are likely to agree that in relation to the period prior to the Great Depression, the present world is many times more sophisticated in terms of advanced technological knowledge. It is then tempted to suggest that with the present advanced technology we are in a position to generate enough real wealth to prevent a severe economic slump.

On this way of thinking, ideas are not themselves scarce unlike material inputs. Consequently, new ideas for more efficient processes and new products can make continuous growth possible.

It follows then that because of the limited amounts of capital and labour, without the technological progress the opportunities for growth will eventually run out.

We suggest that one could have argued along similar lines about the period prior to the Great Depression i.e. prior to the 1929 when comparing it with the end of the nineteenth century. During the first 30 years of the twentieth century, important technological break-throughs occurred, and individuals’ wellbeing had risen significantly in the western world. Yet despite all the sophistication, the world still experienced the Great Depression. A severe economic slump took place in spite of technological progress.

We suggest that regardless of how many ideas people have what always limits the implementation of various new ideas is the availability of real savings.

Real savings the key for economic growth

While new ideas can result in a better use of scarce resources, they can however, do very little for real economic growth without the expanding pool of real savings.

In his “Man Economy and State” 2nd edition page 542 Rothbard says, that technology, while important, must always work through the investment of capital in order to generate economic growth. On this issue Rothbard quotes Mises who says,

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The War on Curiosity

July 14, 2018

The War on Curiosity

Last March, protestors at Middlebury College in Vermont sent professor Allison Stanger to the hospital with a neck injury. Stanger’s crime? She had the nerve to ask the protestors to allow the conservative/libertarian author Dr. Charles Murray to speak, and then to engage in a debate after his speech.

According to news accounts, after about 20 minutes of protestors shouting down Murray’s ability to speak, “Professor Stanger then took the microphone and asked the students, ‘Can you just listen for one minute.’ Many in the audience replied, ‘no.’ She added that, ‘I spent a lot of time preparing hard questions.’ Finally, she conceded that, ‘You’re not going to let us speak.’”

Stanger is a liberal professor who chose to combat Murray’s ideas with words, not violence or the heckler’s veto. This was simply unacceptable to the protestors.

After moving to another location on campus, Stanger and Murray were confronted when attempting to leave following their discussion. What followed was minutes of pushing and shoving, and “(w)hen Stanger tried to shield Murray, according to a Middlebury spokesman, a protester grabbed her hair and twisted her neck.” Stanger ended up going to a hospital where she received a neck brace to treat her injuries.

Over the last year and a half, we’ve witnessed a rash of accounts of college campuses being turned into riot zones by Leftist protestors hoping to shut down conservative or libertarian speakers. Middlebury is just one, and far from the worst , of such examples.

These protestors would rather incite violence than listen to a viewpoint that challenges their own.

The War on Curiosity

Why is the Left so afraid of an opposing opinion? How do they justify resorting to violence to shut down a dissenting voice rather than engaging in debate?

One such explanation is the war on curiosity.

…click on the above link to read the rest of the article…

Is Libertarianism Utopian?

July 9, 2018

Is Libertarianism Utopian?

Libertarianism – and any political position that leans towards a greater degree of freedom from the state – is opposed both ethically and economically on a number of substantive grounds. The proposition that without the state we would have inequality, destitution for the masses, rampant greed, and so on is a familiar charge which attempts to point out that libertarianism is undesirableand/or unjustifiable.

A further point of opposition is that libertarianism and the drive towards it is simply utopian or idealistic, and that libertarians are hopeless day dreamers, lacking any awareness of how the world “really” works. In other words, that, regardless of whether it may be desirable, some combination of one or more of impossibility, improbability or the simple unwillingness of anyone to embrace the libertarian ideal renders libertarianism either wholly or primarily unachievable. It is this specific objection that we will address in this essay.

Let us first of all recount the libertarian ethic of non-aggression, which states that no one may initiate any physical incursion against your body or your property without your consent. From this we can state that the goal of the libertarian project, broadly, is a world of minimised violence and aggression. Consequently, the questions we have to answer is whether a world of minimised violence and aggression is unachievable and, hence, utopian.

Impossibility

The first aspect to consider is whether the attainment of the libertarian ethic is either a physical or logical impossibility. Clearly, in order to be valid, an ethical proposition must be within the grasp of physical capability. An ethic requiring each person to be in two places at once, or to make three apples equal five apples by adding only one more would be ludicrous.

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How the United Kingdom Became a Police State

July 7, 2018

How the United Kingdom Became a Police State

This article will demonstrate how the United Kingdom has steadily become a police state over the past twenty years, weaponizing its institutions against the people and employing Orwellian techniques to stop the public from seeing the truth. It will demonstrate, contrary to official narratives, that both overall levels of crime and violent crime have been increasing, not decreasing, as the size of the state in the UK has gotten bigger. It will also expose how the Labour government under Tony Blair and Gordon Brown from 1997 to 2010, deliberately obscured real crime data with estimated crime rates based on survey data as opposed to the real numbers. I will demonstrate that, contrary to popular opinion perpetuated by progressive myths, life was much safer in Britain during the era of classical laissez-faire from the 1850s to 1911.

In his 10 years in power from 1997 to 2007, Tony Blair passed an astonishing 26,849 laws in total, an average of 2,663 per year or 7.5 a day.1 The Labour Party continued this madness under Gordon Brown who broke the record in 2008 by passing 2,823 new laws, a 6% increase on even his megalomaniac predecessor.2 In 2010, Labour’s last year in power before handing over the reigns to the Blairite social radical, David Cameron, there was a 54% surge in privacy cases brought against public bodies,3 and the Cabinet were refusing freedom of information requests at a rate of 51%.4 The vast number of new laws under Labour does not count the 2,100 new regulations the EU passed in 2006 alone, which apparently is average for them.

Many of these vast changes under Blair and Brown were in the area of criminal law. By 2008, Labour had created more than 3,600 new offences.5 Many of these, naturally, were red-tape regulations. To give you an idea:6

…click on the above link to read the rest of the article…

Trade Tariffs Won’t Crash the World Economy, Monetary Policy Will

June 26, 2018

Trade Tariffs Won’t Crash the World Economy, Monetary Policy Will

As the Trump administration announces 25% tariffs on over $50bn of Chinese goods, and Europe and China prepare retaliation measures, The Economist concludes that “Rising tariffs are the worst of many threats to the world economy”, because, among other things, “Tariffs temporarily push up inflation, making it harder for central banks to cushion the blow.” This statement displays a deeply entrenched confusion—if not utter misunderstanding—of some basic economic concepts. Most important, many people fail to correctly distinguish between the causes and effects of price inflation and those of monetary inflation.

Monetary inflation is the increase in the quantity of money in an economy. This inflation causes the purchasing power of money to fall, which brings about price effects—a general rise in prices of goods and services—which we can refer to as price inflation. However, this general rise in prices following monetary inflation is disproportionate and staggered: prices will rise at different times and to different extents as money reaches a lower purchasing power.

But monetary inflation also has non-price effects. One of these is the transfer of wealth between the last receivers of the new money toward the first receivers.

Another—and even more important—is the distortion of the pattern of investment and production, as the new money being created through credit expansion reaches stock markets and businesses—thus artificially reducing the interest rate. This latter effect explains the occurrence of production booms misaligned with consumer preferences, and the later, inevitable economic bust or crash. These price and non-price effects of monetary inflation are general and underline every possible economic activity.

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