Archive for February 2009
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An analysis of the dispute between Walter Block and Hans-Hermann Hoppe regarding the relationship between libertarianism and conservatism, with a proposed solution to the problem.
In 2007, Walter Block published a piece in Reason Papers (pdf) defending what he calls “plumbline libertarianism”:
In brief, plumb-line libertarianism is the view that human actions are justified only if they are consistent with private property rights, which are themselves, in turn, defended on the basis of homesteading or voluntary acts such as purchase, gifts, etc.
Plumb-line libertarianism may be defined in terms of pure libertarian principle: It does not compromise this political-economic perspective, not to curry favor with leftists or rightists. As stated above, it is entirely consistent with this view to make alliances with advocates of these other views, but the plumb-line libertarian will never confuse his own philosophy with either of these two others.
This is in contradistinction to the Hoppean views that “Conservatives today must be antistatist libertarians”, and “Libertarians must be conservatives”, where we have the following definition (extracted from Democracy: The God that Failed):
“Conservative” refers to someone who recognises the old and natural through the “noise” of anomalies and accidents and who defends, supports and helps to preserve it against the temporary and anomalous. Within the realm of the humanities, including the social sciences, a conservative recognizes families (fathers, mothers, children, grandchildren) and households based on private property and in cooperation with other households as the most fundamental, natural, essential, ancient and indispensable social units…
Conservatives (or more specifically, Western Greco-Christian conservatives), if they stand for anything, stand for and want to preserve the family and the social hierarchies and layers of material as well as spiritual-intellectual authority based on and growing out of family bonds and kinship relations. Read the rest of this entry »
The Irish Economy‘s Alan Matthews has posted a piece which questions the effectiveness of the fiscal stimulus packages of various EU countries. Unsurprisingly, there is no discussion as to whether or not fiscal stimuli are the appropriate policy response to a recession. It is merely assumed. The post focusses on the size of the stimulus packages.
the IMF warned that “Monetary and fiscal policies need to become even more supportive of aggregate demand and sustain this stance over the foreseeable future, while developing strategies to ensure long-term fiscal sustainability.”…
On their estimates, the fiscal stimulus breaks down as follows: for the US €199.6 billion or 1.8% of US GDP; for the EU, €112.5 billion or 0.9% of GDP, and for China €233.1 billion or 7.1% of GDP….
But the question is, is this a sufficient contribution from the EU on the fiscal side to support aggregate demand in the coming year?
Now Alan Matthews is a smart guy and he teaches a mean stats class at Trinity College, but it seems that he has misidentified the root cause of economic downturns. Recessions do not stem from a sudden collapse in aggeregate demand. This is but a consequence of the credit induced boom. A lack of real savings is revealed, consumers begin to cut down on spending and begin saving. Bad investments are liquidated. Any government intervention preventing these adjustments is bound to prolong a recession.
In fact, Murray Rothbard lists six things a government can do to turn a short sharp recession into a decade of misery. Here is number 5:
Stimulate consumption and discourage saving. We have seen that more saving and less consumption would speed recovery; more consumption and less saving aggravate the shortage of saved-capital even further. Government can encourage consumption by “food stamp plans” and relief payments. It can discourage savings and investment by higher taxes, particularly on the wealthy and on corporations and estates. As a matter of fact, any increase of taxes and government spending will discourage saving and investment and stimulate consumption, since government spending is all consumption. Some of the private funds would have been saved and invested; all of the government funds are consumed. Any increase in the relative size of government in the economy, therefore, shifts the societal consumption-investment ratio in favor of consumption, and prolongs the depression.
Or to put this in layman’s terms: if Crusoe’s house burns down (the island equivalent of a sub-prime mortgage crisis), he should start cutting back his berry consumption and carefully repairing his home. Matthews thinks this is the cause of Crusoe’s woes and would urge Crusoe to consume more berries and his previously accumulated capital.
What perplexes me further is that while most of us identify credit expansion as a contribuing factor to our woes, Matthews (and the IMF) claim that fiscal and monetary policy should “become even more supportive of aggregate demand”.
So how can credit expansion and “aggressive” monetary policy be both a cause and solution to the crisis? This is surely nonsense.
But the final thing I want to emphasise is that Matthews wants to have his cake and eat it too. Matthews can claim that Keynesian style fiscal stimulus “works”, however he is already preparing an escape hatch in case it fails. An excellent way for someone to not have to reconsider his faith if I do say so myself.
Post-script: If anyone knows of any pro-Austrian school economists at Trinity (or other colleges) please drop us a line!
Look at these faceless spineless bean-counting government bureaucrats, how pathetic they are…….
Let the free-market regulate itself. Only the free-market can regulate the free-market. Its too complex and dynamic for the slow bureaucracy and heavy hand of government.
*Additions and criticisms welcome!*
Here are some responses to common objections about the use of gold as money:
1. There simply is not enough gold for it to be used as money.
This is just like saying “we cannot possibly measure the size of microbes because inches are too large”. An excellent counterpoint to this line of thinking is to ask “what amount of gold will make it acceptable for use as money?”
Once a money is established, any stock of money becomes compatible with any amount of employment and real income. There is never any need for more money since any amount will perform the same maximum extent of needed money work: that is, to provide a general medium of exchange and a means of economic calculation by entrepreneurs. [Source]
The total amount of gold that has ever been mined is 142,000 tonnes. If half of that gold disappeared, it would still be viable to use as money, and prices of goods would simply adjust downward to fit the quantity of money.
2. At current market prices, all the mined gold on earth is worth $4.5 trillion. This is much less that all the currency that has been printed in the whole world!
The price of gold in terms of pieces of paper is irrelevant. After all, fiat currency notes can be printed with very little effort at all. For purposes of transition, the price of gold can be adjusted (by fiat if necessary) to that all central bank money holders can convert their money into gold.
3.What’s stopping you from using gold as money now?
Legal tender laws. Central bank money is legal tender for all debts, public and private. Your taxes are payable in central bank money. Contracts in gold coins will not be defended in the same way as contracts in dollars or euros (e.g. if somebody defaults on a gold contract, compensation may be payable in central bank money)
4. The money supply must grow at the same rate as the economy.
No it doesn’t. Prices are not independent of the money supply. The quantity of the money supply overall does not matter (See 1.). If the amount of goods and services increases, while the money supply stays fixed, prices of all goods and services will fall.
5. But deflation is bad, isn’t it? If the purchasing power of money constantly rises, doesn’t that mean an end to investment? Entrepreneurs will surely prefer to safely hide their money under the matress instead of taking the risk of investing.
Falling prices are surely a good thing!
The answer to the second question is no. While it is certainly “risk-free” to keep your money under the bed, it comes with a very real opportunity cost. Investors have a peculiar trait: they prefer goods in the future to goods in the present. In other words they forego consumption today and prefer a larger return later.
So a deflationary economy a nominal return (i.e., $1) becomes $1.10 when repaid compounds the real return (i.e., the purchasing power of $1.10 is now $1.21)
The desire for future goods may increase the desire for investment.
6. When did falling prices ever coincide with economic prosperity?
The period between 1873 and 1896 in Germany and the United States was a time of deflation. Prices for goods fell at an annualised rate of 1.6%. Gross Domestic Product grew at an annualised rate of 3.6%.
Innovations in manufacture, chemistry and railroads made the 1880s the most productive decade in the history of the United States – and one of the most prosperous.
Rothbard, Murray N.; The Case for a 100 Percent Gold Dollar
Hulsmann, J. G.; Deflation and Liberty
Hoppe, Hans-Hermann; The Misesian Case Against Keynes
Measuringworth.com (charts and figures)
Hat tips to Graham of the Irish Liberty Forum for his insights here.
Cheers to David Z for his insghts here.
The world has gone mad. Up is down, right is left and black is white. Reason has left the human race and if man has lost his powers of reason he is no longer human.
A good friend of liberty wrote recently of how even world socialists presented to us by the US media are aghast at the communist policies currently being implemented by the United States government. I have decided to expand upon what he wrote to me. This is a compilation of previous posts on Chavez and Rogers that now includes Putin.
Here are three world figures, two from governments and one entrepreneur, who decry the Communism of Obama.
– Socialist President Hugo Chavez
– Former Russian President and KGB Chief Director Vladimir Putin
– Jim Rogers, co-founder with George Soros of the Quantum Fund and CEO of James Beeland Rogers Holdings
They have criticised me, especially in the US, for nationalising a great (telecom) company, CANTV, that didn’t even cost $1.5bn,
Chavez said at a ceremony that included representatives of US oil company Chevron.
“The US has spent $900bn, four times what the Venezuela produces in a year, to try to boost the troubled finance system and housing market,”
At the World Economic Forum in Davos, the former Russian President was advising the U.S. on the dangers of the state and the importance of non-intervention. We are living in strange times. Putin says amazingly:
The entire economic growth system, where one regional centre prints money without respite and consumes material wealth, while another regional centre manufactures inexpensive goods and saves money printed by other governments, has suffered a major setback.
Excessive intervention in economic activity and blind faith in the state’s omnipotence is another possible mistake.
True, the state’s increased role in times of crisis is a natural reaction to market setbacks. Instead of streamlining market mechanisms, some are tempted to expand state economic intervention to the greatest possible extent.
The concentration of surplus assets in the hands of the state is a negative aspect of anti-crisis measures in virtually every nation.
In the 20th century, the Soviet Union made the state’s role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.
And one more point: anti-crisis measures should not escalate into financial populism and a refusal to implement responsible macroeconomic policies. The unjustified swelling of the budgetary deficit and the accumulation of public debts are just as destructive as adventurous stock-jobbing.”
Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors, and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state.
In our opinion, we must first atone for the past and open our cards, so to speak.
This means we must assess the real situation and write off all hopeless debts and “bad” assets.
True, this will be an extremely painful and unpleasant process. Far from everyone can accept such measures, fearing for their capitalisation, bonuses or reputation. However, we would “conserve” and prolong the crisis, unless we clean up our balance sheets. I believe financial authorities must work out the required mechanism for writing off debts that corresponds to today’s needs.
Second. Apart from cleaning up our balance sheets, it is high time we got rid of virtual money, exaggerated reports and dubious ratings. We must not harbour any illusions while assessing the state of the global economy and the real corporate standing, even if such assessments are made by major auditors and analysts.
In effect, our proposal implies that the audit, accounting and ratings system reform must be based on a reversion to the fundamental asset value concept. In other words, assessments of each individual business must be based on its ability to generate added value, rather than on subjective concepts. In our opinion, the economy of the future must become an economy of real values. How to achieve this is not so clear-cut. Let us think about it together.
Third. Excessive dependence on a single reserve currency is dangerous for the global economy. Consequently, it would be sensible to encourage the objective process of creating several strong reserve currencies in the future. It is high time we launched a detailed discussion of methods to facilitate a smooth and irreversible switchover to the new model.
Fourth. Most nations convert their international reserves into foreign currencies and must therefore be convinced that they are reliable. Those issuing reserve and accounting currencies are objectively interested in their use by other states.
Such a speech sounds more like Ron Paul than any other politician I’ve ever heard! Putin has shot up my favourite politicians list for the simple fact he said those words, whether he believes them or not is another question. I can’t believe he mentioned competing currencies for the ‘world reserve currency’!!!!
The nationalization of Fannie Mae and Freddie Mac shows that the U.S. is “more communist than China right now” but its brand of socialism is meant only for the rich, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe.
America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it’s just bailing out financial institutions,
In summary, the US is:
– dwarfing the socialism of Venezuala,
– too interventionist for the taste of Russia’s PM,
– more communist than China (Jim Rogers).