Book Review: The Euro

The Euro is a book about the shortcomings of the eurozone currency project by American economist Joseph Stiglitz. The book makes a case against many of the policies pursued by European leaders thus far and recommends several alternatives, including further integration, a flexible euro, and the exit of one or more members. The book is divided into twelve chapters which explore different aspects of the problem and possible solutions.

A short preface details Stiglitz’s view of the economic problems of Europe as being largely attributable to the creation of a single currency zone without the creation of other institutions that are found in other such places elsewhere in the world. He compares the euro to the gold standard, repeating the flawed mainstream view that deflation is bad. His Keynesian approach to economics and thoroughly statist worldview is apparent from the beginning. That being said, Stiglitz appears to want to solve problems and correctly identifies some people and institutions as being uninterested in doing so.

The opening section begins with a chapter that expands upon the preface and outlines the rest of the book. There is little here that is not covered in greater detail later, so let us move on. In Chapter 2, Stiglitz argues that the poor results of the euro should have been expected because economic integration of this sort cannot come before political integration. Here, he contends that military might no longer shapes outcomes as it once did, but this is dubious because nothing short of a nuclear exchange that no one wants could have stopped the United States from conquering and colonizing Iraq if that had been the intention and American leadership had used its full power. So too for Russia in Ukraine and Crimea. His responses to other arguments for a single currency make more sense. He states the fallacious mainstream position on public goods, claiming without logic or evidence that it is impossible for markets to provide basic research and common utilities. This amounts to a confusion of collective action with state action. Even so, Stiglitz does recognize that localization is better than central planning from afar, though his disdain for German policies makes him inconsistent on this point. He then turns to economic integration, discussing the importance of German history with hyperinflation and its prominent role in modern Europe for understanding the European Central Bank. Next, Stiglitz writes about effect that a shared currency has on economic integration, which is mixed. Like many Keynesians, he accuses the market of failure when this is actually impossible; such events are actually failures of government, resources, or individual people. He also regards economics as scientific, even though the scientific method cannot be applied to subjects in which counterfactuals are so important but also unobservable. As usual, the word ‘neoliberal’ says more about the person using it than anything else. He concludes by arguing that there is a democratic deficit in Europe, even though he argues elsewhere in the book against incentive structures which are necessarily part of any democracy.

Europe’s lackluster economic performance since the 2008 crisis is the subject of the third chapter. Stiglitz begins by claiming that Keynesianism is a success because it has lengthened business cycles and shortened downturns, but it has also made the downturns that do occur so much worse that markets were better off before such interventionism. Much of the chapter consists of empirical data for Europe since 2007. When discussing unemployment, he seems not to recognize that unemployment benefits subsidize a negative behavior and will thus produce more of that behavior. Stiglitz relies upon the Gini coefficient when discussing inequality, which is a faulty metric because it measures pre-tax income rather than after-tax consumption. This causes it to exaggerate the amount of income inequality. His detailing of the long-term adverse effects of recession in terms of destroyed human capital is largely correct, but he again recommends interventionism that tends to worsen such problems. He also takes the position that the state should protect those at the economic bottom, though almost every economist would avoid social Darwinism on this front. Stiglitz then commits a fixed pie fallacy by arguing that trade surpluses necessarily cause trade deficits elsewhere, when the reality is quite different. He concludes by correctly noting that the counterfactuals help critics of the euro, and that there is no better explanation for many of Europe’s troubles than sharing a common currency across uncommon societies and economies.

The second section argues that the euro suffers from a flawed initial design. In Chapter 4, the requirements for a single currency region to be successful are considered. Here, Stiglitz uplifts full employment and market stability as goals while denouncing those who favor economic freedom as a “lunatic fringe.” This leads him to contemplate a false dilemma between national control of money and supranational control. He blames market fundamentalism (which he calls neoliberalism) for the crisis of 2008, despite the fact that markets were altered by central bankers in such a way as to cause the crash, which he all but says elsewhere. In explaining the differences between the United States and the eurozone, Stiglitz highlights the freer movement of Americans, the identity of Americans at the national level rather than the state level (at least in modern times), and the federal nature of monetary and fiscal stimulus. He is correct to say that there must either be “more Europe” or “less Europe,” but sides with the former. He describes the Keynesian theory of business cycles, but makes no mention of the Austrian theory. Stiglitz then repeats the tired fallacy that austerity caused the Great Depression and the current malaise, rather than central bank shenanigans and tariff policies. His blame for the gold standard is similarly misguided. He somewhat fixes an error from the previous chapter by clarifying that trade imbalances are not a problem if currency exchange rates can change to compensate for them. He straw-mans the laissez-faire position on unemployment by saying that it views unemployment due to market adjustments as good rather than as simply necessary. Stiglitz then gets a few points correct: low wages undermine worker morale and productivity, falling wages may not amount to falling prices if firms are worried about their solvency, and monetary stimulus has a breaking point at which interest rates cannot be lowered further. But he again blames the private sector for being excessive when it is only reacting to perverse incentives created by governments and central banks. There is little to fault in Stiglitz’s explanation of why currency areas are prone to crisis except for the preceding error, but it never occurs to him to simply not have such an area. The chapter ends by repeating many of the fallacious arguments from the previous chapter concerning trade surpluses and deficits.

The fifth chapter considers the economic divergence of the eurozone countries. Stiglitz argues in favor of institutional frameworks to prevent the need for bailouts, as well as funds to make depositors whole and provide bailouts. This ignores the moral hazard created by such a regime that causes bankers to take excessive risks, as well as the powerful incentives that an absence of protection would have on depositors to act responsibly and hold bankers accountable. His view of regulation is starry-eyed, missing the entire concept of regulatory capture. This is especially striking, given his focus on institutional capture in the following chapter. Stiglitz rightly complains of capitalized gains and socialized losses among bankers. In his consideration of other sources of divergence, he again fails to consider the possibility of turning over infrastructure to private development, instead proposing expansion of the European Investment Bank, which is certain to become another statist boondoggle. His view of knowledge markets is flawed in the same manner as his view of economies; it fails to account for the distortions that statism necessarily causes which lead to various types of failure. He concludes the chapter by showing how policies in the eurozone have caused greater instability, but cannot seem to avoid blaming the private sector for responding to the incentives imposed upon it.

In Chapter 6, Stiglitz examines the European Central Bank. He begins by saying that open markets and free competition can efficiently allocate resources only in the presence of adequate government regulation. This is a contradiction because an absence of government regulation defines an open market with free competition. His arguments concerning the inflation-only mandate of the ECB and the problems it causes would be much stronger if the Austrian business cycle theory were anywhere to be found in the book. His description of events in Chile under Pinochet does not agree with the long-term result of economic prosperity relative to the rest of South America and neglects how much worse conditions would have been under Salvador Allende. His claim that markets are supposed to be efficient and stable are a straw man; instability in the form of creative destruction and inefficiency by some metrics rather than others are inherent in a market economy. Stiglitz correctly writes that monetary policy is always a political question, pitting creditors against debtors for control of the central bank. But he leaves unclear how democracy is supposed to hold central bankers accountable. He also must not know any libertarians, or he would know that some people have proposed taking away spending power from governments to ensure that they do not misbehave. The chapter ends with a history of fashionable central bank policies over time and what was wrong with them from a Keynesian perspective.

The next two chapters delve into the Greek situation in particular, as Greece has suffered a more severe economic crisis than any other eurozone country. The seventh chapter explores the effect that the Troika’s policies had on countries in crisis. Stiglitz accuses some European leaders of acting in bad faith by purposefully attempting to punish governments with different political views from their own, which may be accurate. He continues his misguided attack on austerity, though it has more merit against what Europeans have actually done than against real austerity. He correctly explains the problem with primary surpluses, but then commits the broken window fallacy by embracing Keynesian multipliers. Stiglitz accurately diagnoses the problems of increasing taxes, but seeks to aid governments in collecting them rather than encourage economic freedom and stronger property rights. He describes his ideal system of property taxation in the same tone that a proud and unrepentant thief might use to boast of his crimes. Although he is correct to say that particular moves toward privatization and economic freedom may produce adverse results in particular contexts, this is a justification not for state intervention, but for undoing even more statism so as to remove the problematic context. Stiglitz notes that the hegemony of American military power has put Europe into a Pax Romana problem in which it cannot fend for itself against a real threat, but advises that this problem be worsened in the name of fiscal restraint. He compares reductions in pensions to wage theft when the two are clearly different. It is the responsibility of workers to figure out that they are being offered terms which may be impossible for the employer to meet in the future and practice caveat emptor. As for bank bailouts and debt restructuring, Stiglitz describes the situation well except for his faulty view of austerity.

Chapter 8 delves into structural reforms in Greece that made matters worse. Again, Stiglitz’s views of austerity and democracy corrupt an otherwise sound analysis of trivial and counterproductive actions taken by the Troika. He claims without proof that industrial policies are required to advance countries that are lagging behind in technological development, neglecting that markets are not doing this because they are either disallowed from doing so or are assuming that the state will do this for them. He criticizes intergenerational transmission of advantage and seeks to use the state against it, when it should be championed as both eugenic and important for maintaining a natural aristocracy. Stiglitz argues for a price on carbon emissions and claims that the private sector will not address climate change, when again the state has kept this from happening. He finishes by discussing counterfactuals, which is interesting given his empiricist thinking on economics.

The final four chapters deal with various proposals going forward. In the ninth chapter, Stiglitz offers his advice for fixing the eurozone. As before, he embraces what Henry Hazlitt called “the fetish of full employment” as the goal of his policy proposals. Much of the content of the chapter rehashes proposals from previous chapters. He seeks to create common deposit insurance and common resolution while abolishing place-based debt within the EU. This will create moral hazards and work against people who wish to escape debt slavery inflicted upon them by their ancestors. He calls for wages to be raised in countries with surpluses, which will lead to unemployment in those countries as workers whose labor is not worth higher wages are laid off. He fundamentally misunderstands precious metals, failing to understand their role as a store of value and medium of exchange, even if no longer officially used in such capacities. Stiglitz seeks to make the financial sector and other corporations serve society, but fails to recognize that the organs of a statist social order inherently and irrevocably serve themselves at the expense of the society. The shortsightedness of markets of which he complains is actually caused by the institutions that he seeks to use to solve the problem. One of the few sound recommendations made in this chapter is the creation of a super-Chapter 11 bankruptcy procedure to quickly restructure debt. He goes on to propose that EU taxes be based on citizenship, and that some of the proceeds be used for foreign aid or resettlement of migrants, further impoverishing and culturally endangering Europeans.

Chapter 10 examines the possibility of what Stiglitz calls “an amicable divorce,” in which countries exit the eurozone. He considers the example of Grexit, or Greece returning to its own currency that he calls the Greek-euro but would probably be called the drachma, as it was before the euro. He proposes that Greece create a new electronic currency to ease concerns over producing coins and banknotes, stop tax avoidance, bring everyone into the financial system, and facilitate the ability of central banks to create credit. Stiglitz fails to consider that people are likely to reject such a system in favor of cryptocurrencies, which have all of the benefits of such a system without most of the drawbacks, and that such a system could offer states tyrannical control over their citizens. His view of credit indicates magical thinking, although this is quite common in modern financial circles. He again blames the private sector for problems caused by politicians and central bankers, while ignoring peer-to-peer lending as a substitute for modern credit systems. Stiglitz describes a potential system of credit auctions which could be abused with much the same ease as the current system. He admits and supports what should be abhorrent to any decent person: that fiat currencies are ultimately given value by extortion in the form of taxation. Stiglitz correctly says that a new Greek currency would enable them to devalue it to correct trade imbalances, but his proposed system of trade tokens for the same purpose would be redundant. He equates deflation with a deficiency of aggregate demand, neglecting the possibilities of an abundance of supply or improvements in efficiency and/or quality. His description of currency change as a debt restructuring is insightful. To end the chapter, Stiglitz considers the alternative of Germany leaving the eurozone, though it is unlikely that they would give up their current position of power so willingly. This segues into the topic of the next chapter, which is a flexible euro consisting of several subdivisions.

Stiglitz uses Finland as a counterexample against those who claim that profligacy in southern Europe is to blame, rather than the structure of the eurozone. Most of his argument here is correct, except for his view of austerity. His proposal in this chapter is to have several eurozones with fluctuating exchange rates, which could be brought closer together over time as political integration occurs, eventually resulting in economic integration. The details are borrowed from the previous two chapters. Though more likely to succeed than the proposals in those chapters, it is also the least likely to be adopted. Stiglitz correctly recognizes that having a single currency area is an interference in the market in and of itself, monopolizing exchange and interest rates in the area, but cannot seem to fathom that his flexible euro proposal also does this on a smaller scale. He claims that it can be better not to simply rely on prices for the allocation of resources, but does not explain how to solve the local knowledge problem or the economic calculation problem in a superior manner. He also says that history shows free banking to be a disaster, when the truth is quite the opposite.

The final chapter sees Stiglitz review many themes from previous chapters, but he also covers topics which are barely mentioned elsewhere. He denounces anti-immigrant groups in Europe, which are only trying to resist demographic replacement by a ruling class that they did not ask to replace them. So much for the “democratic accountability” that Stiglitz extols in the same breath. He blames right-wing economic ideology for rising inequality in the United States beginning with the Reagan administration, but incomes really began to diverge ten years earlier, when Nixon ended the gold standard. Stiglitz expresses a desire to preserve the Enlightenment values of Europe, but cannot comprehend how letting in migrants with distinctly anti-Enlightenment values will jeopardize that mission. On the issue of trade policy, he understands that free trade is not always best for all parties involved, as it can destroy important societal arrangements that prevent conflict. But then Stiglitz incredulously asks how one could have expected that Europe’s leaders would create such economic dysfunction, with massive unemployment and lack of economic security. The answer is that a proper amount of cynicism would require such an expectation.

Overall, the best thing that can be said for the book is that it is not an effort made in bad faith. Stiglitz correctly identifies many of the problems with the current state of affairs in Europe and seems to want to help, but his proposed solutions are thoroughly misguided. Despite his palpable disdain for Milton Friedman and other Chicago School monetarists, he suffers from one of the worst of their faults: a desire to solve the immediate problems set before him combined with a lack of broader perspective. This leads him to propose a banking system which could be used to terrible effect against political dissidents, tax collection schemes that would indicate criminal intent in any non-statist context, and forced political integration by means of stealth and subterfuge. He also seems to believe that everything would be fine if only state power were used by the right people to implement the right policies. It never occurs to him that the power itself might be the problem. The Euro is an interesting case study in leftist economic thought, but those looking for real solutions to Europe’s economic woes should keep looking.

Rating: 2.5/5

Praise The Grinch Bots

This week, outlets across the spectrum of establishment media were outraged at so-called ‘grinch bots.’ These are automated programs that make bulk purchases online so that scalpers can resell the items at higher prices. This has caused the prices of some toys to increase several-fold. For instance, a Barbie Hello Dreamhouse retails for $299.99, but on eBay, one reseller is asking for more than $4,600. This phenomenon has caught the attention of Sen. Chuck Schumer (D-NY), who said, “Grinch bots cannot be allowed to steal Christmas, or dollars, from the wallets of New Yorkers. …Parents have a real dilemma: either they can’t get the toy because the bots have scooped them up, or they have to pay an enormous price.” In a letter to the National Retail Federation and the Retail Industry Leaders Association, he wrote, “I am calling on your associations to immediately investigate how these dishonest software programs are being used on your members’ sites and take all available steps to thwart computer systems from cheating America’s consumers.”

Schumer’s comments illustrate an economic illiteracy that is all too common among politicians and pundits. Contrary to popular belief, scalpers perform an important function in an economy. In this case, they also provide other benefits that extend beyond economics and into culture. Let us examine these phenomena in order to see why grinch bots are good.

The Economic Role of Scalpers

When a manufacturer produces an item for sale, it is impossible to calculate the market clearing price in advance. The market clearing price is exactly what it appears to be: the maximum price at which the producer can sell all of the produced items. Any price above this level will result in unsold product, while any price below this level will invite people to buy up the items and resell them, also known as scalping. Whereas overproduction is the worst inefficiency in manufacturing, a producer would prefer to err on the low side of the market clearing price. This naturally produces excess demand, which in turn leads to higher prices. Part of this effect occurs naturally in retail businesses, but scalpers act as an additional market force to accelerate the price correction up to its proper level.

Scalpers also function as risk mitigators. If a scalper buys products and fails to resell them, then the scalper loses the entire cost of the item while the manufacturer, retailer, and everyone in between are reimbursed for their expenses. If the scalper does make sales, then he makes a profit and people find the products they want. The scalper is thus strongly incentivized to connect manufacturers and distributors with customers who want their goods. Note that the scalper is behaving like a retailer, in that he buys large amounts of finite, potentially scarce products and sells them for a profit to people who want them. Yet hatred of scalpers is common, while hatred of retailers is rare.

Some people will argue that scalpers are responsible for higher prices and lower availability, but this is merely a result of arithmetic, and would happen with or without dedicated scalpers speculating on Christmas toys. Suppose, for an example similar to the case at hand, that doll houses are selling for an average of about $300, there are 10,000 doll houses for sale every day, and 15,000 people want a doll house. To avoid distributing reservations without price rationing, which would result in reservations being made available in an arbitrary and discriminatory manner, prices must rise to a level where only 10,000 people still want them. This level may be around $450 in this case. How this $150 per doll house increase is distributed is what will vary, depending on how much scalping versus internal revaluation in retail stores is occurring.

Schumer makes two more especially ignorant claims which are worthy only of a cursory rebuttal. First, he contends that scalping harms the poor. This ignores the fact that scalping is an excellent economic opportunity for the poor, as they can make large returns by engaging in scalping. Second, he says that grinch bots are engaging in acts of theft and cheating. The idea that voluntarily purchasing a product at the offered price could constitute theft and cheating is simply bizarre.

Cultural Benefits

When scalpers buy up Christmas toys and fail to resell them, there are additional benefits which extend beyond economics and into culture. There is an enormous opportunity cost involved with the holiday shopping season, as people spend money they do not have on items they do not need, then spend even more money on getting out of debt. One way of preventing this is for attempted scalpers to raise prices and thus reduce demand. This will cause people who are on the margin of shopping versus not shopping to reconsider in favor of the latter. Those who make one reconsideration are more likely to make other, related reconsiderations, so people who cease engaging in holiday consumerism may come to some deeper personal or spiritual understanding, or at least develop more concerns beyond immediate gratification. Although a few grinch bots may play a minmal role in the grand scheme, any lowering of time preference coupled with greater focus on the virtues embodied in Christmas traditions would be a cultural improvement.

Conclusion

The attacks on the grinch bots are understandable; they are an obvious target for the economically illiterate, and going after them makes excellent political hay for a senator looking to expand the state’s regulatory powers. Which of these best describes Schumer is debatable, but the above analysis clearly demonstrates that scalpers in general and these computer programs in particular should be praised rather than denounced.

The Economic Fallacies of Black Friday: 2017 Edition

Today, shoppers across America will participate in the largest shopping day of the year: Black Friday. The National Retail Federation is estimating that 164 million customers will be shopping on Black Friday weekend. For the first time, their estimate includes Cyber Monday, which had previously been treated separately. The 2016 estimates were 137.4 million between Thanksgiving and Sunday, and 122.2 million on Monday. The actual result from 2016 was 154.4 million between Thanksgiving and Sunday. A similar adjustment to the predicted value for 2017 would mean an actual number of shoppers close to 184.3 million.

The NRF estimates that total sales for the holiday season will be between $678.75 billion and $682 billion, up from $658.3 billion in 2016. This would be an annual increase of 3.6 to 4.0 percent. The estimate for 2016 was $655.8 billion, suggesting that the total sales for 2017 may be around $683 billion. This year, the NRF estimates that retailers will hire between 500,000 and 550,000 seasonal employees, compared with the actual 575,000 they hired during the 2016 holiday season versus an estimate of 640,000 to 690,000. We may therefore expect that retailers will actually hire about 453,900 seasonal employees. On the surface, this may appear to be a marvelous celebration of free market capitalism. But let us look deeper through the lenses of the broken window fallacy and the idea of malinvestment.

To view holiday shopping as a boost to the economy ignores the fact that people could either be spending that money in other ways or saving it. In other words, such an approach is an example of the broken window fallacy because it focuses only on what is seen and ignores opportunity costs. If people would save their money rather than spending it on various holiday gifts, then this money would be invested in one thing or another. As Henry Hazlitt explains in Chapter 23 of Economics in One Lesson, saving is really just another form of spending, and one that has a greater tendency to allocate resources where they are most needed.

Per capita spending is predicted to be $967.13 in 2017, up from the 2016 estimate of $935.58. The above problems get even worse if people use credit cards to spend money that they do not currently have. With a current credit card interest rate of 16.72 percent and a minimum payment of 4.0 percent, a debt of $967.13 would take 5.5 years to pay off and would cost $1,372.85. This is $405.72 wasted on interest payments that could have been kept in one’s accounts or put toward a productive purpose. Multiply this by the 184.3 million shoppers predicted earlier, and the result is that as much as $74.8 billion could be spent on interest payments.

When people purchase unwanted gifts and/or buy gifts with money they do not currently have, their choices encourage malinvestments. A malinvestment is an investment in a line of production that is mistaken in terms of the real demands of the economy, which leads to wasted capital and economic losses. The holiday shopping season contains a subset of shopping which creates systematic and widespread mistakes in investment and production. Although the effect is not as severe as what occurs during an Austrian business cycle bust and is both caused and resolved in fundamentally different ways, there is a noticeable hangover effect on the economy. A look at the average monthly returns on the Standard and Poor’s 500 shows that while the worst month for investments is September, the next three worst months for investing are February, May, and March. (April would likely be bad as well if not for income tax returns providing an artificial economic boost.) An economic downturn occurs in the historical average following the holiday season, but as this has become an expected annual occurrence, many analysts simply do not look for an explanation of these results, as they are perceived to be natural. Even so, this appears to be a small-scale business cycle that repeats annually.

With these arguments in mind, would we all be better off if we just canceled the holiday shopping season? It is an open question, but the Austrian School of economics suggests that we could have a better economy if the burst of economic activity in late November and December were spread throughout the year and people did not spend money they do not have on items they do not need.

Building Liberty in Minecraft

The defining feature of this time period is the Internet, which provides unprecedented freedom of speech and access to information. But the more things change, the more they remain the same. Millennials have suffered from the same steady march against economic freedom. We understand much about social media and relatively little about free markets. But a new generation can know about a free society right now, and this led me to build Liberty Minecraft.

Prior Developments

For the past quarter century, the Internet has generated emergent digital economies in which people exchange digital items for analog items, usually fiat currency. These economies offer pay at any rate, avoiding minimum wage laws that remove low rungs on the economic ladder. Digital economies also exist in massively multiplayer online games.

In 2007, more than one hundred thousand people were employed as gold farmers in World of Warcraft for as little as thirty cents per hour.[1] A gold farmer is a person who plays multiplayer games to earn in-game currency for the purpose of selling it for real-world currency. Earning in-game wealth takes time and effort. Because online games can be accessed all over the world, people can earn a competitive wage in relatively low-wage markets by selling in-game currency to players in high-wage markets. Gold farming uses server bandwidth in exchange for money that players wish to spend on the game, and this costs game developers. It was once typical for game developers to ban gold farmers, but in recent years they have turned toward economic freedom as a solution to rising costs due to gold farming.

Today, players of Runescape and Eve Online may exchange in-game wealth for tokens called Bonds or CCP, respectively. These tokens are purchased for cash by one player, traded in game to another player, and may be used to pay for membership services that would otherwise cost $10-$15 per month. Game developers like play-to-pay business models because they can sell membership services for a 30% premium and use their own players to regain market share from gold farmers.[2] For gamers, play-to-pay models can provide dollar-equivalent hourly wages of less than $1, but highly skilled players can earn $5 or more. One may earn a wage during the least productive periods of their daily lives, producing at least some value instead of none.

Transactions are not always small. For example, a player of Entropia Universe spent $2.5 million to purchase virtual real estate in 2012. This was done because in the game, land owners share the revenue generated by player-to-player transactions, and this revenue is directly convertible to US dollars. This speculative bet may have yielded annual returns of 27 percent.[3] By their nature, speculations infrequently generate a profit, but one develops ability by trial and error.

Digital economies make it easier to learn about economics. Many capitalist acts between consenting adults are illegal in the real world,[4] but such barriers are rare in online games. Digital exchanges execute billions of trades per month for any of a thousand virtual commodities. Players of all ages can make thousands of equity decisions in those markets without having to file capital gains taxes. People can lose a digital shirt and learn real economic lessons.

Experiencing economic freedom in games is all well and good. This may partly explain why millennials were so attracted to Ron Paul’s “End the Fed” movement. However, organizing society by libertarian principles is about more than economics. Non-aggression and private property require freedom from the state. No such freedom presently exists in the real world. The lack of such empirical examples may help one understand why those same millennials support Bernie Sanders and Donald Trump just four years later. We do not understand freedom from the state, and this has not changed. Because a libertarian society is foreign to our experience, people ask questions like “who will build the roads?” The answer is actually simple. Without a state, people who want roads and are capable of building them do so. I have seen this in action because of Minecraft.

Original Conditions in the World of Minecraft

Minecraft is a sandbox game. Play is self-organized within a block building, 3D world. Players may select one of three basic game modes. In Creative, one may access a menu with infinite resources. In Survival, one must gather and consume resources to live but will respawn if they die. Hardcore mode is like Survival, but death is final.

Minecraft worlds are large by default. From an origin, a player may travel 30,000 kilometers along any axis and may build 256 meters to the world’s zenith. This is roughly half the size of Neptune by surface area (if it were a terrestrial planet) or seven times the surface area of Earth. Each Minecraft world has three dimensions of this size and depth. Each world is generated algorithmically from an 8-byte seed, a string of numbers. There are 264 possible 8-byte strings, leading to over 18 quadrillion possible Minecraft worlds.

The Virtual State of Nature

Online, Minecraft is lawless. Before modifications of any kind, the only rules which govern player behavior are physical laws. You have exclusive control over your player character but anyone may attack and try to kill you, thereby gaining access to resources that you carry or protect. However, in such large worlds with abundant ‘natural’ resources, violent conflict is relatively rare because it is simply easier to work for what one wants.

Competition among Minecraft servers is unfettered and meritocratic. Engagement is high; Minecraft is the best-selling computer game at present. The barrier to entry is low: a Minecraft server can be created or copied in minutes, deployed online at low cost, and operated by anyone. In less than one minute, a player may select and visit any of thousands of servers. Participation is voluntary; players always have the option to leave a Minecraft server at once.

Minecraft servers have diverse rule sets. An infinite number of server configurations are possible with server plugins that modify the game. Within commercial use guidelines and technical limitations, server operators establish rules according to their preference. These rules need not and often do not conform with existing laws in the real world. These rules can be and are often enforced by computer code. In this way, all Minecraft servers are new principalities which may or may not be governed by smart contracts.

Social orders are spontaneously created within Minecraft. Players develop institutions that are optimized to solve problems. Users build means to produce, distribute, and trade valued goods, especially food and building materials. They create farms, roads and shelters, and also chests to organize and store items for later use. Players create and promote their own social norms. If a player does not fill in potholes or replant trees to replace those that they have felled, other players may try to change their behavior. This may take various forms, from warning them in the game’s chat to attacking problematic players. Those who share values and aesthetics build their own communities and exclude (sometimes by violence) others with opposing values. Spontaneous order thus develops with or without an explicit ethical framework.

In Minecraft, people experience social orders with arbitrary rules. So, what happens if one creates a Minecraft server that defines rules by libertarian ethics and Austrian economics? In my case, the result is Liberty Minecraft.

Long Experience in a New Order

Liberty Minecraft is a sandbox for freedom. The goal was to establish a practice environment where people may test ideas within a digital free society and may learn about freedom by playing it. For over nine months, this goal has been achieved. Play is ordered spontaneously within the physical laws of Survival Minecraft. In a number of other ways Liberty Minecraft is different.

Liberty Minecraft is not as large as a default Minecraft setting. As before, there are three dimensions but their size has changed. The Overworld is seven kilometers on a side; just under nineteen square miles in surface area. This is roughly the size of Manhattan.[4] The Nether, another region, is just as large. The End, a place devoid of most resources, is ten times larger.

Some resources in Liberty Minecraft are renewable, while others are not. Resources must be gathered in order to be used or exchanged. Products are either created by the players or discovered in scarce structures that are native to Minecraft worlds. Liberty Minecraft could someday run out of trees, water, or soil, among other things.

Liberty Minecraft has few rules. Only one rule constrains player behavior; resolve nonviolent disputes nonviolently. Players of Liberty Minecraft must seek nonviolent solutions to the problem of scarcity. Two other rules further specify conditions that permit a player to use my server: read and understand the rules, and do not hack the server. The fourth rule is followed by myself and by the server itself. This rule does not bind the players, but rather provides them with an option and a promise: everything you claim is yours; if someone else claimed it first, then it is not yours. Private property rights within Liberty Minecraft are enforced by smart contracts.[5]

To claim property, a player may use a claim tool on unclaimed land and must spend claim blocks to create a claim. Claim blocks cost $20 each. A player may also purchase land from an existing claim holder. In both cases, smart contracts are optional and available to execute these transactions. Smart contracts also enforce all other forms of property on the server. This applies to player characters.

One may engage in combat with others provided that each player turns on the ability to do so. In Liberty Minecraft, a player character is protected from other players by default. This protection is optional. A player may disable these protections and enter player-versus-player mode. By entering this game mode, a player consents to be attacked at will by other players. This allows for combat between two or more people to take place, but only if all parties involved agree to enter into mutual combat.

Competition within Liberty Minecraft is unfettered and meritocratic. In under one minute, anyone who owns Minecraft for PC can join the server and begin to act within a libertarian social order. Player interactions are voluntary, with complete freedoms of association and discrimination. No one is required or forbidden to provide for others.

Liberty Minecraft uses Diamonds, one of the in-game commodities, as money.[6] At present, Diamonds are used to create the best tools and armor in Minecraft. They are also scarce, durable, and fungible. Within Survival Minecraft, diamonds cannot be farmed or produced synthetically. To obtain a diamond, one must search for hidden chests in scarce structures or dig underground for diamond ore.

Minecraft players seem to have freely chosen Diamonds as the medium of exchange. Thus, I have chosen Diamonds as money. However, a Diamond is indivisible. This problem was addressed by creating a Diamond Exchange to split a Diamond into $1,000. The value of a dollar is measured to fifteen decimal places, so there is plenty of room for revaluation if money becomes too valuable to perform ordinary transactions.

Engagement is strong so far; since the official launch in March 2017, players have engaged in more than 100,000 trades using our shop system. A single trade may consist of anything from one item to more than a thousand items, all player created. More than 8,000 hours have been logged by the players at the time of this writing. Liberty Minecraft is also cash flow positive and profitable.

Some Problems with Liberty Minecraft

There are four clear problems with Liberty Minecraft. First, the money is inherently disinflationary. Land claims as private property can only be traded when players have a “claim blocks from play” value that is larger than the size of the claim being traded, which is a technical limitation. To provide a real estate market with existing smart contracts, players must somehow accumulate claim blocks from play. To achieve this, players accumulate 20 claim blocks per hour, which is an arbitrary amount. All players receive the same amount per hour of play. Claim blocks are worth $20 each, so players currently receive a universal basic income of $400 per hour of play. Universal basic income is an obviously anti-libertarian element, but it does present the opportunity to solve this problem and observe what happens when a libertarian society eliminates universal basic income.

Second, within Liberty Minecraft, power is centralized in a single, flawed operator. I, Nathan Dempsey, make mistakes and correct them. Both types of actions can cause problems. For instance, when I created the world border in The End, I incorrectly calculated the area. The End was roughly ten times larger than I intended, and if I had left it that way, our world would become far too large for me to economically perform regular backups. I recalculated and changed the world size. This changes the availability of resources that are found in The End. I will make more mistakes as time goes on. However, if any player decides that my choices are intolerable they may (with some work) use software to download the world and their property. Then, they may put their version of the world online with server software and compete with me for players. This functions somewhat like a hard fork of a cryptocurrency. Following a land dispute, a player decided that absolute property rights are intolerable and left after downloading the world, which proves both that new competitors may enter my line of production and that I cannot be an ultimate decision maker.[7][8]

Third, the conditions of the game and server make theft and assault impossible. A player might create a death trap, but these can only be made on one’s own property, on unclaimed land, or on land in which they have been granted permission by the claim owner to create such hazards. Because property claims are impossible to violate (unless I chose to or a hacker managed to alter the server status), Liberty Minecraft does not provide a model for dealing with aggressors against property rights aside from having the server owner (me) remove someone from the server.

Finally, the Terms of Commercial Use prohibit anyone from selling soft currency for hard currency. Therefore, I cannot offer the play-to-pay model described in the opening without violating the Terms of Commercial Use. The terms provide a narrow range of ways that I can provide value to players in exchange for money. This even applies to affiliate marketing (which is not permitted), such as with Amazon. The consequence is that I must innovate within these narrow terms, which creates an interesting problem but deviates from a libertarian order. And ultimately, Mojang, the company that developed Minecraft, is regulated by the state, so Liberty Minecraft still operates within a statist framework to some degree.

Conclusion

Minecraft spontaneously generates social orders. Liberty Minecraft is an effort to create such an order based upon Austrian economics with libertarian ethics. Within Liberty Minecraft, players operate in an unfettered free market and experience social freedoms that are opposed by state aggression. This experience sharpens one’s thinking about economic and social affairs. Experiencing economic freedom online without freedom from the state has led people to reject the Federal Reserve System but favor the state at large. The goal of this project is to test libertarian ideas in a simulated environment and lead people to reject the state in favor of private property rights and non-aggression, which one experiences within Liberty Minecraft. Liberty Minecraft has some important problems that may be solved in future updates, and represents nothing less than a proof-of-concept for exploring social orders in games.

References

  1. Valdes, Giancarlo. “Jagex Wages War against Gold Farming in RuneScape 3 with Bonds” VentureBeat, 25 Sept. 2013. http://venturebeat.com/2013/09/25/jagex-wages-war-against-gold-farming-in-runescape-3-with-bonds/
  2. Dutton, Fred. “Entropia Universe player spends $2.5 million on virtual real estate” Eurogamer.net, 4 Apr. 2012. http://www.eurogamer.net/articles/2012-04-04-entropia-universe-player-spends-USD2-5-million-on-virtual-real-estate
  3. Block, Walter. “Fake Economic News | Walter Block” YouTube, Mises Media, 4 Aug. 2017. www.youtube.com/watch?v=FiwhlU4d-nY
  4. Dempsey, Nathan. “How The World Works” Liberty Minecraft, 14 Oct. 2017. www.libertyminecraft.com/how-the-world-works/
  5. Dempsey, Nathan. “How Private Property Works” Liberty Minecraft, 4 June 2017. www.libertyminecraft.com/how-private-property-works
  6. Dempsey, Nathan. “How The Money Works” Liberty Minecraft, 4 June 2017. www.libertyminecraft.com/how-the-money-works/
  7. Dempsey, Nathan. “Free Market Update: Land Disputes” Liberty Minecraft, July 2017. https://www.libertyminecraft.com/free-market-update-land-disputes/
  8. Hoppe, Hans-Hermann (2001). Democracy: The God That Failed. Transaction Publishers. p. 21.

Book Review: Libertarian Reaction

Libertarian Reaction is a collection of fifteen essays by Insula Qui. The book explores various issues from a libertarian reactionary perspective. The book is divided into three sections; one focusing on reaction, one focusing on liberty, and a long final essay.

The first part begins with an essay on the limits of libertarian ethics. In Savages, Qui deals with several types of humans who cannot be properly be considered people, and must instead be dealt with as lesser beings. The point that there is a difference between colonialism (the imposition of law and morality on people who have no rational conception of it) and colonization (a parallel development of law and morality while not imposing upon others) is important and oft-overlooked. The essay finishes with a denunciation of both Islam and communism as incompatible with libertarianism if each is to be practiced rigorously. The arguments are correct but elementary, which the author has since remedied elsewhere.

In Borders And Liberty, Qui weighs in on the debate over border policy, concluding that while state immigration restrictions are not libertarian and the only justifiable borders are private property boundaries, closed borders are a lesser evil than the forced integration imposed by modern states. He recommends restoration of the right to discriminate, sponsorship of and vicarious liability for immigrants by those who wish to bring them in, and elimination of welfare programs as methods of improving the current situation. References to support the assertions regarding demographics would improve the case made here.

Prerequisites for Liberty deals with the problem of humans who are not savages as described in the first essay but are nonetheless inclined to aggressive violence. Again, references to support demographic arguments would be helpful. Qui notes several obvious but underappreciated truths here, most notably that a libertarian social order cannot exist below a certain intelligence level, as this would preclude people from understanding the necessary rules of such an order. He correctly states that some people may convert to libertarianism by seeing it in practice instead of reaching it through reason. In fact, this is by far the more likely method of conversion in the near future. The role of hedonistic practices in damaging a social order are discussed, as is the folly of accepting non-libertarians into libertarian circles simply to grow numbers.

The next essay is Voluntary Ethnic Separation, and it explains the difference between what libertarianism requires one to accept and the common caricature of all such ideas as hateful racism. Qui shows great insight in tackling common leftist arguments here. He also makes the important point that collectivism can arise as a benign heuristic to help with decisions because people lack the capacity to deal with individuals beyond a certain point. However, the same demographic claims resurface without proper support. Finally, the point that ethnostatism could be a step toward breaking up large nation-states into more local forms of governance is overlooked by most libertarians, but not Qui.

The Antistatist Case for Monarchial Government is a longer essay that Qui included despite having changed his views on the matter, as he views it as being theoretically important. He makes a distinction between government (a manager of land and provider of essential services) and state (an entity that exercises a monopoly on initiatory force) which is lost on many people. He also explains that while a libertarian society would be imperfect, a state has even worse inefficiencies. Later, Qui hints at a potential problem with wilderness areas falling victim to a tragedy of the commons, but this could easily be solved by homesteading such areas. There are two significant errors here: a lack of accounting for the arguments made by Stefan Molyneux and others in favor of private dispute resolution organizations with regard to how law courts could function without a state, and a contradiction concerning redistribution and efficiency. The final part of the essay reads much like Hans-Hermann Hoppe’s case that monarchy is superior to democracy, and is reminiscent of the real-world example of Leichtenstein.

Qui tackles an uncomfortable issue that perhaps interests too many people in libertarian circles with The Libertarian Solution to the Age of Consent. He quickly rebuts the left-libertarians who wish to let children make decisions regarding sexual conduct, describing parenting of young children as a sort of regency until the child gains the ability to use reason. But Qui errs in saying that damages done by improper parenting are no different from any other sort of crime, as one can never truly be made whole from the lifelong detriments caused by improper parenting.

Dysgenics and Market Nobility discusses the corruption of the phrase “all men are created equal” from a statement of equality before the law into a belief in human biological uniformity. In doing so, he distinguishes between the natural elite of a free society and the power elite of a statist society, which are often conflated by leftists. Qui then explains how the two tend to work together in statist societies to keep the same families at the top for centuries rather than let the rags-to-riches-to-rags cycle properly play out. The essay then turns toward dysgenics, which refers to programs that have the opposite of a eugenic effect. The roles of feminism, sexual liberation, and welfare statism are examined in this light.

The first part concludes with Civilization and Natural Law, which makes unconventional but strong arguments in favor of censoring and physically removing people on the basis of their political opinions. Qui’s case is more utilitarian and reserved than it needs to be, but he still reaches the correct result that freedom of speech is a privilege that comes with owning property, not a fundamental right. He then finds that the solution to intractable differences between people and groups is mutual discrimination and exclusion, as forced integration necessarily results in racial tensions.

The second section begins with The Freedom of Government, which revisits themes from several of the previous essays. Qui makes a powerful case that people who claim to believe in democracy but deny people the self-determination to choose their form of governance are charlatans. He also observes that a large enough number of small monarchies is effectively equivalent to a libertarian social order. The only problem with this essay is brevity, as more explanation of each point would greatly improve the presentation.

The Curse of Citizenship explores how the modern state makes its subjects into cogs of its machine through citizenship as a legal concept. Qui shows that democracy, contrary to leftist propaganda, only makes this worse by providing an otherwise absent appearance of legitimacy. He correctly recognizes the futility of localism as an ultimate strategy, as it fails to account for the supremacy of higher levels of government. But his contention that “corruption within the state is nothing other than the people who are creating the illusion themselves being aware of the illusion” is misguided; one can have this knowledge without weaponizing it into corruption, and one can be corrupt without such an awareness.

In The Role of Co-Operation in Competition, Qui refutes several myths about capitalism. First, he proves that capitalism is not as anti-social as its critics claim. Second, he corrects the misconception of competition as being necessarily aggressive in nature. Third, he explains how competition can actually be a form of cooperation, in that individuals or groups can agree to compete in order to find out which methods are superior. Qui segues into several examples of cooperation that are not strictly competitive, such as food companies co-marketing with drink companies and agreements between private road companies. To complete the argument, he examines how the contrapositive is also true; namely, that removing competition also removes an incentive to cooperate. He finishes with a brief discussion of cartels and makes the insightful observation that a labor union is not commonly recognized as a cartel, despite functioning much like one.

It is only in Reverse Claims to Property that Qui truly goes off the libertarian reservation in his thinking, though he admits at the beginning that he may be doing so. Here, he tries (and fails) to invent an inverse of property rights to resolve questions of state-occupied property and wilderness areas. Qui again neglects other libertarian theories on how to deal with pollution. This un-ownership would, as he suggests, legitimize rights violations in some cases.

In Who Watches the Watchmen, Qui explores the libertarian answer to this age-old question, namely that the watchmen (in the form of private defense agencies) all watch each other. Here he enters an off-topic though informative discussion on the impossibility of eliminating the state by democratic means. He then returns to the topic to find that re-establishment of a state is the worst case scenario in a stateless society, but all economic and military incentives work against it. That it is the worst case means that all other outcomes must be better, setting this particular objection on its ear.

National Defence Without Coercion is the last essay in the second part, and it deals with the subject at length. Qui begins by noting the common fallacy committed by statists: using a state to defend people against other states does not change the fact that people are subjugated by a state; it only changes which state is in control. He covers the basics of how a private defense agency should function, but is a bit too enamored with nationalism. His comparisons between a private defense agency and an insurance company make one wonder where such arguments were in earlier essays. The latter part includes some novel thought on how the facilities of a private defense agency might be employed in other ways during peacetime. The conclusion discusses the difference between pre-modern gentlemen’s war and modern total war, with libertarianism likely to end modern warfare and return us to the less destructive pre-modern type of warfare. This essay and the previous essay could have been combined.

The final part consists of one much longer essay titled Examining Cultural Destruction. Qui examines the causes and symptoms of cultural decay, then proposes solutions. The role of the state and central banking in reducing time preferences is explained, then Qui shows how capitalism makes this worse not by being bad in and of itself, but by amplifying whatever inputs it receives. Egalitarianism is blamed in the Rothbardian sense of a revolt against nature, as is the loss of autonomy and identity that statism causes. Symptoms of these causes are identified as the demonization of productive work, the collapse of stable interpersonal and family relationships, the loss of spiritualism and hierarchy, the ascent of shallow materialism, the prevalence of escapism, and the expansion of empiricism into inherently rational disciplines. To solve these problems, Qui recommends absolute private property rights, abolition of central banking and as much of the state as possible, and a restoration of traditional values.

The first word that comes to mind when describing the entire collection is ‘incomplete.’ Qui lacked an editor for the book, and it shows. The grammatical constructions and punctuation are frequently in need of revision, and each of the essays would benefit from a much deeper bibliography. But the thoughts expressed therein are sufficiently intriguing to merit reading despite these flaws.

Rating: 4/5

On Consumerism, Corporatism, Time Preference, and Modernity

Consumerism

Capitalism is often blamed for consumerism. It is almost a certainty that whenever leftists run out of other arguments, they will make an argument related to consumerism. Consumerism is almost universally despised by people who have higher ideals, so it is easy to point out consumerism and then act as if it is an argument against capitalism. One reason for this is that socialism, the other major economic system in the modern world, eventually leaves people with nothing to consume, so capitalism is an easier target. But socialists make multiple critical errors in blaming capitalism for consumerism. While it is certainly true that capitalists benefit from a consumer culture, and that the capitalist system will not be toppled when people are attracted to consumer culture, this does not mean that capitalism as a system of free enterprise and private property is by necessity a cause of consumerism or oriented around consumerism. Furthermore, the capitalist class itself will be subject to consumerism and themselves be as hurt by it as anyone else.

When we look at why people engage in consumerism, we can see several major trends that cause consumerism. The first is having a corporate structure when it comes to enterprise. This means that for there to be consumerism there must be people who advance consumerism. There would be no consumerism if there were no beneficiaries of consumerism, and honest businesses do not need consumerism. Corporations are not honest businesses, as they hide behind a legal fiction created by the state. Without corporate structures, which are entirely constructed by the state, there is no party who would advance consumerism. Second, there must be people who are willing to engage in consumerism. Whereas people who have their lives figured out and have purpose beyond themselves do not turn to consumerism, these must be people who have nothing better to do than to consume. Such people see their lives as a series of capital transactions in which they seek immediate gratification. Consumerism cannot develop within healthy societies where people have cares beyond their own immediate interests. Third, consumerism requires that these people have money, as they cannot consume without first gaining access to a sufficient amount of capital. Thus, consumerism requires an abundance of consumer goods and services. Fourth, there must be a high social time preference within the society because people need to seek immediate gratification to value consumerism instead of being personally disgusted by engaging in consumerism. Finally, it is not only necessary that people have personal abundance, but that the capital structures that produce consumer goods are well-maintained. These capital structures will be maintained when people consume, but high time preferences will necessarily cause a form of stagnation, as there is insufficient investment to facilitate growth.

Corporatism

It is undeniable that the modern economy is largely driven by giant corporate structures, and it is similarly undeniable that these corporate structures are based on making as much money as possible in the shortest amount of time. Making profit is not inherently bad, but it is necessary to account for time preferences. The strategy used by megacorporations once they have attained their status is not to build up a honest reputation and a good name as valuable providers of quality services, but rather to profit in the moment and then leverage this profit for future gain. This is why many corporations operate in debt; they hope that they can be propelled by their profit and obtain investors by providing the potential for returns. This has much to do with the nature of corporations. Corporations are entities partially separate from the people and property legally represented by them. They shield people from personal responsibility, which creates a wide range of perverse incentives. If businesses were fully accountable, then there could not be such a large amount of corruption within them or such a high time preference by them. Without the ability to sustain debt through lack of responsibility, businesses would have to lower their time preferences.

Not only does the state indirectly advance predatory business practices in allowing corporate structures to take shape, the state also directly allies with corporations. Whereas attempting to create a corporation without involving the state will have no effect, incorporation is a government program and a corporation is a public-private partnership. Furthermore, politicians are funded by corporations, and corporations get special benefits from the state as a return on their investment in political connections. The result is that the state has been overtaken by corporate power, and the two work symbiotically in order to enhance their parasitism upon the rest of society. The largest corporations need their licenses, privileges, regulations, and other such competition-stifling measures to maintain their position, while the state needs to have control over the economy to maintain its position. Corporations are the only entities that can truly ensure that the economy is not outside the state. The entire modern political system is based on a mutual reassurance between corporations and the state, and separating the two at this point will cause an economic collapse.

At the highest level of business, the image of the humble CEO or board manager who does what needs to be done is a misconception; the people who run megacorporations are not the most virtuous people. Big business is not oppressed, and is not some heroic figure from an Ayn Rand novel who is fighting against the state for the freedom to compete in the free market. Rather, through regulatory capture, big business uses state power to oppress small businesses and individuals who seek to compete with them. For these reasons, the corporation is a fundamentally anti-capitalist institution.

Time Preference

There are the situations in which the state directly incentivizes high time preferences. People who are struggling financially are far easier to control than those who are financially secure. By contrast, when people save money and accumulate wealth, they are less influenced by the state. The state can make use of this to artificially create and expand a consumer culture by inflating away savings. This is done by printing fiat currency that loses its value over time, then watching people impoverish themselves by using that currency. People may have an abundance of consumer goods, but they are constantly struggling financially and feel as if they are much poorer than they are. These reckless spending habits that are bound to impoverish the spenders are extremely beneficial to the state and the politically connected corporate elites. Furthermore, the state can tax people more on their purchases if they spend beyond their means. It will also create more possibilities for taxing artificially successful businesses when they inevitably expand due to the calculation with inflationary currency being favorable towards them. However, this is unsustainable and always results in an economic contraction. Unfortunately, the state can also exploit this by picking winners and losers, bailing out favored megacorporations, creating new social welfare programs, and expanding the grip of central banking over the economy.

Having high time preferences also leads to an economy based on debt, in which people spend more than they have, and both governmental and private institutions support this spending. Banks earn most of their income from this overspending and from people who are unable to pay them back in full. Due to this over-reliance on debt, the population as a whole is saddled with debt that can feel impossible to ever pay off, which can cause them to lose their motivation in life. The population will be easier to control by both the state and the banks that run this debt-based economy, as the agencies who provide the debt for the economy are the agencies who make the reliance on debt possible. Easy debt also leads to price inflation, as there is more market demand without a corresponding increase in market supply.

People get addicted to debt when they need to spend more than they have. However, this results in a problem when a person’s available collateral shrinks in comparison to their debt. They will eventually hit a wall where they can take no more debt unless and until they pay off their old debt. This is a debt trap in which people must repeatedly take on new debt to pay off old debt, all while interest accumulates and clearing their debt is impossible. This keeps people from being able to prosper, and the number of people trapped under such a burden is increasing. This, in turn, causes much greater class divides, as lower-class individuals who do not keep a store of capital that they can use for various ventures will be unable to make profitable investments. They will always be subject to one boss or another and will never experience true independence.

None of this is the fault of a capitalistic economy, but rather the high time preferences exhibited by the consumerists. On the contrary, capitalism is the most benevolent aspect of this situation, as it punishes the destructive habits of consumerism. These people are stuck in poverty not because of capitalism, but because of their own consumption habits amplified by state interference. Their lack of advancement is not an unfair punishment, but rather a sign that they should change their ways. This requires a particular mindset of growth and improvement that is most often stunted by public education and the degenerate culture which most people inhabit. This mindset requires that people actually trust the market signals they receive instead of seeing capitalism as a repressive entity. Escaping poverty requires a willingness to do what must be done instead of waiting for someone else to provide a handout. People who blame capitalism for holding them down while engaging in mindless consumerism are as children who eat too much candy, become ill, and also complain that they have too little candy.

Modernity

The modern society allows people to live a life without meaning. It removes church as a higher spiritual goal, community as a higher social goal, family as a higher personal goal, and even denies the importance of individual goals that a normal person might have. Through the lens of modernity, it is better to remain free and untethered rather than have a family. Looking out for one’s own interests at an individual or group level is derided as selfishness that ignores the greater good of society or hateful racism. By society, modernists do not refer to the disaffected small villages or the impoverished sections in urban communities that are in the greatest need of strong and healthy communities. Instead, they almost exclusively refer to a central state and imply that people are only worthwhile when they work for the state or when they work for nothing of value. They only see the state as a representative of society, with the only acceptable substitute to focusing on the state being pure hedonistic nihilism. Ironically enough, this mindset is most often heard coming from people who oppose capitalism on the basis of it being anti-social.

People are thus left without a greater meaning to work towards. They are left not providing for themselves, their family, or something else they hold dear. People are left as freely floating agents who are reduced to nothing other than consumers, and material pleasures are the only things that allow these people to tolerate the otherwise meaningless lives that they lead. They are not some great paragons of modernity, but rather embody the lowest state of rot and decay.

Conclusion

Consumerism is caused by progressivism, corporatism, and impatience. Capitalism is nowhere near the root cause of consumerism. Free enterprise and private property do not create such a propensity to consume over doing more meaningful things. The reason why consumerism is such a prevalent phenomenon is not because there is too much capitalism, but because people lack self-restraint or purpose and are encouraged by the state to live in such a manner.

Eliminate The Debt Ceiling

The United States debt ceiling is a limit placed on the amount of money that the federal government can borrow. This is done by placing a cap on the amount of national debt that can be issued by the US Treasury. About 99.5 percent of the debt is covered by this ceiling, but $238 million in United States Notes and $74 billion owed by the Federal Financing Bank as of September 2016 are not covered.

Because the ceiling applies to the total national debt rather than to annual deficits, and expenditures are authorized by separate legislation, the debt ceiling does not directly limit government spending. As the Government Accountability Office explains, “The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred.”

When this occurs and the ceiling is not increased by legislation, the Treasury must resort to “extraordinary measures” such as suspending investments into federal employee retirement funds or exchanging Treasury securities for non-Treasury securities. Should such measures be exhausted before Congress agrees to raise or suspend the ceiling, a default on at least some of the national debt would occur. Most mainstream economists believe that this could cause an economic depression as well as a financial crisis.

Whether the nature of this ceiling should be altered and whether such a limit should exist at all are subjects of debate among economists and political commentators. This article will overview the history of the debt ceiling, make the case that it should be eliminated on both practical and moral grounds, and deal with common objections to elimination.

History

Article I, Section 8 of the United States Constitution gives Congress sole authority to borrow money on national credit. Between 1788 and 1917, Congress would pass legislation to authorize each bond issue by the US Treasury, with the particular amount specified in each legislative act. This would authorize specific loans in some cases, while in other cases the Treasury would be given discretion over which type of debt instrument to issue for specific purposes. Except for a short time in late 1835 and early 1836, the federal government has continuously had a national debt. Although there were parliamentary procedural rules concerning debt limits, there was no debt ceiling in the current form until 1917.

In 1913, the Sixteenth Amendment and the Federal Reserve Act both became law, which greatly expanded the taxing and spending capabilities of the federal government. As originally defined, the Federal Reserve was not allowed to purchase debt instruments from the US Treasury because members of Congress understood the fiscal danger that could arise from granting such permission. The desire for financial flexibility regarding American involvement in World War I led Congress to pass the Second Liberty Bond Act of 1917. This Act allowed the Treasury to issue bonds and take on other debt without specific Congressional approval, and allowed the Fed to purchase Treasury instruments. The debt ceiling was created as part of the deal to pass these changes, and took the form of limits on the aggregate amount of debt that could be accumulated through each category of debt, such as bills and bonds.

In 1939 and 1941, Congress passed the Public Debt Acts, which establish an aggregate limit on nearly all federal debt. Since then, the mechanism for raising the debt ceiling has been to amend these acts. The 1939 Act consolidated the separate limits from the 1917 Act into one limit, while the 1941 Act raised the debt ceiling to $65 billion, eliminated the tax exemption of interest and profit on government debt, and consolidated almost all government borrowing under the US Treasury. The Act was amended to raise the limit in each of the next four years, then the limit was reduced from $300 billion to $275 billion in 1946. Increases resumed in 1954, and there have been 72 increases and four decreases since then, with no decrease since 1963. As such, the debt ceiling has usually been a mere formality. After the Budget and Impoundment Control Act of 1974 created more opportunities for Congress to hold debates and hearings on the federal budget, the debt ceiling became less useful as a budgetary tool.[1] From 1979 to 1995, the Gephardt rule was in effect, which was a parliamentary rule that deemed the debt ceiling raised whenever a budget was passed, effectively nullifying the debt ceiling during that time. This rule was removed during the resolution of the 1995-96 government shutdown.

Treasury first implemented extraordinary measures on December 16, 2009 to avoid a government shutdown. Due to the lack of normal annual budgets during the Obama administration, Congressional Republicans used the debt ceiling as leverage for deficit reduction in 2011. This nearly caused a sovereign default, with Standard and Poor’s downgrading the United States credit rating and the Dow Jones Industrial Average dropping 2,000 points in late July and August. The Government Accountability Office estimated that this incident raised borrowing costs for the government by $1.3 billion in 2011, and the Bipartisan Policy Center extrapolated this estimate to $18.9 billion from 2011 to 2020. The debt ceiling was reached again at the end of 2012, which led to the Treasury adopting extraordinary measures again, as well as far more absurd measures being proposed.

On February 4, 2013, President Obama signed the No Budget, No Pay Act of 2013, which suspended the debt ceiling for the first time. This lasted until May 19. During that time, Treasury was authorized to borrow to the extent that “is required to meet existing commitments.” On May 19, the debt ceiling was raised to $16.699 trillion to accommodate borrowing performed during the suspension and extraordinary measures were resumed. In order to avoid a default when extraordinary measures were exhausted on October 17, the debt ceiling was suspended a second time until February 7, 2014. On February 12, the Temporary Debt Limit Extension Act suspended the debt ceiling until March 15, 2015, at which Treasury used extraordinary measures yet again. The debt ceiling was suspended again on October 30, 2015 until March 2017, and the suspension has been extended until the time of this writing.

Before And After

To begin making the case against the debt ceiling, let us consider the effect that having a debt ceiling has had on the national debt, which will show the effectiveness of the debt ceiling at reducing government spending over the long-term. Records begin in 1790, with the debt at the beginning of that year at $71 million. The debt grew to $127 million in 1816 from the War of 1812, then was steadily paid off until reaching zero in 1835. It would never be paid off again, growing gradually starting in 1836, then up to $68 million in 1851 as a result of the Mexican War. The next low was at $29 million in 1857. The Civil War caused an unprecedented debt, going from $91 million in 1861 to $2.77 billion in 1866, an increase of 2,962 percent. The next low was $1.55 billion in 1894, just before the Spanish-American War and other expansionist endeavors. The gradual growth during the early 20th century was accelerated by World War I, going from $3.06 billion in 1915 to $27.39 billion in 1919, an increase of 796 percent. Recall that the debt ceiling was instituted in 1917, with a national debt of $5.72 billion. The debt would be gradually paid off during the 1920s, reaching the next low of $16.8 billion in 1931. The debt grew again during the 1930s to fund government programs aimed at curtailing the Great Depression, reaching $48.96 billion in 1941. World War II ballooned the debt to $269.42 billion in 1946, an increase of 450 percent from 1941. The debt would never go below $250 billion again, gradually increasing past $300 billion in 1963. The Vietnam War accelerated the debt to $620.43 billion by 1976. In 1982, the national debt exceeded $1 trillion and has grown every year since 1958. On September 8, 2017, the debt passed the $20 trillion mark. Note that these figures do not include unfunded liabilities, which in recent times have become much larger than the official figure.

From 1790 to 1917, the debt increased by 7,946 percent, or 7.34 percent per year. From 1917 to 2017, the debt increased by 3,398 percent, or 8.5 percent per year. By this measure, the debt ceiling appears to be somewhat counterproductive for restraining spending, as the national debt has increased an additional 1.16 percent per year since its inception. However, one must be wary of cum hoc ergo propter hoc reasoning. National debts are influenced by a great multitude of variables, and attributing this change to a single cause would be fallacious. The larger role played by the United States on the world stage, with the attendant expenditures on military presence and foreign aid, contribute a great deal to the debt, as do social welfare programs, which were nearly nonexistent before 1917.

Now And Later

To make a stronger case, we must consider the current effects of having a debt ceiling versus the likely effects of eliminating it. In the process, we will make use of the neoreactionary concept of formalism. This is the idea that in human affairs, official reality should match actual reality, the underlying power dynamics should be brought into the open, and accounting practices should be honest.

The recent history is that the debt ceiling is always raised to avoid running into it. Starting in 2013, the practice has become to suspend the ceiling entirely. It goes without saying that a ceiling which is always raised and can be made to disappear is not really a ceiling at all. The effect of this is for the state to continually take on more debt rather than pay its bills properly. This is politically convenient, as it allows politicians to bribe voters with the fruits of the labor of their unborn descendants while avoiding the backlash that inevitably results from austerity measures. To call this a Ponzi scheme is an insult to Ponzi schemes, as all of the beneficiaries and victims in those scams are willing investors. A private sector Ponzi scheme involves no inter-generational debt slavery or other forced participation.

Although even the most ardent deficit hawks are loathe to be blamed for a sovereign default, the threat that a default will occur in this manner spooks investors needlessly. As mentioned earlier, the Dow Jones dropped 2,000 points in response to the 2011 debt ceiling crisis. If investors are convinced that a default may happen in spite of the apparent unwillingness of politicians to cause a default, then the markets will be sent into turmoil for no good reason.

Eliminating the debt ceiling would be a change that moves official reality closer to actual reality on several counts. First, the opponents of fiscal restraint know that those who would use the debt ceiling as a tool to reduce government spending will always cave before a default, even if they do cause the occasional partial shutdown of government functions. For this reason, their bluff is always called and they lose the hand by playing the debt ceiling card. Removing this card from the deck not only takes away an ineffective option, but forces reformers to seek out other methods which may be effective.

Second, eliminating the debt ceiling would signal that the federal government has no interest in paying off its creditors. It should be obvious enough that an entity which increases its debt burden every year for 60 years does not have fiscal responsibility as an objective, but the Treasury seems to have no shortage of lenders, especially because the Federal Reserve serves as a lender of last resort. Note that because the federal government monopolizes law, declares itself immune from suit, and has the firepower to repel those who would seek to collect by force, it is not accountable for the national debt in an absolute sense. Accountability thus becomes an indirect, external affair which would be aided by the consequences of signaling the aforementioned truth to the world.

The admission of no intention of paying off the debt, which is essentially an admission that a default will eventually occur, would make interest rates rise. This would be necessary in order to compensate investors for the fact that they may lose their principal, or at least take a haircut on it at some future date. Aside from the obvious benefit to savers, who would see financial progress for the first time in over a decade, the increased spending on interest on the national debt would force a combination of tax increases and spending cuts in other areas. This would make current supporters of government programs pay more for them up front through taxation and inflation, constrain the pathologically undisciplined federal government, and reveal the true priorities of the power elite when decisions about whom to tax more and which expenditures to cut are taken. As such, it both brings the underlying power dynamics into the open and makes accounting practices more honest.

Objections

At this point, let us consider some likely objections. First, there is the possibility that having no debt ceiling would cause the debt to grow even faster. The above examination of the history of the national debt suggests that this objection is ill-founded, as the annual percentage increase has been higher with a debt ceiling in place. But even if it is true that eliminating the debt ceiling would accelerate the growth of the national debt, this is not necessarily bad. The faster the debt accelerates, the sooner the events described in the previous section will occur, meaning that the current unsustainable dynamics will be replaced earlier than they otherwise would.

A second objection is that this course of action may cause an economic collapse. This is entirely possible, but again, not necessarily bad. The end of the United States dollar would result in either a monetary reform and/or the replacement of government fiat currencies with something more sound, such as a gold-backed currency or a cryptocurrency. Because the US dollar is the world reserve currency, the US government can abuse its economic system more than other governments can. Losing this status would be another step toward forcing the government to behave more responsibly, as it would curtail the amount of debt that can be issued by reducing foreign demand.

The resulting collapse of the bond market leads to the third objection that this would cause a great amount of hardship. However, one must remember that the investors in government bonds have bought instruments which are funded by extortion and debt slavery. From a moral standpoint, those who lose on such investments deserve to lose. That being said, this course of action does not actually cause the collapse; rather, it makes the inevitable collapse occur more quickly.

Conclusion

The debt ceiling was created with the intention of limiting the ability of the Treasury and the Federal Reserve to behave irresponsibly as they were allowed to provide more liquidity to fund World War I. But over the past century, quite the opposite has happened. The national debt has grown significantly faster than it did previously, and is now on a path toward default which is not reversible given current political realities. Eliminating the debt ceiling may seem like a counterproductive maneuver, but it would do much to formalize the true nature of the American fiscal situation. The only real debt ceiling is that established by lenders and creditors. When they deem a borrower to pose too much of a default risk, they stop lending and call in their debts, thus forcing the debtor to behave responsibly. The sooner this happens to the United States government, the better.

References:

  1. Kowalcky, Linda W.; LeLoup, Lance T. (1993). Congress and the Politics of Statutory Debt Limitation. Public Administration Review. 53 (1): p. 14.

Twelve Observations On The Catalonia Independence Vote

On September 6, the government in Catalonia announced that it was going to hold a vote on October 1 to decide whether the region should secede from Spain and become a nation-state unto itself in the form of a republic. It also announced that should the people choose independence, the government would declare secession within 48 hours. Spain’s constitutional court declared the vote unconstitutional, and the central government in Madrid said that it would attempt to stop the vote. Neither side backed down. The Spanish government seized ballots and tried to shut down polling places, resulting in violence that left over 840 people injured. The vote still took place, with nearly 90 percent voting for independence. In response, pro-secession protests occurred throughout Spain and a general strike was called across Catalonia. Spain and the European Union have rejected Catalonia’s requests for mediation, and King Felipe VI has denounced the secession movement. Twelve observations on these events follow.

1. One cannot understand the present without knowing the past. The formation of the current Spanish state can be dated to 1469, when the Christian kingdoms of Castile and Aragon were united by the marriage of Isabella I of Castile and Ferdinand II of Aragon. Under their leadership, the last Muslim rulers were expelled from Spain, Christopher Columbus was sent to the New World, and royal power was centralized at the expense of local nobility. Even so, Spain has always been a multi-ethnic state, composed of Basques, Catalans, Galicians, and others. In the 19th century, nationalist feelings among these groups grew. These aspirations took a back seat during the Cuban War of Independence, Phillipine Revolution, and Spanish-American War. Regions of Spain were granted greater autonomy in the Second Spanish Republic (1931-39), but this was brutally repressed during Francisco Franco’s dictatorship (1939-75), such that people were not even allowed to give their children Basque, Catalan, Galician names. After Franco’s death, Spain was turned into a semi-federal state with 17 autonomous communities, some of which have their own languages and cultures, as Catalonia does.

2. The Catalan independence movement cuts across ordinary political lines. Some people in Catalonia believe that independence would bring order to the region’s finances, or make taxes paid by Catalonians provide more benefit to Catalonians. Others are migrants who became involved with the Catalan movement and have no loyalty to the government in Madrid. Still others have particular political objectives that they believe to be easier to achieve on a smaller scale, such as an independent Catalonia rather than the entirety of Spain. In American terms, the parties which are in a temporary alliance to achieve independence run the gamut from the Constitution Party to the Green Party.

3. The harder one clenches one’s fist, the more sand slips through one’s fingers. For the Madrid government, responding with peaceful dismissal of the independence vote would have been more effective. Instead, they met peaceful efforts by Catalans with violence. In the words of a Spanish politician, “We have given them the pictures they want.” By forcefully opposing the self-determination of Catalans, the Spanish government is pushing swing voters toward the independence movement, as such actions raise the specter of Franco that is still remembered, particularly among older people. Furthermore, the creation of a new state is much easier if existing states recognize it, and images for foreign consumption of people trying to vote and being hit with truncheons and shot with rubber bullets for it will create pressure on other governments from their people to recognize Catalonian independence.

4. The voting results are questionable. The Catalan government rushed through the legislation for the referendum and passed it in a late-night session without the opposition being present. They vowed to secede even if turnout was low, and engaged in smear tactics against those who opposed independence. Turnout was only 42.3 percent, and the anti-independence side did not campaign because the government in Madrid declared the vote to be illegal.

5. This will provoke greater nationalist sentiment in the rest of Spain. Whenever separatist sentiment grows in one part of a nation, a unionist sentiment tends to grow elsewhere in reaction to it. In some cases, this occurs because the separatists threaten to remove an economically important area from the nation, such as a mine or a seaport. In others, such as the American Civil War, the separatists are engaged in activities that the unionists find morally reprehensible. Sometimes, a central government simply wishes to keep separatists subjugated so as to discourage other separatist movements elsewhere in the nation, such as in the Basque country. Whatever the case may be, nationalism in Madrid is likely to grow alongside secessionism in Catalonia. This will be bolstered by the fact that Catalonia is more leftist than the rest of Spain, as nationalism tends to be more common on the right.

6. Nationalism is not an ally of liberty; merely an enemy of some of liberty’s enemies. The nationalist sentiments of Catalans or anyone else in Spain will not lead to liberty in and of themselves. Only by coupling such sentiments with the principles of self-ownership, non-aggression, and respect for private property can a libertarian social order emerge. Nationalism is also hostile to any decentralizations of power below the national level. That being said, nationalism is certainly a lesser evil than globalism, and may serve as a temporary makeshift on the path to a better political arrangement.

7. The EU will be weakened regardless of the end result. If Catalonia becomes independent, it will be outside the EU, having to either apply to rejoin or have its move toward independence also serve as a Catexit, so to speak. Given Catalonia’s population of 7,522,596 and GDP of $255.204 billion, this would remove 1.47 percent of the population and 1.23 percent of the GDP from the EU. By contrast, Brexit will remove 12.83 percent of the population and 13.45 percent of the GDP from the EU. Even though Brexit is a much larger issue, the impact of a Catexit would still be noticeable. Catalonians are unlikely to want to exit the EU, but doing so may be unavoidable if they cannot gain admission once they are independent.

As per the previous point, it is also necessary to contemplate a Spexit, with or without Catalonia included. Growing nationalism in Spain as a reaction to growing separatism in Catalonia may lead to euroskepticism there. This, combined with longstanding economic issues in Spain such as high unemployment, may lead conservatives to contemplate the possibility of a brighter future outside of the European single market. A complete Spexit would remove 9.08 percent of the population and 5.94 percent of the GDP from the EU, while only Catalonia remaining in the EU would remove 7.61 percent of the population and 4.71 percent of the GDP from the EU. Though not as impactful as Brexit, a second member state leaving the EU could signal the beginning of the end.

Finally, regardless of whether any exits occur, the EU will almost certainly appear to be weak and ineffectual as a result of recent events. Calls for it to mediate the dispute have gone unanswered, and the EU seems intent on ignoring repression of a democratic vote. Given the EU commission’s threats of sanctions against Hungary and Poland for their anti-democratic policies, this seems rather hypocritical. One must also consider that the EU has no mechanism for dealing with such an issue. Article 3a of the Treaty of Lisbon calls for the EU to “respect their essential State functions, including ensuring the territorial integrity of the State, maintaining law and order, and safeguarding national security,” so it is unlikely to help the separatists. Nor is it in the rational self-interest of anyone who wields power in the EU to intervene, as doing so would encourage separatists in other EU nation-states.

8. Secessionist movements are fueled by economic hardship and government mismanagement. The role of the Catalan people in Spain is both privileged and marginalized. Even though Catalans have maintained a distinct identity, they contribute more to Spain than they receive in return, especially in terms of institutional influence, which remains dominated by Madrid. Since the 2008 financial crisis, this has exacerbated tensions, and the continued economic problems in Spain lead some Catalonians to believe that they could do better for themselves with more local governance.

9. The state is legitimized only by force. The simple truth is that any other basis for legitimacy is subject to reason and defeated thereby. A deity fails because no such being is proven to exist. A constitution fails because any person or group can write one, leaving the state’s legitimacy constantly imperiled. An appeal to tradition fails because all traditions and states must begin somewhere, leaving them unable to be formed in the first place. A supranational body fails because it begs the question of how it gets its legitimacy. A social contract fails because a valid contract must be entered into willfully by all parties. Democracy fails because it is a logical impossibility, which could not even appear to function without the state already in place, thus resulting in circular reasoning.

Mao Zedong spoke truly on the nature of state legitimacy; “Political power grows out of the barrel of a gun.” A state continues to operate because it violently subjugates anyone who would attempt to end its operation, and it maintains territorial integrity by violently suppressing any efforts by its people to secede from the state. The only factor preventing individuals or sub-national groups from gaining sovereignty is the fact that they lack the force of arms and/or the willingness to use them for that purpose.

10. Self-determination must be taken and defended by force. Given the previous point, the path to true independence is clear. A separatist movement must first declare independence, but this will never be sufficient. The larger state will seek to retain any breakaway provinces by force, and if the separatists wish to form a new nation rather than be imprisoned or executed on charges of sedition or treason, they must respond with defensive force to the aggressions of the larger state. This has been the norm at least since the American Revolution, and the Catalonian situation is shaping up to be no different.

In a more general theoretical sense, self-determination must be taken and defended by force because the failure to do so will result in some group of aggressors infringing upon one’s self-determination. As Vegetius said, “He, therefore, who desires peace, should prepare for war.” Only by doing this can one present an effective deterrent against those who would return a free people to a state of bondage.

11. Repression by the Spanish government may provoke terrorism. Should the violence escalate, as appears likely, some Catalonians may end up following the Basque model. In the Basque Country, there is a moderate nationalist and separatist movement, much like the Catalonian independence movement. But there is also the ETA, a paramilitary group that has engaged in terrorist acts for decades. The group was founded in 1959 during Franco’s regime, but continued carrying out attacks for decades after the restoration of regional autonomy. Other examples of this throughout the world include the Irish Republican Army and the PKK in Kurdish regions of Iran, Iraq, Syria, and Turkey. Notably, the Kurds are also attempting to create a new state for themselves at the time of this writing.

12. The international community functions as a cartel. Catalonia and Iraqi Kurdistan are currently attempting to become independent nation-states, and both are being met with a mixture of indifference and contempt from existing nation-states. That such movements provoke hostility from the remainder of their current states is understandable and has been addressed above, as has the uneasiness of foreign governments to recognize the independence of separatist movements. But there is more at work here, which may be explained by considering the role of cartels in a marketplace and the effects that decentralization would have if taken to its logical conclusion.

The standard libertarian view is that cartels are inherently unstable, as the incentive of each member has a profit motive to betray the cartel. This incentive is frequently countered by state interference in the economy to protect a cartel from this effect. There is no more profitable venture in the current system than the management of a state, so this profit motive is amplified alongside the protectionist motive as an equal and opposite reaction. But libertarians tend to under-appreciate the role of aggressive violence in the marketplace, which is a service for sale like any other. This keeps them from fully understanding situations like these, in which established players seek not only to out-compete upstarts or hamstring them through regulatory capture, but to engage in direct violent suppression of competitors.

Finally, the rulers of nation-states must be aware at some level that the entry of new polities into the established order has the potential to remove that order from power. In the words of Murray Rothbard,

Once one concedes that a single world government is not necessary, then where does one logically stop at the permissibility of separate states? If Canada and the United States can be separate nations without being denounced as in a state of impermissible ‘anarchy,’ why may not the South secede from the United States? New York State from the Union? New York City from the state? Why may not Manhattan secede? Each neighbourhood? Each block? Each house? Each person? But, of course, if each person may secede from government, we have virtually arrived at the purely free society, where defense is supplied along with all other services by the free market and where the invasive State has ceased to exist.”[1]

Taken to its logical conclusion, political exit may be disintegrative, but stopping somewhat short of atomized individualism would both remove the Cathedral from power and create the opportunity to build a superior form of social order. The establishment has no interest in allowing this to happen and would rather nip it in the bud at the expense of looking oppressive and/or indifferent than risk losing their global hegemony.

Taken together, these explanations help one understand why the established nation-states, despite their contrary interests, can agree that no new members should be able to join their club.

References:

1. Rothbard, Murray (2009). Man, Economy, and State with Power and Market. Ludwig von Mises Institute, Scholar’s Edition, 2nd ed. p. 1051.

Why Price Gouging Is Good

When a natural disaster strikes, it is almost guaranteed that there will be yet another uproar about price gouging. Media pundits will take to the airwaves to virtue signal against people who would dare to exploit disaster victims. Government officials will use the crisis to score political points by portraying themselves as defenders of the common people against greedy capitalists. But how accurately does this reflect reality? Let us explore the nature of price gouging to see the economics of such a situation and explain the behavior of journalists and state agents.

Economic Forces

In order to intelligently approach the concept of price gouging, one must first define it. Price gouging is a sudden, sharp increase in prices that occurs in response to a disaster or other civil emergency. Though this defines the act well, it does not explain the mechanisms behind it. When a disaster approaches, there are certain goods that people wish to acquire in greater quantities than normal, such as clean drinking water, non-perishable foods, wooden boards for protecting windows, and so on. If supply is held constant, then this sudden increase in demand for such goods will produce a sudden increase in their prices.

If left unhindered by the state, this upward pressure on prices will produce important benefits. First, it serves as a signal to producers and distributors of those goods that more supply is needed. The producers and distributors thus learn where their goods are most urgently in demand, allowing them to engage in mutually beneficial transactions with disaster victims. This is how free markets are supposed to function in order to meet the needs of customers.

Second, price gouging encourages proactive preparations. A potential business model for a firm is to invest in equipment that allows it to operate when a disaster would otherwise force it to close, and use the proceeds from price gouging to amortize the cost of the equipment. This helps consumers by allowing them to purchase goods at higher prices rather than be left without essential items during a crisis.

Third, price gouging provides an important benefit by conserving the fixed amount of resources which are present before more deliveries can be made to the disaster area. The higher cost of scarce goods disincentivizes people from buying up supplies that other people need, thus helping to keep the items in stock. This keeps scarce resources from being wasted on marginal uses, directing them toward their most valued uses and the people who most need them instead.

Markets And Malice

Unfortunately, not every instance of price gouging is so benevolent. Business owners who seek to exploit vulnerable people in order to make money do exist. But engaging in such behavior in a free market produces a short-term gain followed by a long-term loss. In a pure capitalist environment, reputation is everything for a business. Whatever profits may come from gouging disaster victims in the present will be more than outweighed by the sales that one will lose in the future because of the damage that this does to one’s brand. After all, most people would view such behavior as adding insult to injury and vote against it with their wallets. Though it is impossible to accurately count sales that do not happen, to dismiss this effect as nonexistent is to commit the broken window fallacy.

Enter The State

Most people are economically illiterate, so they tend to focus on the malevolent type of price gouging and be unaware of the benevolent type. In a democratic state, this has predictable results. Politicians and other government agents will frown upon price gouging and seek to punish anyone who they believe to be engaging in it. But it can be difficult to distinguish the natural effects of demand spikes and limited supplies upon price from the efforts of greedy exploiters of disaster victims, especially for government officials who are too far removed from the disaster area to be intimately familiar with the economic dynamics there. Thus, all price gouging is suppressed by the state, and while this may protect a few people from exploitation, it causes more harm than good by disrupting the market signals which would have informed producers and distributors that their goods need to be sent to the disaster area. The end result is that scarce goods are depleted and not replaced, leading people to once more blame the market for failing them when the actual cause of their shortage was a government failure.

Suppression of price gouging has several deleterious effects. First, by placing price controls on goods, the state deprives entrepreneurs of the profit motive to bring additional supply to the disaster area. Without state inteference, people who live outside of the disaster area and are willing to travel there in order to bring supplies could charge enough for their goods to recover their travel costs and be compensated for the inconvenience of spending time in a disaster area, all while making enough profit to make such a venture more attractive than other economic opportunities. Price gouging laws remove such action, leaving only state agencies and altruistic private groups to provide aid. Note that like all government regulations, price gouging laws are subject to regulatory capture by the largest businesses.

Second, removing the incentive for proactive preparations makes untenable the business model for operating during a disaster described above. Third, removing the conservation effect of price gouging forces business owners to sell goods below their market-clearing price. This incentivizes hoarders to buy more than they need and scalpers to buy goods for resale. The existence of scalpers also makes desired goods more difficult to find, as resellers will be more difficult to locate than established stores. Thus, laws against price gouging do not eliminate the practice, but rather shift it from primary markets to secondary markets and cause a different set of people to profit. Taken together, these effects result in artificial scarcity that makes conditions in a disaster area even worse.

A Pair of Razors

Given the clear case in favor of price gouging, one may wonder why so many people in positions of political power rail against it. Reece’s razor suggests that we look for the most cynical explanation when attempting to determine a motive for state policy. No other possibility prioritizes the self-interest of politicians and their minions over the lives and properties of citizens quite like the idea that government officials want to suppress the natural response of markets in order to make government disaster relief agencies look effective and necessary, thus justifying their existence and expansion, so Reece’s razor selects it.

However, it is not in the rational self-interest of elected officials to increase the suffering of disaster victims who are capable of removing them from office in the next election. A better explanation is offered by Hanlon’s razor, which says that one should not attribute to malice what can be explained by stupidity. In this view, government officials are not trying to increase the harm done during a disaster; they simply know no better because they are just as economically illiterate as the electorate, if not more so. This razor is a better fit for the available logic and evidence.

Conclusion

It is clear that price gouging has an important economic role in ensuring that goods both go to those who need them most and remain available in times of emergency. Market prices are important signals that tell producers and distributors where their goods are most urgently needed. When the state interferes with this process by imposing price controls, it turns off the signal and incentives for market actors to send aid, encourages hoarding and scalping, and discourages conservation and farsightedness. These effects mean that laws against price gouging harm the very people that they are ostensibly supposed to help. Therefore, price gouging should not be punished by the state or demonized by the press.

On The Relationship Between Libertarianism and Fascism

In the August 2, 2017 episode of the Tom Woods Show, Woods talks about the moral outrage of left-libertarians and their tendency to call other libertarians fascists, Nazis, or whatever other insults they can muster. To follow up these complaints, he asserted that libertarians and fascists are completely contradictory political perspectives and could never be combined, alluding to the “libertarian fascists” and libertarians with fascist sympathies. He also said that when one embraces fascism, one must have relinquished one’s libertarianism, as there is no other solution that would make sense. In the historical sense of fascism, libertarian fascism is a contradictory term. A person who is a libertarian cannot actually and fully consider themselves a fascist in that sense, or vice versa. However, we can treat libertarian fascism as a placeholder term for a broader ideological shift toward a synthesis of libertarianism and fascism. We may also consider how a private property owner in a libertarian society could have a fascist structure within the bounds of private property.

Examining Premises

The first mistake that Woods (and many other libertarians) make is to assume that the combination of different ideological perspectives is dependent on policy and not the fundamentals of their philosophy. From this, Woods implies that fascism is about centralization and boundless idealism, while libertarians accept people as they are and favor decentralization. Some more simple-minded people also think that fascism is about authority and state power while libertarianism is the complete opposite. This may be true when we look at policy proposals, but policy cannot be the arbiter of ideological coherence or ideologies themselves. We need to analyze the premises of different ideologies if we are to analyze how compatible these ideologies are. This is necessary because ideologies are fundamentally systems of thought and analysis flowing from basic premises. A person using an ideology is a person looking at the world in a certain way and proposing policy positions from that set of value judgments.

To illustrate this, let us consider the example of Milton Friedman. Milton Friedman is claimed by both libertarians and neoliberals as representing their ideologies. This means that both libertarians and neoliberals see Friedman as using their methods of analysis and looking at the world in the same manner that they do. But here we find a contradiction; there appears to be a problem if we are to place neoliberalism and libertarianism on a scale of politics. First, we have to establish that there is a connection between Rothbard and Friedman when it comes to libertarianism; that is, that one could draw a straight line from Rothbard to Friedman and it would naturally follow from their ideological positions. This may be done; one can see that both men respect property rights, advocate for reducing the size of the state, and wish to increase the freedom of the market. But one must also draw a line from Hillary Clinton to Friedman, as they are both neoliberals. Both are cosmopolitan, fairly progressive, and advocate for a sort of economy that is not only free but also open. Although they differ in their degree of state intervention, one can ideologically connect Friedman and Clinton.

But there is a problem, in that no such connection is present between Rothbard and Clinton. There is no consistent line that could connect Rothbardian thought with Clintonian thought. Their philosophies and perspectives are mutually exclusive. There is no principled alliance or synthesis between them; only alliances of convenience may exist. However, when it comes to Friedman, there may be a synthesis between these ideologies. Both Rothbardians and Clintonians will have their criticisms of Friedmanites, but Friedman’s position is palatable for both neoliberals and libertarians. This is because Friedman used both the premises of neoliberalism and the premises of libertarianism. He analyzed the world in a way that followed from the neoliberal desire for openness and personal freedom and the libertarian desire for self-determination and liberty. We can boil down these two positions to this: the neoliberals want looseness while libertarians want property. Neoliberals tend to favor whatever makes national identity, economic policy, or social cohesion looser. Libertarians tend to favor whatever makes property rights stronger, whether it be self-ownership, non-aggression, or property rights in external objects. Coming from both perspectives, one would both appreciate property rights and self-determination but also a loose society without national identity or strong social norms, and this explains the desires of left-libertarians. Friedman was first and foremost an economist, so we see more of the propertarian side of him, but he was also a neoliberal.

The Premises of Fascism

We have already established that the libertarian premises are self-ownership, non-aggression, and property rights. Libertarians tend to favor whatever increases the power of the property owner over his justly owned property. But what do the fascists take as their premises? Contrary to popular belief, it is not opposition to property or to personal liberty. No fascist regime has ever gotten rid of property and the personal liberty question has only been a policy proposal, not something most fascists believe in strongly. There are some fascists who are against property, but they are few and far between and have never had a strong presence in a notable fascist government. In fact, most fascist governments suppress these left-wing variants. In fiction, some fascists are opposed to personal liberty on principle, but these are not reflected in reality; the closest real approximation are people who believe that control is necessary for virtue. But in that case, the premise is virtue rather than control, as the fascist does not want control for the sake of control. To really understand the fascists, we need to look at fascist movements.

In Italy, there were the national syndicalists that eventually became the fascists. They believed in creating a pseudo-syndicalist economy that combines worker interests and business interests to reduce class conflict. They also believed in strengthening Italian society and creating an incredibly traditionalist social order. The Nazis shared the second point, but they wanted an economy where there is comparatively stronger property and there are more capitalistic structures, but on the condition that these structures benefit the nation. In this form, national socialists treat property owners as trustees given property by the nation to take care of the wealth and resources of the nation. We can see many other movements that hold themselves to be both anti-communist and anti-capitalist, but eventually, end up with what we would call a fascist economic policy.

Other movements were somewhat different. The Francoists come from the more orthodox Falangist position, and they are outliers because Franco eventually liberalized the economy and created a more free market than many people would have favored originally. Though Hitler privatized multiple industries, this was nothing compared to the Spanish miracle. The Greek military coup lead by Papadopoulos constantly referred to their movement as being explicitly temporary, however, the attempts of liberalization by Papadopoulos were shut down by other people within the government. It is impossible to know how Greece would have developed if these liberalizations had occurred, but the government was overthrown and Greece eventually became a leftist mess.

One could include Pinochet and use the Chilean miracle as another example of success, but fascists often consider Pinochet to be a sellout, and it is not entirely clear whether Pinochet was actually a fascist or simply a paid CIA operative; an anti-communist or globalist agent. Finally, one can look at the American Nazi party. They are certainly fascists, but they are also constitutionalists. They want to return to the founding documents of the United States, and support sound money and free markets. This contradicts the common image of fascism, and thus may befuddle any libertarian who has not analyzed the premises of fascism.

The Conclusions of Fascism

What all these movements had in common was the ultimate goal of creating a better nation. This meant creating a world where the destructive forces that were threatening to the nation could not take hold and the nation could prosper. They all wanted a society and an economy based around the nation, which they believed would create a better life for the people within that nation. One can see how the policies of all these movements actually follow from the nationalism that fascists take as their ultimate premise. Many say that fascists have no coherent economic policy, but this is untrue. The economic policy of fascists is and always has been to strengthen the nation. The 20th century was marked by a struggle between Marxist world socialism and liberal world capitalism. The Marxists agitated the workers while the liberals agitated the middle and upper classes, creating an immense class conflict that fueled revolution and chaos. The fascists in the early 20th century came along and attempted to create an economy that would work both for the upper and the lower classes, an economy where the workers would get what they think they deserve while the capitalists could keep their capital and use it productively. To do this, they wanted the state to have control of the economy to make sure that no one is exploited (at least, by any entity other than the state) and that everyone will work for the nation to ensure a lack of parasitism for greedy or materialistic purposes (again, outside of the state itself). When this was shown to be unsustainable, the smart fascists shifted to a policy of privatization. This happened under Hitler and Franco to various degrees; they ultimately let go of some state property and handed it to people who used it productively. The Nazis were not ready to give up their desires for the aesthetic advancement of the German people, so they needed to expand their empire to fuel their faulty economy, but some privatization still took place.

The social policy of fascist regimes has always been to make sure that the nation is sustainable and that the nation does not slide into degeneracy. From this follow positions against promiscuity, homosexuality, drug use, and whatever else people do in order to derive hedonistic pleasure at the expense of a healthy society. It also has a strong connection to the view that traditional family structures should be the basis of society, meaning that incentivizing motherhood and the creation of strong men to take care of the women is proper for sustaining the nation. This explains the ethnic element of fascism, as all nations are ultimately determined by the genetic stock of their people and the historical condition where the people have developed. Furthermore, this explains why anti-Semitism is present in historical fascist movements, as fascists tend to view Jews as a hostile minority with disproportionate influence that works to undermine the nation with moral degeneracy and financial manipulation while refusing to assimilate into the host nation.

Libertarianism and Fascism

First, from the premises of libertarianism, fascism is a lesser evil than left-wing socialism. Fascism undoubtedly preserves property more than left-wing socialism does, thus fascist sympathies cannot be construed as completely anti-libertarian. But one cannot take as ultimate goals both nation and property, as the conflicts between these goals would have to be solved by means of arbitrary decision. This means that libertarianism and fascism cannot be combined as ideologies because their premises are different. One may combine republicanism, minarchism, monarchism, anarcho-capitalism, etc. into a broad political movement, as the premises of these positions are sufficiently similar. But there is no way to create a big tent movement that can accurately represent the interests of both fascists and libertarians; the premises come into too much conflict.

Second, there is some value in the notion of being a fascist politically while being a libertarian philosophically. This is a position that some people are becoming more and more sympathetic towards. Left-libertarians like to refer to these people as “helicopterists,” so we can use that term to describe this position. What these people tend to believe is that a military dictatorship is necessary or beneficial if we are to establish a libertarian social order and that we cannot simply transition to absolute liberty without first making sure that policies are implemented to push society toward that goals. These people often argue for violent suppression of leftists, which is not what libertarians traditionally favor, and for a general purge within society that would result in favorable conditions for the formation of a libertarian society.

Third, libertarians may take nationalism as a premise and fascists may take property as a premise, even thought these cannot be their ultimate premises due to the aforementioned conflicts. Fascists may advocate for free-market economics insofar as it increases the health of the nation, while libertarians may advocate for nationalism insofar as it strengthens self-ownership, private property, and non-aggression. In this manner, libertarians and fascists can find common ground by using common premises, and they can create a compromise that is palatable for both fascists and libertarians. We touched upon Milton Friedman earlier to show that it is theoretically and practically possible to embrace different premises even though the policy proposals may contradict themselves. Although there can be a degree of collaboration between libertarians who value the nation and fascists who value property, they will still ultimately be fascists and libertarians, respectively. The priority between property and nation determines with which camp people identify.

Finally, it is possible for a private property owner to administer one’s holdings according to the structure of a fascist dictatorship. Being the owner of property means having a right to exclusive control over it, including its governance structure. However, libertarian standards do not permit forcing non-aggressive people to come into such a structure or remain there against their will, so a libertarian running a fascist governance structure within private property will have to be far less oppressive than statist fascists in order to keep a regime populated. This kind of governance, which offers people no voice and free exit, has proven best at limiting state power throughout history. It would also be best for limiting the tyranny of the private property owner that so concerns critics of libertarianism.