Unconventional Thinking and Pluralistic Societies – Post by G. Stolyarov II

Unconventional Thinking and Pluralistic Societies – Post by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
August 3, 2012
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I was recently asked whether, with respect to those of us in today’s Western world who think unconventionally, “even if we wouldn’t be physically persecuted, aren’t there certain ‘sacred cows’ that must be respected even to get a hearing in today’s society?

This is somewhat true, though increasingly less so as there come to be more diverse outlets for intellectual expression. This is where a pluralistic society actually greatly benefits individual creativity and freedom: if one outlet is closed (because one’s views are deemed “politically incorrect” or some other variant of “incorrect”), others may still welcome one’s ideas. I have seen this a lot with economics in recent years, as alternatives to the conventional Keynesian and Neoclassical schools are becoming more prominent and respected.

Furthermore, different thinkers may be deterred by “soft” censure to different degrees. Some people could not care less and would be content to be pariahs, as long as they were permitted to pursue their work in peace. Others will try to be more diplomatic and tiptoe around the “sacred cows” while subtly injecting their own ideas into public discussion. Others still will try to obtain independent sources of support, outside the paradigm they are trying to influence, and in this way “buy” themselves time and influence. It is true that being outside of the “mainstream” today will probably deny one certain opportunities – but virtually every major intellectual or career choice will do the same. One trades some possibilities for others; the important question is whether those tradeoffs are palatable in the sense of achieving one’s own goals while enabling one to lead a reasonably comfortable life.

Audit the Fed Moves Forward! – Article by Ron Paul

Audit the Fed Moves Forward! – Article by Ron Paul

The New Renaissance Hat
Ron Paul
July 31, 2012
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Last week the House of Representatives overwhelmingly passed my legislation calling for a full and effective audit of the Federal Reserve.  Well over 300 of my Congressional colleagues supported the bill, each casting a landmark vote that marks the culmination of decades of work.  We have taken a big step toward bringing transparency to the most destructive financial institution in the world.

But in many ways our work is only beginning.  Despite the Senate Majority Leader’s past support for similar legislation, no vote has been scheduled on my bill this year in the Senate.  And only 29 Senators have cosponsored Senator Rand Paul’s version of my bill in the other body.  If your Senator is not listed at the link above, please contact them and ask for their support.  We need to push Senate leadership to hold a vote this year.

Understand that last week’s historic vote never would have taken place without the efforts of millions of Americans like you, ordinary citizens concerned about liberty and the integrity of our currency.  Political elites respond to political pressure, pure and simple.  They follow rather than lead.  If all 100 Senators feel enough grassroots pressure, they will respond and force Senate leadership to hold what will be a very popular vote.

In fact, “Audit the Fed” is so popular that 75% of all Americans support it according to this Rasmussen poll.  We are making progress.

Of course Fed apologists– including Mr. Bernanke– frequently insist that the Fed already is audited.  But this is true only in the sense that it produces annual financial statements.  It provides the public with its balance sheet as a fait accompli: we see only the net results of its financial transactions from the previous fiscal year in broad categories, and only after the fact.

We’re also told that the Dodd-Frank bill passed in 2010 mandates an audit.  But it provides for only a limited audit of certain Fed credit facilities surrounding the crisis period of 2008.  It is backward looking, which frankly is of limited benefit.

The Fed also claims it wants to be “independent” from Congress so that politics don’t interfere with monetary policy.  This is absurd for two reasons.

First, the Fed already is inherently and unavoidably political.  It made a political decision when it chose not to rescue Lehman Brothers in 2008, just as it made a political decision to provide liquidity for AIG in the same time period. These are just two obvious examples.  Also Fed member banks and the Treasury Department are full of former– and future– Goldman Sachs officials.  Are we really to believe that the interests of Goldman Sachs have absolutely no effect on Fed decisions? Clearly it’s naïve to think the Fed somehow is above political or financial influence.

Second, it’s important to remember that Congress created the Fed by statute.  Congress therefore has the full, inherent authority to regulate the Fed in any way– up to and including abolishing it altogether.

My bill provides for an ongoing, thorough audit of what the Fed really does in secret, which is make decisions about the money supply, interest rates, and bailouts of favored banks, financial firms, and companies.  In other words, I want the Government Accountability Office to examine the Fed’s actual monetary policy operations and make them public.

It is precisely this information that must be made public because it so profoundly affects everyone who holds, saves, or uses US dollars.

Representative Ron Paul (R – TX), MD, is a Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

Cleveland Passed the Test of Character and Statesmanship – Article by Lawrence W. Reed

Cleveland Passed the Test of Character and Statesmanship – Article by Lawrence W. Reed

The New Renaissance Hat
Lawrence W. Reed
July 31, 2012
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As usual, this year’s presidential campaign will test the popularity of two men. It will also tell us a lot about each man’s character, even if we think we already know all there is to know about them both. At this writing, some pundits are predicting a photo finish, maybe even a repeat of the 2000 Bush-Gore cliffhanger. Whatever the next few months produce, every presidential contest gets me pining for my personal favorite of the 44 men who have held the office—Grover Cleveland, America’s 22nd and 24th president.

Until 2000, the last time a close election produced a split decision in the popular vote and the Electoral College was 1888. Cleveland, the incumbent Democratic president, had been through a close one once before. In 1884 he won New York by just 1,200 votes—and with it, the presidency—but a switch of 601 votes in that one state alone would have swung the election to Republican James G. Blaine. Four years later Cleveland bested Benjamin Harrison by about 100,000 votes out of 11 million cast nationwide but he lost in the Electoral College 233–168. Because the contest was tight in a number of states, a slight shift in the popular vote plurality would have easily won it all for Cleveland.

Alyn Brodsky, in a biography entitled Grover Cleveland: A Study in Character, records that when reporters asked to what he ascribed his defeat, Cleveland smiled and said, “It was mainly because the other party had the most votes.” He did not equivocate. He did not whine and fret that he won more popular votes than Harrison. The “votes” to which he referred were the ones that really matter under the rules of the Constitution—Electoral College votes.

Cleveland handled his defeat with dignity. No recounts, no lawsuits, no spin, no acrimony. His grace in defeat was all the more remarkable considering that the loss meant he had to relinquish power he already possessed, not merely accept failure to attain it. He would not tolerate his political allies making an issue of the discrepancy between the popular and Electoral tallies. There was nary a hint of a “constitutional crisis” because the Constitution was Cleveland’s “controlling legal authority.” Cleveland retired to private life until he ran again in 1892, when he beat Harrison decisively, becoming the only American president to serve two nonconsecutive terms.

One reason the American people accepted the 1888 outcome in stride was that the federal government of that era just didn’t matter like the one of today does. Cleveland famously vetoed a bill to send federal money to drought-stricken farmers in Texas with the admonition, “Though the people support the government, it is not the duty of the government to support the people.”

In Cleveland’s day chronic budget surpluses at the federal level of government animated many a political contest, in stark contrast to the massive and endless deficits of today. While some people thought a surplus should be spent, Cleveland thought it was evidence that taxes were too high: “When more of the people’s sustenance is exacted through the form of taxation than is necessary to meet the just obligations of government, such exaction becomes ruthless extortion and a violation of the fundamental principles of a free government.”

Adjusted for inflation, the Obama administration spends more in one day than the first Cleveland administration spent in an entire year. Washington claims more than a quarter of national income now; in 1888, it managed to get by on about 3 percent. The two sides that will slug it out in the fall know that control of a gargantuan apparatus of money and power is at stake, and the temptations to pull out all the stops to win will be immense.

Even more emphatically, it was the character of Grover Cleveland that made the 1888 outcome a virtual nonevent. In so many ways he was a political oddity even for the Victorian times in which he served. Time and again he refused to do the politically expedient. For example, as a mayor, governor, and president, he rejected the spoils of victory and appointed the best people he could find—often earning the wrath of friends and party bigwigs because they didn’t get the nod. As biographer Brodsky puts it, “Here, indeed, was that rarest of political animals: one who believed his ultimate allegiance was to the nation, not to the party.”

Cleveland never lusted for public office. A prominent New York newspaper endorsed Cleveland for president in 1884 by declaring “three reasons” for voting for him: “1. He is an honest man. 2. He is an honest man. 3. He is an honest man.” He was, by all accounts, as utterly incorruptible when he left office as he was when he first assumed it. “Public office is a public trust” was an original Cleveland maxim.

Cleveland didn’t schmooze and slither his way through smoky backrooms to political power; nor did he exercise power as if he loved it for its own sake. He did the public’s business honestly and frugally and otherwise left us alone. It would not have occurred to him to so covet power as to fear private life. Trashing either the system or a good man’s character to obtain or hold on to public office was, to Grover Cleveland, unthinkable.

Every statesman is also a politician but not every politician is a statesman. Cleveland was so quintessentially statesmanlike that it hardly seems appropriate to note that he was also a politician. He certainly didn’t seek office for the thrill of it or for the power and notoriety it brings. Politics was not the meat grinder of principles for Cleveland that it is for so many others.

The Statesman

What qualities define a statesman? He or she doesn’t seek public office for personal gain or because it’s the only job he or she knows how to do. Like ancient Rome’s Cincinnatus or America’s own George Washington, the statesman takes time out from a life of accomplishment to serve the general welfare. He stands for a principled vision, not for what he thinks citizens will fall for. He is well informed about the vicissitudes of human nature, the lessons of history, the role of ideas, and the economics of the marketplace.

The statesman is a truth-seeker, which means he is more likely to do what’s right than what may be politically popular at the moment. You know where he stands because he says what he means and means what he says. He elevates public discussion because he knows what he’s talking about. He does not engage in class warfare or in other divisive or partisan tactics that pull people apart. He does not cynically buy votes with the money his taxes take from others. He may even judge his success in office as much by how many laws he repealed or vetoed as by how many he passed. (Cleveland vetoed more bills than all his predecessors combined.)

Grover Cleveland is my model candidate and model president. I’m betting that this fall’s campaign will only make me miss him all the more.

Lawrence Reed is the president of the Foundation for Economic Education.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Sunk Costs: There’s No Crying Over Spilled Milk – Article by Steven Horwitz

Sunk Costs: There’s No Crying Over Spilled Milk – Article by Steven Horwitz

The New Renaissance Hat
Steven Horwitz
July 29, 2012
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Nobel Prize-winning economist James Buchanan is fond of saying, “It takes varied reiterations to force alien concepts on unwilling minds.” That aphorism is surely true. Many basic ideas in economics require repeated attempts at explanation, and a variety of applications, before people fully grasp them and their importance. The one I want to focus on today is the concept of sunk costs and the related sunk-cost fallacy.

Understanding the concept of sunk costs first requires that one understand that, for economists, what matters for decision-making is what we call “action on the margin.” By “the margin” we simply mean the action we will take with respect to the concrete choice before us. When deciding whether a particular choice is worth making, the economic way of thinking tells us to compare the additional benefits that will come from that choice to the additional costs it will entail. This type of thinking then counsels: “Choose the option that delivers the greatest net additional benefits.”

Focusing on the additional benefits and costs that come from that specific action is what economists mean by acting on the margin. To forestall one objection, I will point out that what counts as a benefit or cost is of course subjective to the chooser. You and I could be in the identical situations but appraise the costs and benefits differently, and thereby end up making different choices. Economics says nothing about what should count as a benefit or cost, only that, whatever one chooses to count as benefits and costs, one should focus on the additional, or marginal, benefits and costs of a particular option and go with the one delivering the greatest net marginal benefits.

Irrelevant for Next Decision

An implication of this point is that costs that have already been incurred and that will not change with any of the specific choices now at the margin should be irrelevant to one’s decision. These are what we call sunk costs: The resources cannot be recovered, hence the costs are sunk. Such sunk costs should not matter for one’s next decision; only the costs now at the margin of choice count. No matter what we choose next, we can’t change the fact that we spent those resources in the past.

The idea of the irrelevance of sunk costs is all around us in folk wisdom and other places. For example, good poker players understand the idea when they say, “Don’t throw good money after bad.” Sometimes novice players will think, “Well, I’ve already bet five dollars on this hand, so I might as well see it through.” Good poker players know this is bad thinking: What matters is whether your hand is worth making the next bet. That you’ve bet five dollars already is beside the point. Bygones are bygones. You can’t put the toothpaste back in the tube. There’s no crying over spilled milk.

People who understand the sunk-cost fallacy know to beware when they hear people use phrases like, “You should get your money’s worth” or “You should finish what you started.” For example, suppose you pay a hundred dollars for a gym membership and never use it. Someone says to you, “You really should go to the gym and get something for your hundred dollars.” The problem, however, is that the money is gone whether you go to the gym or not. The relevant question is whether on any given day the benefits of exercising are worth the costs of going to the gym (or giving up your next best alternative). That’s action on the margin. The money spent is irrelevant.

Additional Costs Worth It?

The same is true of the argument that we should “finish what we started,” say, in Afghanistan or Iraq. We can’t change the past and undo the deaths and financial costs of those wars. The real question is whether the benefits of continued intervention are worth additional costs, regardless of what happened in the past. Are billions more spent and many more dead Americans and their victims worth it for the supposed additional gains of continuing those wars?

Sunk costs are sunk. Eventually, of course, in facing new decisions, we can rethink the old decision that sunk those costs in the first place (such as, should we renew the gym membership, or should we enter a new war?). But until then, the past is irrelevant because whatever we choose, we can’t change it. What matters for the economic way of thinking is decision-making on the margin: the additional benefits and costs of the options in front of us right now.

Understanding that choice is always on the margin and that sunk costs are sunk can help you make better decisions in your personal life and spot fallacious reasoning by politicians. This is just another illustration that good economics is the key to critical thinking and good citizenship.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Let Unsound Money Wither Away – Article by Joseph T. Salerno

Let Unsound Money Wither Away – Article by Joseph T. Salerno

The New Renaissance Hat
Joseph T. Salerno
July 29, 2012
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[This is a revised version of written testimony submitted to the the Subcommittee on Domestic Monetary Policy and Technology of the Committee on Financial Services, US House of Representatives “Fractional Reserve Banking and Central Banking as Sources of Economic Instability: The Sound Money Alternative,” June 28, 2012.]
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Chairman Paul and members of the subcommittee, I am deeply honored to appear before you to testify on the topic of fractional-reserve banking. Thank you for your invitation and attention.

In the short time I have, I will give a brief description of fractional reserve-banking, identify the problems it presents in the current institutional setting, and suggest a potential solution.

A bank is simply a business firm that issues claims to a fixed sum of money in receipt for a deposit of cash. These claims are payable on demand and without cost to the depositor. In today’s world these claims may take the form of checkable deposits, so called because they can be transferred to a third party by writing out a check payable to the party named on the check. They may also take the form of so-called “savings” deposits with limited or no checking privileges and that require withdrawal in person at one of the bank’s branches or at an ATM. In the United States, the cash for which the claim is redeemable are Federal Reserve notes — the “dollar bills” that we are all familiar with.

Fractional-reserve banking occurs when the bank lends or invests some of its depositors’ funds and retains only a fraction of the deposits in cash. This cash is the bank’s reserves. Hence the name fractional-reserve banking. All commercial banks and thrift institutions in the United States today engage in fractional–reserve banking.

Let me illustrate how fractional-reserve banking works with a simple example. Assume that a bank with deposits of $1 million makes $900,000 of loans and investments. If we ignore for simplicity the capital paid in by its owners, this bank is holding a cash reserve of 10 percent against its deposit liabilities. The deposits constitute the bank’s liabilities because the bank is contractually obligated to redeem them on demand. The assets of the bank are its reserves, loans, and investments. Bank reserves consist of the dollar bills in its vaults and ATMs and the bank’s deposits at the Federal Reserve, which can be cashed on demand for dollar bills printed by the Bureau of Engraving and Printing at the order of the Fed. The bank’s loans and securities are noncash assets that are titles to sums of cash payable only in the near or distant future. These assets include short-term business loans, credit-card loans, mortgage loans, and the securities issued by the US Treasury and foreign financial authorities.

Now the key to understanding the nature of fractional-reserve banking and the problems it creates is to recognize that a bank deposit is not itself money. It is rather a “money substitute,” that is, a claim to standard money — dollar bills — universally regarded as perfectly secure.

Bank deposits transferred by check or debit card will be routinely paid and received in exchange in lieu of money only as long as the public does not have the slightest doubt that the bank that creates these deposits is able and willing to redeem them without delay or expense.

Under these circumstances, bank deposits are eagerly accepted and held by businesses and households and regarded as indistinguishable from cash itself. They are therefore properly included as part of the money supply, that is, the total supply of dollars in the economy.

The very nature of fractional-reserve banking, however, presents an immediate problem. On the one hand, all of a bank’s deposit liabilities mature on a daily basis, because it has promised to cash them in on demand. On the other, only a small fraction of its assets is available at any given moment to meet these liabilities. For example, during normal times, US banks effectively hold much less than 10 percent of deposits in cash reserves. The rest of a bank’s liabilities will only mature after a number of months, years, or, in the case of mortgage loans, even decades. In the jargon of economics, fractional-reserve banking always involves “term-structure risk,” which arises from the mismatching of the maturity profile of its liabilities with that of its assets.

In layman’s terms, banks “borrow short and lend long.” The problem is revealed when demands for withdrawal of deposits exceeds a bank’s existing cash reserves. The bank is then compelled to hastily sell off some of its longer-term assets, many of which are not readily saleable. It will thus incur big losses. This will cause a panic among the rest of its depositors who will scramble to withdraw their deposits before they become worthless. A classic bank run will ensue. At this point the value of the bank’s remaining assets will no longer be sufficient to pay off all its fixed-dollar deposit liabilities and the bank will fail.

A fractional-reserve bank, therefore, can only remain solvent for as long as public confidence exists that its deposits really are riskless claims on cash. If for any reason — real or imagined — the faintest suspicion arises among its clients that a bank’s deposits are no longer payable on demand, the bank’s reputation as an issuer of money substitutes vanishes overnight. The bank’s brand of money substitutes is then instantly extinguished and people rush to withdraw their deposits in cash — cash that no fractional-reserve bank can provide on demand in sufficient quantity. Thus the threat of brand extinction and insolvency is always looming over fractional-reserve banks.

In other words, a fractional-reserve bank must develop what Ludwig von Mises called a “special kind of good will” in order to create a clientele who treats their deposits as money substitutes. On a free market this kind of good will is very difficult and costly to acquire and maintain. This reputational asset is what induces a bank’s clients to forebear from immediately cashing in their deposit claims and driving the bank into instant insolvency. Of course to remain profitable the bank must also build up conventional business good will, which depends upon convenient geographical location, outstanding customer service, attractive facilities, the reputation of its management team and so on. But unlike the common form of good will essential to all successful business ventures, the good will that is necessary for a particular bank’s brand of deposits to circulate as money substitutes is indivisible. In almost all other industries, customer good will can be gained or lost in marginal units and does not typically vanish all at once, destroying its product brand and plunging the firm into immediate insolvency.

Ludwig von Mises described the loss of confidence in a bank’s solvency and the related phenomenon of brand extinction in the following terms:

The confidence which a bank and the money-substitutes it has issued enjoy is indivisible. It is either present with all its clients or it vanishes entirely. If some of the clients lose confidence the rest of them lose it too.… One must not forget that every bank issuing fiduciary media is in a rather precarious position. Its most valuable asset is its reputation. It must go bankrupt as soon as doubts arise concerning its perfect trustworthiness and solvency. [1]

The issuing of deposits not fully backed by cash is therefore always a precarious business on the free market. The slightest doubt about the bank’s solvency among even some of its clients will instantly destroy the character of its deposits as money substitutes. Furthermore, the loss of confidence that causes this phenomenon of “brand extinction” is the cause and not the result of a run on the bank and cannot be deterred by a high ratio of reserves to deposits. For under fractional-reserve banking, by definition, reserves are always insufficient to pay off all the demand liabilities that the bank has incurred. In fact the level of cash reserves is not directly relevant to the stability of a bank. It is simply one of several factors that a bank’s clients take into account in forming their subjective judgment concerning whether a bank’s brand of notes and deposits are or are not money substitutes. For example in the 19th century the ratio of gold reserves to notes and deposits of the Bank of England are reported to have been as low as 3 percent, yet it was generally regarded as one of the most stable financial institutions in the world.

The peculiar and overriding importance of public confidence in sustaining fractional-reserve banking was particularly emphasized by Murray N. Rothbard:

But in what sense is a bank “sound” when one whisper of doom, one faltering of public confidence, should quickly bring the bank down? In what other industry does a mere rumor or hint of doubt bring down a mighty and seemingly solid firm? What is it about banking that public confidence should play such a decisive and overwhelmingly important role? The answer lies in the nature of our banking system, in the fact that both commercial banks and thrift banks have been systematically engaging in fractional-reserve banking: that is, they have far less cash on hand than there are demand claims to cash outstanding.[2]

Rothbard’s point about the extreme fragility of public confidence in issuers of fractionally-backed money substitutes is well illustrated by the stunning collapse of Washington Mutual (WaMu) in September 2008, the largest bank failure in United States history. WaMu had been in existence for 119 years and was the sixth-largest bank in the United States with assets of $307 billion. It had branches throughout the country and billed itself as the Walmart of banking. It was one of the top performers on Wall Street until shortly before its failure. Its depositors clearly had enormous confidence in its solidity, especially given that its deposits were insured by the federal government reinforced by the existence of the Fed’s “too-big-to-fail” policy. And yet, almost overnight the special good will that gave its deposits the quality of money substitutes vanished as panic-stricken depositors rushed to withdraw their funds. The unlikely event that triggered the sudden loss of confidence and subsequent brand extinction was the failure of Lehman Brothers, a venerable investment house. A week after Lehman failed, mighty WaMu was no more.

The highly publicized Lehman Brothers failure had shaken public confidence in the solvency not only of WaMu but of the entire banking system. Had the Fed and Treasury not acted aggressively to bail out the largest banks in the fall of 2008, there is no doubt that the entire system would have collapsed in short order. Indeed on a single day in December, the combined emergency lending by the Fed and the US Treasury had risen to a peak of $1.2 trillion. The recipients of these billions included some of the most trusted and reputable brand names in banking: Citibank, Bank of America, Morgan Stanley, as well as European banks like the Royal Bank of Scotland and UBS AG. Without this unprecedented bailout, these discredited brand names would have been relegated to the dustbin of business history

The ever-present threat of insolvency is a relatively minor problem with fractional-reserve banks, however. Its effects are restricted to the bank’s stockholders, creditors, and depositors who voluntarily assume the peculiar risks involved in this business.

The major problems with fractional-reserve banking are its harmful effects on the overall economy caused by the related phenomena of inflation and business cycles.

First, fractional-reserve banking is inherently inflationary. When a bank lends out its clients’ deposits, it inevitably expands the money supply. For example, when people deposit an additional $100,000 of cash in the bank, depositors now have an additional $100,000 in their checking accounts while the bank accumulates an additional $100,000 of cash (dollar bills) in its vaults. The total money supply, which includes both dollar bills in circulation among the public and dollar balances in bank deposits, has not changed. The depositors have reduced the amount of cash in circulation by $100,000, which is now stored in the bank’s vaults, but they have increased the total deposit balance that they may draw on by check or debit card by the exact same amount. Suppose now the loan officers of the bank lend out $90,000 of this added cash to businesses and consumers and maintain the remaining $10,000 on reserve against the $100,000 of new deposits. These loans increase the money supply by $90,000 because, while the original depositors have the extra $100,000 still available on deposit, the borrowers now have an extra $90,000 of the cash they did not have before.

The expansion of the money supply does not stop here however, for when the borrowers spend the borrowed cash to buy goods or to pay wages, the recipients of these dollars redeposit some or all of these dollars in their own banks, which in turn lend out a proportion of these new deposits. Through this process, bank-deposit dollars are created and multiplied far beyond the amount of the initial cash deposits. (Given the institutional conditions in the United States today, each dollar of currency deposited in a bank can increase the US money supply by a maximum of $10.00.) As the additional deposit dollars are spent, prices in the economy progressively rise, and the inevitable result is inflation, with all its associated deleterious effects on the economy.

Fractional-reserve banking inflicts another great harm on the economy. In order to induce businesses and consumers to borrow the additional dollars created, banks must reduce interest rates below the market-equilibrium level determined by the amount of voluntary savings in the economy. Businesses are misled by the artificially low interest rates into borrowing to expand their facilities or undertake new long-term investment projects of various kinds. But the prospective profitability of these undertakings depends on expectations that bank credit will remain cheap more or less indefinitely. Consumers, too, are deceived by the lower interest rates and rush to purchase larger residences or vacation homes. They take out second mortgages on their homes to buy big-ticket luxury items. A false economic boom begins that is doomed to turn into a bust as soon as interest rates begin to rise again.

As the inflationary boom progresses and prices rise, the demand for credit becomes more intense at the same time that more cash is withdrawn from bank deposits to finance the purchase of everyday goods. The banks react to these developments by sharply raising interest rates and contracting loans and deposits, causing a decline in the money supply. Indeed the money supply may very well collapse, as it did in the early 1930s, because the public loses confidence in the banks and demands it deposits back in cash. In this case, a series of bank runs ensue that pushes many fractional-reserve banks into insolvency and instantly extinguishes their money substitutes, which had previously circulated as part of the money supply. Recession and deflation results and the binge of bad investments and overconsumption is starkly revealed in the abandoned construction projects, empty commercial buildings, and foreclosed homes that litter the economic landscape. At the end of the recession it turns out that almost all households and business firms are made poorer by fractional-reserve bank-credit expansion, even those who may have initially gained from the inflation.

Inflation and the boom-bust cycles generated by fractional-reserve banking are enormously intensified by Federal Reserve and US-government interference with the banking industry. Indeed, this interference is justified by economists and policymaker precisely because of the instability of the fractional-reserve system. The most dangerous forms of such interference are the power of the Federal Reserve to create bank reserves out of thin air via open market operations, its use of these phony reserves to bail out failing banks in its role as a lender of last resort, and federal insurance of bank deposits. In the presence of such polices, the deposits of all banks are perceived and trusted by the public as one homogeneous brand of money substitute fully guaranteed by the Federal government and backed up by the Fed’s power to print up bank reserves at will and bail out insolvent banks. Under the current monetary regime, there is thus absolutely no check on the natural propensity of fractional-reserve banks to mismatch the maturity profiles of their assets and liabilities, to expand credit and deposits, and to artificially depress interest rates. Without fundamental change in the US monetary system, the growth of bubbles in various sectors of the economy and subsequent financial crises will continue unabated.

The solution is to treat banking as any other business and permit it to operate on the free market — a market completely free of government guarantees of bank deposits and of the possibility of Fed bailouts. In order to achieve the latter, federal deposit insurance must be phased out and the Fed would have to be permanently and credibly deprived of its legal power to create bank reserves out of nothing. The best way to do this is to establish a genuine gold standard in which gold coins would circulate as cash and serve as bank reserves; at the same time the Fed must be stripped of its authority to issue notes and conduct open-market operations. Also, banks would once again be legally enabled to issue their own brands of notes, as they were in the 19th and early 20th century.

Once this mighty rollback of government intervention in banking is accomplished, each fractional-reserve bank would be rigidly constrained by public confidence when issuing money substitutes. One false step — one questionable loan, one imprudent emission of unbacked notes and deposits — would cause instant brand extinction of its money substitutes, a bank run, and insolvency.

In fact on the banking market as I have described it, I foresee the ever-present threat of insolvency compelling banks to refrain from further lending of their deposits payable on demand. This means that if a bank wished to make loans of shorter or longer maturity, they would do so by issuing credit instruments whose maturities matched the loans. Thus for short-term business lending they would issue certificates of deposits with maturities of three or six months. To finance car loans they might issue three-year or four-year short bonds. Mortgage lending would be financed by five- or ten-year bonds. Without government institutions like Fannie Mae and Freddie Mac — backed by the Fed’s money-creating power — implicitly guaranteeing mortgages, mortgage loans would probably be transformed into shorter five- or ten-year balloon loans, as they were until the 1930s. The bank may retain an option to roll over a mortgage loan when it comes due pending a reevaluation of the mortgagor’s current financial situation and recent credit history as well as the general economic environment. In short, on a free market, fractional-reserve banking with all its inherent problems would slowly wither away.

Notes

[1] Ludwig von Mises, Human Action: A Treatise on Economics. Scholar’s Ed. (Auburn, AL: Ludwig von Mises Institute, 1998), pp. 442, 444.

[2] Murray N. Rothbard, Making Economic Sense, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2006), p. 326.

Joseph Salerno is academic vice president of the Mises Institute, professor of economics at Pace University, and editor of the Quarterly Journal of Austrian Economics. He has been interviewed in the Austrian Economics Newsletter and on Mises.org. Send him mail. See Joseph T. Salerno’s article archives.

This is a revised version of written testimony submitted to the the Subcommittee on Domestic Monetary Policy and Technology of the Committee on Financial Services, US House of Representatives “Fractional Reserve Banking and Central Banking as Sources of Economic Instability: The Sound Money Alternative,” June 28, 2012.

You can subscribe to future articles by Joseph T. Salerno via this RSS feed.

Copyright © 2012 by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

An Atheist Transhumanist Critique of TheThinkingAtheist’s “Afterlife” Video – Video by G. Stolyarov II

An Atheist Transhumanist Critique of TheThinkingAtheist’s “Afterlife” Video – Video by G. Stolyarov II

Mr. Stolyarov, an atheist and transhumanist, critiques the video “Afterlife” – is a compilation of remarks by Seth Andrews (TheThinkingAtheist) and other famous YouTube atheists regarding the religious concept of life after death. However, the video goes beyond merely (correctly) critiquing ideas of the afterlife, and reflects an unfortunate acceptance of human mortality itself. The “Afterlife” video does present many interesting and valid insights, but it unfortunately throws the metaphorical baby — indefinite human life extension, driven by scientific discoveries and technological innovation — out with the bathwater — religious myths of an afterlife, unsubstantiated by evidence and arising out of a desire to attain comfort in the face of mortality.

Commentators to whom Mr. Stolyarov responds include DarkMatter2525, DPRJones, Evid3nc3, HealthyAddict, Laci Green, Thunderf00t, Mark Twain, and Vladimir Nabokov. He invites any of these commentators (except, of course, Twain and Nabokov) to discuss these ideas further.

Remember to LIKE, FAVORITE, and SHARE this video in order to spread rational discourse on this issue.

Support these video-creation efforts by donating at The Rational Argumentator: http://rationalargumentator.com/index.html

References:
– “Afterlife” – Video by TheThinkingAtheist
– “An Atheist Transhumanist Critique of TheThinkingAtheist’s ‘Afterlife’ Video” – Essay by G. Stolyarov II
– “The Movement for Indefinite Life Extension: The Next Step for Humankind” – Article by G. Stolyarov II
Resources on Indefinite Life Extension (RILE)
– “The Real War – and Why Inter-Human Wars Are a Distraction” – Video by G. Stolyarov II
– “How Can I Live Forever?: What Does and Does Not Preserve the Self” – Essay by G. Stolyarov II
– “Maslow’s hierarchy of needs” – Wikipedia

Ice and Economics – Article by David J. Hebert

Ice and Economics – Article by David J. Hebert

The New Renaissance Hat
David J. Hebert
July 21, 2012
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What can ice teach us about economics? We’ll see, but let’s begin with some fundamentals.

Prices, property rights, and profit (and loss) lead to information, incentives, and innovation. This simple statement contains nearly every lesson necessary for a free and prosperous society. But what do these words mean?

Prices convey information about relative scarcities and communicate to us the relative value of competing uses of a resource. They also economize on the acquisition of knowledge. When we see the price of a resource rise, market actors understand the need to use less of the resource. What they don’t know, however, is whether this rise is due to a disaster that destroyed some of the stock of that resource (an inward supply shift) or if a new, more valuable use for that resource has been discovered (an outward demand shift). These facts are irrelevant for a person who is currently using the resource, but from a societal level, her using less is necessary. If there is a disaster, we would want people to use less of it so that everyone else can still use some. If there is a new, more valuable use discovered, we would want the original users to use less so that more could be allocated towards this new use.

The Right to Exclude

Property rights refers not only to the right to use a resource, but also to the right to exclude others from its use. In this sense property rights provide the incentive to allocate the use of a resource efficiently across time, for example, to conserve it for later. With firmly established and enforced property rights, not only does the owner not have to worry about someone else taking his things but he also doesn’t have to rush out to gather the resources as quickly as he can. A situation where there are no property rights is susceptible to what is called the “tragedy of the commons,” where the resource gets depleted too quickly and never has a chance to replenish.

Profit (and loss) leads to innovation. Earning a profit is akin to being rewarded for doing something good. Suffering a loss is the opposite, a punishment for doing something wrong. In this case, the deed being done is the attempt to allocate scarce resources to where their will earn their highest return. People who successfully do this are rewarded with monetary gain, which we call “profit.” People who fail to do this experience what we call “loss.” In doing so, economic actors learn what works and what does not. Reducing the profitability of an activity through taxes or legislation or sheltering people from losses, therefore, acts to retard this learning process and stifles innovation.

This lesson is exemplified in early nineteenth-century Boston with the rise of the American natural ice trade. In 1806 Frederic Tudor sailed a ship full of ice from Boston to the Bahamas. Two years earlier Tudor had begun experimenting with insulation with the goal of bringing ice to the Bahamas.  When he was ready to set sail, he found that the ship captains refused to carry his cargo for fear of damaging their vessels. So he bought his own brig, the Favorite, and set sail February 10, 1806. He arrived in Martinique with a large quantity of ice still intact and began selling. The Bahamians loved the ice, which they had never seen before. Yet that first year Tudor lost a substantial sum of money, although he proved that ice could be shipped to the Bahamas. Now the objective became doing it at a profit.  Convinced his idea would be wildly successful, he continued his attempts to drive down costs and increase demand.

Higher Return

Meanwhile, as the price of the ice on the ponds rose, the people of Boston gained the information that the ice would bring a higher return in the Bahamas, thus they used less themselves and sold the ice to the Bahamians. In 1840 the ponds in the Boston area were explicitly divided, giving each person on the lake the right to exclude everyone else from harvesting any ice that wasn’t theirs. This allowed Tudor, for example, to invest in his ice and let it freeze longer so that it could better survive the long journey from Boston to India, which entailed crossing the equator twice and sailing around the tip of Africa. As Tudor earned profit from his venture, more people were attracted to the ice.

To continue to earn a profit, therefore, he had to find a way to outcompete everyone else. In 1825 Tudor enlisted the help of Nathaniel Wyeth, one of his suppliers. Tudor noticed that Wyeth’s ice was always significantly cheaper than everyone else’s and was cut in neater blocks which packed more easily. Wyeth had converted some old farm plows into ice-cutting plows and had fastened horseshoes with spikes to allow horses to pull these modified plows across the ice. By scoring the ice in such a fashion, Wyeth could break uniform sized blocks much quicker than his competitors, who were using hand saws that produced very rough and uneven edges.

These wouldn’t be the only contributions of Wyeth, as he went on to invent many other cost saving techniques. For example, Wyeth developed a conveyor-belt system that would haul the ice from the pond into the waiting icehouse.  He also invented bigger plows that could cut more blocks at once and poles that were used to guide the floating ice blocks onto the conveyor belt;  refined the above-ground icehouse, which allowed ice to be stored anywhere in the world for months on end without any external source of refrigeration.

New Insulation

Tudor and Wyeth also experimented with new means of insulating the ice from the heat, discovering that sawdust was not only a fantastic insulator but was also cheaply available from the sawmills around Boston. They also taught their customers new ways to use the ice, including making ice cream and storing the ice in iceboxes to preserve foods longer.

In short the three Ps lead to the three Is: Prices, property rights, and profit (and loss) lead to information, incentives, and innovation.  With these firmly in place, a free and prosperous society will follow.

David Hebert is a Ph.D. Fellow at the Mercatus Center at George Mason University.

This article was originally published by The Foundation for Economic Education.

An Atheist Transhumanist Critique of TheThinkingAtheist’s “Afterlife” Video – Article by G. Stolyarov II

An Atheist Transhumanist Critique of TheThinkingAtheist’s “Afterlife” Video – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
July 21, 2012
******************************

The video “Afterlife” is a compilation of remarks by Seth Andrews (TheThinkingAtheist) and other famous YouTube atheists regarding the religious concept of life after death. However, the video goes beyond merely (correctly) critiquing ideas of the afterlife, and reflects an unfortunate acceptance of human mortality itself. As a lifelong atheist and transhumanist – a resolute foe of senescence and death and a seeker of indefinite life extension – I offer my critiques of the statements and quotations made in this video. The video does present many interesting and valid insights, but it unfortunately throws the metaphorical baby – indefinite human life extension, driven by scientific discoveries and technological innovation – out with the bathwater – religious myths of an afterlife, unsubstantiated by evidence and arising out of a desire to attain comfort in the face of mortality. As much as I respect Mr. Andrews and others quoted here, I must regretfully conclude that “Afterlife” embraces the other side of the religious coin: the premise that the only way to try to beat back the alleged inevitability of one’s eventual non-existence is through an unsubstantiated fantasy. But there is another, fully secular, fully human-centered option: the progress of our civilization and its eventual ability to conquer the age-old (and old-age) perils plaguing humankind.

I would welcome an in-depth discussion with Mr. Andrews or any of the other commentators in the video regarding this alternative to the religious afterlife – an alternative that can affirm and extend the precious, only life that each of us has. I hope that more atheists can recognize that transhumanism is the logical implication of rejecting a teleological, theistic worldview and amplifying all that is best about us as humans, so that the purpose of the universe can be what we make of it.

Vladimir Nabokov: Although the two are identical twins, man, as a rule views the prenatal abyss with more calm than the one he is heading for (at some forty-five hundred heartbeats at hour).

My Response: In the “prenatal abyss”, one has never been alive, so one does not know what one is missing – or that one is missing, in fact. But once one is alive, one is able to anticipate one’s own non-existence – which is the worst fate of all for an individual, worse than eternal torture or eternal boredom (neither of which is realistic in any case). Furthermore, when one is alive, one has the ability to discover the history that came before one’s time. One has no way of knowing or observing the future after one’s death.

Mark Twain: I do not fear death. I had been dead for billions and billions of years before I was born, and had not suffered the slightest inconvenience from it.

My Response: Being dead presupposes having once been alive. Having never existed makes one a mere potential among trillions of possible beings. Having existed once but not anymore means that one’s entire self – a fully formed universe of memories, sensations, thoughts, and aspirations – has become snuffed out. For each of us, there was a time when we did not have all that we have now: our lives. But, now that we have it, to lose it would be intolerable. It would literally be the undoing of everything we have ever been or done or aspired toward.

DarkMatter2525: The universe would continue in its ways if humanity weren’t here to witness it.

My Response: True, but to the individual, it is the same as if the entire universe has been extinguished. Whatever goes on after one’s death, one cannot experience it or be aware of its existence – and hence the only significance it might have is in terms of one’s anticipation of how it might be. That anticipation can only take place while one is alive and is necessarily fraught with extreme uncertainty. It cannot compare to the real thing – to living in the future. I want to live a millennium from now, not merely speculate about how it might be.

HealthyAddict: The universe is absolutely massive, and we are virtually insignificant in it.

My Response: The vastness of the universe in no way diminishes the significance of the individual. What is valuable, what is important is a function of entities that can pursue values or make judgments of importance. Only living, conscious entities can actively pursue values – and the very idea of values only makes sense in the context of the survival and flourishing of such living, conscious entities. The universe is vast, but the lives of humans and possibly other sentient beings are still of the ultimate importance – since it is the human scale on which valuation occurs. Size and importance are not related.

Another sense of the term “insignificance” might simply be “powerlessness” or “vulnerability” – without a moral judgment attached. It is true that humanity is still in its infancy, and still extremely fragile. Numerous natural disasters, originating on earth or in outer space, could severely damage or destroy our species. But this should only motivate us to expand our sphere of influence through technology and its application to the colonization of space and the enhancement of our bodies. If we are weak relative to the inanimate forces of the universe, then we must become stronger – as individuals and as a species.

Evid3nc3: I see no evidence that the rest of the universe cares that we exist or is even capable of caring. But I don’t really need validation from the rest of the universe to find my own life important.

My Response: I agree. There is no teleology built into the universe. What this means is that we must do our own caring; we cannot rely on the universe as a crutch – except in that we should utilize the laws of nature as instruments to advance our well-being. It is up to us to protect ourselves and expand our sphere of influence in the universe. And we should all, like Evid3nc3, find our own lives important – which is precisely why we should make every effort to prolong our lives – which are the source of that ultimate importance for us.

Laci Green: It’s just absurd to me how many people live for dying.

My Response:  I agree that it is wrong to live for dying or to anticipate that one’s individuality and vantage point into the world will persist after one’s physical body is destroyed. Rather than live for dying, one should live for living – and act to keep on living. To do so, one should support (at least morally) the emerging efforts to prolong human lifespans. One should also educate oneself about the possibility of indefinite life extension within the coming decades, as well as the developments that are occurring today to help bring this goal closer to reality.

Seth Andrews: I think fragile, fearful humans were terrified of death, and so they wrote their own ending to the story – this happy fantasy, a place where they’ll be reunited with people they’ve lost, they’ll experience constant joy, and of course they’ll never, ever die.

My Response: I think this is indeed the predominant motivation behind the origins of religion. People who could not hope to avoid death through technology sought to comfort themselves and to make everyday pursuits more tolerable by convincing themselves that their existence does not cease at death. In effect, religion is ersatz-immortality: a poor substitute for the real thing, but enough to trick many people into not realizing the grave implications of death. But in an era when technology is advancing so rapidly that there is hope for us and our contemporaries to live indefinitely – there are two main attitudinal dangers. The first danger is continuing to believe that the ersatz-immortality is good enough and that it justifies not striving hard for the real thing. The second is the other side of the same coin – unfortunately embraced by too many atheists: rejecting both the ersatz-immortality and the real thing, abandoning the most profound triumph for our species, when we are – in historical time – on the verge of achieving it. I support abandoning the fantasy, but I do not support relinquishing the reality – literally – and acquiescing to becoming food for worms.

DPRJones: The concept of an afterlife diminishes the value that we place on our lives and the here and now.

My Response: I agree that this could be the case, if the expectation of an afterlife discourages people from striving to both improve and prolong this life. As an atheist, I hold that this life is the only one there is – and it is indeed the most precious life there is and could be. Therefore, to lose this life is to lose everything, and so the foremost ethical objective should be to hold onto this life.

DarkMatter2525: An unlimited supply of anything, including life, means that its existence cannot be appreciated.

My Response: For all practical purposes, the air on Earth is inexhaustible by humans. Does that mean that we do not appreciate the ability to breathe and sustain our lives in that way? Does this mean that air is not essential to us or any less important to our lungs than if we had to ration it or purchase canisters of oxygen to carry around? Certainly not. While scarcity of a resource is a key determinant of its monetary price, the idea that scarcity is somehow necessary for mental appreciation is highly flawed. Use-value (utility) and monetary “value” (price) are not the same. We should – and can – appreciate a thing or a condition for its own qualities qua thing or condition – and the benefit those qualities confer upon us. How many of those things or conditions exist or are going to exist does not matter.

Furthermore, the fact is, we still live one moment at a time. We do not have all of eternity at our disposal at any given moment, no matter how long we live. We only have the given moment, and a limited range of possibilities for what we can do right then. Thus, a kind of temporal scarcity will always exist – in the sense that some activities and satisfactions will always be more remote in time than others, and we will have to wait and strive for the ones that are more remote.

DarkMatter2525: If life is eternal, then there should be no sense of urgency.

My Response: Value is not derived from urgency, but from improvement of the human condition and, subsequently, from enjoyment of the fruits of that improvement. A work of art or music is not any more beautiful because of the urgency with which we experience it; it is beautiful because of its intrinsic constituent characteristics – the brushstrokes and notes that comprise it. Indeed, urgency detracts from value by inducing a stressed, rushed, crazed, and hectic experience where we miss important aspects of life because we worry that we will not have the time to do whatever we consider to be higher on the priority list. With less urgency, we could partake of more of the good things in life and have a longer-term perspective – planning for the future and treating ourselves and others with more respect and consideration. We could be more frugal, since we would enjoy the fruits of saving directly. We could take better care of our living spaces – both locally in our homes and on the scale of planets. We could still fulfill all of our highest priorities – and more of them, too, since we would have more time. But longevity itself would reshape our priorities and enable us to gain a more balanced, deliberate, and sophisticated perspective on our lives.

For me, the greatest happiness comes from those serene moments where I do not have to rush anywhere and do not have to worry about falling behind. It comes from having accomplished and from having done something good that could later – with purpose and deliberation – be the stepping stone for something even better. In the midst of intense work, happiness is that plateau of leisure between the past and the future, the reaffirmation that life can be good when it amounts to a progress that never hits a permanent wall. Urgency detracts from happiness by preventing one from truly enjoying life in a leisurely fashion – as opposed to trying to cram in as much as possible now, now, now – expecting (fearing, perhaps) that there might not be much time left.

Thunderf00t: I do not fear being dead, but the concept of the alternatives offered by the religious do trouble me. [Regarding Heaven], there does appear to be one constant: It will last for eternity. Imagine that. Imagine eternity. […] The first hundred years may be possible; the first thousand – more painful; the first ten thousand – insufferable. But this is just the start. An eternity in heaven would be hell for me.

My Response:  I agree that Heaven as imagined by the religious would probably be a somewhat uninteresting place, since one would spend all of one’s time in it “glorifying God”. But this problem has nothing to do with experiencing an indefinite existence. It is a great poverty of imagination to be unable to think of what one could do with ten thousand years, or a much longer timeframe. Think: could you even consume all of the literature, music, art, and culture that humankind has created up to the present if you had ten thousand years? Indefinite longevity would bring about unprecedented richness, depth, and breadth of experience – as well as the immensity of individual learning and refinement, and the possibility to pursue multiple careers and many more hobbies than one currently can.

Furthermore, if Thunderf00t dislikes the prospect of an eternal existence, why would an eternal non-existence be any better or more preferable? Once you are dead, you are dead forever – and cannot choose to go back to not being dead. On the other hand, if you are alive indefinitely, and you feel tired, you could choose to take a nice long non-lethal nap or vacation and resume your activities when you are refreshed and in a better mood. Those who feel tedium or boredom now might later feel more like finding something meaningful and interesting to do in this vast universe. To die is to deny oneself this ability for an improvement in one’s outlook and enthusiasm.

The great and all-too-common error made by Thunderf00t is to see all of an individual’s life as a simultaneous totality rather than the way it is actually experienced: one moment at a time. While Thunderf00t might be unable to conceive of what he would do with ten thousand years, he probably knows what he would like to do the next minute, or the next day, or the next week. If he could live and work in this way – experiencing one day at a time – while remaining at his physical and intellectual prime – would there ever be a day when he would consciously decide that he would rather die tomorrow? Only a person in tremendous suffering could conceivably make such a choice. With technological and moral progress taking away ever more of that suffering, the desire to keep on living should become strengthened until no sane, rational person would ever want to die.

DarkMatter2525: Given eternity, anything that can be accomplished, will be accomplished. Beyond all achievements, there would only be limitless, pointless existence.

My Response: Considering that over a thousand new books get produced every day, doing or accomplishing “everything” would be impossible – since our minds’ conception of the possibilities will always outpace our ability to actualize those possibilities. DarkMatter2525 is assuming a finite, static set of possible accomplishments. In reality, the scope of possible accomplishments and activities grows every day at much faster rate than any given human has the ability to pursue those accomplishments and activities. One cannot experience today all that has been created even today by the billions of people now alive. The longer we live, the smaller will be the fraction of available pursuits in which we will be able to engage at any given time. Even if humans are able to enhance their minds radically in order to process and memorize as much text as a computer can – the human creative faculty would be able to generate proportionally more text as well, so that the volume of available output would still accelerate away from the ability of any human to process all of it. And books are just one subset of human activity – which will become increasingly diverse and multifaceted as our civilization advances. And think of all those billions of galaxies, each with billions of stars, that we have yet to explore and colonize!

Laci Green: When I think about my own death, I used to feel scared, but I don’t think I do anymore.

My Response: I hypothesize (though I cannot be sure) that Ms. Green only sees death in the abstract for now. She is young and healthy, and it is easy to rationalize away the significance of death when it is remote. This is a coping mechanism that many people have, and it works particularly well when everyday life is reasonably good. But how many people can have this equanimity when death approaches – when it is too late to do anything about it? If Ms. Green does not wish to experience fear regarding the prospect of her eventual death – fine. I have no problem with people choosing to focus on other matters in an everyday context. However, I sincerely wish that she and others who do not feel scared would nonetheless have an intellectual awareness of the great destruction wrought by senescence, decay, and death. Then they could – calmly or cheerfully, as they please – support research and advance moral arguments that assist humankind in beating back this menace. I advocate not fear, but action.

AronRa: I’m not afraid of being dead. After we die, we will not know the truth at that point. We will not know, wish, think, remember, dream anything.

My Response: Precisely, and that is the worst possible fate. Our very being, our “I-ness” – that which makes all other experiences possible – will be extinguished, and not even the memory of our once having existed will remain with us.

Seth Andrews:  I don‘t really find this sad or tragic either. I don’t really welcome death, but I don’t live in fear of the end. And I’ve come to see it as just another part of the natural world.

My Response: Not all that is “natural” is good – and, indeed, nature offers ways out of the problem of senescence by showing us numerous species that do not experience the ravages of biological aging or experience them at a much slower rate than we do. Since, in its truest sense, the word “natural” is just an expression for “what is” – Mr. Andrews is committing the Panglossian fallacy – the view that “whatever is, is right.” Cancer is natural, and it is brutal. Also natural is the fact that 99.9% of all the species that ever existed are now extinct. Just because this is natural, does not mean that we should accept it for ourselves. We can remake the outcomes of nature by studying the laws of nature and harnessing them for our own benefit. Once we have secured our continuing existence, we can work to eventually create a more humane, less predatory environment for all life forms that deserve it. We already do this to some extent with domestic pets and certain other useful animals – though, arguably, not to the extent that a more morally developed and resource-rich society might accommodate.

Thunderf00t: In some respects, we never die. Our lives are entangled with those who come after us, just as our lives are entangled with those who came before us. [Faraday, Newton, and Pasteur affect everyone’s lives today.] Death is not the end. We are intertwined with both lesser and greater things.

My Response: It is true that our lives have an impact on others, and that impact can extend beyond the lifespan of the individual. It is also true that we sometimes do not even perceive all the ways in which we impact others and others impact us. However, while our influence on the rest of the world might be a source of pride or reassurance to us in life, in death it means nothing – because we would not be aware of it even as a general concept without any particular details. Others who remain alive might still hazily and incompletely remember the dead individual, of course – but that memory is an asset to them, not to the dead. I benefit from the existence of Faraday, Newton, and Pasteur – good for me. But they are oblivious to this at present.

Laci Green: Just because there is no grand scheme it plays into does not mean there is not something beautiful about what is going on here.

My Response: I agree that the universe, or existence, has no grand scheme. But it is not clear to what “beautiful” phenomena Ms. Green is referring. There is true beauty in existence, but there are also true nastiness and cruelty and injustice. It is important to recognize the beautiful and good elements of the world, while struggling to eradicate or reform the bad. The real war we must fight is against the forces of ruin, and we should not lapse into the Panglossian fallacy of accepting absolutely anything that occurs on a regular basis as somehow “beautiful” or even remotely palatable.

ZOMGitsCriss: Ironically, the only part of me that is immortal is my material body. […] Every atom of me will be recycled back into the universe.

My Response: A long time ago (when I was fourteen), I tried to find consolation in that idea as well. It worked for about two hours. But then I realized that what matters is the arrangement of those atoms and the temporal continuity of that arrangement. I gain and lose atoms all the time, but each individual atom is not what makes me who I am. The essence of who I am, rather, is the manner in which those atoms interact with one another within the overall structure of my body – including my mind. When that is gone, I am gone.

DarkMatter2525: Even though a cell might not last forever, the role it plays in the larger organism is important, and that is how I see myself – as a part of something bigger.

My Response: But that “something bigger” does not care about DarkMatter2525, by his own earlier admission! So why should he care about it enough to be willing to be a mere cog in it? And if, as Laci Green says, there is no grand scheme to it all, then what exactly is he a part of? In terms of purpose, the only alternative to a teleological worldview, where purpose is “built into” the universe, is a humanistic worldview where purpose originates from the self – based on the biological requirements of one’s own survival, which, once sustained at a certain level, enable the individual to use his will to shape the universe to give it purpose. But in order to confer purpose upon an initially purposeless cosmos, one has to exist and to keep existing. Once existence stops, the purpose-giving process also stops, and so the “something bigger” is also no more.

ZOMGitsCriss: Knowing that this life is the only one I have makes me a lot more conscious of my actions, makes me want to do something with this short life I have.

My Response: I agree that knowing that this is the only life we have should make this life the greatest value to us – to be treated with the utmost seriousness and respect. We should seek to do great things with our time – but we should also seek to prolong our time, which is in itself a monumental and glorious undertaking.

Seth Andrews : There’s too much to learn, too much to see, too much to know, too much to experience. I’m not just going to exist. I’m going to live.

My Response: Certainly, some conditions of existence are better than others, and mere survival is not all there is to life. Flourishing can occur when life is lived in a way that fulfills an increasingly sophisticated series of human needs – ranging on Maslow’s hierarchy of needs from basic material sustenance to self-actualization. But pursuing the higher needs by no means undercuts or conflicts with the more basic needs. Indeed, the higher needs are largely unattainable unless one already lives in a prosperous, peaceful civilization where the basic needs are so easily fulfilled that one almost takes them for granted.

All too many people perceive survival as somehow antithetical to enjoying life – but in fact enjoyment of life is not possible without being alive. Therefore, if one wishes to do more of the things that make life enjoyable, one should strive to live as long as possible – far beyond the paltry eighty or so years that comprise the current average life expectancy in the Western world.

Inflation is a Monetary Phenomenon – Article by Ron Paul

Inflation is a Monetary Phenomenon – Article by Ron Paul

The New Renaissance Hat
Ron Paul
July 18, 2012
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Later this month Congress will have an unprecedented opportunity to force the Federal Reserve to provide meaningful transparency to lawmakers and taxpayers. HR 459, my bill known as “Audit the Fed,” is scheduled for a vote before the full Congress in July. More than 270 of my colleagues cosponsored the bill, and it has the support of congressional leadership. But its passage in the House of Representatives is only the beginning of the battle, as many Senators and the President still don’t see the critical need to have a national discussion about monetary policy.

The American public now senses that the Fed’s actions, especially since 2008, are enormously inflationary and will cause great harm to the American economy in the long run. They are beginning to understand what so many economists still don’t understand, which is that inflation is a monetary phenomenon, and rising prices are merely a symptom of that phenomenon.  Prices eventually rise when the supply of US dollars (paper or electronic) grows faster than the available goods and services being chased by those dollars.

This fundamental truth has been thoroughly explained by Milton Friedman and many others, so today’s Keynesian economists have no excuse for their claims that “inflation is under control.”  Ordinary Americans don’t need a PhD simply to look at the Fed’s balance sheet and understand the staggering amount of money creation that has occurred in recent years. They know it will have harmful consequences for all of us eventually.

I’ve spoken at length about inflation, and how Fed money creation is effectively a tax. Every dollar created out of thin air dilutes the value of the dollars in your pocket and your savings in the bank. But the truth is that we are only beginning to see the results of the Fed’s dramatic increase in the money supply. As former Fed Chair Alan Greenspan himself explained last week to Larry Kudlow, most of the dollar deposits created by the Fed via successive rounds of “quantitative easing” remain on the balance sheet of Fed member banks. Because of very rational economic fears, banks are not lending, businesses are not expanding, and individuals are shedding debt. So, the trillions of dollars created by the Fed since 2008 remained largely undeployed. When those dollars eventually make their way into the world economy, prices across all sectors of the economy are likely to rise dramatically.

The true evil of inflation is that newly created money benefits politically favored financial interests, especially banks, on the front end. Over time, however, the net result of monetary inflation is always the devaluation of savings and purchasing power. This devaluation discourages saving, which is the key to capital accumulation and investment in a healthy economy. Inflation also tends to hurt seniors and those living on fixed incomes the most.

For decades the Fed has operated without any meaningful oversight whatsoever, resulting in the loss of savings, loss of purchasing power, and loss of quality of life for all Americans. It causes individuals and businesses to make bad decisions, misallocating their capital because market signals have been distorted. It causes financial ruin by engineering the inevitable boom and bust cycles that so many erroneously blame on capitalism. And it does all this in secrecy, to the benefit of the financial and political classes. It is time to Audit the Fed, as a first step toward ending its unchecked power over our money and economic fortunes.

Representative Ron Paul (R – TX), MD, is a Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

Property Rights Aren’t Always the Libertarian Solution – Article by Sanford Ikeda

Property Rights Aren’t Always the Libertarian Solution – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
July 15, 2012
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At FEE’s seminar last week on libertarian perspectives on current events, a participant asked: “How do we privatize the air?”

The student may have had in mind the economic principle, popularized by Ronald Coase, that externalities–especially negative externalities such as air pollution– result from ill-defined or unenforced property rights. The question also seems to reflect a common libertarian idea that in a free society all scarce resources must be owned by somebody. That would include the atmosphere when clean air is scarce.

Property Rights and Economic Development

The Coase Theorem is an economic proposition which says that when property rights are well defined and enforced, and the costs of search, bargaining, and enforcement are reasonably low, voluntary trade will tend to produce results that are economically efficient. Negative externalities will be internalized, as unowned resources are transformed into marketable goods. And if, because of incomplete property rights, entrepreneurs are unable to capture enough of the benefits from their actions (that is, if positive externalities would result), they will be less inclined to make the discoveries that drive economic development. Those benefits would be internalized, too.

There are some positive externalities that most, perhaps all, of those who favor tough property enforcement would hesitate to try to privatize. For example, cultures develop in part on the basis of imitation. Jazz musicians copy from one another all the time, from motifs to entire songs, and reinterpret them in their own creations. Classical musicians have also done this. As a courtesy, the protocol is to name the artist from whom you are copying, such as in “Variations on a Theme of Paganini.”

On an even higher level of abstraction, artists, writers, and even ordinary people partake in an esthetic ethos; scholars, intellectuals, and laymen draw on the intellectual milieu of a place and time. Without the experimentation that comes from such borrowing and give-and-take, cultures would stop evolving; they would die.

The same thing goes for economic development. One entrepreneur discovers a demand for flat-screen televisions and is soon followed by imitators, which in the long run results in lower prices and better quality–and often new products and uses, such as tablet computers.

Don’t get me wrong! Private property rights prevent the kind of free riding that hinders economic development. And of course private property is essential for personal freedom: Property rights not only help to avoid or resolve interpersonal conflict–such as the tragedy of the commons–they are what provide a person with a sphere of autonomy and privacy in an economically developed world where contact with strangers is commonplace.

Elinor Ostrom on the Establishment of Conventions

There are many instances where free riding is a net negative, and the overuse of the atmosphere in the form of air pollution is probably one of them. Despite the efforts of some economists, legislators, and policymakers to institute so-called “cap-and-trade”–which would attempt to establish property rights in the air through government policy–it may be impossible to do something similar for all scarce resources, either by legal mandate or market arrangements. But this need not discourage libertarians, of either the minimal-state or market-anarchist variety.

Consider the work of Elinor Ostrom, winner of the 2009 Nobel Prize in economics, the only women so far to be so honored. Sadly, Ostrom died on June 12, a great loss for social science. While few would consider her a libertarian–I don’t believe she thought she was–libertarians can learn a lot from her work. She is perhaps best known for her 1990 book, Governing the Commons, in which she presented her methods and findings regarding how people coped (or didn’t cope) with what has come to be known as “common-pool resource” (CPR) problems:

What one can observe in the world, however, is that neither the state nor the market is uniformly successful in enabling individuals to sustain long-term, productive use of natural resource systems. Further, communities of individuals have relied on institutions resembling neither the state nor the market to govern some resource systems with reasonable degrees of success over long periods of time.

Voluntary Conventions

In those instances the nonstate, nonmarket institutions she studied were, when successful, conventions that the users of common-pool resources agreed to and used sometimes for centuries. They were made voluntarily and evolved over time, but they were not market outcomes, at least in the narrow sense, because no one “owned” the resource in question and it was not bought and sold. Ostrom added:

The central question of this study is how a group of principals who are in an independent situation can organize and govern themselves to obtain continuing joint benefits when all face temptations to free-ride, shirk, or otherwise act opportunistically.

Her research covered the harvesting of forests in thirteenth-century Switzerland and sixteenth-century Japan and irrigation institutions in various regions of fifteenth-century Spain. Although not every community Ostrom studied was successful in establishing such conventions, it is instructive how highly complex agreements, enforced by both local norms and effective monitoring, were able to overcome the free-rider problems that standard economic theory–and perhaps vulgar libertarianism–would predict are insurmountable without property rights.

Dealing with air pollution is of course a more difficult problem since it typically entails a much larger population and more diffuse sources and consequences. But it’s important to realize that a “libertarian solution” to air pollution may not necessarily be a “market solution.”

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.