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The Continued Momentum of “Death is Wrong” in August-September 2014 – Post by G. Stolyarov II

The Continued Momentum of “Death is Wrong” in August-September 2014 – Post by G. Stolyarov II

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The New Renaissance Hat
G. Stolyarov II
September 25, 2014
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GSII_Age_5_QuoteI am pleased to report that, through late August and September 2014, the momentum of Death is Wrong has continued.

An excellent and entertaining recent interview of me was done by Leonardo Nunes Ricucci on La República Democrática de Leo, where we discussed Death is Wrong, transhumanism, indefinite life extension, risk management, and related topics. You can listen to the podcast and download an MP3 file of the episode here.

On September 6, 2014, Roen Horn of the Eternal Life Fan Club interviewed Wendy and me about Death is Wrong and related arguments for life extension and technological progress. The interview was extensive, and many subjects were discussed. Watch it here.

Here is the video trailer that was posted two days in advance of the interview.

Roen has been doing excellent work in recording his Death is Wrong book giveaways on video. Here is a quick video of his second giveaway of a book to a family with four children.

The book has continued to play a role in discussions of longevity and future remedies to the ravages of senescence. Here is a great post by Will Muessig of Unity Politics, mentioning Death is Wrong and refuting Ezekiel Emanuel’s deeply fallacious recent article about why age 75 is a good age to die.

I am also pleased to have had my thoughts included in “Cyborgs: The truth about human augmentation” – an excellent new article by Frank Swain on BBC Future. Mr. Swain had previously interviewed me about Death is Wrong, which led to his article “How to live forever” being published by BBC Future in April 2014. This time Mr. Swain asked me to help debunk common myths about human augmentation, and was happy to share my vision of “a future in which a thousand augmented flowers bloom” and in which augmentations will help people live longer, more fulfilling lives as well.

The continued infusion of the ideas of indefinite life extension into publicly prominent discussions was one of my key aims in writing Death is Wrong. Just like our book-distribution campaign, this aim is being fulfilled right now, and it will hopefully keep paying cultural dividends to the longevity movement for months and years to come.

The Great Fact: A Review of Deirdre McCloskey’s “Bourgeois Dignity” – Article by Bradley Doucet

The Great Fact: A Review of Deirdre McCloskey’s “Bourgeois Dignity” – Article by Bradley Doucet

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The New Renaissance Hat
Bradley Doucet
September 20, 2014
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We live in astonishing times. We take it for granted, of course, which is good in a way because, well, we have to get on with the business of living and can’t spend every waking moment going, “Oh my God! This is amazing!” But it’s a good idea to stop and take stock from time to time in order to appreciate just how far we’ve come in the past 200 years or so—to show gratitude for just how much richer the average person is today thanks to the Industrial Revolution.
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“In 1800, the average human consumed and expected her children and grandchildren and great-grandchildren to go on consuming a mere $3 a day, give or take a dollar or two,” writes economist and historian Deirdre McCloskey in her excellent 2010 book, Bourgeois Dignity: Why Economics Can’t Explain the Modern World. That’s in modern-day, US prices, corrected for cost of living. Apart from a comparatively few wealthier lords, bishops, and the odd rich merchant, people were dirt poor, barely subsisting, unable to afford luxuries like elementary education for their kids—who had a 50% chance at birth of not making it past the age of 30. That’s the way it was, the way it had always been, and as far as anyone could tell, the way it always would be.

More Than 16 Times Richer

But thankfully, things turned out a little differently. There are seven times as many of us on the planet today, but we’re many times richer on average, despite pockets of enduring dire poverty here and there. According to McCloskey, “Real income per head nowadays exceeds that around 1700 or 1800 in, say, Britain and in other countries that have experienced modern economic growth by such a large factor as sixteen, at least.” And this is a very conservative estimate of material improvement, not taking into account such novelties as jet travel, penicillin, and smartphones.

This radical, positive change brought about by the Industrial Revolution is the “Great Fact” about the modern world. “No competent economist, regardless of her politics, denies the Great Fact,” writes McCloskey. But it does require explanation, and here there are many theories. What caused it? Why did it happen where and when it happened—starting in northern Europe around 1800—instead of in some other place, at some other time? And although modern economic growth has at least begun to reach most of the world, including now China and India, if we had a better understanding of its causes, perhaps we could do a better job of encouraging it to spread to the relatively few remaining holdouts.

What changed, argues McCloskey, is the way people thought about markets and innovation and the people who were engaged in the business of making new things and buying and selling them. “More or less suddenly the Dutch and British and then the Americans and the French began talking about the middle class, high or low—the “bourgeoisie”—as though it were dignified and free. The result was modern economic growth.” In other words, the material, economic fact has a non-material, rhetorical cause, which is why economics can’t explain the modern world. Our ideas changed, and we started innovating like never before, and an explosion of innovation drove the rapid economic growth of the past 200 years.

What Didn’t Cause the Industrial Revolution

Bourgeois Dignity is the second book of a trilogy. The first book, The Bourgeois Virtues (2006), which I have not read but now plan to, argued for the positive ethical status of a bourgeois life. The third book, Bourgeois Equality, due out in 2015, will present the positive case for the claim that it is a change in ideas and rhetoric that made the modern world—and that ideas and rhetoric could unmake it, too. As for this second book in the series, it presents the negative case by examining the materialist explanations for the Great Fact offered up by economists and historians from both the left and the right, and finding them all to be lacking.

Imperialism, for instance, did not bring about the modern world. The average European did not become spectacularly wealthy by historical standards simply by taking Africa’s and America’s wealth. Imperialism did happen, and it did make a few people rich and hurt a lot of people, especially in places like the Belgian Congo. But it did not raise the standard of living of average Europeans, who would have been better off if their leaders had allowed trade to flourish instead of supporting the subjugation of people in foreign lands. Besides which, empires had existed in other times and places without bringing about an Industrial Revolution. A unique effect cannot be the result of a routine cause. And it cannot either simply be the case that wealth was moved from one place to another, because there is much more wealth per person today than ever before, despite there being many more of us around.

International trade did not do it either, according to McCloskey. Trade is a good thing, as imperialism is a bad thing, but its effects are relatively small. And extensive trade, too, existed long before the 1800s, in places other than Europe and the United States, without launching the rapid material betterment of all. And for similar reasons, it wasn’t the case that people began saving more, or finally accumulated enough, or got greedier all of a sudden, or discovered a Protestant work ethic, or finally built extensive transportation infrastructure, or formed unions, or suddenly started respecting private property, or any of dozens of other explanations presented by economists and historians over the years.

Respect for Innovation and Making Money

Only innovation has the power to make people radically better off by radically increasing the output produced from given inputs, and only innovation was a truly novel cause, to the extent that it was taking place on an unprecedented scale two hundred years ago in northern Europe. And the reason that it began happening there and then like never before was a change in rhetoric—a newfound liberty, yes, but also a newfound dignity previously reserved for clergy and warriors. For the first time, in the 17th and 18th centuries, it became respectable, even honourable, to figure out new ways of doing things and to make money selling those innovations to other people, and so innovation and business were encouraged, and much of humanity was lifted out of dire poverty for the first time in history starting in the 19th century.

Ideas matter. Supported by bourgeois dignity, and despite the betrayal of a portion of the intellectual elite as of around 1848, we have continued to innovate and make money and lift more and more people out of poverty. There have been significant setbacks due to communism and fascism and two world wars, but almost everyone is much better off today than anyone dreamed was possible just a few short centuries ago. In order to continue spreading the wealth, and the opportunities for human flourishing that go with it, we need to defend the idea that business and innovation deserve to be free and respected, as Deirdre McCloskey herself has so admirably done in this fine volume.

Bradley Doucet is Le Québécois Libre‘s English Editor and the author of the blog Spark This: Musings on Reason, Liberty, and Joy. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also writes for The New Individualist, an Objectivist magazine published by The Atlas Society, and sings.
Ludd vs. Schumpeter: Fear of Robot Labor is Fear of the Free Market – Article by Wendy McElroy

Ludd vs. Schumpeter: Fear of Robot Labor is Fear of the Free Market – Article by Wendy McElroy

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The New Renaissance Hat
Wendy McElroy
September 18, 2014
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“Report Suggests Nearly Half of U.S. Jobs Are Vulnerable to Computerization,” screams a headline. The cry of “robots are coming to take our jobs!” is ringing across North America. But the concern reveals nothing so much as a fear—and misunderstanding—of the free market.

In the short term, robotics will cause some job dislocation; in the long term, labor patterns will simply shift. The use of robotics to increase productivity while decreasing costs works basically the same way as past technological advances, like the production line, have worked. Those advances improved the quality of life of billions of people and created new forms of employment that were unimaginable at the time.

Given that reality, the cry that should be heard is, “Beware of monopolies controlling technology through restrictive patents or other government-granted privilege.”

The robots are coming!

Actually, they are here already. Technological advance is an inherent aspect of a free market in which innovators seeks to produce more value at a lower cost. Entrepreneurs want a market edge. Computerization, industrial control systems, and robotics have become an integral part of that quest. Many manual jobs, such as factory-line assembly, have been phased out and replaced by others, such jobs related to technology, the Internet, and games. For a number of reasons, however, robots are poised to become villains of unemployment. Two reasons come to mind:

1. Robots are now highly developed and less expensive. Such traits make them an increasingly popular option. The Banque de Luxembourg News offered a snapshot:

The currently-estimated average unit cost of around $50,000 should certainly decrease further with the arrival of “low-cost” robots on the market. This is particularly the case for “Baxter,” the humanoid robot with evolving artificial intelligence from the US company Rethink Robotics, or “Universal 5” from the Danish company Universal Robots, priced at just $22,000 and $34,000 respectively.

Better, faster, and cheaper are the bases of increased productivity.

2. Robots will be interacting more directly with the general public. The fast-food industry is a good example. People may be accustomed to ATMs, but a robotic kiosk that asks, “Do you want fries with that?” will occasion widespread public comment, albeit temporarily.

Comment from displaced fast-food restaurant workers may not be so transient. NBC News recently described a strike by workers in an estimated 150 cities. The workers’ main demand was a $15 minimum wage, but they also called for better working conditions. The protesters, ironically, are speeding up their own unemployment by making themselves expensive and difficult to manage.

Labor costs

Compared to humans, robots are cheaper to employ—partly for natural reasons and partly because of government intervention.

Among the natural costs are training, safety needs, overtime, and personnel problems such as hiring, firing and on-the-job theft. Now, according to Singularity Hub, robots can also be more productive in certain roles. They  “can make a burger in 10 seconds (360/hr). Fast yes, but also superior quality. Because the restaurant is free to spend its savings on better ingredients, it can make gourmet burgers at fast food prices.”

Government-imposed costs include minimum-wage laws and mandated benefits, as well as discrimination, liability, and other employment lawsuits. The employment advisory Workforce explained, “Defending a case through discovery and a ruling on a motion for summary judgment can cost an employer between $75,000 and $125,000. If an employer loses summary judgment—which, much more often than not, is the case—the employer can expect to spend a total of $175,000 to $250,000 to take a case to a jury verdict at trial.”

At some point, human labor will make sense only to restaurants that wish to preserve the “personal touch” or to fill a niche.

The underlying message of robotechnophobia

The tech site Motherboard aptly commented, “The coming age of robot workers chiefly reflects a tension that’s been around since the first common lands were enclosed by landowners who declared them private property: that between labour and the owners of capital. The future of labour in the robot age has everything to do with capitalism.”

Ironically, Motherboard points to one critic of capitalism who defended technological advances in production: none other than Karl Marx. He called machines “fixed capital.” The defense occurs in a segment called “The Fragment on Machines”  in the unfinished but published manuscript Grundrisse der Kritik der Politischen Ökonomie (Outlines of the Critique of Political Economy).

Marx believed the “variable capital” (workers) dislocated by machines would be freed from the exploitation of their “surplus labor,” the difference between their wages and the selling price of a product, which the capitalist pockets as profit. Machines would benefit “emancipated labour” because capitalists would “employ people upon something not directly and immediately productive, e.g. in the erection of machinery.” The relationship change would revolutionize society and hasten the end of capitalism itself.

Never mind that the idea of “surplus labor” is intellectually bankrupt, technology ended up strengthening capitalism. But Marx was right about one thing: Many workers have been emancipated from soul-deadening, repetitive labor. Many who feared technology did so because they viewed society as static. The free market is the opposite. It is a dynamic, quick-response ecosystem of value. Internet pioneer Vint Cerf argues, “Historically, technology has created more jobs than it destroys and there is no reason to think otherwise in this case.”

Forbes pointed out that U.S. unemployment rates have changed little over the past 120 years (1890 to 2014) despite massive advances in workplace technology:

There have been three major spikes in unemployment, all caused by financiers, not by engineers: the railroad and bank failures of the Panic of 1893, the bank failures of the Great Depression, and finally the Great Recession of our era, also stemming from bank failures. And each time, once the bankers and policymakers got their houses in order, businesses, engineers, and entrepreneurs restored growth and employment.

The drive to make society static is powerful obstacle to that restored employment. How does society become static? A key word in the answer is “monopoly.” But we should not equivocate on two forms of monopoly.

A monopoly established by aggressive innovation and excellence will dominate only as long as it produces better or less expensive goods than others can. Monopolies created by crony capitalism are entrenched expressions of privilege that serve elite interests. Crony capitalism is the economic arrangement by which business success depends upon having a close relationship with government, including legal privileges.

Restrictive patents are a basic building block of crony capitalism because they grant a business the “right” to exclude competition. Many libertarians deny the legitimacy of any patents. The nineteenth century classical liberal Eugen von Böhm-Bawerk rejected patents on classically Austrian grounds. He called them “legally compulsive relationships of patronage which are based on a vendor’s exclusive right of sale”: in short, a government-granted privilege that violated every man’s right to compete freely. Modern critics of patents include the Austrian economist Murray Rothbard and intellectual property attorney Stephan Kinsella.

Pharmaceuticals and technology are particularly patent-hungry. The extent of the hunger can be gauged by how much money companies spend to protect their intellectual property rights. In 2011, Apple and Google reportedly spent more on patent lawsuits and purchases than on research and development. A New York Times article addressed the costs imposed on tech companies by “patent trolls”—people who do not produce or supply services based on patents they own but use them only to collect licensing fees and legal settlements. “Litigation costs in the United States related to patent assertion entities [trolls],” the article claimed, “totaled nearly $30 billion in 2011, more than four times the costs in 2005.” These costs and associated ones, like patent infringement insurance, harm a society’s productivity by creating stasis and  preventing competition.

Dean Baker, co-director of the progressive Center for Economic Policy Research, described the difference between robots produced on the marketplace and robots produced by monopoly. Private producers “won’t directly get rich” because “robots will presumably be relatively cheap to make. After all, we can have robots make them. If the owners of robots get really rich it will be because the government has given them patent monopolies so that they can collect lots of money from anyone who wants to buy or build a robot.”  The monopoly “tax” will be passed on to impoverish both consumers and employees.

Conclusion

Ultimately, we should return again to the wisdom of Joseph Schumpeter, who reminds us that technological progress, while it can change the patterns of production, tends to free up resources for new uses, making life better over the long term. In other words, the displacement of workers by robots is just creative destruction in action. Just as the car starter replaced the buggy whip, the robot might replace the burger-flipper. Perhaps the burger-flipper will migrate to a new profession, such as caring for an elderly person or cleaning homes for busy professionals. But there are always new ways to create value.

An increased use of robots will cause labor dislocation, which will be painful for many workers in the near term. But if market forces are allowed to function, the dislocation will be temporary. And if history is a guide, the replacement jobs will require skills that better express what it means to be human: communication, problem-solving, creation, and caregiving.

Wendy McElroy (wendy@wendymcelroy.com) is an author, editor of ifeminists.com, and Research Fellow at The Independent Institute (independent.org).

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

Plot Holes in Fiction and in Life – Article by Sanford Ikeda

Plot Holes in Fiction and in Life – Article by Sanford Ikeda

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The New Renaissance Hat
Sanford Ikeda
August 23, 2014
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Fans of J.R.R. Tolkien’s trilogy The Lord of the Rings (LOTR) have long been aware of a possible plot hole. The central narrative concerns the hero, Frodo Baggins, who must destroy a powerful ring by walking through forbidding terrain and defeating or eluding monstrous foes and throwing the ring into a live volcano. The journey takes many months and costs Frodo and his companions dearly.

Over the years, many readers have noticed a much easier and less dangerous solution. Why, they ask, didn’t Frodo just have Gandalf ask his friends the mighty eagles to fly him swiftly over enemy territory so he could then simply toss the ring into the volcano? I’ve run across this post on Facebook a few times, which cleverly patches that hole with only a slight change in the narrative. (Others argue that there’s really no hole to patch because the “eagle solution” itself has flaws. And so the debate continues.)

Anyway, it occurred to me that the kind of social theory that I and many Austrian economists engage in could usefully be framed in terms of plot holes.

What’s a plot hole?

I’ll define a plot hole as a failure of logic, a factual mistake, or an obvious solution to a critical problem central to a story. (Here’s a slightly different definition from Wikipedia.) Of course, any particular plot hole may involve more than one of these errors of fact, logic, or perception, and there may be more kinds of plot holes than these. But here are examples of each of the ones I’ve mentioned. They come from movies, but some of them, such as the plot hole in Lord of the Rings, have literary counterparts.

Factual hole: In the movie Independence Day, key characters survive a massive fireball by ducking into the open side-door of a tunnel just as the inferno blasts by. Anyone who knows about firestorms would tell you that the super-heated air alone would instantly kill anyone in that situation.

Logical hole: In Citizen Kane, miserable Charles Foster Kane dies alone. How then does anyone know that his last word was “Rosebud”? Keep in mind that it’s a reporter’s search for the meaning of that word that drives the story forward.

Perceptual hole: The LOTR problem mentioned above is an example of this. No one seems to realize that there may be a much safer and effective way to defeat the enemy.

I would think that one of the things that makes writing fiction difficult is that events and characters have to hang together. The writer needs always to keep in mind the rules of the universe she’s creating, to recall what her characters know and when they know it, and to make sure that these details all constrain every action and event.

Life is full of “plot holes”

In real life, we make mistakes all the time. I think it’s interesting that those mistakes appear to fit neatly into the three categories of plot holes I’ve identified.

Factual hole/error: A person who doesn’t know the difference between liters and gallons buys a 100-liter barrel to hold 100 gallons of rainwater. No explanation necessary.

Logical hole/error: Thinking that since you’ve made a string of bad investment decisions, your next decision is therefore more likely to be a good one. But it’s quite the contrary: If you’ve been consistently making bad decisions, it follows that if nothing else changes, your next decision will also be bad one. (See “gambler’s fallacy.”)

Perceptual hole/error: Selling your car for $15,000 when, unbeknownst to you, you could have sold it for $20,000. The better deal simply escapes your notice and, if you were ever to learn about it, you would feel regret.

Here’s the difference though: In fiction, a writer can get away with any of these three plot holes as long as no reader sees it. Even if you do notice one, but you otherwise enjoy the story, you might be willing to overlook it. But in real life, you can’t ignore factual or logical plot holes. If you try to, they will come back and bite you. It will be painfully obvious that you can’t put 100 gallons of water into a 100-liter barrel. And if you bet on your next investment being a winner because you’ve just had a bunch of losers, it’s very likely that you’ll be disappointed. These kinds of holes you’re bound to discover.

I wrote about errors in an earlier column, but the distinction comes from my great teacher Israel Kirzner. He identifies a class of errors that derive from “overoptimism.” The more optimistic you are, the more likely it is that you’ll deliberately pass up solid opportunities for gain and thus the more likely it is that you’ll be disappointed. That’s not to say that optimism is a bad thing. If you weren’t optimistic and so never acted on that optimism, you’d never know if that optimism were warranted or not. You would never learn.

The other kind of error, what Kirzner calls “overpessimism,” happens when you’re so pessimistic that you unwittingly pass up a realizable opportunity. And because you don’t take chances, you don’t learn. This type of error is akin to a perceptual hole. Thinking you can only get $15,000 for your car means not selling to someone who would in fact pay more. Here, it’s not inevitable that you will discover your error because, after all, someone does buy your car (for $15,000). But you could have done better if you’d been more alert.

So errors of overpessimism, what I’m calling perceptual holes, are very different from factual and logical holes in that they are much harder to detect.

Plot holes and social theory

For many Austrian economists like me, economics, as a branch of a social theory, accepts as a datum that people are prone to make mistakes. But given the right rules of the game—private property, free association—they can discover those mistakes and correct them via an entrepreneurial-competitive process. Unlike plot holes in fiction writing, then, plot holes in living social systems are a feature, not a bug.

So our challenge as flesh-and-blood people, and what makes our lives interesting, is to discover plot holes, especially perceptual ones, and to fill them in. The challenge of social theorists is to understand as much we can about how that happens. In novels it’s the people outside the story who discover holes; in society it’s the people living the story who do.

Plot holes in novels spell failure. Plot holes in real life mean opportunity.

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.
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This article was originally published by The Foundation for Economic Education.
Confusing Capitalism with Fractional-Reserve Banking – Article by Frank Hollenbeck

Confusing Capitalism with Fractional-Reserve Banking – Article by Frank Hollenbeck

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The New Renaissance Hat
Frank Hollenbeck
August 10, 2014
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Today, capitalism is blamed for our current disastrous economic and financial situation and a history of incessant booms and busts. Support for capitalism is eroding worldwide. In a recent global poll, 25 percent (up 2 percent from 2009) of respondents viewed free enterprise as “fatally flawed and needs to be replaced.” The number of Spaniards who hold this view increased from 29 percent in 2009 to 42 percent, the highest amongst those polled. In Indonesia, the percentage went from 17 percent to 32 percent.

Most, if not all, booms and busts originate with excess credit creation from the financial sector. These respondents, incorrectly, assume that this financial system structured on fractural reserve banking is an integral part of capitalism. It isn’t. It is fraud and a violation of property rights, and should be treated as such.

In the past, we had deposit banks and loan banks. If you put your money in a deposit bank, the money was there to pay your rent and food expenses. It was safe. Loan banking was risky. You provided money to a loan bank knowing funds would be tied up for a period of time and that you were taking a risk of never seeing this money again. For this, you received interest to compensate for the risk taken and the value of time preference. Back then, bankers who took a deposit and turned it into a loan took the risk of shortly hanging from the town’s large oak tree.

During the early part of the nineteenth century, the deposit function and loan function were merged into a new entity called a commercial bank. Of course, very quickly these new commercial banks realized they could dip into deposits, essentially committing fraud, as a source of funding for loans. Governments soon realized that such fraudulent activity was a great way to finance government expenditures, and passed laws making this fraud legal. A key interpretation of law in the United Kingdom, Foley v. Hill, set precedence in the financial world for banking laws to follow:

Foley v. Hill and Others, 1848:

Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him when he is asked for it. … The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands. [1]

In other words, when you put your money in a bank it is no longer your money. The bank can do anything it wants with it. It can go to the casino and play roulette. It is not fraud legally, and the only requirement for the bank is to run a Ponzi scheme, giving you the money deposited by someone else if they lost your money and you happen to come back asking for your money. This legalization of fraud is essentially one of the main reasons no one went to jail after the debacle of 2008.

The primary cause of the financial panics during the nineteenth century was this fraudulent nature of fractional reserve banking. It allowed banks to create excessive credit growth which led to boom and bust cycles. If credit, instead, grew as fast as slow moving savings, booms and bust cycles would be a thing of the past.

Critics of the gold standard, (namely, Krugman, et al.), usually point to these cycles as proof that it failed as a monetary system. They are confusing causation with association. The gold standard did not cause these financial panics. The real cause was fractional reserve banking that was grafted onto the gold standard. The gold standard, on the contrary, actually greatly limited the severity of these crises, by limiting the size of the money multiplier.

This is why in the early days of banking in the US, some wildcat bankers would establish themselves in the most inaccessible locations. This was to ensure that few would actually come and convert claims for gold into actual gold since banks had created claims that far exceeded the actual gold in their vaults. And, if by chance a depositor tried to convert his claims into gold, they would be treated as thieves, as though they were stealing the bank’s property by asking for their gold back.

The Federal Reserve System was created following the panics of 1903 and 1907 to counterbalance the negative impact of fractional reserve banking. One hundred years after its creation, the Fed can only be given a failing grade. Money is no longer a store of value, and the world has experienced two of its worst financial crises. Instead of a counterbalance, the central bank has fed and expanded the size of the beast. This was to be expected.

That global poll on capitalism also found that almost half (48 percent) of respondents felt that the problems of capitalism could be resolved with added regulations and reform. Janet Yellen also holds this view, and that regulation, not interest rates, should be the main tool to avoid another costly boom and bust in global finance. This is extremely naïve. We already have more compliance officers in banks than loan officers. Recent banking legislation, Dodd-Frank, and the Vickers and Liikanen reports will probably make the situation even worse. Banks will always be able to use new technologies and new financial instruments to stay one step ahead of the regulators. We continue to put bandages on a system that is rotten to the core. Banking in its current form is not capitalism. It is fraud and crony capitalism, kept afloat by ever-more desperate government interventions. It should be dismantled. Under a system of 100 percent reserves, loan banks (100 percent equity-financed investment trusts) would be like any other business and would not need any more regulation than that of the makers of potato chips.

Notes

[1] Quoted in Murray Rothbard’s, The Mystery of Banking (Auburn, AL: Mises Institute, 2008), p. 92.

Frank Hollenbeck teaches finance and economics at the International University of Geneva. He has previously held positions as a Senior Economist at the State Department, Chief Economist at Caterpillar Overseas, and as an Associate Director of a Swiss private bank. See Frank Hollenbeck’s article archives.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Commonly Misunderstood Concepts: Employment (2009) – Article by G. Stolyarov II

Commonly Misunderstood Concepts: Employment (2009) – Article by G. Stolyarov II

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The New Renaissance Hat
G. Stolyarov II
Originally Published November 26, 2009
as Part of Issue CCXX of The Rational Argumentator
Republished July 24, 2014
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Note from the Author: This essay was originally published as part of Issue CCXX of The Rational Argumentator on November 26, 2009, using the Yahoo! Voices publishing platform. Because of the imminent closure of Yahoo! Voices, the essay is now being made directly available on The Rational Argumentator.
~ G. Stolyarov II, July 24, 2014
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The mistaken identification of wealth with money, which I refuted in an earlier installment of this series, results in yet another damaging fallacy: the idea that the only legitimate “employment” is work performed for somebody else in exchange for money. This cultural confusion has become so deep-rooted that even people who own their own businesses or function as independent contractors are classified as “self-employed” – which, despite the second component of that term, is somehow seen as distinct from being “employed,” which has become in the minds of many identical to working for a formal organization on a fixed schedule for largely fixed compensation. There is nothing wrong with the latter kind of employment; indeed, I am currently engaged in it, and it pays well. It is a practical and a tremendously useful way to earn a living for many. But the societal stigma against many individuals who choose not to pursue that path needs to end.

I am not here seeking to justify individuals who refuse to work out of sloth or rebelliousness – or individuals who choose to subsist off of the welfare system. Indeed, I am not at all seeking to justify individuals who refuse to work at all. Rather, I seek to effectuate a cultural re-identification of employment with doing actual useful work – physical or mental – irrespective of how much, or how little, money that work earns. If wealth is not money but rather useful goods and services, then useful employment is any activity that generates useful goods and services. Some such activities happen to be highly compensated with money, either because there is large market demand for them or because they are subsidized by private institutions or governments. But other such activities arise out of individuals’ volunteer efforts, hobbies and interests, and desires to improve their immediate environment. An individual who devotes himself or herself primarily to the latter sorts of activities can be as worthy of respect and just as productive as an individual who makes a six-figure monetary income.

First, it is essential to recognize that either market value or institutional advantages that result in monetary subsidies are not necessarily a reflection of genuine wealth creation or usefulness. For instance, numerous products of high culture – including philosophy, literature, and classical music – are not in high demand among the masses, who simply do not understand such products. The creators of high culture will not earn as great an income on the market as the creators of light magazines and popular music. However, these same creators will contribute a much longer-lasting value to human knowledge, refinement, and moral standards for generations to come, whereas the creators of more popular works are unlikely to remain in demand for more than two generations. There is nothing wrong with this differential in compensation, per se, as people who do not appreciate high culture are entitled to vote with their dollars however they please. But this state of affairs does invalidate any notion that the amount of money one receives from one’s work is in any manner connected with one’s worth as a human being or one’s contribution to improving one’s own life and the lives of others – both in the short term and in the long term. Many creators of more refined works have even decided that it is unwise to try to make a living from such works and depend on their approval by a mass audience; instead, they have decided to subsidize their own creations and the dissemination of these works by means of a monetary income they earn from another occupation. This allows for works of high culture to be created exactly as the author intended them to be; if the author is talented and has a consistent vision, such works will be much more likely to endure long into the future.

Another important recognition is that some work is either impossible to transfer to the market given present technology or is prohibitively expensive to transfer. For instance, if I wish to go into my kitchen and get myself a beverage, it would be highly impractical for me to hire another individual to do this for me. If I get the beverage myself, I do not either collect or spend any money – provided that I already own the beverage, the glass, and the living space. But it cannot be denied that the act of getting the beverage was desirable to me and improved the quality of my life. Likewise, numerous actions that an individual performs to improve his or her own skills – such as reading books, practicing musical instruments, and doing mathematical problems – cannot be outsourced to other individuals and retain their value for the individual, which arises from the act of learning new skills that the individual himself would be able to use in the future. Indeed, it is true that all of us, if we have even the slightest desire to live well, will perform a wide variety of work every day for which we receive no monetary compensation at all! If we did not perform this work, it is unlikely that we would be in any position to earn any money, either.

A popular source of contempt in contemporary culture is the individual who, instead of leaving the home to work for money, chooses to remain at home and maintain it in good working order. This is, in my judgment, the single most egregious consequence of the fallacy that employment is the same as working for money. Working within the home – especially when supported by the monetary income of another family member – is a tremendously useful and life-affirming occupation; it facilitates a division of labor where various family members can specialize in the tasks they are most skilled at performing, thereby making good use of the principle of comparative advantage. Moreover, it enables a greater degree of care for any children in the household and provides a source of relief for those individuals who simply do not like working outside the home on a fixed schedule.

I note that there is nothing in this implying that any particular gender of individual should choose to stay at home, or that a family cannot function well if all of its members choose to work outside the home. Rather, I argue that a productive family can exist irrespective of which of its members do or do not choose to work for money. Indeed, for a family which has accumulated sufficient money and physical goods, it is possible to maintain productivity and a high standard of living even if none of its members earns a regular monetary income. Even if an individual has never earned any money in his or her life and, say, lives off a vast inheritance, it is still possible for that individual to perform useful and productive work. Indeed, one of the arguments that the great Austrian economist Friedrich Hayek made for the right of inheritance can be summarized as follows. Even if the vast majority of people who inherit their money will spend it unwisely, it is enough for one out of a thousand inheritors to be a great thinker and innovator. This individual, through his inheritance, will have the time and leisure to bring his vision to fruition, without needing to worry about providing for his day-to-day subsistence. The result could be a tremendous philosophical, technological, or artistic breakthrough that improves the lives of millions for centuries to come – and this result is worth the wasteful spending any other heirs might engage in.

Of course, the manner of productive work one does is often constrained by one’s current material situation. Many people will work for money, even if they wish to do something else, because they need the money to maintain the standard of living they wish to have. Increases in monetary income can go a long way toward improving both one’s access to leisure and one’s level of security and comfort. On the other hand, the same goals can also be achieved in part by spending less of the money one already earns and by living within one’s means – never letting one’s expenses exceed one’s income, which is akin to deficit spending for individuals, and not taking out interest-bearing debt, unless there is no other option, and the good the debt would fund could be seen as a necessity – such as a house. Devoting some time to managing one’s spending and establishing less expensive lifestyle choices is just productive as working to earn a salary increase.

If you wish to work to earn money, by all means do so. If you would rather focus on working in the home or doing volunteer work of any sort, this is excellent as well. Provided that one works and has useful outcomes to show for it, there is no need to feel any inferiority in one’s own case or any disrespect for others.

Read other articles in The Rational Argumentator’s Issue CCXX.

Commonly Misunderstood Concepts: Wealth (2009) – Article by G. Stolyarov II

Commonly Misunderstood Concepts: Wealth (2009) – Article by G. Stolyarov II

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The New Renaissance Hat
G. Stolyarov II
Originally Published November 16, 2009
as Part of Issue CCXVIII of The Rational Argumentator
Republished July 24, 2014
******************************
Note from the Author: This essay was originally published as part of Issue CCXVIII of The Rational Argumentator on November 16, 2009, using the Yahoo! Voices publishing platform. Because of the imminent closure of Yahoo! Voices, the essay is now being made directly available on The Rational Argumentator.
~ G. Stolyarov II, July 24, 2014
****

****

Many of the economic and personal fallacies of our time arise from the mistaken belief that wealth and money are identical. In fact, while money is in many cases an important gateway to wealth, it does not even approach describing what wealth truly is.

In our time, money may be equated to wealth even less justifiably than it could have been in times past – when most money was identified with precious metals, such as gold and silver, which had uses other than as media of exchange. Currently, money in virtually all countries consists of pieces of paper which are decreed to be money by government fiat. Legal tender laws force individuals to accept these special pieces of paper as payment for products, services, or debts. The supply of these pieces of paper is controlled by the government’s printing press – typically located at either the central bank or the treasury department.

Why do people seek and hold this money? They do so because they expect to be able to purchase with it actual goods and services – either now or in the future. This means that the money is not seen as valuable in itself; it is seen as valuable because of the other things it can obtain. However, the supply of these other things is not dependent on the number of pieces of paper in circulation. Rather, it is dependent on real factors that affect individuals’ and businesses’ abilities to produce actual goods and services. Thus, having more pieces of paper does not automatically make one wealthier. If the government simply chooses to print more of them, while no external factors affect the production of goods and services, then there will simply be more pieces of paper for the same amount of real goods and services. We would therefore get inflation: prices in terms of the pieces of paper will increase in proportion to the volume of new pieces of paper introduced. Of course, inflation has disastrous impacts on individuals’ existing savings, incentives for frugality, and transaction costs. It also constitutes an unjustified redistribution of wealth from the producers who earn it to the politically connected elites who get priority access to the new pieces of paper. Creating more “money” can often destroy actual wealth and productivity.

But there is another respect in which money is not equivalent to wealth. Consider the fact that, even without inflation, the same amount of money will not purchase the same goods and services in every area. Indeed, a tiny, cramped apartment in the center of a major city may often cost more money than a spacious house in a small town. An individual earning the same amount of money in each area would be able to have a much higher standard of living in the small town. It is quite possible that the individual’s opportunities to earn more money in a big city will be greater, but the prices of goods will not increase in a one-to-one ratio with that individual’s relative salary increase. Rather, the prices are most likely to be higher in a ratio that is greater or smaller than the individual’s ratio of salaries – thereby making life in the city either less or more attractive to the individual. How much money one makes is not an indicator of the rate at which one accumulates wealth; a better indicator is what one can buy for one’s money.

These thoughts should give pause to both advocates of the government’s power of the printing press and to indiscriminate salary chasers. Both may be devoting their time and energy to the pursuit of numerical illusions rather than substantive benefits. A much more sophisticated and nuanced understanding of wealth is needed in order to truly thrive and lead a good life.

To achieve an understanding of wealth, we need to ask ourselves why we seek money in the first place. Ultimately, every unit of money – even one saved or invested for many years – goes to fund some human consumption. Money can pay for either goods – material objects – or services – human behaviors performed for the benefit of the payer. It is actual goods and services that constitute wealth, not the money. Moreover, the money price of these goods and services is irrelevant from the standpoint of the wealth of the person who owns them. If I have a table, I am no less wealthy if I cannot sell the table at all – nor am I any wealthier just because I have the potential to sell it for five million dollars. I still have the same table, and its physical qualities are unchanged. If I actually do sell it, I might become wealthier, but only insofar as my five million dollars would enable me to purchase more tables, better tables, or other goods and services I value. The important principle to recognize is that one either has potential wealth in the form of money or actual wealth in the form of the goods and services one has purchased. One does not have both at the same time in the same object. Fiat money is wealth only insofar as it can reasonably be expected to procure actual goods and services. Goods and services constitute wealth in themselves while they last. Capital goods that can produce other goods can also be described as potential wealth – but it is also true that they are not money while one owns them as goods.

A further distinction should be made. Not all material objects are goods, and not all human behaviors are services. Some material objects – such as clouds of poison gas in one’s living room – are active bads. Likewise, some human behaviors – such as people raping or murdering one another – are active disservices. The only way to comprehensively define wealth is with regard to a standard by which goods and services can be identified. The most fundamental standard from both a moral and a practical standpoint is the principle that the life of every innocent individual is the greatest and most basic good – where an innocent individual is one who has not violated this principle through actions such as murder or the attempt at murder. Thus, any object that promotes any individual’s life is a good; any behavior that promotes any individual’s life is a service. The more life-promoting objects one has – and the more life-promoting behaviors one either is able to elicit from others or is able to initiate oneself – the wealthier one is.

Everything else is a matter of means and context. How one gets wealth – whether it be through money, barter, gifts, or one’s own work and transformation of raw materials – has no bearing on the nature of that wealth; all of us who are not self-destructive pursue a wide variety of means that fundamentally aim at the goal of improving our lives. Ethically, the means ought to be non-coercive; we must not intrude on other people’s prerogatives to control their lives just like they must not intrude on ours. Wealth is still wealth, even if acquired through dishonest or evil means – but immoral means of wealth acquisition will destroy other wealth on net, through damage to property and human beings and their incentives to produce.

Moreover, it is possible for the same object to be beneficial in some circumstances and harmful in others. For instance, a piece of rope used to tie a knot may be extremely useful, while the same piece of rope strung across the floor of a room might be a tripping hazard. However, the same item or behavior in the exact same context should produce the same results; actual situations are never precisely repeatable, but we can at least estimate an object’s usefulness or lack thereof by analyzing situations where it has been applied in similar ways.

This view has practical implications beyond the scope of one’s views on economics or politics. Most items in our lives should be viewed not in terms of how we might be able to resell them to others, but rather in terms of what use they are to us personally. There is nothing wrong with resale as such, but it is not a behavior that can be imposed on all objects – and, indeed, economic bubbles are created when the expectation of resale for continually rising prices is applied by enough people to too many commodities. Those of us who acquire an item for our own use – which includes our purchases of art, furniture, automobiles, and yes, even houses – are not in the same position as businessmen who produce or acquire items for the specific purpose of reselling them at a profit. Businessmen see their inventories as potential money generators – an indirect route to greater wealth; consumers ought to see their property as useful in itself and any resale as incidental or fortuitous – a kind of loss mitigation once one is no longer able or willing to make good use of the property. We have adjusted quite well to the idea that the resale value of an automobile or a computer is virtually always much lower than its purchase price. In the role of consumers, we should adopt the same default expectation for houses – and for everything else. But the silly notion that one is entitled to resell any property at a higher price than one purchased it must be discarded, as it results in the foolish pursuit of higher-priced items in the vain hope of their further appreciation in price – without any expert knowledge of how markets in these items actually work. This turns many a layman into a speculator, while enticing him to take out loans with his fanciful expectations as collateral – as happened all too often during the housing bubble. Moreover, it engenders the disastrous attitude that price decreases – which make goods such as houses more affordable for people – are in some manner harmful. But one cannot destroy wealth by making goods easier to earn through honest work – nor can one create wealth by piggybacking off of others’ expectations of price increases.

Leave the house-flipping to the experts, and buy a house that you would want to live in, just as you buy clothes you want to wear and computers you want to use. That house would constitute real wealth for you, irrespective of its market price, and it will be there irrespective of financial market or currency value fluctuations – if you actually own the house or have a fixed-rate mortgage. To maximize your wealth, you should act in such a manner as to improve your access to actual goods and services that you value. Pieces of paper and expectations can only get you so far. And remember that your own ability to do useful work – including work that does not bring immediate monetary returns – is one of your most reliable gateways to wealth.

Read other articles in The Rational Argumentator’s Issue CCXVIII.

Commonly Misunderstood Concepts: Health Care (2009) – Article by G. Stolyarov II

Commonly Misunderstood Concepts: Health Care (2009) – Article by G. Stolyarov II

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The New Renaissance Hat
G. Stolyarov II
Originally Published October 12, 2009
as Part of Issue CCXI of The Rational Argumentator
Republished July 24, 2014
******************************
Note from the Author: This essay was originally published as part of Issue CCXI of The Rational Argumentator on October 12, 2009, using the Yahoo! Voices publishing platform. Because of the imminent closure of Yahoo! Voices, the essay is now being made directly available on The Rational Argumentator.
~ G. Stolyarov II, July 24, 2014
****
***

It is an odd society indeed where such a seemingly simple idea as health care is so severely misunderstood. Health care, as the constituents of the term suggest, is simply caring for one’s health, where health – of course – is the physical integrity and unobstructed functioning of one’s body. A healthy person is one whose body is not breaking down, one who is not in constant pain, one who is going to live for a long time unless some unforeseen external peril – such as an accident or an assault – violates the integrity of one’s body from without.

In a society where there exists advanced scientific medical knowledge, it is possible to benefit one’s health by consulting with certain individuals who specialize in aspects of this knowledge. These individuals are also useful in detecting diseases or other malfunctions that are not obvious to the intelligent layman, and they also do a commendable job in researching cures for diseases that have hitherto been without remedy. Most doctors are to be praised for the excellent work they do, and I am confident that any doctor worthy of his M.D. degree would strongly concur with the fundamental understanding of health care that I posit here.

Most people will recognize that doctors play an important and sometimes necessary role in the provision of health care. What many people today fail to recognize, however, is that doctors are never a sufficient part of genuinely effective health care. Doctors can indeed often detect signs of illness and recommend remedies, but to expect a doctor to perform all of your health care for you is just like expecting a teacher to perform all of your education for you. Doctors and teachers can both help and can even at times make the difference between success and failure, but without your participation and your vigilance, failure is inevitable.

What are other crucial components of health care? They are not esoteric, and they do not require specialized knowledge. They include eating in moderation, exercising regularly, avoiding harmful substances, practicing at most monogamy, keeping one’s surroundings clean, and avoiding risks to life and limb as much as possible. There are also numerous over-the-counter medications and first aid practices, that, if used intelligently, can enable individuals to recover from many minor and even some major perils. These habits are not just little frills added on to the body of health care; they are that body, and without them, one will be quite dead quite soon – but not before racking up absurd amounts of medical expenses. I will note that in the 20th century, human life expectancy in the West surged from the mid-to-late forties to the late seventies. Although medical advances were phenomenal during that time, the vast majority of the increase can be attributed to improvements in overall cleanliness of infrastructure and healthier habits. With the advent of sanitation, regular dental hygiene, automatic washers and dryers, and efficient household cleaning supplies, a lot of infectious diseases that formerly wiped out millions were kept at bay – mostly not by doctors, but by ordinary laypersons living their lives in a superior manner to that of their ancestors. New technologies motivated new behaviors, and these everyday behaviors are our first and so far our best line of defense against disease and decay.

Of course, some people who lead their lives in the most health-conscious manner possible can still be afflicted by catastrophic diseases for reasons that are none of their fault. As far as medical science is aware, many cancers do not appear to be caused by any active human behavior; indeed, some are an unfortunate product of poor genes. And, of course, there is the ultimate killer – senescence – which afflicts all humans, given the current level of medical technology. It is imperative that these perils be eradicated as soon as possible, and the best doctors, scientists, and media advocates are needed to enable a victory over what can justly be called the greatest threats to humans everywhere. I will add that it is a matter of justice that a person who suffers from a disease which he did not cause receive prompt, efficacious, and affordable care. But the vital question – and the question many people today neglect to consider – is how this just state of affairs can possibly come about.

Reality only works in certain ways, in accord with immutable natural laws. Wishing for a good outcome will not make it so, and even acting toward that outcome will only work if the right actions are undertaken. Any reasonable, moral person will agree that it is preferable for all reasonable, moral people to be healthy rather than not. What many people fail to recognize is that any process of improvement takes time, and that surrogate measures that attempt to bring about the improvement instantaneously are not only illusory but can also be severely counterproductive.

As a case in point, I bring forth the oft-encountered contemporary confusion of health care with health insurance. Too many people today believe that it is not taking care of oneself and visiting doctors when necessary that constitutes good health care, but rather the presence ofhealth insurance, which – at least in theory – promises to pay for some of the medical attention one receives from doctors. These individuals see statistics stating that millions do not have health insurance, and they mistakenly assume that these individuals do not have adequate health care. But it is entirely possible for a person to have healthy habits and – especially if this person is young – to not require extensive or expensive medical attention. It is also possible for a person to be sufficiently wealthy to afford to pay for the doctors he wishes to visit. Moreover, it is possible for a person to rely on the charity of doctors in providing any medically necessary attention – as was the case for centuries before health insurance came about, when most doctors would treat all patients but would charge them differential rates based on their ability to pay. In effect, with these traditional doctors, the rich voluntarily subsidized the poor on a largely free market, in a manner beyond the wildest dreams of the advocates of socialized medicine today.

Of course, the presence of health insurance cannot avert the need to seek the attentions of doctors. Indeed, a well-known concept in insurance, moral hazard, suggests that in some cases, an insured individual may actually be more likely to fall victim to a peril than an uninsured individual, because the insured individual is shielded from some of the financial consequences of the loss. Insurance can make life easier for some people in some cases, and it can also be a good safeguard for catastrophes, but it is neither necessary nor sufficient for proper health care. Indeed, the manner in which health insurance has developed in the United States is one of the contributing factors to the astronomically increasing prices of specialized medical care. Health insurance in the U. S. is not provided on a largely free market like most forms of property insurance. Instead, it is mostly tied to one’s employment by virtue of the market-distorting tax breaks that employers receive for providing health insurance. One does not need to worry about what happens with one’s car insurance if one loses a job, but losing one’s job can severely damage one in the realm of health insurance.

Since employers began to receive favorable treatment from the federal government for providing health insurance in the 1940s, the health insurance snowball has continued to embroil more people in a crisis of increasing proportions. The people who got the subsidized insurance had an incentive to spend more money than they usually would on doctors – often an outcome of hypochondria rather than of a reasonable concern for health. As demand for medical services rose, so did the cost, and so the people who did not have insurance – especially the elderly and unemployed – found it more difficult to afford even basic services. The federal government’s solution? Medicare and Medicaid, which put the elderly and unemployed in the same position to spend more freely that the previously insured had. This, of course, further increased the demand for and price of specialized medical services. With the recent vast expansion of Medicare under the Bush administration, it is no surprise that prices have further skyrocketed.

Now, because so many people have subsidized health insurance, it has become extremely difficult to afford medical care for catastrophic situations without it. This is not a necessary component of health care in a quasi-advanced society; it is a creation of bad policies that incrementally expanded the scope of the present crisis. An even worse policy is on the horizon; it is not socialized healthcare yet, but in some respects it may even be worse. The Obama administration and its supporters in Congress threaten to require everyone to purchase health insurance and to eliminate the aspect that makes it insurance – selection and pricing on the basis of the risks posed by the insureds. Forcing people to purchase health insurance and prohibiting discrimination on the basis of pre-existing conditions are the same as making the healthy subsidize the ill and charging everyone roughly the same general rates. With this kind of incentive system in place, it is only logical to assume that many people who otherwise would have lived spectacularly would begin to demand medically unnecessary attention simply to be net beneficiaries of the system where everyone ostensibly subsidizes everyone else. This cannot continue indefinitely, as resources are finite, and the inevitable recourse by the government will be the rationing of medical services – a political selection of who lives and who dies. This scenario – so common in many countries in the West today, including Britain and Canada – is the opposite of genuine health care. Indeed, denying care to an individual who could afford it and placing that individual on a waiting list on which he dies is nothing short of murder.

Only a massive shift in public opinion and government policy can extricate us from the entanglement of health care with health insurance and return us to the direct relationship between patients and doctors, as well as the optimal amount of motivation for each individual to care for his own health. Until then, stay healthy and try to make sure that you do not need the care that gets rationed – if you can.

Read other articles in The Rational Argumentator’s Issue CCXI.

Answers to Some Frequently Asked Questions on Road Privatization (2009) – Article by G. Stolyarov II

Answers to Some Frequently Asked Questions on Road Privatization (2009) – Article by G. Stolyarov II

Comments 0 Comment
The New Renaissance Hat
G. Stolyarov II
Originally Published September 12, 2009
as Part of Issue CCVII of The Rational Argumentator
Republished July 24, 2014
******************************
Note from the Author: This essay was originally published as part of Issue CCVII of The Rational Argumentator on September 12, 2009, using the Yahoo! Voices publishing platform. Because of the imminent closure of Yahoo! Voices, the essay is now being made directly available on The Rational Argumentator.
~ G. Stolyarov II, July 24, 2014
***

I recently received a series of questions pertaining to my articles, “The Necessity of Road Privatization” and “How to Privatize the Roads.” I make my answers available to the public, as I have heard the same questions frequently posed to advocates of turning roads over to free-market competition.

Issue: Unavailability of Electronic Technology

Question: “You suggested that electronic tolling can be used for private roads, but what if this technology is not available for some countries? If the technology were not in place, would privatization still be desirable?”

Answer: Road privatization is desirable no matter what the technological level of the society adopting it. There are several justifications for this:

1) In a private, competitive road market, the requisite technologies for providing easy, convenient access to roads for customers will develop quickly, as entrepreneurs will be motivated by profit to invest in them. After all, if customers must spend a lot of time waiting at toll booths to get on the road, they will take their business elsewhere.

2) At any level of initial technology, it is possible to have superior organizational and logistical methods that maximize user convenience. For instance, if we assume no electronic technology whatsoever and physical cash collection as the only feasible means of obtaining payment, we can still conceive of entrepreneurs having large numbers of toll booths at each checkpoint to ensure that customers can pay quickly and be on their way. Alternatively, entrepreneurs can always charge road users regular membership fees and issue members identification papers that would be checked anytime the user enters the road. It is not always possible, of course, to predict the specific form an organizational innovation will take. However, tens of competing producers, each working under the hard budget constraint of a private enterprise, are much more likely to come up with innovative, efficient solutions than a monopoly producer with a soft budget constraint.

3) Historically, some of the first major roads in the United States – the turnpikes of the late 18th and early 19th centuries – were privately built and operated, in an era long before today’s advanced technology. The roads functioned quite well for their time, facilitating inter-state commerce and the westward migration of large numbers of settlers. Private roads have existed with much more primitive technology than is available anywhere today, and so there is no reason to suppose that a given technological level is required for them to be viable. Technology certainly improves quality in this area, as in virtually all others, but the laws of economics function in a society of any level of advancement.

Issue: Different Ownership and Different Rules

Question: “If every road is owned by different people and different rules are imposed, would it not be too confusing?”

Answer: Standardization of rules often happens to a significant extent in private markets. For instance, railroads standardized many of their practices in the 19th century by mutual agreement of private railroad companies. In any business, it is useful and profitable to enable the customers to rely on some common and well-known elements and practices, and it is quite likely that many rules of the road will be extremely similar. On the other hand, this similarity will not be of the rigid, ossified sort that currently exists on government roads – where the rules are uniform and immutable, irrespective of how well they actually work in facilitating safe and efficient roadway use. Entrepreneurs would be free to experiment with new rules and arrangements, and if consumers do not like a particular arrangement, they would always be free to use a competing road. Entrepreneurs will be aware of this and so will hesitate to adopt measures that would be difficult for users to understand and to follow. Roads that do things differently and continue to attract traffic will likely need to prominently advertise the aspects that make them unique, so that potential users are well aware of the peculiarities in advance and in a concise, easy-to-understand manner. The best road innovations will take hold among other entrepreneurs and will eventually become part of a new set of evolving standards.

Issue: Private Road Monopolies

Question: “Can a road monopoly be allowed to charge exorbitantly if there’s no alternative to a place?”

Answer: It is extremely unlikely that any individual business would be able to purchase all possible access routes to a given place, as this would be extraordinarily expensive. If any alternative route exists, and a non-coercive monopoly currently charges exorbitant prices, this will be a strong signal for competitors to enter the market, buy up land on the alternative route, build their own roads, and charge lower prices than the former monopolist. If there is a single provider of a road to a particular place, even the potential of this kind of competition would keep such a provider charging reasonable prices.

In the odd event that competition does not enter the field, people might simply choose not to go to the place for which the only road requires an exorbitant fee for its use. In this case, many individuals will come to see the benefits of going to the place in question as being outweighed by the costs, and so the place will cease to become popular, and the road provider’s revenue will diminish greatly. At that point, the road provider will either need to lower its prices to attract more business or go out of business entirely.

It is important to recognize that a road monopoly is precisely what exists virtually everywhere in many countries today. This monopoly, unlike to transitory monopolies that may sometimes occur on the free market, is supported by law. The consequences of a coercive monopoly in the provision of any good are easy to foresee and identify: lower quality at a higher price. It is reasonable to believe that taxpayers are already being charged exorbitantly for the use of government roads today.

Click here to read more articles in Issue CCVII of The Rational Argumentator.

Why Unskilled Workers Do Not Need the Minimum Wage (2009) – Article by G. Stolyarov II

Why Unskilled Workers Do Not Need the Minimum Wage (2009) – Article by G. Stolyarov II

Comments 0 Comment
The New Renaissance Hat
G. Stolyarov II
Originally Published August 16, 2009
as Part of Issue CCIII of The Rational Argumentator
Republished July 24, 2014
******************************
Note from the Author: This essay was originally published as part of Issue CCIII of The Rational Argumentator on August 16, 2009, using the Yahoo! Voices publishing platform. Because of the imminent closure of Yahoo! Voices, the essay is now being made directly available on The Rational Argumentator.
~ G. Stolyarov II, July 24, 2014
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I was recently asked whether one justification for the minimum wage might be a lack of genuine bargaining power among unskilled workers, as compared to high-skilled workers. The argument implicit in the question was that a specific unskilled worker can give his employer no reason to retain him in particular, and so the employer can afford to push down the unskilled worker’s wage to a ridiculously low amount. At the same time, the unskilled worker cannot find any opportunities to work elsewhere. I do not think that such suppositions are realistic, however.

Let us compare unskilled workers with workers who have specialized skill sets. High-skilled workers do indeed have more bargaining power within their specific places of employment, as they are more difficult to replace and more valuable to their employers. However, they also have fewer competitors to whom they could go if their current employment situation does not turn out to their liking. This is because a narrower range of employers would demand a worker with a certain specific skill set than would demand a generic unskilled worker. An unskilled worker can earn his maximum current possible income working in, say, a factory, a fast-food restaurant, or a custodial job for a variety of employers. A skilled accountant, on the other hand, can only earn his maximum current possible income working as an accountant, if that is his most valuable skill according to the market.

Both the skilled and the unskilled worker will tend to earn the marginal product of their labor – i.e., the amount of value that their labor contributes to the product they create – in a truly free market. The skilled worker will earn this because of his high bargaining power. The unskilled worker will earn this because he has so many alternatives with regard to employers. If the current employer does not pay the unskilled worker his marginal product of labor, numerous other employers will try to bid away the work of that person by offering slightly higher wages. Say, for instance, unskilled worker X has a marginal product of labor of $5 per hour, but he is only paid $1 at his present job with Employer A. Employer B sees a lucrative opportunity if he could hire X at $2 per hour and keep $3 of X’s hourly product for himself. So X is hired by B at $2 per hour. Now Employer C sees a lucrative opportunity if he could hire X at $3 per hour and keep $2 of X’s hourly product for himself. So X is hired by C at $3 per hour. This will tend to keep happening until X is hired by an employer who pays him his marginal product and therefore creates a situation where X cannot be bid away by a competitor offering higher wages.

This is a dynamic process, and it takes time to attain. In the meantime X’s skills might be improving as a result of on-the-job training and experience – so his marginal product might increase still further, and “equilibrium” might never be fully attained. Nonetheless, the market process functions to relentlessly approach equilibrium by means of the perceptiveness of entrepreneurs, motivated by profit and desiring to out-compete their rivals by means of greater perceptiveness and by offering better terms to employees and customers.

I do not think there is ever truly a situation where a worker has “no choice” about where to work. Moreover, I do not think there is ever a situation where a healthy human being is forever condemned to earn a low wage. A low initial wage is an excellent opportunity for many workers to gain the knowledge and experience necessary to earn higher wages in the future. There is no better job training than training on the job – as every job I have ever had demonstrated to me. By prohibiting people from working for pay below a certain level, the minimum wage laws deprive many workers of the opportunity to gain such invaluable experience.

Click here to read more articles in Issue CCIII of The Rational Argumentator.