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A Portrait of the Classical Gold Standard – Article by Marcia Christoff-Kurapovna

A Portrait of the Classical Gold Standard – Article by Marcia Christoff-Kurapovna

The New Renaissance Hat
Marcia Christoff-Kurapovna
April 15, 2015
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“The world that disappeared in 1914 appeared, in retrospect, something like our picture of Paradise,” wrote the economist Cecil Hirsch in his June 1934 review of R.W. Hawtrey’s classic, The Art of Central Banking (1933). Hirsch bemoaned the loss of the far-sighted restraint that had once prevailed among the “bankers’ banks” of the West, concluding that modern times “had failed to attain the standard of wisdom and foresight that prevailed in the 19th century.”That wisdom and foresight was once upon a time institutionalized throughout an international monetary culture — gold-based, wary of credit, and contemptuous of debt, public or private. This world included central banks including the Bank of England, the Bank of France, the Swiss National Bank, the early Federal Reserve, the Imperial Bank of Austria-Hungary, and the German Reichsbank. But the entrenched hard-money ideology of the time restrained all of them. The Bank of Russia, for example, which once required 50 percent to 100 percent gold backing of all notes issued, possessed the second largest gold reserves on the planet at the turn of the twentieth century.

“The countries that were tied together in the gold standard system represented to a not inconsiderable degree a community of interest in and responsibility for the maintenance of economic and financial stability throughout the world,” recounted Aldoph C. Miller, member of the Federal Reserve Board from 1914 to 1936, in The Proceedings of the Academy of Political Science, in May 1936. “The gold standard was the one outstanding symbol of unity and economic solidarity which the nineteenth century world had developed.”

It was a time when “automatic market forces,” as economists of the day referred to them, prevailed over monetary management. Redeemability of money in (fine) gold ensured, within limits, stability in foreign exchange rates. Credit was extended only as far as reserve ratios would allow, and central banks were required to keep fixed reserves of gold against notes-in-circulation and against demand deposits.

When Markets Dominated Monetary “Policy”

Gold flows regulated international price relationships through markets, which adjusted themselves accordingly: prices rose when there was an influx of gold — for example, when one country received a debt payment from another country (always in gold), or during such times as the California or Australian gold rushes of the 1870s. These inflows meant credit expansion and a rise in prices. An outflow of gold meant credit was contracted and price deflation followed.

The efficiency of that standard was not impeded by the major central banks in such a way that “any disturbance of economic or financial character originating at any point in the world which might threaten the continued maintenance of economic equilibrium was quickly detected by foreign exchanges,” Miller, the Federal Reserve board member, noted in his paper. “In this way, the gold standard system became in a very real sense a regime or rule of economic health, a method of catching economic disturbances in the bud.”

The Bank of England, the grand master of them all, was the financial center of the universe, whose tight handle on its credit policies was so disciplined that the secured the top spot while not even holding the largest gold reserves. Consistent in its belief that protection of reserves was the chief, and only important, criterion of credit policy, England became the leading exporter of capital, the free market for gold, the international discount market, and international banker for the trade of other countries, as well as her own. The world was in this sense on the sterling standard.

The Bank of France, wisely admonished by its founder, Napoleon, to make sure France was always a creditor country, was so replete with reserves it made England a 500 million franc loan (in 1915 numbers) at the onset of the World War I. Switzerland, perhaps the last “19th-century-style” hold-out today with unlimited-liability private bankers and strict debt-ceiling legislation, also required high standards of its National Bank, founded in 1907. By the 1930s that country had higher banking reserves than the US; the Swiss franc was never explicitly devalued, unlike nearly every other Western nation’s currency, and the country’s domestic price level remained the most stable in the world.

For a time, the disciplined mindset of these banks found its way across the Atlantic, where the idea of a central bank had been long the subject of hot debate in the US. The economist H. Parker Willis, writing about the controversy in The Journal of the Proceedings of the Academy of Political Science, October 1913, admonished: “The Federal Reserve banks are to be ‘bankers’ banks,’ and they are intended to do for the banker what he himself does for the public.”

At first, the advice was heeded: in September 1916, almost two years after its founding on December 23,1913, the fledgling Fed worked out an amendment to its gold policy on the basis of a very conservative view of credit. This new policy sought to restrain “the undue and unnecessary expansion of credit,” wrote Fed board member Miller, in an article for The American Economic Review, in June 1921.

The Bank of Russia, during the second half of the nineteenth century steered itself through the Crimean War, the Russo-Turkish War, the Russo-Japanese War, impending Balkan wars — not to mention all that was to follow — and managed to emerge with sound fiscal policies and massive gold reserves. According to The Economist of May 20, 1899, Russian holdings were 95 million pounds sterling of gold, while the Bank of France held 78 million sterling worth. (Austria-Hungary held 30 million sterling worth of gold and the Bank of England 30 million sterling worth of both gold and silver.) “Russia up to the very moment of rupture [with Japan, 1904–1905], was working imperturbably at the progressive consolidation of her finances,” reported Karl Helfferich of the University of Berlin, at a meeting of The Royal Economic Society [UK] in December 1904. “Even in years of industrial crises and defective harvest, her foreign trade showed an excess of exports over imports more than sufficient to compensate payments sent abroad. And, as guarantee her monetary system she has succeeded in a amassing and maintaining a vast reserve of gold.”

These banks, in turn, drew on the medieval/Renaissance and Baroque-era banking traditions of the Hanseatic League, the Bank of Venice, and Amsterdam banks. Payment-on-demand “in good and heavy gold” was like a blood-oath binding the banker-client relationship. The transfer of credit “did not arise from any such substitution of credit for money,” noted Charles F. Dunbar, in The Quarterly Journal of Economics of April 1892, “but from the simple fact that the transfer in-bank saved the necessity of counting coin and manual delivery of every transaction.”

Bankers were forbidden to deal in certain commodities, could not make loans or create credit for the purchase of such commodities, and forbade both foreigners and citizens from buying silver on credit unless the same amount in cash was in the bank. According to Dunbar, a Venetian law of 1403 on reserve requirements became the basis of US banking law on the deposits of public securities in the late 1800s.

After the fall of bi-metallism in the 1870s, gold continued to perform monetary functions among the main countries of the Western world (and the well-administered Bank of Japan). It was the only medium of exchange and the only currency with unrestricted legal tender. It became the vaunted “measure of value.” Bank currency notes were simply used as auxiliary to gold and, in general, did not enjoy the privilege of legal tender.

The End of An Era

It was certainly not a flawless system, or without periodic crises. But central banks had to act in an exceptionally prudent manner given the all-over public distrust of paper money.

As economist Andrew Jay Frame of the University of Chicago, writing in The Journal of Political Economy, in January 1912, noted: “During panics in Britain in 1847 and 1866, when cash payments were suspended, the floodgates of cash were opened [by The Bank of England], the governor sent word to the street that solvent banks would be accommodated, and the panic was relieved.” Frame then adds: “However, this extra cash and the increased loans that went with it were very quickly put to an end to avoid credit expansion.”

The US was equally confident of its prudent attitude. Aldoph Miller, writing of Federal Reserve policy, remarked: “The three chief elements of the policy of a central bank or system of reserve holding institutions are best disclosed in connection with the attitude towards 1) gold 2) currency 3) credit.” He noted proudly: “The federal reserve system has met [these] tests on the whole with remarkable success.”

But after World War I, a different international landscape was left behind. England had been displaced as the center of international finance; the US and France emerged as the chief post-war creditor countries. The mechanism of the gold standard to which depreciated currencies could be related no longer existed. Only the US was left with a full gold standard. England and France had a gold bullion standard and other countries (Germany, primarily) had a gold-exchange standard.

A matrix of unbalanced trade relationships began to saturate the international economy. Then, with so many foreign countries attendant upon its speculative boom, the US manipulated its own domestic credit policies to ease credit and exchange-standard controls. This eventually culminated in an international financial crisis of 1931. Under Bretton Woods (1944), the gold standard was effectively abandoned: domestic convertibility was illegal and the role of gold was very constrained in favor of the dollar.

“It was, at least in theory, simple enough in the old days,” wrote a wistful W. Randolph Burgess, head of the New York Federal Reserve, in 1938. “In the present strange new world, where the old gold portents have lost their former meaning, where is the radio beam which the central banker may follow? What is the equivalent of gold?

The men of his era and of the late nineteenth century understood the meaning of such a question and, more importantly, why it is one that must be asked. But theirs was a different world, indeed — one without “QE,” ZIRP,” or “Unknown Knowns” as fiscal policy. And there were no helicopters, either.

Marcia Christoff-Kurapovna is at work on the biography of a prominent European head of state and businessman.  Her work has appeared in such publications as The Wall Street Journal, The Economist and Foreign Affairs.

This article was originally published by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

Cryptocurrencies and a Wider Regression Theorem – Article by Peter St. Onge

Cryptocurrencies and a Wider Regression Theorem – Article by Peter St. Onge

The New Renaissance Hat
Peter St. Onge
December 18, 2014
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The debate whether or not cryptocurrencies are “money” has put a spotlight on the Menger-Mises Regression Theorem. As stated, the theorem posits that a non-fiat money must have had value before it became a money. Some have used currencies’ lack of antecedent value as knocking it off the money pedestal or as forcing cryptocurrencies to ignominiously piggyback on fiat currencies’ own regressions.

In a 2013 post Konrad Graf makes the excellent point that such critiques misread the Regression Theorem. In reality, Graf argues, the theorem is not a hypothesis to be tested, rather the theorem tells us that cryptocurrencies such as Bitcoin indeed had some antecedent value. At which point our task is to discover what that antecedent value was. Graf suggests several alternatives, including utility of Bitcoin as a geek toy, as art, or as social marker. Because of these non-monetary uses, Graf writes, bitcoin and the theorem do not threaten each other, but “merely gaze across the intellectual landscape at one another with knowing smiles.”

While I agree with Graf on his main point that the theorem implies cryptocurrencies did have antecedent value, I believe that both the original critique and Grafs’ response fall into a trap of misreading the theorem as requiring non-monetary and previously realized (“bought and sold”) benefits.

Money Is a Useful Good

Among Menger’s greatest contributions in his Principles is the realization that money is fundamentally a good like any other — demanded for its usefulness in enabling transactions and store of value — with an actual price dictated by its scarcity.

If money, like any other good, derives its value from the benefits it offers, it’s hard to see why the money, even those benefits, require an antecedent. Just as the internet can be valuable without a “pre-internet,” a cryptocurrency enabling anonymous, irreversible, low-regulation transactions and savings can be valuable without a precursor. [1] If there is no regression requirement for value in any other good, why does money alone bear this burden?

Must Money Have a Non-Monetary Use?

Instead, I would argue for a reading of the Regression Theorem with two important liberalizations. First, benefits provided by a money needn’t be non-monetary. That is, the benefits can reside in the good’s use as money itself — no need for geek-chic art. Second, antecedent demand needn’t have been realized — the use needn’t have actually occurred. It’s the antecedent demand, even latent, not the previous buying and selling, which counts in importing value via the Regression Theorem.

To give an example that satisfies both liberalizations, a benefit such as anonymous wire transfers is both a money-related benefit and is also a service that didn’t previously exist. In a liberalized Regression Theorem, this benefit would count as the antecedent demand giving the spark of life to a scarce cryptocurrency.

A concrete historical example of a currency offering both mainly monetary value and offering it only at moment of birth is Tang China’s paper money. Called “flying cash,” paper offered the key benefit of portability, set against its other risks compared with bullion coins (flammability, uncertain redemption). We could surely seek out non-monetary antecedent value for Tang cash — toilet paper comes to mind. But it seems a stretch to reach for artistic or hygiene uses, compared to the natural conclusion that flying cash was demanded because of its monetary benefits. The fact that demand for portable money was unrealized would simply increase paper money’s value to the unfortunate customer who lacked alternative light-weight money.

This mistaken focus on non-money-related and realized antecedent value is understandable, since even Mises seems to be mixing historical and praxeological discussion in Human Action (chapter 17, sec. 4) where Mises writes, “No good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments.”

Here Mises seems to clearly state that Menger’s Regression Theorem requires a currency to have historically represented a commodity having non-money use. This is a natural interpretation, especially in context of Mises’s subsequent discussion of precious metals, clearly useful commodities that you can flash at parties.

But we must take care here to separate Mises’s historical generalization from the praxeological core of his statement. Because Mises has metal on his mind, he suggests the “other employments” must have been antecedent (“did not have”) and, in his subsequent discussion of metals, seems to imply the commodities should be both concrete and previously in use (realized) for non-money purposes.

Money Benefits Are as Useful as Non-Money Benefits

Again, praxeologically, none of these requirements are essential. Money benefits are as useful as non-money benefits, and a useful commodity could conceivably be created and become a medium of exchange at the same moment. So long as the commodity offers “employments” in the form of benefits to users. Cryptocurrencies’ anonymity, regulatory treatment, algorithmically fixed rate of growth, fee structure, and irreversibility of transfer are all money-related benefits, many unrealized before cryptocurrencies came along.

On this reading, and in agreement with Graf, cryptocurrencies are not at all a challenge to the Regression Theorem. They are a confirmation. At birth, cryptocurrencies offered useful features. These benefits function as “employments,” giving cryptocurrencies demand via transaction and store of-value benefits, which in turn import durable purchasing power.

Perceptions Are Important

That “seed” of demand can then be amplified by marketing — by framing the subjective benefits of the currency. Again like any other good, if individuals exert effort to communicate and frame the benefits of a cryptocurrency, then we might expect demand to increase. These individuals may be the owners of businesses that benefit from the currency, or they simply may be enthusiasts.

Now we can simply match these subjective benefits to scarcity to yield a price of a cryptocurrency. Below zero and the currency isn’t “good enough” — it’s not perceived to offer enough benefits. It’s not cool and it’s not art. Above zero and a currency is born: now Satoshi Nakamoto t-shirts are all the rage.

As technology lowers the costs of producing cryptocurrencies, broadening the Regression Theorem’s value requirement to accept novel money-related benefits opens up enormously the range of currencies that are possible in the future. It should be an exciting few decades in the world of currency innovation.

Notes

1. Cryptocurrencies benefit from a perception of anonymity, although whether or not there is actual anonymity in practice is another matter.

Peter St. Onge is an assistant professor at Taiwan’s Fengjia University College of Business. He blogs at Profits of Chaos.

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.

Individual Empowerment through Emerging Technologies: Virtual Tools for a Better Physical World – Video by G. Stolyarov II

Individual Empowerment through Emerging Technologies: Virtual Tools for a Better Physical World – Video by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
November 23, 2014
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No realm of human activity in the past century has empowered and liberated the individual as efficaciously as technological advancement. Our personal, political, and economic freedoms – though limited in many respects – today allow us to achieve quality-of-life improvements and other objectives that were inconceivable even a few decades ago. Much libertarian, classical liberal, and Objectivist theory supports this insight, but in our era of increasing salience of advanced technology, this support needs to be made far more explicit and applied toward vocal advocacy of emerging, life-transforming breakthroughs that further raise the capacities of the individual. Gamification, augmented reality, and virtual worlds can play a significant role in enhancing and preserving our physical lives.

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This video is based on Mr. Stolyarov’s essay “Individual Empowerment through Emerging Technologies: Virtual Tools for a Better Physical World“.

References

Playlist: The Musical Compositions of G. Stolyarov II
– “Ayn Rand, Individualism, and the Dangers of Communitarianism” (2012) – Essay by G. Stolyarov II
– “Carl Menger, Individualism, Marginal Utility, and the Revival of Economics” (2006) – Essay by G. Stolyarov II
– “Ludwig von Mises on Profit, Loss, the Entrepreneur, and Consumer Sovereignty” (2007) – Essay by G. Stolyarov II
– “Open Badges and Proficiency-Based Education: A Path to a New Age of Enlightenment” (2013) – Essay by G. Stolyarov II
Runkeeper
Fitocracy
Fitbit
– “Minecraft” – Wikipedia
– “Oculus Rift” – Wikipedia –
– YouTube Videos of Minecraft Computers (here and here)

Individual Empowerment through Emerging Technologies: Virtual Tools for a Better Physical World – Article by G. Stolyarov II

Individual Empowerment through Emerging Technologies: Virtual Tools for a Better Physical World – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
November 9, 2014
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No realm of human activity in the past century has empowered and liberated the individual as efficaciously as technological advancement. Our personal, political, and economic freedoms – though limited in many respects – today allow us to achieve quality-of-life improvements and other objectives that were inconceivable even a few decades ago. Much libertarian, classical liberal, and Objectivist theory supports this insight, but in our era of increasing salience of advanced technology, this support needs to be made far more explicit and applied toward vocal advocacy of emerging, life-transforming breakthroughs that further raise the capacities of the individual. Gamification, augmented reality, and virtual worlds can play a significant role in enhancing and preserving our physical lives.

I find a lot of support for technological progress, self-determination, and the triumph of the individual over the impositions of the collective in the works of Ayn Rand (as an example, see this 2012 essay of mine for a brief analysis of Randian individualism). The Austrian economists Carl Menger and Ludwig von Mises were also great exponents of individualism, and their innovations in value-theory emphasized the importance of subjective preference in the determination of prices, the work of entrepreneurs, and the effects of policy. They grounded their economic work in a deep understanding of philosophy and offered a countervailing view of the world during a time when postmodernism was gaining popularity. They explained that universal laws of economics, derived from the basic fact of human action itself, are at the root of explaining whether societies facilitate flourishing and progress, or misery and stagnation.

Were these great thinkers alive today, it would have been fascinating to observe their insights regarding the power of technology to enable the personal creation of art which was not technically feasible for an individual in prior eras to create. They would surely recognize the amazing influence of the latest generation of technological entrepreneurs on our lives and well-being – not just in the emergence of computers, the Internet, and mobile devices – but also in less-emphasized applications, such as digital art, electronic music, increasingly sophisticated and graphically immersive computer games, and tools for the “quantified self” – an increasing array of metrics for vital bodily attributes and activities. The convergence of these tools is ushering in an era of augmented reality, which rational and determined creators can harness to achieve their goals more effectively and more enjoyably.

I have seen this vast technological improvement affect my ability, for example, to compose music. In a few hours I can create a composition and hear it played back flawlessly by an electronic orchestra, whereas even a decade ago I would have needed to spend weeks internalizing melodies and variations. In order to play my compositions, I would have had to spend months practicing, even then being quite vulnerable to human error. One of my current ongoing projects is to remaster as many of my older compositions (all preserved, thankfully) as I can using the tools now available to me – enabling their flawless playback via synthetic instruments. Today, they can sound exactly as I intended them to sound when I composed them years ago. Many works have already been remastered in this way (available within this video playlist), which has enabled me to hear and to share with the world pieces which have not been in my “finger memory” for over a decade.

Numerous life-improving applications of augmented reality are emerging now and can be expected to expand during the proximate future. Many of these technologies can have strong, immediate, practical benefits in enhancing human survival and functionality within the physical world. Already, mobile applications such as Runkeeper, scoring systems like that of Fitocracy, or devices like the Fitbit allow individuals to track physical activity in a granular but convenient manner and set measurable targets for improvement. Significant additional innovation in these areas would be welcome. For instance, it would be excellent to have access to live readings of one’s vital statistics, both as a way of catching diseases early and measuring progress toward health goals. This vision is familiar to those who have encountered such functionality in virtual worlds. Players track and improve these statistics for their characters in computer games, where it proves both interesting and addictive – so why not bring this feature to our own bodies and other aspects of our lives?

Computer games – one type of virtual world – expand the esthetic and experiential possibilities of millions of people. While not fully immersive, they are far more so than their predecessors of 20 years ago. They can extend the range of human experience by enabling people to engage in actions inaccessible during the course of their daily lives – such as making major strategic decisions in business, politics, or world-building, exploring outer space, or designing and interacting with a skyscraper without the hazards of being a construction worker. (Minecraft comes to mind here as an especially versatile virtual world, which can be shaped in unique ways by the creativity of the individual. I can readily imagine a future virtual-reality game which is a more immersive successor of Minecraft, and where people could create virtual abodes, meeting places, and even technological experiments. Minecraft already has mods that allow the creation of railroads, industrial facilities, and other interesting contraptions.)

One common and highly gratifying feature of computer games that has long fascinated me is the ability to make steady, immediately rewarding progress. Any rational, principled economic or societal arrangement that promotes human flourishing should do the same. Emerging efforts at the “gamification” of reality are precisely a project of imparting these rational, principled characteristics – hopefully remedying many of the wasteful, internally contradictory, corrupt, and fallacy-ridden practices that have pervaded the pre-electronic world.

Tremendous technological, cultural, and moral progress could be achieved if this addictive quality of games were translated into the communication of sophisticated technical concepts or philosophical ideas, such as those underpinning transhumanism and indefinite life extension. If there were a way to reliably impart the appeal of games to knowledge acquisition, it would be possible to trigger a new Age of Enlightenment and a phenomenon never seen before in history: that of the masses becoming intellectuals, or at least a marked rise in intellectualism among the more technologically inclined. This aspiration relates to my article from early 2013, “Open Badges and Proficiency-Based Education: A Path to a New Age of Enlightenment” – a discussion of an open-source standard for recognizing and displaying individual achievement, which could parlay the abundance of educational resources available online into justified reward and opportunities for those who pursue them.

While some critics have expressed concern about a future where immersion in virtual worlds might distract many from the pressing problems of the physical world, I do not see this as a major threat to any but a tiny minority of people. No matter how empowering, interesting, addictive, and broadening a virtual experience might be (and, indeed, it could someday be higher-resolution and more immersive than our experience of the physical world), it is ultimately dependent on a physical infrastructure. Whoever controls the physical infrastructure, controls all of the virtual worlds on which it depends. This has been the lesson, in another context, of the recent revelations regarding sweeping surveillance of individuals by the National Security Agency in the United States and its counterparts in other Western countries. This inextricable physical grounding is a key explanation for the unfortunate fact that the Internet has not yet succeeded as a tool for widespread individual liberation. Unfortunately, its technical “backbone” is controlled by national governments and the politically connected and dependent corporations whom they can easily co-opt, resulting in an infrastructure that can be easily deployed against its users.

A future in which a majority would choose to flee entirely into a virtual existence instead of attempting to fix the many problems with our current physical existence would certainly be a dystopia. Virtual reality could be great – for learning, entertainment, communication (especially as a substitute for dangerous and hassle-ridden physical travel), and experimentation. Some aspects of virtuality – such as the reception of live statistics about the external world – could also be maintained continually, as long as they do not substitute for the signals we get through our senses but instead merely add more to those signals. However, the ideal use of virtual reality should always involve frequent returns to the physical world in order to take care of the needs of the human body and the external physical environment on which it relies. To surrender that physicality would be to surrender control to whichever entity remains involved in it – and there is no guarantee that this remaining entity (whether a human organization or an artificial intelligence) would be benevolent or respectful of the rights of the people who decide to spend virtually all of their existences in a virtual realm (pun intended).

Fortunately, the pressures and constraints of physicality, so long as they affect human well-being, are not easily wished away. We live in an objective, material reality, and it is only by systematically following objective, external laws of nature that we can reliably improve our well-being. Many of us who play computer games, spend time on online social networks, or even put on virtual-reality headsets in the coming years, will not forget these elementary facts. We will still seek food, shelter, bodily comfort, physical health, longevity, and the freedom to act according to our preferences. The more prudent and foresighted among us will use virtual tools to aid us in these goals, or to draw additional refreshment and inspiration within a broad framework of lives where these goals remain dominant.

In a certain sense, virtual worlds can illustrate some imaginative possibilities that cannot be experienced within the non-electronic tangible world – as in the possibility of constructing “castles in the air” in a game such as Minecraft, where the force of gravity often does not apply (or applies in a modified fashion). There is a limit to this, though, in the sense that any virtual world must run on physical hardware (unless there is a virtual machine inside a virtual world – but this would only place one or more layers of virtuality until one reaches the physical hardware and its limitations). A virtual world can reveal essential insights which are obscured by the complexity of everyday life, but one would still remain limited by the raw computing power of the hardware that instantiates the virtual world. In a sense, the underlying physical hardware will always remain more powerful than anything possible within the virtual world, because part of the physical hardware’s resources are expended on creating the virtual world and maintaining it; only some fraction remains for experimentation. People have, for instance, even built functioning computers inside Minecraft (see examples here and here). However, these computers are nowhere close to as powerful or flexible as the computers on which they were designed. Still, they are interesting in other ways and may employ designs that would not work in the external physical world for various reasons.

Most importantly, the fruits of electronic technologies and virtual worlds can be harnessed to reduce the physical dangers to our lives. From telecommuting (which can reduce in frequency the risks involved with physical business travel) to autonomous vehicles (which can render any such travel devoid of the accidents caused by human error), the fruits of augmented reality can be deployed to fix the previously intractable perils of more “traditional” infrastructure and modes of interaction. Millions of lives can be saved in the coming decades because a few generations of bright minds have devoted themselves to tinkering with virtuality and its applications.

The great task in the coming years for libertarians, individualists, technoprogressives, transhumanists, and others who seek a brighter future will be to find increasingly creative and sophisticated applications for the emerging array of tools and possibilities that electronic technologies and virtual worlds make available. This new world of augmented reality is still very much a Mengerian and a Misesian one: human action is still at the core of all meaningful undertakings and accomplishments. Human will and human choice still need to be exerted – perhaps now more so than ever before – while being guided by human reason and intellect toward furthering longer, happier lives characterized by abundance, justice, peace, and progress.

Dispelling Popular Great Depression Myths: Robert Murphy’s “The Politically Incorrect Guide to the Great Depression and the New Deal” (2009) – Article by G. Stolyarov II

Dispelling Popular Great Depression Myths: Robert Murphy’s “The Politically Incorrect Guide to the Great Depression and the New Deal” (2009) – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
Originally Published November 25, 2009
as Part of Issue CCXIX of The Rational Argumentator
Republished July 23, 2014
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Note from the Author: This essay was originally published as part of Issue CCXIX of The Rational Argumentator on November 25, 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 23, 2014
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Download a free audio recording of this essay here.

We live in times when fact and propaganda are all too easily – and often deliberately – conflated. I recall, a long time ago, sitting in my public high school’s Advanced Placement US History course, when the instructor explicitly mentioned “lack of government regulation” as one of the causes of the Great Depression. The odd aspect was that he prefaced this explanation with an explicit warning to me that I would not like what he was about to say.

It was as if he knew that he was presenting an ideologically charged position as fact – and he did it anyway, because, in his mind, no other interpretation of the Great Depression was possible. He and millions like him would benefit immensely from reading Robert P. Murphy’s The Politically Incorrect Guide to the Great Depression and the New Deal.

The myth of the Great Depression being caused by laissez-faire capitalism – and being solved by either the New Deal, World War II, or both – is so prevalent that in popular-opinion surveys, Franklin Delano Roosevelt routinely appears in the top five of all US presidents, while the name of Herbert Hoover has become synonymous with government inaction during an economic crisis. Hundreds of books, essays, and even works of fiction have been published to challenge these notions – but somehow the fallacies have prevailed; and they have been eagerly exploited by the would-be FDRs of the past seven decades.

For millions of Americans who have not studied Austrian economics and the Mises/Hayek theory of the business cycle, or read the brilliant critiques of the New Deal by H.L. Mencken, Isabel Paterson, Albert Jay Nock, Garet Garrett, and John T. Flynn, the commonplace myth of laissez-faire as ruinous and FDR as savior appears true, self-evident, and incontestable. Unfortunately, many of these same people vote for politicians and policies that promise a “New New Deal.” Such a plan would further exacerbate the current economic crisis, which is fueled by hyperregulation, Federal Reserve manipulation of the money supply, and the unforeseen consequences of prior interventions, including the original New Deal.

Murphy’s work seeks to correct popular misunderstandings of the Great Depression by attacking them directly. Virtually every single commonly encountered assertion – that the Depression was caused by the excesses of capitalism, that Hoover exacerbated the Depression by “doing nothing,” that the New Deal revitalized economic activity and mitigated unemployment, and that World War II energized the United States into recovery – is refuted at length. In the course of this debunking, the reader is treated to concise, elegant explanations of the Austrian theory of the business cycle, the economics of tax reduction, the virtues of the gold standard and the dangers of fiat currencies, and to discussions of the errors both in Keynesian prescriptions for deficit spending and in the Chicago School’s suggestion that the Federal Reserve triggered the Great Depression by failing to inflate sufficiently.

To add flavor to the book and enable readers to identify with more concrete aspects of the policies it criticizes, Murphy discusses many of the follies and corruptions of the New Deal: FDR’s use of “lucky numbers” to set the price of gold, the persecution of the Schechter brothers for defying the National Recovery Administration’s restrictions on poultry production, FDR’s attempt to pack the Supreme Court with his supporters after the court ruled in favor of the Schechter brothers, the confiscation of private citizens’ gold holdings, and the New Dealers’ pervasive use of government funding to bribe and intimidate constituencies into supporting FDR’s policies.

Murphy skillfully reminds us that the politicians who seek to suppress our economic and political liberties in favor of a central plan are neither omniscient nor benevolent; they quite frequently pull policy prescriptions out of thin air and they are anything but evenhanded, tolerant, or concerned for objective human wellbeing. Behind the lofty rhetoric and faux amiability of men like FDR stands the harsh, impatient, implacable, and often indiscriminate enforcer, in the mold of those thugs who broke into peaceful men’s homes to ensure that they were not violating the National Industrial Recovery Act by sewing clothes at night.

If there is any hope for an intellectual rejection of New Deal ideology in the United States, Murphy’s book will be one of the crucial elements motivating it. Murphy bridges the gulf between high theory and the concerns accessible to the majority of readers. While it is unfortunate that, given the state of education in our time, most Americans would not be able to immunize themselves against common economic fallacies by directly reading Menger, Mises, Hayek, and Rothbard, Murphy helps bring some of the key ideas of these thinkers into a format more accessible to a layman with no formal economic training.

Murphy also incorporates the work of such historians as Burton Folsom and Paul Johnson, and he draws on biographical information to shed light on the lives, motivations, and personalities of Calvin Coolidge, Herbert Hoover, and other key figures of the 1920s and 1930s. Murphy does for the popular understanding of the Great Depression in the early 21st century what Frederic Bastiat did for free trade in the mid-19th and what Leonard Read and Henry Hazlitt did for basic economic principles in the 20th.

I am a former student of Murphy, and I can credit his instruction for enabling me to advance from a basic understanding of Austrian economics to the publication of a paper in the Quarterly Journal of Austrian Economics. From personal experience, I know him to be well-read, cosmopolitan, sophisticated, and capable of articulating the arguments – and recognizing the strengths and weaknesses – of an immense variety of theories and worldviews. At the same time, he possesses a talent for communicating complex and challenging ideas, connecting them to concrete phenomena, and even joking about them.

As such, he is eminently suited to bringing some of the most important economic and historical insights of the 20th century to a mass audience. Indeed, it might reasonably be hoped that thousands of readers of this book will use it as a gateway to discovering the works of the many free-market thinkers cited therein. The lists of suggested readings (“Books You’re Not Supposed to Read”) peppered throughout the text make it a worthwhile purchase by themselves.

Perhaps someday my old US history teacher, and men like him, will use The Politically Incorrect Guide to the Great Depression in their courses to balance the many explicitly pro-New Deal and prointerventionist texts and presentations that dominate public-school curricula today. If this is too much to hope for, then at least this book has the potential to appeal to many young students and be sought out by them on their own initiative – as an antidote to the fallacies they encounter from “mainstream” sources.

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

When Zero’s Too High: Time Preference versus Central Bankers – Article by Douglas French

When Zero’s Too High: Time Preference versus Central Bankers – Article by Douglas French

The New Renaissance Hat
Douglas French
July 20, 2014
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Central banking has taken interest rate reduction to its absurd conclusion. If observers thought the European Central Bank (ECB) had run out of room by holding its deposit rate at zero, Mario Draghi proved he is creative, cutting the ECB’s deposit rate to minus 0.10 percent, making it the first major central bank to institute a negative rate.

Can a central-bank edict force present goods to no longer have a premium over future goods?

Armed with high-powered math and models dancing in their heads, modern central bankers believe they are only limited by their imaginations. In a 2009 article for The New York Times, Harvard economist and former adviser to President George W. Bush, N. Gregory Mankiw, wrote, “Early mathematicians thought that the idea of negative numbers was absurd. Today, these numbers are commonplace.”

While this sounds clever, Ludwig von Mises undid Mankiw’s analogy long ago. “If he were not to prefer satisfaction in a nearer period of the future to that in a remote period,” Mises wrote of the individual, “he would never consume and enjoy.”

Carl Menger explained that it is “deeply imbedded in human nature” to have present desires satisfied over future desires. And long before Menger, A. R. J. Turgot wrote of the premium of present money over future money, “Is not this difference well known, and is not the commonplace proverb, ‘a bird in the hand is better than two in the bush,’ a simple expression of this notoriety?”

Central bankers can set a certain interest rate, but human nature cannot be eased away, quantitatively or otherwise. But the godfather of all central bankers, John Maynard Keynes, ignored time preference and focused on liquidity preference. He believed it was investments that yielded returns, and wrote, “Why should anyone outside a lunatic asylum wish to use money as a store of wealth?”

If liquidity preference determined the rate of interest, rates would be lowest during a recovery, and at the peak of booms, with confidence high, everyone would be seeking to trade their liquidity for investments in things. “But it is precisely in a recovery and at the peak of a boom that short-term interest rates are highest,” Henry Hazlitt explained.

Keynes believed that those who held cash for the speculative motive were wicked and central bankers must stop this evil. However, as Hazlitt explained in The Failure of the “New Economics,” holding cash balances “is usually most indulged in after a boom has cracked. The best way to prevent it is not to have a Monetary Authority so manipulate things as to force the purchase of investments or of goods, but to prevent an inflationary boom in the first place.”

Keynesian central bankers leave time out of their calculus. While they think they are lending money, they are really lending time. Borrowers purchase the use of time. Hazlitt reminds us that the old word for interest was usury, “etymologically more descriptive than its modern substitute.”

And as Mises explained above, time can’t have a negative value, which is what a negative interest rate implies.

Borrowers pay interest in order to buy present assets. Most importantly, this ratio is outside the reach of the monetary authorities. It is determined subjectively by the actions of millions of market participants.

Deep down, Mankiw must recognize this, writing, “The problem with negative interest rates, however, is quickly apparent: nobody would lend on those terms. Rather than giving your money to a borrower who promises a negative return, it would be better to stick the cash in your mattress. Because holding money promises a return of exactly zero, lenders cannot offer less.”

But still, he approvingly cites German economist Silvio Gesell’s argument for a tax on holding money, an idea Keynes himself approved of.

Keynesian central bankers are now central planners maintaining the unshakable belief that low interest rates put people back to work and solve every economic woe. “But in reality,” writes Robert Murphy, “interest rates coordinate production and consumption decisions over time. They do a lot more than simply regulate how much people spend in the present.”

Murphy points out that low rates stimulate some sectors more than others. Lower rates generally boost housing and car sales, for instance, while not doing much for consumer goods.

More than half a decade of zero interest rates has not lifted anyone from poverty or created any jobs—it has simply caused more malinvestment. It is impossible for the monetary authorities to dictate the proper interest rate, because interest rates determined by command and control bear no relation to the collective time preference of economic actors. The result of central bank intervention can only be distortions and chaos.

Draghi and Mankiw don’t seem to understand what interest is or how the rate of interest is determined. While it’s bad when academics promote their thought experiments, the foolish turns tragic when policymakers use the power of government to act on these experiments.

Douglas E. French is senior editor of the Laissez Faire Club and the author of Early Speculative Bubbles and Increases in the Supply of Money, written under the direction of Murray Rothbard at UNLV, and The Failure of Common Knowledge, which takes on many common economic fallacies.

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

Heterogeneity: A Capital Idea! – Article by Sanford Ikeda

Heterogeneity: A Capital Idea! – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
June 26, 2014
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When Thomas Piketty’s Capital in the 21st Century was released in English earlier this year it sparked vigorous debate on the issue of wealth inequality. Despite the prominence of the word in the title, however, capital has not itself become a hot topic. Apparently none of his defenders have taken the opportunity to explore capital theory, and, with a few exceptions, neither have his critics.

To prepare to read Mr. Piketty’s book I’ve been studying Ludwig Lachmann’s Capital and Its Structure, which, along with Israel M. Kirzner’s Essay on Capital, is among the clearest expositions of Austrian capital theory around. A hundred years ago the “Austrian economists”—i.e. scholars such as Eugen von Böhm-Bawerk who worked in the tradition of Carl Menger—were renowned for their contributions to the theory of capital. Today capital theory is still an essential part of modern Austrian economics, but few others delve into its complexities. Why bother?

Capital is Heterogeneous

 

Among the Austrians, Böhm-Bawerk viewed capital as “produced means of production” and for Ludwig von Mises “capital goods are intermediary steps on the way toward a definite goal.” (Israel Kirzner uses the metaphor of a “half-baked cake.”)  Lachmann then places capital goods in the context of a person’s plan: “production plans are the primary object of the theory of capital.” You can combine capital goods in only a limited number of ways within a particular plan. Capital goods then aren’t perfect substitutes for one another. Capital is heterogeneous.

Now, mainstream economics treats capital as a homogenous glob. For instance, both micro- and macroeconomists typically assume Output (Q) is a mathematical function of several factor inputs, e.g. Labor (L) and Capital (K) or

Q = f(L,K).

In this function, not only is output homogenous (whether we’re talking about ball-bearings produced by one firm or all the goods produced by all firms in an economy) but so are all labor inputs and all capital inputs used to produce them. In particular, any capital good can substitute perfectly for any other capital good in a firm or across all firms. A hammer can perfectly replace, say, a helicopter or even a harbor.

On the other hand, capital heterogeneity implies several things.

First, according to Mises, heterogeneity means that, “All capital goods have a more or less specific character.” A capital good can’t be used for just any purpose:  A hammer generally can’t be used as a harbor. Second, to make a capital good productive a person needs to combine it with other capital goods in ways that are complementary within her plan: Hammers and harbors could be used together to help repair a boat. And third, heterogeneity means that capital goods have no common unit of measurement, which poses a problem if you want to add up how much capital you have:  One tractor plus two computers plus three nails doesn’t give you “six units” of capital.

Isn’t “money capital” homogeneous? The monetary equivalent of one’s stock of capital, say $50,000, may be useful for accounting purposes, but that sum isn’t itself a combination of capital goods in a production process. If you want to buy $50,000 worth of capital you don’t go to the store and order “Six units of capital please!” Instead, you buy specific units of capital according to your business plan.

At first blush it might seem that labor is also heterogeneous. After all, you can’t substitute a chemical engineer for a pediatrician, can you? But in economics we differentiate between pure “labor” from the specific skills and know-how a person possesses. Take those away—what we call “human capital”—and then indeed one unit of labor could substitute for any other. The same goes for other inputs such as land. What prevents an input from substituting for another, other than distance in time and space, is precisely its capital character.

One more thing. We’re talking about the subjective not the objective properties of a capital good. That is, what makes an object a hammer and not something else is the use to which you put it. That means that physical heterogeneity is not the point, but rather heterogeneity in use. As Lachmann puts it, “Even in a building which consisted of stones completely alike these stones would have different functions.” Some stones serve as wall elements, others as foundation, etc. By the same token, physically dissimilar capital goods might be substitutes for each other. A chair might sometimes also make a good stepladder.

But, again, what practical difference does it make whether we treat capital as heterogeneous or homogenous? Here, briefly, are a few consequences.

Investment Capital and Income Flows

 

When economists talk about “returns to capital” they often do so as if income “flows” automatically from an investment in capital goods. As Lachmann says:

In most of the theories currently in fashion economic progress is apparently regarded as the automatic outcome of capital investment, “autonomous” or otherwise. Perhaps we should not be surprised at this fact: mechanistic theories are bound to produce results that look automatic.

But if capital goods are heterogeneous, then whether or not you earn an income from them depends crucially on what kinds of capital goods you buy and exactly how you combine them, and in turn how that combination has to complement the combinations that others have put together. You build an office-cleaning business in the hopes that someone else has built an office to clean.

There’s nothing automatic about it; error is always a possibility. Which brings up another implication.

Entrepreneurship

 

Lachmann:

We are living in a world of unexpected change; hence capital combinations, and with them the capital structure, will be ever changing, will be dissolved and re-formed. In this activity we find the real function of the entrepreneur.

We don’t invest blindly. We combine capital goods using, among other things, the prices of inputs and outputs that we note from the past and the prices of those things we expect to see in the future. Again, it’s not automatic. It takes entrepreneurship, including awareness and vision. But in the real world—a world very different from the models of too many economists—unexpected change happens. And when it happens the entrepreneur has to adjust appropriately, otherwise the usefulness of her capital combinations evaporates. But that’s the strength of the market process.

A progressive economy is not an economy in which no capital is ever lost, but an economy which can afford to lose capital because the productive opportunities revealed by the loss are vigorously exploited.

In a dynamic economy, entrepreneurs are able to recombine capital goods to create value faster than it disappears.

Stimulus Spending

 

As the economist Roger Garrison notes, Keynes’s macroeconomics is based on labor, not capital. And when capital does enter his analysis Keynes regarded it the same way as mainstream economics: as a homogeneous glob.

Thus modern Keynesians, such as Paul Krugman, want to cure recessions by government “stimulus” spending, without much or any regard to what it is spent on, whether hammers or harbors. (Here is just one example.)  But the solution to a recession is not to indiscriminately increase overall spending. The solution is to enable people to use their local knowledge to invest in capital goods that complement existing capital combinations, within what Lachmann calls the capital structure, in a way that will satisfy actual demand. (That is why economist Robert Higgs emphasizes “real net private business investment” as an important indicator of economic activity.)  The government doesn’t know what those combinations are, only local entrepreneurs know, but its spending patterns certainly can and do prevent the right capital structures from emerging.

Finally, no one can usefully analyze the real world without abstracting from it. It’s a necessary tradeoff. For some purposes smoothing the heterogeneity out of capital may be helpful. Too often though the cost is just too high.

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.
No Excuses for Militant Barbarism in Ukraine – But the West Should Stay Out – Article by G. Stolyarov II

No Excuses for Militant Barbarism in Ukraine – But the West Should Stay Out – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
April 26, 2014
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I was initially reluctant to accept the Ukrainian government’s reference to the pro-Putin separatists in Eastern Ukraine as “terrorists” – since terrorists deliberately target civilians in order to achieve political and ideological objectives. However, during the past week, it has become clear that at least a significant fraction of the separatists have engaged in exactly that: hostage-takings and killings of civilians in an effort to “secure bargaining chips” or “send a message” to their political enemies.

While very little news that comes out of Eastern Ukraine now can be trusted as being unaffected by propaganda for one interest or another, I do completely trust this account by Simon Ostrovsky, a VICE journalist who was captured by armed gunmen, beaten, held in captivity for four days, and subsequently released. His account relates the identities of some of the other prisoners; a few may themselves be militants working for the other ugly nationalist group in the mix – Right Sector – but many are completely innocent: journalists, political activists, and civilians. It is completely unacceptable to abduct and hold such people hostage, for political leverage or otherwise, no matter what one’s goals or objectives are.

The separatists have committed other crimes as well. The torture and murder of Vladimir Rybak, a councilman who supported the Ukrainian government, is the most heinous among them. Rybak was a peaceful man who spoke his mind; he was vocal and passionate, but never posed a physical threat to anyone. The fact that he would be whisked away in the middle of the night, mutilated, killed, and thrown into a river smacks of Stalin-era tactics to suppress political dissidents and critics.

A further travesty is the abduction of OSCE monitors and unarmed foreign military observers, who were clearly not in Eastern Ukraine to stoke up hostilities, but rather could have negotiated a peaceful resolution to the conflict. The fact that the separatists are inclined to take the observers hostage instead of speaking with them, expressing their grievances, and attempting a diplomatic solution, shows their true colors.

While I had hoped that the multilateral Geneva Statement would be the beginning of a de-escalation in Eastern Ukraine, this has, unfortunately, not come to pass. Vladimir Putin’s regime did not play its part. Putin could have easily defused tensions by publicly speaking about the need for separatists to vacate occupied government buildings in the Donetsk region and to engage OSCE monitors and other third-party negotiators peacefully and sincerely. The fact that he failed to do this, and continues to support the separatists rhetorically, in spite of their record of hostage-takings, murders, and intimidation, gives me substantial doubts regarding his good faith.

Then again, there are very few good people involved in this entire mess – apart from the innocent civilians who are trying to live and work in peace, and to speak their minds in civilized ways, instead of resorting to violence, brutality, and brinksmanship. The pro-Putin separatists and the Putin regime are not the only guilty parties here. This past weekend, Sergei Rodenko – a beloved figure in his community – and two other civilians who performed part-time duty at a checkpoint northwest of Slovyansk, were probably murdered by Right Sector thugs. This situation increasingly reminds me of the nightmare that has unfolded in Syria over the past two years, where the regime of the tyrant and murderer Bashar Assad is fighting a war of attrition against barbarous and often equally brutal Islamic fundamentalist fanatics. Once ancient hatreds – be they religious or nationalistic – are unleashed, all goodness is at risk of being washed away by rivers of blood. It is good that, in 2013, a major public outcry in the United States prevented the US government and military from becoming involved in a conflict where it is absolutely not clear who the greater evil is. (Nor is it ever justifiable to aid evil, period – all the misguided rhetoric regarding the “greater good” notwithstanding.) A similar public outcry is needed against intervention in Ukraine; American foreign policy is terrible at dealing with “gray areas” – especially where every side has clear evil elements. One can only hope that sanity and reason will prevail in Eastern Ukraine, and peace will somehow be achieved, before the body count approaches anywhere near the catastrophic levels it has reached in Syria. As for us in the West, we can only condemn – and hope.

What should the United States government do? This is vital: nothing – except condemnation of all atrocities and attempts to secure the release of all captured civilians. Diplomacy has unfortunately not succeeded in resolving the present mess, and further intervention of any sort will only reinforce the perception (held by the Putin regime and many of its sympathizers in Eastern Ukraine) that the Ukrainian government is simply a tool of Western and especially American geopolitical interests. While military occupation of Ukraine has thankfully been ruled out by the United States and NATO, economic sanctions would, too, be a grave folly. The free-market argument against sanctions includes the recognition that sanctions almost never harm the regime in power; they always harm ordinary civilians and rally them around the hostile regime. In the words of Frédéric Bastiat, “When goods don’t cross borders, armies will.” Economic sanctions always set up the scene for war, because they break the ties of commerce that enable peaceful cooperation, mutual understanding, and cosmopolitanism. As the great Ludwig von Mises put it, “Wars, foreign and domestic (revolutions, civil wars), are more likely to be avoided the closer the division of labor binds men.” Mises also said that military conflicts “are an outgrowth of the various governments’ interference with business, of trade and migration barriers and discrimination against foreign labor, foreign products, and foreign capital.” To the extent that advocates of sanctions depart from this understanding, they are sacrificing free-market principles to the desire to undermine and punish Putin and Russia. Putin may deserve punishment, but his innocent subjects certainly do not.

Do nothing and allow a local solution – fueled by what Friedrich Hayek called “knowledge of the circumstances of time and place” – to emerge. The United States and European Union cannot improve on any resolution that Ukrainians and Russians might be able to arrive at, even if that resolution would be grossly sub-optimal from any reasonable standpoint. For us Westerners to inject ourselves into this horrific mess would only risk dragging us down into the thick quagmire of hatreds, hostilities, and recriminations. This is not a part of the world that can be easily fixed, and it has always suffered from deep cultural maladies. The penetration of the 18th-century Enlightenment there is only superficial and limited to a small segment of society. Those who truly seek a better life are better off just leaving than attempting to resolve the deep problems that have persisted since at least the 13th-century Mongol conquests! They are better off just leaving – as I fortunately did during my childhood – and we are better off just staying out. By attempting to “solve” the problems of post-Soviet republics, the Western powers only risk importing those problems – nationalism, xenophobia, militarism, jingoism, propagandism, and economic isolationism, just to name a few – into their own countries.

Ludwig von Mises on War

Ludwig von Mises on War

The New Renaissance Hat
Ludwig von Mises (1881-1973)
April 15, 2014
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The following are quotations on war by Ludwig von Mises (1881– 1973), who was the leading economist of the Austrian School. This list was first published as an article on the Mises Institute website and subsequently published on Le Québécois Libre.
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History has witnessed the failure of many endeavors to impose peace by war, cooperation by coercion, unanimity by slaughtering dissidents……. A lasting order cannot be established by bayonets. (Omnipotent Government, p. 7)  
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War……is harmful, not only to the conquered but to the conqueror. Society has arisen out of the works of peace; the essence of society is peacemaking. Peace and not war is the father of all things. Only economic action has created the wealth around us; labor, not the profession of arms, brings happiness. Peace builds, war destroys. (Socialism, p. 59)

The market economy involves peaceful cooperation. It bursts asunder when the citizens turn into warriors and, instead of exchanging commodities and services, fight one another. (1st Ed. Human Action, p. 817 ; 3rd Ed. Human Action, p. 821)  
  
Economically considered, war and revolution are always bad business. (Nation, State, and Economy, p. 152) 
  
The market economy means peaceful cooperation and peaceful exchange of goods and services. It cannot persist when wholesale killing is the order of the day. (Interventionism: An Economic Analysis, p. 67)  
  
[A]ggressors cannot wage total war without introducing socialism. (Interventionism: an Economic Analysis, p. 70) 
  
War prosperity is like the prosperity that an earthquake or a plague brings. The earthquake means good business for construction workers, and cholera improves the business of physicians, pharmacists, and undertakers; but no one has for that reason yet sought to celebrate earthquakes and cholera as stimulators of the productive forces in the general interest. (Nation, State, and Economy, p. 154)  
  
War can really cause no economic boom, at least not directly, since an increase in wealth never does result from destruction of goods. (Nation, State, and Economy, p. 154) 
  
Whoever wishes peace among peoples must fight statism. (Nation, State, and Economy, p. 77) 
  
Modern society, based as it is on the division of labor, can be preserved only under conditions of lasting peace. (Liberalism, p. 44) 
  
Wars, foreign and domestic (revolutions, civil wars), are more likely to be avoided the closer the division of labor binds men. (Critique of Interventionism, p. 115) 
  
Modern war is not a war of royal armies. It is a war of the peoples, a total war. It is a war of states which do not leave to their subjects any private sphere; they consider the whole population a part of the armed forces. Whoever does not fight must work for the support and equipment of the army. Army and people are one and the same. The citizens passionately participate in the war. For it is their state, their God, who fights. (Omnipotent Government, p. 104)  
  
The existence of the armaments industries is a consequence of the warlike spirit, not its cause. (1st Ed. Human Action, p. 297; 3rd Ed. Human Action, p. 300)  
  
What basis for war could there still be, once all peoples had been set free? (Nation, State, and Economy, p. 34) 
  
The statement that one man’s boon is the other man’s damage is valid with regard to robbery, war, and booty. The robber’s plunder is the damage of the despoiled victim. But war and commerce are two different things. (1st Ed. Human Action, p. 662; 3rd Ed. Human Action, p. 666)  
  
It is certainly true that our age is full of conflicts which generate war. However, these conflicts do not spring from the operation of the unhampered market society. It may be permissible to call them economic conflicts because they concern that sphere of human life which is, in common speech, known as the sphere of economic activities. But it is a serious blunder to infer from this appellation that the source of these conflicts are conditions which develop within the frame of a market society. It is not capitalism that produces them, but precisely the anticapitalistic policies designed to check the functioning of capitalism. They are an outgrowth of the various governments’ interference with business, of trade and migration barriers and discrimination against foreign labor, foreign products, and foreign capital. (1st Ed. Human Action, p. 680; 3rd Ed. Human Action, p. 684)  
  
What has transformed the limited war between royal armies into total war, the clash between peoples, is not technicalities of military art, but the substitution of the welfare state for the laissez-faire state. (1st Ed. Human Action, p. 820; 3rd Ed. Human Action, p. 824) 

Under laissez-faire peaceful coexistence of a multitude of sovereign nations is possible. Under government control of business it is impossible. (1st Ed. Human Action, p. 820; 3rd Ed. Human Action, p. 824)  
  
Of course, in the long run war and the preservation of the market economy are incompatible. Capitalism is essentially a scheme for peaceful nations. (1st Ed. Human Action, p. 824; 3rd Ed. Human Action, p. 828)  
  
What the incompatibility of war and capitalism really means is that war and high civilization are incompatible. If the efficiency of capitalism is directed by governments toward the output of instruments of destruction, the ingenuity of private business turns out weapons which are powerful enough to destroy everything. What makes war and capitalism incompatible with one another is precisely the unparalleled efficiency of the capitalist mode of production. (1st Ed. Human Action, p. 824; 3rd Ed. Human Action, p. 828)  
  
Modern war is merciless, it does not spare pregnant women or infants; it is indiscriminate killing and destroying. It does not respect the rights of neutrals. Millions are killed, enslaved, or expelled from the dwelling places in which their ancestors lived for centuries. Nobody can foretell what will happen in the next chapter of this endless struggle. This has little to do with the atomic bomb. The root of the evil is not the construction of new, more dreadful weapons. It is the spirit of conquest. It is probable that scientists will discover some methods of defense against the atomic bomb. But this will not alter things, it will merely prolong for a short time the process of the complete destruction of civilization. (1st Ed. Human Action, p. 828; 3rd Ed. Human Action, p. 832)  
  
To defeat the aggressors is not enough to make peace durable. The main thing is to discard the ideology that generates war. (1st Ed. Human Action, p. 828; 3rd Ed. Human Action, p. 832)  
  
Social development is always a collaboration for joint action; the social relationship always means peace, never war. Death-dealing actions and war are anti-social. All those theories which regard human progress as an outcome of conflicts between human groups have overlooked this truth. (Socialism, p. 279) 
  
But what is needed for a satisfactory solution of the burning problem of international relations is neither a new office with more committees, secretaries, commissioners, reports, and regulations, nor a new body of armed executioners, but the radical overthrow of mentalities and domestic policies which must result in conflict. (Omnipotent Government, p. 6) 
  
For only in peace can the economic system achieve its ends, the fullest satisfaction of human needs and wants. (Omnipotent Government, p. 50) 
  
If men do not now succeed in abolishing war, civilization and mankind are doomed. (Omnipotent Government, p. 122) 
  
If you want to abolish war, you must eliminate its causes. What is needed is to restrict government activities to the preservation of life, health, and private property, and thereby to safeguard the working of the market. Sovereignty must not be used for inflicting harm on anyone, whether citizen or foreigner. (Omnipotent Government, p. 138)  
  
Only one thing can conquer war – that liberal attitude of mind which can see nothing in war but destruction and annihilation, and which can never wish to bring about a war, because it regards war as injurious even to the victors. (Theory of Money and Credit, p. 433) 
  
The first condition for the establishment of perpetual peace is, of course, the general adoption of the principles of laissez-faire capitalism. (The Ultimate Foundation of Economic Science p. 137) 
  
He who wants to prepare a lasting peace must……be a free-trader and a democrat and work with decisiveness for the removal of all political rule over colonies by a mother country and fight for the full freedom of movements of persons and goods. (Nation, State, and Economy, p. 86) 
  
Liberalism rejects aggressive war not on philanthropic grounds but from the standpoint of utility. It rejects aggressive war because it regards victory as harmful, and it wants no conquests because it sees them as an unsuitable means for reaching the ultimate goals for which it strives. Not through war and victory but only through work can a nation create the preconditions for the well-being of its members. Conquering nations finally perish, either because they are annihilated by strong ones or because the ruling class is culturally overwhelmed by the subjugated. (Nation, State, and Economy, p. 87)  
  
Whoever on ethical grounds wants to maintain war permanently for its own sake as a feature of relations among peoples must clearly realize that this can happen only at the cost of the general welfare, since the economic development of the world would have to be turned back at least to the state of the year 1830 to realize this martial ideal even only to some extent. (Nation, State, and Economy, p. 151) 
  
The losses that the national economy suffers from war, apart from the disadvantages that exclusion from world trade entails, consist of the destruction of goods by military actions, of the consumption of war material of all kinds, and of the loss of productive labor that the persons drawn into military service would have rendered in their civilian activities. Further losses from loss of labor occur insofar as the number of workers is lastingly reduced by the number of the fallen and as the survivors become less fit in consequence of injuries suffered, hardships undergone, illnesses suffered, and worsened nutrition. (Nation, State, and Economy, p. 151 – 52)  
  
There are circumstances which make the consumption of capital unavoidable. A costly war cannot be financed without such a damaging measure….There may arise situations in which it may be unavoidable to burn down the house to keep from freezing, but those who do that should realize what it costs and what they will have to do without later on. (Interventionism: an Economic Analysis, p. 52) 
  
It is not the war profits of the entrepreneurs that are objectionable. War itself is objectionable! (Interventionism: an Economic Analysis, p. 74)
Cryptocurrencies as a Single Pool of Wealth – Video by G. Stolyarov II

Cryptocurrencies as a Single Pool of Wealth – Video by G. Stolyarov II

Mr. Stolyarov offers economic thoughts as to the purchasing power of decentralized electronic currencies, such as Bitcoin, Litecoin, and Dogecoin.

When considering the real purchasing power of the new cryptocurrencies, we should be looking not at Bitcoin in isolation, but at the combined pool of all cryptocurrencies in existence. In a world of many cryptocurrencies and the possibility of the creation of new cryptocurrencies, a single Bitcoin will purchase less than it could have purchased in a world where Bitcoin was the only possible cryptocurrency.

References

– “Cryptocurrencies as a Single Pool of Wealth: Thoughts on the Purchasing Power of Decentralized Electronic Money” – Essay by G. Stolyarov II

– Donations to Mr. Stolyarov via The Rational Argumentator:
Bitcoin – 1J2W6fK4oSgd6s1jYr2qv5WL8rtXpGRXfP
Dogecoin – DCgcDZnTAhoPPkTtNGNrWwwxZ9t5etZqUs

– “2013: Year Of The Bitcoin” – Kitco News – Forbes Magazine – December 10, 2013
– “Bitcoin” – Wikipedia
– “Litecoin” – Wikipedia
– “Namecoin” – Wikipedia
– “Peercoin” – Wikipedia
– “Dogecoin” – Wikipedia
– “Tulip mania” – Wikipedia
– “Moore’s Law” – Wikipedia

The Theory of Money and Credit (1912) – Ludwig von Mises