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Bitcoin Is All that Stands between My Family and Starvation – Article by Anonymous Venezuelan

Bitcoin Is All that Stands between My Family and Starvation – Article by Anonymous Venezuelan

The New Renaissance Hat
Anonymous Venezuelan

I am writing this post in response to comments I get from people when I try and explain what Bitcoin is. Uneducated people have told me countless times that bitcoins are only used by criminals. I want to debunk that myth and explain how the real potential for bitcoins is so much bigger than the black market can ever be.

Bitcoin is literally saving my family from hunger and giving them the financial freedom to immigrate in the near future. My parents and sister live in Venezuela. A lot of you might not know exactly what’s happening there so here are the cliff notes.

  1. An incredibly incompetent socialist government took power.
  2. They created strict currency controls that made it impossible for people to buy goods in anything other than their local currency. If you owned a business and needed to import something from overseas you needed the government’s approval to exchange the local currency to US dollars
  3. This made running a business almost impossible. To operate you had to buy US dollars on a black market or bribe a government official to exchange currency.
  4. When oil prices dropped the government quickly ran out of money causing an expected inflation of 1800% in 2017.

For more about what’s going on in Venezuela check our

Things started to get really bad in Venezuela around 2014. My father owned at the time a successful air conditioning repair business but he knew things were about to take a turn for the worse. We came up with a plan to open a US bank account and convert bolívars (Venezuelan currency) into US dollars so we would be protected from inflation. We quickly ran into logistical problems, physically getting and safely transporting the money out of the country.

Caracas is one of the most violent cities in the world. Carjackings are common and people are killed for their cell phones. The airport police are corrupt and just as likely to rob you, and the money can’t be put in the local bank because you aren’t allowed to have dollars.

I’m 2014 Bitcoin was a new technology so we were very skeptical about it but we didn’t have any other options.

Fast forward to 2017. The economy is Venezuela is dead. My father lost his air conditioning business and people like our neighbors that were middle and upper class a few years ago can’t afford food. Thanks to the rising price of Bitcoin and its relative stability (to the Venezuelan economy), my family is part of a very small fortunate minority that can afford to help feed their community and also potentially immigrate to another country.

Now consider how big the Venezuelan economy is and that other countries like Brazil and Argentina are also experiencing similar problems. If citizens converted only a small amount of their savings into bitcoins this would represent an incredible amount of money.

Bitcoin can give anyone the ability to trade freely and protect themselves financially against corrupt and incompetent governments. In a world of 6 billion people, most of whom have no access or are ineligible for basic banking services, and an increasing number of governments opposing free speech and basic human rights, Bitcoin might not be the perfect hero we want but it’s what we need.

So in summary, Bitcoin is used by criminals the same way cash is used by criminals. If you take one step back you’ll realize that the possible legitimate uses for Bitcoin are far greater than the black market can ever be.

Reprinted from Reddit and the Foundation for Economic Education.

The author of this essay requested to remain anonymous.

Horror: Pirate Contacts Lenses! – Article by Andrew Quinlan

Horror: Pirate Contacts Lenses! – Article by Andrew Quinlan

The New Renaissance Hat
Andrew Quinlan

This Halloween, scores of consumers have purchased nearly 100,000 pairs of “counterfeit, illegal, and unapproved” colored contacts for costumes, all of which have been seized by “Double Vision,” an FDA-led consumer safety campaign.

Not surprisingly, optometrists and their favored lens manufacturers like Johnson & Johnson are using this news hook as a means of inciting fear. They are now stepping on the gas of their congressional lobbying efforts so that their bill, The Contact Lens Consumer Health Protection Act (CLCHPA), is passed into law.

The CLCHPA’s objective is to rid the country of the free market reforms brought about by The Fairness in Contact Lens Consumer Act (FCLCA), a 2003 bill that opened the contacts lens industry to free market competition for the first time.

Before the passage of this bill, eye patients had virtually no rights, while optometrists had almost total control over the sale of contact lenses. Doctors were not obligated to give patients copies of their prescriptions. As a result, they could mandate specifically where patients were allowed to purchase lenses. This usually meant that consumers had no choice but to purchase Johnson & Johnson’s Acuvue lenses—eye doctors’ favored brand—directly from optometrists at inflated retail costs.

The Republican-controlled Congress’ 2003 FCLCA legislation stopped this government-created monopoly by enforcing consumer rights. It forced doctors to give patients copies of their prescriptions and gave them only an 8-hour window to file complaints regarding third-party sale requests, halting the process of “pocket vetoing” valid sales.

As a result, consumers were left with far more buying options. With barriers to entry significantly curtailed, third-party lens sellers like Walmart, Costco, and 1-800 Contacts had a much easier time selling contacts. This, in turn, led prices for contact lenses to spiral downward, allowing over 41 million Americans to purchase more than $7 billion worth of contact lenses every year.

Eye Safety?

Enraged, optometrist associations and contact lens vendors like Johnson & Johnson immediately began lobbying Congress to change the law. For the past decade, they have been claiming that these third-party vendors are jeopardizing the eye safety of millions of Americans. Specifically, they have expressed concern that these lenses pose a risk of developing keratitis, an eye infection affecting the cornea.

For these reasons, members of the medical lobby drafted the CLCHPA, a new bill that will greatly increase regulations in the contact lens industry, making it extremely difficult for third-party lens vendors to stay in business.

The bill is a solution in search of a problem. It will re-capture the contact lens industry and propel prices upwards, all while failing to increase safety even the slightest degree.

It is ridiculous that some doctors are correlating buying contact lenses from reputable third-party companies like Costco, Walmart, and 1-800 Contacts with purchasing them illegally from a Halloween street vendor.

For one, the lenses sold by third-party sellers are federally regulated. You still need a prescription to purchase contact lenses from online sellers (although numerous studies, as well as practices in other nations, have shown that even prescriptions are not necessary), and doctors still have the ability to strike down each sale if there is a legitimate health concern.  

In a letter written to the CLCHPA’s authors, Dr. Paul B. Donzis, a professor of ophthalmology at UCLA, made clear that buying contacts from online sellers poses no danger.  “Based on…authoritative scientific articles, it appears that online sales of contact lenses have not contributed to any increase in the incidence of contact lens related injury,” he said.

Moreover, the medical studies match the doctor’s rhetoric. A 20-year epidemiologic study conducted by Doctors  Schein, Stapleton, and Keay, published in 2007 by the medical journal Eye & Contact Lens, found that there has not been any increase in microbial keratitis since the online contact industry sprouted up and began providing more and better affordable choices for consumers.

The empirical data is as clear as day: no one is at risk from purchasing lenses from third-party contact lens vendors. The only risk that third-party vendors pose is to the market share of the crony medical lobby.

This Halloween, Congress should not be duped by the false claims coming from the mouths of the medical lobby. Congress is tricked often enough. This time, they should give American families a treat by reading through these prominent medical studies and striking down the anti-consumer Contact Lens Consumer Health Protection Act (CLCHPA) once and for all.


Andrew Quinlan

Andrew F. Quinlan is co-founder and president of the Center for Freedom and Prosperity (@CFandP).

This article was originally published on Read the original article.

Does Star Trek Boldly Go Beyond Scarcity? – Article by Frederik Cyrus Roeder

Does Star Trek Boldly Go Beyond Scarcity? – Article by Frederik Cyrus Roeder

The New Renaissance HatFrederik Cyrus Roeder

As a long-time Trekkie (with several conventions and selfies with William Shatner) and an economist, I was more than delighted when a good friend of mine gave me the recently published book Trekonomics: The Economics Behind Star Trek by Manu Saadia.

Saadia’s highly exciting book attempts to explain the economy of Star Trek and describes the Federation of United Planets (which includes Earth) as a post-scarcity society that no longer uses money because everyone maximizes their utility by just doing what they want to do. The main driving force behind people’s behavior is vanity, not profit. He calls this economic system “Trekonomics.”

Economics Is an Intergalactic Concept

While describing a post-scarcity society, Saadia admits that there are some resources that are scarce. He mainly focuses on dilithium crystals that are the source of energy in the Star Trek universe:

Logic would dictate that near-absolute abundance has driven prices to zero on all but few strategic goods. These strategic goods are of limited use for most people anyway. I do not need a big chunk of dilithium crystals in the course of my everyday life. Matter-antimatter power plants require it, whether on board starships or on the ground, but not me. I am not in the market for it, society as a whole is.

While Saadia praises the replicator (Star Trek’s version of the universal 3D printer) as the driving force behind post-scarcity, he omits the fact that replicators (and holodecks, and warp drives needed in delivery shuttles bringing the latest vintage of Chateau Picard to your cottage on Mars) require energy in order to create food out of nothing.

If there’s a shortage of dilithium, there needs to be a market in order to efficiently allocate energy. Therefore, every individual is interested in a sufficient supply of dilithium crystals. An analogy to our world can be seen in oil dwells or nuclear power plants. While individuals rarely explore oil fields or build power plants, they do purchase their product (energy) on a daily basis.

Even if every one of the tens of billions of citizens of the Federation would act altruistically, it would be impossible to allocate energy to the projects with the highest priority. Only central planning or a market for energy can solve this.

The 24th century’s technological progress has reduced all physical resources to one: energy. Humans and aliens can nearly produce everything out of energy. This is great and probably significantly cuts down value/supply-chains, but there is still scarcity.

Price Controls in the Trek Universe

The value chain of the Federation’s economy most likely includes the following few stakeholders: dilithium explorers and miners, dilithium transporters/shippers, dilithium power plant operators, power grid operators, B2B replicator manufacturers (those replicators that replicate replicators), replicator owners, and replicator maintenance providers. 

Assuming there’s a natural monopoly in running these services, one company or institution running all of this might also be thinkable (though given our experiences with centrally managed energy supply, I would highly doubt that there’s a natural monopoly in the dilithium value chain).

Without a price for the resource energy, a single individual could deplete the Federation’s dilithium supplies by merely replicating a galaxy full of larger-than-life Seven of Nine action figures. Thus a price system for energy is crucial in order to allow consumer choice in the Federation. The only other way to solve this issue would be the creation of the United Socialist Republics of the Galaxy (USRG) and centrally plan the energy distribution. Good luck with queuing for holodeck time in that USRG!

Light-Speed, Among Other Things, Isn’t Immune to Scarcity

Dilithium seems to perfectly qualify as a private good because both rivalry (it is scarce and you need to find it somewhere in deep and hostile space) and exclusivity (it’s pretty easy to cut someone off the energy grid) apply.

While Saadia acknowledges the scarcity of dilithium, he misses several other scarce goods:

Private Property: rivalry also exists when it comes to the use of land. Imagine a beautiful cliff in Europe that gives you a perfect view of Saturn during sunset. The cliff has space for exactly one cottage. Who decides who can build and live there? Galactic homesteading is probably a feasible means of solving this problem in times of early inter-planetary exploration, but the moment the galaxy gets more crowded, a land-registry proving property rights will be necessary in order to prevent and solve disputes and facilitate the transfer of ownership.

Unique locations and goods: Saadia admits that there’s a scarcity of seats at Sisko’s restaurant or bottles of the famous Chateau Picard, but as people have overcome the idea of enjoying status, they are not interested in over-consuming such gems in the galaxy.

In trekonomics, the absence of money implies that status is not tied to economic wealth or discretionary spending. Conspicuous consumption and luxury have lost their grip on people’s imaginations. The opposition between plenty and scarcity, which under our current conditions determines a large cross section of prices and purchasing behaviors, is no longer relevant.

This reasoning comes short in explaining how people demand dinner at Sisko’s or a good bottle of wine at all, and what happens if the demand is higher than the supply. Would first customers start hoarding? Are there black markets for these non-replicated goods and experiences?

Incentives: a Terran settler on Mars craves the 2309 vintage of Chateau Picard and wants to get it delivered in light speed from the South of France. How do we incentivize the shuttle pilot (beaming wine spoils the tannins) to stop soaking in the sun in the Mediterranean and swing his body behind the helm of a shuttle? How do we compensate him for the time and energy he spent delivering the wine to the Red Planet? If vanity is the major driving force in trekonomics, one can just hope that someone sees more vanity in the delivery of this excellent wine instead of chugging it day-in day-out himself. A more realistic way of getting people to do (annoying) things is to create incentives (e.g. to pay in dilithium units).

Live long and prosper as long the central planners allow it?

Star Trek Federation is a great thought experiment on what a post-scarcity society could look like. However, there are major shortcomings such as the allocation of property rights, a price system for energy, incentivization of services, and the existence of rivalry.

A free, prosperous, and open society such as the Federation can only function with a price system in place in order to deal with the scarcity of energy. If trekonomics would really be applied in the Federation, we would see a much more repressive version of this interplanetary union forcing its citizens to work in certain professions and rationing energy.


Frederik Cyrus Roeder

Fred Roeder is the Vice President of Students for Liberty and member of the Executive Board at Young Voices. He is based in Germany.

This article was originally published on Read the original article.

Venezuela Is Facing Runaway Financial Catastrophe – Article by Emily Skarbek

Venezuela Is Facing Runaway Financial Catastrophe – Article by Emily Skarbek

The New Renaissance HatEmily Skarbek

Debt, capital flight, food shortages, and hyperinflation take hold

Often, economists want to isolate questions of public debt and analyse these issues as if public choice considerations weren’t at play. Perhaps less studied are the ways in which debt practices can systematically exert pressure on formal political institutions.

But if you want to understand what is going on in Venezuela today, you can’t do so without looking at this political-economy nexus.

For regular people living in Venezuela, the situation is bleak. As the Economist reports, food queues start at 3 am, with the real possibility there won’t be anything for those at the end of the line. And the queues are growing longer and violent.

Real wages fell by 35% last year, 76% of Venezuelans are now poor, supplies of medicines have fallen to 1/5 of their normal level.

The government has admitted that in the 12 months to September 2015 the economy contracted by 7.1% and inflation was 141.5%. Even Nicolás Maduro, Chávez’s hapless heir and successor, called these numbers “catastrophic”.

The IMF thinks worse is in store: it reckons inflation will surge to 720% this year and that the economy will shrink by 8%, after contracting by 10% in 2015. The Central Bank is printing money to cover much of a fiscal deficit of around 20% of GDP.

In a case study of Venezuela from 1984 to 2013, Reinhart and Santos examine the relationship among domestic debt, financial repression, and external vulnerability. The paper begins with a narrative of the evolution of domestic and external debt in Venezuela over the period.

Despite soaring oil prices from 2006 to 2013, net consolidated external debt of Venezuela rose from US $26.9 to US $104.3 billion. The central government, however, only accounted for roughly a fifth of that increment.

The difference, US $60.9 billion (78%), owed to standard practices of the Bolivarian revolution, and was issued by state owned enterprises and the relatively new Fondo Comun China-Venezuela (FCCV). The FCCV is a special-purpose vehicle that allows Venezuela to withdraw from a rolling line of credit at the Chinese Development Bank in exchange for future shipments of oil.

Domestic debt in local currency also climbed, rising from 36.298 million bolivares (VEF) in 2006 to 420.502 million in 2013. The nominal increase of 1,060% (an average annual rate of 42%) was partially offset by an accumulated price increase of 528% (or an average annual rate of 30%), reducing the cumulative increase in real domestic debt to about 85% (or 9% per annum).

During much of this period, the combination of exchange controls and interest ceilings created a captive domestic audience for domestic government debt despite markedly negative real ex post interest rates. The significant losses imposed on domestic bondholders escalated over time, owing to accelerating inflation.

Unlike foreign currency-denominated debt, debt in domestic currency may be reduced through financial repression (i.e., taxes on bondholders and savers producing negative real interest rates). Reinhart and Santos find the financial repression “tax rate” is significantly higher in years of exchange controls and legislated interest rate ceilings. In Venezuela, the “haircut” on depositors and bondholders via negative ex post real interest has exceeded 30% per annum on several occasions.

Confiscating the wealth of those responsible for capital savings can partially ameliorate the existing stock of domestic debt in the short run, but at the expense of encouraging capital flight and undermining any semblance of trust in crucial economic institutions.

The paper documents that capital flight has been a chronic feature in the Venezuelan economy, “representing on average of 4.7% of GDP at the official exchange rate and 7.1% of GDP at the parallel market exchange rate, while siphoning away 17.2% of total exports.”

By all measures, exchange controls proved ineffective at reducing capital flight. In fact, “when measured as percent of GDP at the average parallel market, rate capital flight turned out to be significantly higher in years of controls (8.0% vs 5.2%).

Hayek would not be surprised. Over his professional career he argued disastrous monetary policy commits the state to taking measures that weaken the proper functioning of the market. In order to combat inflation, states will attempt to impose further controls that “would not only make the price mechanism wholly ineffective, but also make inevitable an ever-increasing central direction of all economic activity.”

In Venezuela, Chávez turned the would-be checks and balances of the state — the Supreme Court and the electoral authority — into extensions of executive power. He packed the court and they then threw out those legislators necessary for the opposition to get the two-thirds majority needed to change the constitution.

President Nicolás Maduro seems prepared to continue the repression and price controls, calling the owner of Venezuela’s largest privately-held company a thief and publicly blaming him for the country’s dire economic condition.

It is perhaps fitting that it was at a Mont Pèlerin Conference in Caracas where Hayek famously quipped:

We now have a tiger by the tail: how long can this inflation continue? If the tiger (of inflation) is freed he will eat us up; yet if he runs faster and faster while we desperately hold on, we are still finished!

I’m glad I won’t be here to see the final outcome…

Emily Skarbek is Lecturer in Political Economy at King’s College London and guest blogs on EconLog. Her website is Follow her on Twitter @EmilySkarbek.​

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Low-Skilled Workers Flee the Minimum Wage – Article by Corey Iacono

Low-Skilled Workers Flee the Minimum Wage – Article by Corey Iacono

The New Renaissance HatCorey Iacono

What happens when, in a country where workers are free to move, a region raises its minimum wage? Do those with the fewest skills seek out the regions with the highest wage floors?

New minimum wage research by economist Joan Monras of the Paris Institute of Political Studies (Sciences Po) attempts to answer that question. Monras theoretically shows that there should be a close relationship between the employment effects of raising the minimum wage and the migration of low-skilled workers.

When the demand for local low-skilled labor is relatively unresponsive (or inelastic) to wage changes, raising the minimum wage should lead to an influx of low-skilled workers from other states in search of better-paying jobs. On the other hand, if the demand for low-skilled labor is relatively responsive (or elastic), raising the minimum wage will lead low-skilled workers to flee to states where they will more easily find employment.

To test the model empirically, Monras examined data from all the changes in effective state minimum wages over the period 1985 to 2012. Looking at time frames of three years before and after each minimum wage increase, Monras found that

  1. As depicted in the graph below on the left, those who kept their jobs earned more under the minimum wage. No surprise there.
  2. As depicted in the graph below on the right, workers with the fewest skills were having an easier time finding full-time employment prior to the minimum wage increase. But this trend completely reversed as soon as the minimum wage was increased.
  3. A control group of high-skilled workers didn’t experience either of these effects. Those affected by the changing laws were the least skilled and the most vulnerable.


These results show that the timing of minimum wage increases is not random.

Instead, policy makers tend to raise minimum wages when low-skilled workers’ real wages are declining and employment is rising. Many studies, misled by the assumption that the timing of minimum wage increases is not influenced by local labor demand, have interpreted the lack of falling low-skilled employment following a minimum wage increase as evidence that minimum wage increases have no effect on employment.

When Monras applied this same false assumption to his model, he got the same result. However, to observe the true effect of minimum wage increases on employment, he assumed a counterfactual scenario where, had the minimum wages not been raised, the trend in low-skilled employment growth would have continued as it was.

By making this comparison, Monras was able to estimate that wages increased considerably following a minimum wage hike, but employment also fell considerably. In fact, employment fell more than wages rose. For every 1 percent increase in wages, the share of a state’s population of low-skilled workers in full-time employment fell by 1.2 percent. (The same empirical approach showed that minimum wage increases had no effect on the wages or employment of a control group of high-skilled workers.)

Monras’s model predicts that if labor demand is sensitive to wage changes, low-skilled workers should leave states that increase their minimum wages — and that’s exactly what his empirical evidence shows.

According to Monras,

A 1 percent reduction in the share of employed low-skilled workers [following a minimum wage increase] reduces the share of low-skilled population by between .5 and .8 percent. It is worth emphasizing that this is a surprising and remarkable result: workers for whom the [minimum wage] policy was designed leave the states where the policy is implemented.

These new and important findings reinforce the view that minimum wage increases come at a cost to the employment rates of low-skilled workers.

They also pose a difficult question for minimum wage proponents: If minimum wage increases benefit low-skilled workers, why do these workers leave the states that raise their minimum wage?

Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Fantasy Bookstore Fights Fantasy Economics – San Francisco Sci-Fi Lovers Do Battle With the Minimum Wage – Article by Gary McGath

Fantasy Bookstore Fights Fantasy Economics – San Francisco Sci-Fi Lovers Do Battle With the Minimum Wage – Article by Gary McGath

The New Renaissance Hat
Gary McGath
May 18, 2015

Borderlands is an independent bookstore in San Francisco with an enthusiastic following among science fiction fans. It’s not just a place to buy books, but in the words of its mission statement “a social and professional center for readers, writers, publishers, reviewers, artists and other individuals with a strong interest in the fields of Science Fiction, Fantasy, Horror and Macabre Fiction.” Authors frequently appear there, and readers meet for discussions.

Like other bookstores, Borderlands has found staying in business difficult. It nearly closed early in 2015, and management put the blame for this on the city’s increase in the minimum wage. On February 1, it announced:

In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018.

Although all of us at Borderlands support the concept of a living wage in principal [sic] and we believe that it’s possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage.

Consequently we will be closing our doors no later than March 31st.  The cafe will continue to operate until at least the end of this year.

Thanks to sponsorship from its community, Borderlands was able to avoid closing and is still in business, at least for now. Still, its crisis graphically shows one of the damaging consequences of minimum wage laws.

If the cost of something goes up, people will buy less of it, or if they can’t, they’ll make up for it in some other way. This applies to employees as much as to anything else. Some businesses can raise their prices to meet increased labor costs, but books are a highly competitive market, and consumers are very sensitive to price changes.

Small businesses in general have fewer options. A large operation may be able to absorb the cost or find ways to pass it on. It can reduce hours, require extra duties, or replace people with machines. These options don’t work well when the staff is small and the love of what they’re doing is a big reason they stay there.

Borderlands is hardly a unique case. The management was careful not to take a position against the minimum wage, but zero dollars for unemployed workers isn’t a “living wage,” and it’s meaningless to say that putting low-wage employees out of work is “good for San Francisco.” It is individuals, not a city, who have to get food and a place to live.

A paid sponsorship program was the key to Borderlands’ short-term survival. Science fiction fans are heavily networked, and many work in well-paying jobs, so the store benefited from a community with money to spare.

Well-known authors like Seanan McGuire and Cory Doctorow helped publicize the cause. Borderlands deserves credit for its innovative approach, but other businesses aren’t always so lucky, and they will fold without being widely noticed or mourned. Fans of bookstores realized, perhaps too late, that for the industry to survive as a whole, the bookstore must be profitable as a business venture, rather than a charity case.

Minimum-wage increases aren’t magic money. Any cost increase has to come out of something, and low-paying jobs that can’t justify the increase are the first place they’ll come out of. Thinking it happens for free is just fantasy.

Gary McGath is a freelance software engineer living in Nashua, New Hampshire.

This article was originally published by The Foundation for Economic Education.
Revolutionary France’s Road to Hyperinflation – Article by Frank Hollenbeck

Revolutionary France’s Road to Hyperinflation – Article by Frank Hollenbeck

The New Renaissance Hat
Frank Hollenbeck
December 15, 2013

Today, anyone who talks about hyperinflation is treated like the shepherd boy who cried wolf. When the wolf actually does show up, though, belated warnings will do little to keep the flock safe.

The current Federal Reserve strategy is apparently to wait for significant price inflation to show up in the consumer price index before tapering. Yet history tells us that you treat inflation like a sunburn. You don’t wait for your skin to turn red to take action. You protect yourself before leaving home. Once inflation really picks up steam, it becomes almost impossible to control as the politics and economics of the situation combine to make the urge to print irresistible.

The hyperinflation of 1790s France illustrates one way in which inflationary monetary policy becomes unmanageable in an environment of economic stagnation and debt, and in the face of special interests who benefit from, and demand, easy money.

In 1789, France found itself in a situation of heavy debt and serious deficits. At the time, France had the strongest and shrewdest financial minds of the time. They were keenly aware of the risks of printing fiat currency since they had experienced just decades earlier the disastrous Mississippi Bubble under the guidance of John Law.

France had learned how easy it is to issue paper money and nearly impossible to keep it in check. Thus, the debate over the first issuance of the paper money, known as assignats, in April 1790 was heated, and only passed because the new currency (paying 3 percent interest to the holder) was collateralized by the land stolen from the church and fugitive aristocracy. This land constituted almost a third of France and was located in the best places.

Once the assignats were issued, business activity picked up, but within five months the French government was again in financial trouble. The first issuance was considered a rousing success, just like the first issuance of paper money under John Law. However, the debate over the second issuance during the month of September 1790 was even more chaotic since many remembered the slippery slope to hyperinflation. Additional constraints were added to satisfy the naysayers. For example, once land was purchased by French citizens, the payment in currency was to be destroyed to take the new paper currency out of circulation.

The second issuance caused an even greater depreciation of the currency but new complaints arose that not enough money was circulating to conduct transactions. Also, the overflowing government coffers resulting from all this new paper money led to demands for a slew of new government programs, wise or foolish, for the “good of the people.” The promise to take paper money out of circulation was quickly abandoned, and different districts in France independently started to issue their own assignats.

Prices started to rise and cries for more circulating medium became deafening. Although the first two issuances almost failed, additional issuances became easier and easier.

Many Frenchmen soon became eternal optimists claiming that inflation was prosperity, like the drunk forgetting the inevitable hangover. Although every new issuance initially boosted economic activity, the improved business conditions became shorter and shorter after each new issuance. Commercial activity soon became spasmodic: one manufacturer after another closed shop. Money was losing its store-of-value function, making business decisions extremely difficult in an environment of uncertainty. Foreigners were blamed and heavy taxes were levied against foreign goods. The great manufacturing centers of Normandy closed down and the rest of France speedily followed, throwing vast numbers of workers into bread lines. The collapse of manufacturing and commerce was quick, and occurred only a few months after the second issuance of assignats and followed the same path as Austria, Russia, America, and all other countries that had previously tried to gain prosperity on a mountain of paper.

Social norms also changed dramatically with the French turning to speculation and gambling. Vast fortunes were built speculating and gambling on borrowed money. A vast debtor class emerged located mostly in the largest cities.

To purchase government land, only a small down payment was necessary with the rest to be paid in fixed installments. These debtors quickly saw the benefit of a depreciating currency. Inflation erodes the real value of any fixed payment. Why work for a living and take the risk of building a business when speculating on stocks or land can bring wealth instantaneously and with almost no effort? This growing segment of nouveau riche quickly used its newfound wealth to gain political power to ensure that the printing presses never stopped. They soon took control and corruption became rampant.

Of course, blame for the ensuing inflation was assigned to everything but the real cause. Shopkeepers and merchants were blamed for higher prices. In 1793, 200 stores in Paris were looted and one French politician proclaimed “shopkeepers were only giving back to the people what they had hitherto robbed them of.” Price controls (the “law of the maximum”) were ultimately imposed, and shortages soon abounded everywhere. Ration tickets were issued on necessities such as bread, sugar, soap, wood, or coal. Shopkeepers risked their heads if they hinted at a price higher than the official price. The daily ledger of those executed with the guillotine included many small business owners who violated the law of the maximum. To detect goods concealed by farmers and shopkeepers, a spy system was established with the informant receiving 1/3 of the goods recovered. A farmer could see his crop seized if he did not bring it to market, and was lucky to escape with his life.

Everything was enormously inflated in price except the wages for labor. As manufacturers closed, wages collapsed. Those who did not have the means, foresight, or skill to transfer their worthless paper into real assets were driven into poverty. By 1797, most of the currency was in the hands of the working class and the poor. The entire episode was a massive transfer of real wealth from the poor to the rich, similar to what we are experiencing in Western societies today.

The French government tried to issue a new currency called the mandat, but by May 1797 both currencies were virtually worthless. Once the dike was broken, the money poured through and the currency was swollen beyond control. As Voltaire once said, “Paper money eventually returns to its intrinsic value — zero.” In France, it took nearly 40 years to bring capital, industry, commerce, and credit back up to the level attained in 1789.

Frank Hollenbeck, PhD, teaches at the International University of Geneva. See Frank Hollenbeck’s article archives.

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

Price Fixers of the World, Unite! – Article by Bradley Doucet

Price Fixers of the World, Unite! – Article by Bradley Doucet

The New Renaissance Hat
Bradley Doucet
December 4, 2013

Venezuela’s President Nicolas Maduro has never met a price control he didn’t like. The latest news is that he will regulate the price of new and used cars in order to fight inflation, which hit 54% in October. This is a lot like using leeches to balance the four humours: It’s discredited nonsense that does more harm than good (and shame on for its uncritical report on the matter, though I’m sure many other news outlets are just as bad).

As Matt McCaffrey and Carmen Dorobat pointed out in the International Business Times last month, inflation in Venezuela (and elsewhere) is quite simply the result of monetary expansion. The government prints money like a lunatic, which makes each single unit of currency worth less (and eventually worthless). More units of the debased currency are therefore needed to purchase goods and services, which is just another way of saying that prices go up.

Imposing controls to stop nominal prices from rising therefore actually lowers real prices below market rates. This leads to shortages, something long-suffering Venezuelans know a thing or two about. Their country is tragically being gutted of its accumulated capital by disastrously wrongheaded economic policies.

Equally mistaken, though not quite as harmful, is the Quebec government’s plan to control the price of books in order to keep sellers from selling them too cheaply. Pauline Marois’s Parti Québécois wants to cap discounts on new books at 10% to protect small booksellers from competition from online and big-box retailers. Whereas Maduro imposes price ceilings, Marois wants to impose a price floor, which will keep books above their market rate. As my Québécois Libre colleague Larry Deck quipped, “Surely nobody would buy fewer books just because they cost more, right?”

Ceilings or floors, fixing prices by diktat distorts market signals and makes most everyone worse off. Depending on their pervasiveness, price controls can lead to a little—or a lot—of hardship. Quebec’s politicians would do well to think twice before emulating an economic basket case like Venezuela.

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.

Oklahoma: The Economic Storm – Article by David J. Hebert

Oklahoma: The Economic Storm – Article by David J. Hebert

The New Renaissance Hat
David J. Hebert
May 25, 2013

A tornado ravaged Oklahoma last week, destroying hundreds of homes, killing dozens, and injuring hundreds more. Unfortunately, it looks like the citizens of Oklahoma are about to be ravaged by another storm brought on by the Oklahoma Attorney General, Scott Pruitt.

According to ABC News, Mr. Pruitt and his staff began “aggressively combing the region for fraud just hours after the tornado … and immediately [found] businesses violating the law. ”

What laws were the businesses accused of violating?  Anti-price-gouging laws. Using powers granted by the Emergency Price Stabilization Act, Mr. Pruitt is hoping to help the people of Oklahoma by preventing businesses from profiting off of the suffering of the townspeople, many of whom just lost their homes. He goes so far as to say, “[the townspeople] never anticipate or expect that someone would take advantage of them right now, but this situation is what criminals prey upon. ”

While Mr. Pruitt no doubt intends to help the local citizens, his misunderstanding of the workings of the price mechanism will lead only to folly and the prolonged suffering of the very people that he is trying to help. What he is effectively arguing for is a price ceiling on basic commodities, such as water (which is reportedly being sold for $40 per case today as opposed to only $3-$4 just a few weeks ago).

This has very predictable results: a shortage.

When prices are held below their market value, the effect is that there will be a large number of people who are willing to purchase water at that price but very few sellers willing to sell the water at that price. This means that people will compete on non-price margins to acquire water, that is, they will queue, sometimes for hours on end. The time that they spend waiting in line, however, is a deadweight cost as it is value that is forgone but is not captured by anyone. So now, instead of contributing towards the reconstruction of the town, the people are stuck waiting in line for water.

The beauty of the price mechanism is what it accomplishes in situations like this, assuming, of course, officials allow it to function properly. In this situation, demand in Oklahoma rises and producers, seeing an opportunity to profit, reroute trucks/planes to Oklahoma, thus increasing the quantity of water supplied in the area that needs it most.

Absent the rise in price, we would have to rely on the benevolence of these companies to help the people in need (and assume that they knew what the people of Oklahoma wanted to begin with).

This isn’t in and of itself terrible. Obviously companies DO send extra water to places that experience disasters, and the Red Cross DOES send volunteers and such. But notice that nothing in the preceding analysis precludes this benevolence. Why rely merely on benevolence when we can also rely on self-interest? If the goal is to help people get clean drinking water, it stands to reason that we ought to incentivize producers as many ways as possible, be they other-regarding, self-regarding or both.

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

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

In Praise of Price Gouging – Article by Ron Paul

In Praise of Price Gouging – Article by Ron Paul

The New Renaissance Hat
Ron Paul
November 12, 2012

As the northeastern United States continues to recover from Hurricane Sandy, we hear the usual outcry against individuals and companies who dare to charge market prices for goods such as gasoline. The normal market response of rising prices in the wake of a natural disaster and resulting supply disruptions is redefined as “price gouging.” The federal government and some state governments on the East Coast claim that price gouging is the charging of ruinous or exploitative prices for goods in short supply in the wake of a disaster and is a heinous crime  But does this reflect economic reality, or merely political posturing to capitalize on raw emotions?

In the wake of Hurricane Sandy, the supply of gasoline was greatly disrupted. Many gas stations were unable to pump gas due to a lack of electricity, thus greatly reducing the supply.  At the same time demand for gasoline spiked due to the widespread use of generators. Because gas stations were forbidden from raising their prices to meet the increased demand, miles-long lines developed and stations were forced to start limiting the amount of gasoline that individuals could purchase. New Jersey gas stations began to look like Soviet grocery stores.

Had gas stations been allowed to raise their prices to reflect the increased demand for gasoline, only those most in need of gasoline would have purchased gas, while everyone would have economized on their existing supply. But because prices remained lower than they should have been, no one sought to conserve gas.  Low prices signaled that gas was in abundant supply, while reality was exactly the opposite, and only those fortunate enough to be at the front of gas lines were able to purchase gas before it sold out.  Not surprisingly, a thriving black market developed, with gas offered for up to $20 per gallon.

With price controls in effect, supply shortages were exacerbated.  If prices had been allowed to increase to market levels, the profit opportunity would have brought in new supplies from outside the region.  As supplies increased, prices gradually would have decreased as supply and demand returned to equilibrium. But with price controls in effect, what company would want to deal with the hassle of shipping gas to a disaster-stricken area with downed power lines and flooded highways when the same profit could be made elsewhere?  So instead of gas shipments flooding into the disaster zones, what little gas supply is left is rapidly sold and consumed.

Many governments fail to understand that prices are not just random numbers. Prices perform an important role in providing information, coordinating supply and demand, and enabling economic calculation. When government interferes with the price mechanism, economic calamity ensues. Price controls on gasoline led to the infamous gas lines of the 1970s, yet politicians today repeat those same failed mistakes. Instituting price caps at a below-market price will always lead to shortages. No act of any legislature can reverse the laws of supply and demand.

History shows us that the quickest path to economic recovery is to abolish all price controls. If governments really want to aid recovery, they would abolish their “price-gouging” legislation and allow the free market to function.

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

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