China calls for global currency…

…but you’re only surprised by this if you haven’t been paying attention.

Of equal if not greater interest, the linked article makes mention of the high rate of personal savings that has ensued since the economy tanked.  This is considered by clowns and economists (but I repeat myself) to be a bad thing.  Experts tend to think that spending is better for the economy than saving, and while it is of course necessary for spending to happen in order that an economy can exist, a low rate of savings is nonetheless to be avoided.  However, this is not obvious in an economy that has come to depend on deficit spending.

Modern economists often say that credit is the key to success in the “free” market. An older school of economics, however, would say that capital is the basis of the free market.  An entrepreneur saves up capital, or finds investors, and starts a business.  It is not spending, as such, which gets this operation going, but rather accumulated savings.  Whether the savings is the entrepreneur’s or someone else’s matters not; the money has been piling up due to the intelligent action of far-sighted people.

These days even our banks are too short-sighted to save, and so the Federal Reserve just prints money for this and for that, even to rescue individual businesses who’ve mismanaged their assets.  This calamity results from thinking that credit is the yellow brick road to wealth and happiness.  Alas, it is rather a copper path to hell, paved with the cheap metals that the central bank uses to make our “money.”

Pope Ratzinger weighs in on the free market

Thanks to the Young Fogey.  

My comments here and here.

Just so that there’s no mistaking it, I hold Ratzinger in fairly high esteem.  I certainly prefer him by leaps and bounds to his predecessor.  The man is a genius, and in the first twenty pages of his Introduction to Christianity he masterfully exploded all the sacred myths of the historicism of both the Marxist and Whiggish outlooks.  But when it comes to on-the-ground economic issues, Ratzinger sometimes adopts positions that I don’t think are justified.  For all that the man has read—thousands of volumes, really—I think he would not only benefit from but be interested in the ideas of Mises, particularly his critique on the holistic view of society.

Invisible Economics: One-sixth of American “income” comes from the government

In his excellent book Economics in One Lesson, Henry Hazlitt stressed the importance of understanding not only the obvious and visible aspects of economics, but also the invisible.  By invisible, he did not mean some kind of mysterious thing that could only be grasped with a kind of Marxian Gnosticism, but rather those things which are perceptible but not exactly screaming for attention, those things which are the second, third, and fourth ripples of a given transaction or situation.  

How slow we human beings are to learn!  Here, via Drudge, comes a story on government benefits, which praises the good results of the various quasi-Socialist rackets which our overlords have enacted.  One line at the end of the story is devoted to a counterpoint, courtesy of an economist at the American Enterprise Institute.  They barely gave him the time of day, and just gave him enough of  a quote to make him sound (most probably unjustly) like nothing more than a crank.  

Here’s what this article does not address:  The “benefit” money that is dispersed by the government to various citizens comes from the other citizens who are productive and who are required to send a percentage of their income to the government.  In other words, this one-sixth of the American “income” is not income at all:  It is simply money that has been taken from the income of others.  The idea that the government “has” money is ridiculous.  Even George W. Bush understood that the money which the government possessed actually belonged to the people.  

This means that these benefits will eventually contribute to our downfall, just like the Fed’s neat trick of doubling the money supply and the fool’s errand of bailing out GM.  Instead of some people going under, many more will go under, if not the entire economy, too.

Why Freedom?

Sometime during the late 80’s or early 90’s, George H.W. Bush delivered a speech in which he waxed eloquent about what is generally called the fall of communism, the wave of revolution that swept Eastern Europe at the end of the Cold War.  In this allocution he said that tyranny fell “not to the force of arms, but to the force of an idea:  Freedom works.”

Freedom works.  This is the line of thinking that has been used by many in the political discourse.  Does freedom work?  Currently we’re in a time when many claim that it has not worked, and thanks both to the verbal jujitsu of the Republican Party and the stupidity of Boobus, this is widely accepted wisdom.  Never mind the fact that what the GOP calls a free economy is riddled with aspects of Fascism.  Our current situation, despite the popular perception, is not proof of the failure of freedom, and we should not feel obligated to give in to the Keynesian orgy presently taking place.  Wherever freedom has been tried, it has worked.  

But we need not belabor the point, for this utilitarian angle is not only useless, it is dangerous.  More on the danger in a bit.

If the “freedom works” argument is irrelevant, what is?  I would argue that the argument for freedom is found in the concept of natural rights—the right of self-determination, the right not to be robbed or shot by anyone, including the State.  From this perspective, it really doesn’t matter if freedom “works.”  The salient point is that freedom—a system of voluntary mutual exchange, one that respects individual rights and private property rights—preserves each man’s natural rights.  Period.  End of story.

Now let us return to this “Freedom works” utilitarian claptrap.  The contemporary Right, and even figures like Ludwig von Mises, have enthroned so many of their arguments on this premise.  Its danger lies not in its untruth; indeed the truth of the matter is not what I intend to dispute.  The problem is that this line of thought presents a beautifully engraved invitation to those who are unfriendly to laissez-faire capitalism:  The minute something goes wrong, they can blame freedom (they usually say “capitalism” to try to make it sound evil, a la Karl Marx) and say that we can no longer tolerate this irresponsible freedom.  

And so it’s time for the real friends of laissez-faire capitalism to stand up and say that this is truly the system that best preserves the rights that belong to us and cannot be taken away.

This is an age-old battle, really, one that started during the Exodus, when the wandering Israelites begged for a return to slavery because it was so much easier than their new-found freedom.  But nothing in life that’s worth a damn is easy, and some things are worth any price.  Freedom—from violence, theft, coercion, and other hobbies of the State—is one of them.

Henry Hazlitt and the unseen

One of my Christmas presents was Henry Hazlitt’s very excellent Economics in One Lesson.  The essential point of this work is the importance of understanding the broader consequences of economic decisions, and not just the immediate effects.

For instance, certain spread-the-work policies do give jobs to more people, but without an actual increase in production no one has gained anything in terms of real wealth.  Certain union policies regarding division of labor also create the same appearance.  Union rules might make it necessary to hire two men to perform a job that could be efficiently completed by one.  Yes, someone got a job out of it, but the customer spent more money than he needed to, which has a negative impact on his limited resources to benefit the economy in other ways.  It is true that these kinds of policies can benefit certain individuals, but only at the expense of society as a whole.

These wider-reaching deleterious effects are what might be called the “unseen” effects of these policies.  They are not invisible, mind you, but rather go unnoticed for whatever reason.

Perhaps the tendency for these kinds of things to go unseen explains the frequent false accusation that free market economics, and in particular Austrian economics, is atomistic.  In truth, though, it seems as though the aforementioned make-work projects are the actual atomistic approaches, for they take account only of the most obvious effects of a given situation without realizing the broader consequences which are involved.  They look at the benefit to one particular man or group and not at the consequences for the entire economy.   That sounds pretty atomistic to me.

The miracle that is the free market

I spent the early part of this evening running some errands.

First I had to pick up my car from the shop. It needed a few minor (thankfully!) repairs. I got to the shop while the mechanics were still finishing up. While we were waiting, the owner was chatting me up about some musical questions. He’s working on buying a particular instrument for someone who needs it and wanted my help. I’m afraid to say that I was a bit out of my depth in this particular case, though I promised to follow up.

When we finished talking business, we kept batting the breeze nonetheless. My mechanic is an old school Philadelphian—hard working, honest, direct, and as good-hearted as they come. He’s the kind of guy that looks you in the eye the whole time he’s talking to you. I instinctively trust him. The mechanic finished up the car, we finished chatting, I paid a very reasonable charge for the work, and we all bid each other a Merry Christmas, and that was that.

Car fixed. Now what’s for dinner? After mulling over some options I decided to go right back to the hoagie shop where I had eaten lunch. While the workers—both of them immigrants—worked on my sandwich, we chatted about tonight’s biggest, brightest full moon of the year.

Now before I go any further I want to assure you that, while I’m an introvert, I’m no loner, and I have plenty of friends. Sometimes it’s hard to keep track of them all. But nevertheless a thought struck me about my various vesperal visitations. What characterizes my relationship with these several proprietors? It is frankly, as if we are all buddies. This is the miracle of capitalism.

The free market gets a lot of bad press these days, but this is the result of a careless conflation of crime with free exchange. Corrupt business leaders getting in bed with government deserve to be called out (though one could certainly argue that this is not representative of a truly free market). Wal-Mart customers stampeding a janitor to death justly rouse disgust. But in its essence, the free market is a system of voluntary exchanges. The voluntary aspect of this makes each party responsible for himself and dependent upon the others. Each person is there because he wants to be, and this, coupled with the obvious desire to succeed, helps to build relationships.

This is not true in any other economic system. Surely it is not true in feudalism, nor is it true in socialism, which micromanages economies right down to who works in which job. Voluntary exchange would not even exist on an anarcho-communist paradise island, since everyone would be forced to pool resources.

The free market is the sole guarantor of voluntary exchange. It liberates us, so that we are no longer slaves, but free men—no longer slaves, but friends.

Milwaukee funny money?

Certain neighborhoods in Milwaukee are contemplating the establishment of their own currency. They would just print the money themselves, and it would be accepted at local businesses.  The great mystery to me is how such “monopoly money” could have any purchasing power whatsoever.  I’ve been wondering the same thing about the American dollar for years.