A rum reason to raise a glass on Australia's Day

The only successful armed takeover of government in Australian history happened in 1808, on the same day in the calendar that Australia marks its "Day." During the 19th century, it was widely referred to as the Great Rebellion. As Lawrence Reed explains in this guest post, it started with a mutiny around rum, and it featured a certain Captain Bligh — and it gives us at least two reasons to hoist a glass of rum today ...

Today—January 26—marks Australia's Day [still worth celebrating, argues Adrian Nguyen], still special in the sunburned land, and for at least two reasons. 

First, it was on this date in 1788 that the last of 11 ships in a British fleet landed at what is now Port Jackson near the mouth of Sydney Harbor. Their arrival is commemorated as the founding date of modern Australia.

Second, it was also on January 26 (but 20 years later, in 1808) that the one and only military coup in Aussie history occurred. Known as the Rum Rebellion, it underscores the importance to Australia of the liquor made from fermenting and distilling sugar cane juice.

More than a few Aussies will hoist a glass of rum when they offer a toast to their country on this day.  It’s impossible to do justice to the nation’s history without a generous mention of the stuff. Use of rum as currency in the Australian state of New South Wales even preceded the introduction of metallic coinage. Behind whisky, it’s the #2 spirit beverage there and presently enjoying a spike in popularity.

Partially because of cheap sugar, rum by the late 18th century had become the drink of choice (replacing gin) for two groups of Brits—the poor and sailors in the Royal Navy. The 11 ships that landed at Port Jackson on January 26, 1788, carried lots of both, including 750 convicts and 1,600 liters of rum. It’s no exaggeration to note that Australia was founded as a penal colony by crooks, their booze, and the sailors who escorted them.

(From 1787 to 1868, thousands of convicted felons in Britain were “sentenced to transportation,” which usually meant they were exiled to Australia instead of to a prison or a hanging).

In modern Australia’s first 20 years, “the population of Sydney was divided into two classes,” wrote historian George Mackaness (cited in Matt Murphy’s excellent book, Rum: A Distilled History of Australia), “those who sold rum and those who drank it.” The new colony descended into widespread drunkenness and dependence specifically upon rum. “Sunday, or the Sabbath,” writes Murphy, “was not a day for the Lord; it was a day for drinking, and rum became the new holy water.”

A regiment of the British Army called the New South Wales Corps (better known as the Rum Corps) assumed governance of the new colony and was in full control by the end of 1792. It soon established a government-protected monopoly by buying most or all imported rum and outlawing local stills and rum production not under its control. Less than three years later, Murphy tells us,

…the colony’s population…was about 3200, 1900 of whom were convicts. Most of them, settlers and convicts alike, were idle, living in deplorable poverty, and chronically drunk. Unless they were associated with the Rum Corps, in which case they were corrupt, comparatively wealthy, and chronically drunk.

The Rum Corps was far less interested in running a colony than its officers were in running a rum racket, and in keeping the populace dependent on them for their addiction. Orders from London to stop the nonsense went unheeded. When somebody did go to jail for an offense, his friends simply burned the jail down—including the main one in Sydney. As rum flowed into the colony, the Rum Corps would buy or seize it, then distribute some to its members, and sell the rest at high prices to the colonists. Even an attempt to get the colonists to drink peach cider instead of rum proved (pardon the pun) fruitless.

Enter William Bligh, the very same man of Mutiny on the Bounty fame. Appointed by London as the fourth Governor of the Australian colony, he arrived in Sydney in August 1806 with orders to clean the place up. He aimed to end the corrupt monopoly of the Rum Corps and its self-serving, haphazard effort at government. Tensions rose steadily between Bligh, the legitimate authority, and the officers who resented his moves against their land schemes and liquor trade. When Bligh attempted to arrest one of the Corps’ principal rum racketeers, John Macarthur, the Corps turned on Bligh and arrested him instead. It was Australia’s first and only military coup.

For the next two years, confusion reigned over whose authority oversaw the colony of New South Wales. Writing in The Sydney Morning Herald in January 2008, jurist James Spigelman looked back on this time and asserted,

[T]he colony was controlled by an illegal government. Every appointment, including to judicial office, was invalid. So was every governmental decision, including every exercise of judicial power. Uncertainty was ubiquitous. Personal and property rights were insecure.

Then in January 1810, Britain’s Colonial Office ordered the recall of the Rum Corps back to London and replaced it with a new regiment. Its commander, Major-General Lachlan Macquarie, became the new Governor, and he quickly dismantled the regime and brought long-overdue good sense and public order to the colony.

The coup was over, the rule of law restored. Macarthur was kicked out of New South Wales and could not return before 1817. Bligh was promoted to the post of rear admiral and died of cancer a few years later.

Growth, entrepreneurship, and opportunity followed in the 19th Century. At the Eureka Stockade in 1854, gold miners famously fought for democratic values and property rights and helped ensure freedom. In 1901, the six British colonies of the continent formed a federation and called it the Commonwealth of Australia. [New Zealand rejected the invitation to join. — Ed.]

I love Australia. It’s a beautiful place with a rich history, a country free and inviting. The Heritage Foundation’s Index of Economic Freedom last year ranked Australia as the world’s 13th freest economy, just ahead of Germany and right behind Norway. The U.S. comes in at #25.

Ron Manners is founder of the Mannkal Economic Education Foundation, headquartered in Perth in the state of Western Australia. He and his foundation work tirelessly to educate their fellow Aussies about the importance of freedom and free markets. When I recently asked him why he’s proud of his country, he wrote me this:

There are so many reasons to celebrate Australia as one of the few countries that the world’s displaced persons seek to flee to. That is the ultimate measure of a nation’s success, and this thought should be pondered by the “leaders” of the many countries from which people flee.

On Australia's Day, I plan to raise a glass of rum in tribute ....

For additional information, see:

• Coup that Paved the Way for Our Attention to the Rule of Law by James Spigelman
• Australia in the Making: The Sensational Story of Bligh and Macarthur by Henry Ernest Boote
• Rum: A Distilled History of Australia by Matt Murphy
• William Bligh: Mutiny on the Bounty (video) by Simon Whistler of Biographics
• Why Australia’s Gold Rush Ushered in Political Freedom as Well as Wealth by Lawrence W. Reed

Lawrence Reed is President of the Foundation for Economic Education (FEE), Humphreys Family Senior Fellow, and Ron Manners Global Ambassador for Liberty. Prior to becoming FEE’s president, he served for 21 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.
    A champion for liberty, Reed has authored nearly 2,000 newspaper columns and articles and dozens of articles in magazines and journals in the United States and abroad, and has authored or coauthored eight books. 

    His post first appeared at the FEE blog.

Instead of deploying the flawed and simplistic "left-right" political spectrum -- two ends of a spectrum that depict similars instead of opposites -- Lawrence Reed argues in this guest post that we should judge political and economic systems by whom they empower: the State, or the individual.

The Big Problem With the Traditional 'Political Spectrum' Children Are Taught in Schools

guest post by Lawrence Reed

In classes on Government and Political Science, with few exceptions, students in both high school and university are taught that the so-called “political spectrum” (or “political/economic” spectrum) looks like this: Communism and Socialism reside on the Left, Capitalism and Fascism dwell on the Right. Various mixtures of those things lie somewhere in between:

This is not only false and misleading, it is also idiocy. Toss it into the trash bin and demand a refund from the teacher who presented it as fact, or as any kind of insightful educational tool.

At the very least, a spectrum that looks like that should raise some tough questions. Why should socialists and fascists be depicted as virtual opposites when they share so much in common—from their fundamental, intellectual principles to their methods of implementation? If a political spectrum is supposed to illustrate a range of relationships between the individual and the State, or the very size and scope of the State, then why are systems of Big State/Small Individuals present at both ends of it?

On any other topic, the two ends of a spectrum would depict opposites. Let’s say you wanted to illustrate a range for stupidity. It would look like this:

How much sense would it make for “Extremely Stupid” to appear at both the far Left and the far Right ends of the range?

For the same reason, you would create only confusion with a spectrum that looks like this:

If you wanted to depict a range of options regarding the size of government, a more meaningful range would be this one:

Let us get back to that first sketch above, the spectrum that is most often presented to students as gospel. It is a big reason why so many people think that the communism of Lenin and Stalin was diametrically opposed to the fascism of Hitler and Mussolini (even if people who lived under those systems could not tell much difference).

I must say that in the first place, I am not a fan of one-dimensional spectra as a device for understanding politics, especially when those who construct them insert terms along the range that are not all compatible with what the range is supposed to depict. (Capitalism, for example, is not a political system; it is an economic one. It is entirely possible (though uncommon and ultimately unstable) for a one-party political monopoly to allow a considerable degree of economic freedom. And the spectra shown here are literally one-dimensional, when it would take at least two dimensions, if not three, to truly show the complexity of political positioning.) But my purpose here is not to go that broad, but to deal only with the defective one-dimensional political/economic spectrum that most students learn.

My contention is that if Communism, Socialism, Fascism and Capitalism all appear on the same range line it is terribly misleading and utterly useless, to place the first two on the left and the second two on the right. 

If we were to place opposites at each end, then, the placement that makes the most sense is probably this one:

I can already hear the spluttering from the cheap (communist-leaning seasts!) The perspective represented in that last sketch, just above, immediately arouses dispute because its implications are quite different from what students are typically taught. The inevitable objections include these three:

1. Communism and fascism cannot be close together because communists and fascists fought each other bitterly. Hitler attacked Stalin, for example!

This objection is equivalent to claiming, “Al Capone and Bugs Moran hated and fought each other so they can’t both be considered gangsters.” Or, “Since Argentina and Brazil compete so fiercely in football, both teams cannot be composed of footballers.”

Both communism and fascism demonstrate in actual practice an extremely low regard for the lives and rights of their subject peoples. Why should anyone expect their practitioners to be nice to each other, especially when they are rivals for territory and influence on the world stage?

We should remember that Hitler and Stalin were allies before they were enemies. They secretly agreed to carve up Poland in August 1939, leading directly to World War II. The fact that Hitler turned on Stalin two years later is nothing more than proof of the proverb, “There’s no honour among thieves.” Thieves are still thieves even if they steal from each other.

2. Under communism as Karl Marx defined it, government “withers away.” So it cannot be aligned closely with socialism because socialism involves lots of government.

Marx’s conception of communism is worse than purely hypothetical. It is sheer lunacy. The idea that the absolutist despots of the all-powerful “proletarian dictatorship” would one day simply walk away from power has no precedent to point to and no logic behind it. Even as a prophecy, it strains credulity to the breaking point.

Communism is my Sketch 5 appears where it does because in actual practice, it is just a little more radical than the worst socialism. It is the difference between the murderous, totalitarian Khmer Rouge of Cambodia and, say, the socialism of Castro’s Cuba.

3. Communism and Fascism are radically different because in focus, one is internationalist and the other is nationalist (as in Hitler’s “national socialism”).

Big deal. Again, chocolate and vanilla are two different flavors of ice cream, but they’re both ice cream. Was it any consolation to the French or the Norwegians or the Poles that Hitler was a national socialist instead of an international socialist? Did it make any difference to the Ethiopians that Mussolini was an Italian nationalist instead of a Soviet internationalist?

Endless confusion persists in political analysis because of the false dichotomy the conventional spectrum (Sketch 1) suggests. People are taught to think that fascists Mussolini and Hitler were polar opposites of communists Lenin, Stalin, and Mao. In fact, however, they were all peas in the same collectivist pod. They all claimed to be socialists. They all sought to concentrate power in the State and to glorify the State. They all stomped on individuals who wanted nothing more than to pursue their own ambitions in peaceful commerce. They all denigrated private property, either by outright seizure or regulating it to serve the purposes of the State.

Don’t take my word for it. Consider these remarks of the two principal Fascist kingpins, Adolf Hitler and Benito Mussolini. Ask yourself, “Are these remarks materially different from what Lenin, Stalin and Mao—or even Marx—believed and said?”

In a February 24, 1920 speech outlining the Nazi 25-Point Program, Hitler proclaimed, “The common good before the individual good!”

In a speech to Italy’s Chamber of Deputies on December 9, 1928, Mussolini declared, “All within the State, nothing outside the State, nothing against the State!”

“To put it quite clearly,” said Hitler in a 1931 interview with journalist Richard Breitling, a core program of his Party was “the nationalisation of all public companies, in other words socialisation, or what is known here as socialism…the principle of authority. The good of the community takes priority over that of the individual. But the State should retain control; every owner should feel himself to be an agent of the State; it is his duty not to misuse his possessions to the detriment of the State or the interests of his fellow countrymen. That is the overriding point. The Third Reich will always retain the right to control property owners.”

“This is what we propose now to the Treasury,” announced Mussolini on June 19, 1919. “Either the property owners expropriate themselves, or we summon the masses of war veterans to march against these obstacles and overthrow them.”

Less than two weeks before (on June 6, 1919), the future Il Duce virtually plagiarised The Communist Manifesto when he said, “We want an extraordinary heavy taxation, with a progressive character, on capital, that will represent an authentic partial expropriation of all wealth; seizures of all assets of religious congregations and suppression of all the ecclesiastic Episcopal revenues.”

This line from Hitler’s May Day speech at Templehof Air Field in 1934 could have come straight from Lenin: “The hammer will once more become the symbol of the German worker and the sickle the sign of the German peasant.”

That’s the same socialist fanatic who declared in an October 5, 1937 speech, “There is a difference between the theoretical knowledge of socialism and the practical life of socialism. People are not born socialists but must first be taught how to become them.” (Please note: communists and fascists share a common hostility to private and home schooling.)

Mussolini asserted that “there are plenty of intellectual affinities between us” (socialists of the communist variety and socialists of the fascist flavour). In the same interview in 1921, he said, “Tomorrow, Fascists and Communists, both persecuted by the police, may arrive at an agreement, sinking their differences until the time comes to share the spoils…Like them, we believe in the necessity for a centralized and unitary state, imposing an iron discipline on everyone, but with the difference that they reach this conclusion through the idea of class, we through the idea of the nation.”

Hitler once declared, “National Socialism is the determination to create a new man. There will no longer exist any individual arbitrary will, nor realms in which the individual belongs to himself. The time of happiness as a private matter is over.” In 1932 his fascist soul mate Mussolini echoed the most doctrinaire Bolshevik when he stated, “It was inevitable that I should become a Socialist ultra, a Blanquist, indeed a communist. I carried about a medallion with Marx’s head on it in my pocket. I think I regarded it as a sort of talisman… [Marx] had a profound critical intelligence and was in some sense even a prophet.”

The same Mussolini advised the American businessman and politician Grover Whalen in 1939, “You want to know what fascism is like? It is like your New Deal!” He was referring to the central planning, anti-capitalist mandates and sky-high taxes of Franklin Roosevelt.

On and on it goes. Based on what they said and what they did, it is ludicrous to separate Fascism from the Left and make it out to be just a purified form of classical liberal Capitalism. If you insist on using the conventional spectrum as depicted in Sketch 1, you are deceiving yourself as to the differences between Communism and Fascism. They both belong firmly on the socialist Left. Actual differences amounted to minimalist window-dressing. Even their primary implementers said so.

Instead of deploying flawed and simplistic spectrum charts, let us judge political and economic systems by whom they empower—the State or the individual. That makes things a lot clearer.

* * * * * 

Lawrence Read is the President Emeritus io the Foundation for Economic Education (FEE). This article was adapted from an issue of the FEE Daily email newsletter, and then appeared at the FEE blog. 

A political spectrum that makes more sense

Sketch 1: The conventional (and endlessly confusing) political spectrum

"Endless confusion persists in political analysis because of the false dichotomy the conventional spectrum (Sketch 1, above) suggests. People are taught to think that fascists Mussolini and Hitler were polar opposites of communists Lenin, Stalin and Mao. In fact, however, they were all peas in same collectivist pod. They all claimed to be socialists. They all sought to concentrate power in the State and to glorify the State. They all stomped on individuals who wanted nothing more than to pursue their own ambitions in peaceful commerce. They all denigrated private property, either by outright seizure or regulating it to serve the purposes of the State...

    "Instead of deploying flawed and simplistic spectrum charts, let us judge political and economic systems by who they empower—the State or the individual. That makes things a lot clearer."
          ~ Lawrence Reed, from his post 'The Only Spectrum That Makes Sense'

Sketch 2: A political spectrum based on whom politics most empowers, the State or the individual

The Slow-Motion Financial Suicide of the Roman Empire

The Bailout State Is as Old as Rome

Guest post by Larry Reed

More than 2,000 years before America’s bailouts and entitlement programs, the ancient Romans experimented with similar schemes. The Roman government rescued failing institutions, cancelled personal debts, and spent huge sums on welfare programs. The result wasn’t pretty.

Roman politicians picked winners and losers, generally favouring the politically well connected — a practice that’s central to the welfare state of modern times, too. As numerous writers have noted, these expensive rob-Peter-to-pay-Paul efforts were major factors in bankrupting Roman society. They inevitably led to even more destructive interventions. Rome wasn’t built in a day, as the old saying goes — and it took a while to tear it down as well. Eventually, when the republic faded into an imperial autocracy, the emperors attempted to control the entire economy.

Debt forgiveness in ancient Rome was a contentious issue that was enacted multiple times. One of the earliest Roman populist reformers, the tribune Licinius Stolo, passed a bill that was essentially a moratorium on debt around 367 BC, a time of economic uncertainty. The legislation enabled debtors to subtract the interest paid from the principal owed if the remainder was paid off within a three-year window. By 352 BC, the financial situation in Rome was still bleak, and the state treasury paid many defaulted private debts owed to the unfortunate lenders. It was assumed that the debtors would eventually repay the state, but if you think they did, then you probably think Greece is a good credit risk today.

In 357 BC, the maximum permissible interest rate on loans was roughly 8 percent. Ten years later, this was considered insufficient, so Roman administrators lowered the cap to 4 percent. By 342, the successive reductions apparently failed to mollify the debtors or satisfactorily ease economic tensions, so interest on loans was abolished altogether. To no one’s surprise, creditors began to refuse to loan money. The law banning interest became completely ignored in time.

By 133 BC, the up-and-coming politician Tiberius Gracchus decided that Licinius’s measures were not enough. Tiberius passed a bill granting free tracts of state-owned farmland to the poor. Additionally, the government funded the erection of their new homes and the purchase of their faming tools. It’s been estimated that 75,000 families received free land because of this legislation. This was a government program that provided complimentary land, housing, and even a small business, all likely charged to the taxpayers or plundered from newly conquered nations. However, as soon as it was permissible, many settlers thanklessly sold their farms and returned to the city. Tiberius didn’t live to see these beneficiaries reject Roman generosity, because a group of senators murdered him in 133 BC, but his younger brother Gaius Gracchus took up his populist mantle and furthered his reforms.

Tiberius, incidentally, also passed Rome’s first subsidized food program, which provided discounted grain to many citizens. Initially, Romans dedicated to the ideal of self-reliance were shocked at the concept of mandated welfare, but before long, tens of thousands were receiving subsidized food, and not just the needy. Any Roman citizen who stood in the grain lines was entitled to assistance. One rich consul named Piso, who opposed the grain dole, was spotted waiting for the discounted food. He stated that if his wealth was going to be redistributed, then he intended on getting his share of grain.

By the third century AD, the food program had been amended multiple times. Discounted grain was replaced with entirely free grain, and at its peak, a third of Rome took advantage of the program. It became a hereditary privilege, passed down from parent to child. Other foodstuffs, including olive oil, pork, and salt, were regularly incorporated into the dole. The program ballooned until it was the second-largest expenditure in the imperial budget, behind the military.It failed to serve as a temporary safety net; like many government programs, it became perpetual assistance for a permanent constituency who felt entitled to its benefits.

In 88 BC, Rome was reeling from the Social War, a debilitating conflict with its former allies in the Italian peninsula. One victorious commander was a man named Sulla, who that year became consul (the top political position in the days of the republic) and later ruled as a dictator. To ease the economic catastrophe,Sulla cancelled portions of citizens’ private debt, perhaps up to 10 percent,leaving lenders in a difficult position. He also revived and enforced a maximum interest rate on loans, likely similar to the law of 357 BC. The crisis continually worsened, and to address the situation in 86 BC, a measure was passed that reduced private debts by another 75 percent under the consulships of Cinna and Marius.

Less than two decades after Sulla, Catiline, the infamous populist radical and foe of Cicero, campaigned for the consulship on a platform of total debt forgiveness. Somehow, he was defeated, likely with bankers and Romans who actually repaid their debts opposing his candidacy. His life ended shortly thereafter in a failed coup attempt.

In 60 BC, the rising patrician Julius Caesar was elected consul, and he continued the policies of many of his populist predecessors with a few innovations of his own. Once again, Rome was in the midst of a crisis. In this period, private contractors called tax farmers collected taxes owed to the state. These tax collectors would bid on tax-farming contracts and were permitted to keep any surplus over the contract price as payment. In 59 BC, the tax-farmer industry was on the brink of collapse. Caesar forgave as much as one-third of their debt to the state. The bailout of the tax-farming market must have greatly affected Roman budgets and perhaps even taxpayers, but the catalyst for the relief measure was that Caesar and his crony Crassus had heavily invested in the struggling sector.

In 33 AD, half a century after the collapse of the republic, Emperor Tiberius faced a panic in the banking industry. He responded by providing a massive bailout of interest-free loans to bankers in an attempt to stabilize the market. Over 80 years later, Emperor Hadrian unilaterally forgave 225 million denarii in back taxes for many Romans, fostering resentment among others who had painstakingly paid their tax burdens in full.

Emperor Trajan conquered Dacia (modern Romania) early in the second century AD, flooding state coffers with booty. With this treasure trove, he funded a social program, the alimenta, which competed with private banking institutions by providing low-interest loans to landowners while the interest benefited underprivileged children. Trajan’s successors continued this programme until the devaluation of the denarius, the Roman currency, rendered the alimenta defunct.

By 301 AD, while Emperor Diocletian was restructuring the government, the military, and the economy, he issued the famous Edict of Maximum Prices. Rome had become a totalitarian state that blamed many of its economic woes on supposed greedy profiteers. The edict defined the maximum prices and wages for goods and services. Failure to obey was punishable by death. Again, to no one’s surprise, many vendors refused to sell their goods at the set prices, and within a few years, Romans were ignoring the edict.

Enormous entitlement programs also became the norm in old Rome. At its height, the largest state expenditure was an army of 300,000–600,000 legionaries. The soldiers realized their role and necessity in Roman politics, and consequently their demands increased. They required exorbitant retirement packages in the form of free tracts of farmland or large bonuses of gold equal to more than a decade’s worth of their salary. They also expected enormous and periodic bonuses in order to prevent uprisings.

The Roman experience teaches important lessons. As the 20th-century economist Howard Kershner put it, “When a self-governing people confer upon their government the power to take from some and give to others, the process will not stop until the last bone of the last taxpayer is picked bare.” Putting one’s livelihood in the hands of vote-buying politicians compromises not just one’s personal independence, but the financial integrity of society as well. The welfare state, once begun, is difficult to reverse and never ends well.

Rome fell to invaders in 476 AD, but who the real barbarians were is an open question. The Roman people who supported the welfare state and the politicians who administered it so weakened society that the Western Roman Empire fell like a ripe plum that year. Maybe the real barbarians were those Romans who had effectively committed a slow-motion financial suicide.

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Lawrence W. ("Larry") Reed became president of the Foundation for Economic Education (FEE) in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s.
This post first appeared at FEE’s blog, Anything Peaceful.

The Chinese Crash Is Government's Fault, Not Capitalism's

How do you say “déjà vu all over again” in Chinese?

Guest post by Lawrence Reed

The crash in the Chinese stock market (down 30 percent in three weeks with no end in sight) is bringing forth comparisons to the big U.S. stock crash of 1929, as well it should. In the world of central banks and fiat money, inevitable busts follow unsustainable booms. The closer one watches the “experts” at the helm of monetary policy in any country, the more apparent it is that they are constantly scrambling to undo the calamities of their own handiwork.

Prior to the 2008 global financial meltdown, monetary policy in China was expansionist just like it was in the United States and much of the industrial world. Interest rates were held down while liquidity in the banking system was pumped up. By 2007, it became clear that monetary policy in the United States and most Western countries had lurched in the other direction. The bubble fostered by the prior easy money burst with a bang in the summer and fall of 2008.

But Beijing’s bubble only got bigger because monetary policy shifted into high gear instead of into reverse. The Peoples Bank of China (PBOC) presided over an extraordinary growth in loans, deposits and reserves; a further cut in interest rates; and big hikes in public spending focused on industry, both state-owned and private.

Beijing’s monetary stance finally shifted four years later, as evidenced by the yield on Chinese government bonds between 2012 and 2014: It nearly doubled from about 2.5 percent to 4.5 percent in nominal terms but rose even more dramatically after adjusting for inflation: In the same period, the official consumer price index fell from 4 percent to 2.5 percent.

You can drug an economy for only so long. When the injections dwindle or stop, the withdrawal symptoms take over. Last year, with the economy turning south, Beijing reversed itself again and has been desperately trying to re-inflate ever since, but markets have lost confidence.

Think of 2015 as China’s 2008 — with all those additional years of artificial, easy money-fostered misallocation of resources to atone for. This is why the coming slump in China may make ours of 1929 look like a romp in the park.

So monetary expansion produced a temporary boom, followed by tight money that heralded the now-evolving bust in China. Looks a lot like 1924-1929 in the United States. Here’s an interesting question: Will the next few years in China be like the twelve that followed our 1929 crash?

Parallels and comparisons are difficult to make because the two economies differ in so many ways. Nobody knows for sure what China’s fumbling policy makers will do next. But they cannot escape this reality: If you do stupid things, bad things will follow.

As I explained in my essay “Great Myths of the Great Depression,” the autumn 1929 plunge in the U.S. stock market was followed by a recovery in the winter and spring. By June 1930, half of the market’s losses were erased. Unemployment was still in single digits. It was a series of bipartisan blunders that took a recession and transformed it into a deep and lingering depression.

Most high school and college textbooks repeat the discredited error that the Hoover administration took a “laissez faire” attitude toward the economy from 1929 to 1933. Then Franklin D. Roosevelt rode in on a white horse and saved us.

But Hoover “fought” the crisis by choking off world trade with stifling, sky-high tariffs in June 1930, followed by a doubling of income tax rates in 1932, all while the experts at the Federal Reserve contracted the money supply by a third. Hoover jawboned businesses to keep wage rates high even as prices tumbled. He threw public money at bailout schemes like the Reconstruction Finance Corporation. Things only got worse.

Roosevelt campaigned in 1932 to bring an end to “the greatest taxing and spending administration in history,” promising a 25 percent reduction in the bloated federal budget. Upon election, he did precisely the opposite. Federal spending soared, as did taxes and tax rates.

He used public money to destroy crops and cattle. He attempted to cartelize American industry through price-control codes. My essay cited above, as well as historian Burton Folsom’s book New Deal or Raw Deal, chronicle years of bad, interventionist policy that prolonged the Great Depression by at least seven years.

If China now imitates what this country did in the 1930s, it will compound the problem. If the folks running Beijing are like the FDR braintrusters who cooked up the New Deal, they’ll jack up taxes, choke off trade, regulate the daylights out of what free enterprise there is, blow billions of renminbi on make-work and bailout schemes, destroy lots of rice paddies, and deliver the glorious news to the people via fireside chats on the radio.

So now, you ask, what should China do?

That’s a poor question to ask of someone who believes the best advice for central planners is to quit their jobs and find honest work. We free market economists know how to bake a pretty good cake. John Cowperthwaite did it in Hong Kong, and Ludwig Erhard did it in Germany. The ingredients include sound, market-based money; property rights and the rule of law; free markets and entrepreneurship.

But we’re constantly expected to fix the cake after the statists have added gravel and horse dung to the mix, then turned the temperature in the oven up too high. That’s a much tougher job.

I do know this: If China’s leaders pile more “expert” central planning on top of their already mile-high pile, a busted stock market will be one of the least of their long-term worries.

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Lawrence W. ("Larry") Reed became president of the Foundation for Economic Education (FEE) in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s.
This post first appeared at FEE’s blog, Anything Peaceful.

What Led to the Magna Carta? War and Taxes

Rapacious royalty in the run-up to Runnymede
Guest post by Larry Reed

June 15, 2015, marks 800 years since a fateful day along the River Thames just twenty miles west of central London. It’s a good thing to note such anniversaries. They encourage us to discover things we should have learned or should never have forgotten.

It was on this date in 1215 that powerful nobles famously compelled the English monarch to sign and seal the Magna Carta, Latin for “Great Charter.”

Most people possess at least a vague sense that the event had something to do with human liberty, but it’s doubtful they know that it was provoked primarily by two brothers and two calamities.

The brothers were named Richard and John. The calamities were war and taxes.

It all started on September 3, 1189 — twenty-six years before that day at Runnymede. Richard “the Lionheart” was crowned King of England and spent almost all of the next ten years outside the country, crusading in the Middle East on behalf of an imaginary friend, and then battling in Normandy to hold on to England’s claim against lands in France.

His adventures didn’t come cheap.

In his first year on the throne, Richard imposed the “Saladin Tithe” and other exactions to help pay for his crusading — thus boosting the tax burden by nearly 50 percent. Heavy levies were dumped on land-owners even for permission to marry or to inherit wealth.

Then in 1192 as Richard was on his way home from Jerusalem, he was captured and held for ransom in Germany by the Holy Roman Emperor, Henry VI. The phrase, “a king’s ransom,” likely originates from the price Richard insisted his subjects fork over to free him.

Back in England, Richard’s mother (Eleanor of Aquitaine) collaborated with her allies in government to collect the money.

Dan Jones in his 2014 book, Magna Carta: The Making and Legacy of the Great Charter, writes:

Together, they worked Europe’s diplomatic channels, found hostages and ships when these were demanded by the king’s captors, levied a 25-percent tax on income and movables, requisitioned a whole year’s supply of wool from England’s Cistercian abbeys, and followed up Richard’s personal request for English churches to send ‘the whole of the gold and silver’ that they kept, which he promised to return on his release.

With the ransom paid, Richard returned to England. Within a matter of weeks, he took off for another five years of war in France until his death in 1199 from a battle wound. A Frenchman using a frying pan for a shield had fired a crossbow and hit Richard in the shoulder. Two weeks later, beset with gangrene, Richard departed this earth. Whatever reward awaited him, it wasn’t tax revenue.

The throne then passed to Richard’s brother John. Might we expect that John wisely refrained from the war and taxes that made Richard unpopular with many? No. In fact, you ain’t seen nothin’ yet.

Almost immediately John made Richard seem like Good King . To describe him, Jones employs adjectives like “cruel,” “unpleasant,” “ruthless,” “slippery,” “faithless,” “lecherous,” “wicked,” “petty” and “interfering.”

He cites a contemporary of John’s, the writer Ralph of Coggeshall, who deplored John’s “small-minded viciousness” and his “childish habits of ridiculing his subjects and laughing at their misfortunes.” These were the days before monarchs had PR departments like Hillary’s to soften their rough edges. John even managed to get excommunicated by Pope Innocent III because he couldn’t keep his hands off the Church’s affairs or its money.

John picked up where Richard left off. Like his predecessor, he spent much of his reign making war in an attempt to regain land in France lost to the French. In For Good and Evil: The Impact of Taxes on the Course of Civilization, economic historian Charles Adams quotes an observer who wrote of the king in 1211: “With occasions of his wars he pilleth them with taxes and tallages unto the bare bones.”

When he needed horses or wagons or food for his troops, John often just seized the stuff from private owners. Anticipating Nancy “you have to pass it to find out what’s in it” Pelosi by eight centuries, John would sometimes bully subjects to meet his demands immediately in exchange for the promise that they would find out the terms of the seizure later.

Merchants were mercilessly and arbitrarily targeted for the cash they travelled with from town to town. When he needed a bridge built, he could and did resort to compulsory labour.

Bled dry by two buffoons in a row, the barons and dukes of England, with the support of just about everybody else, mustered the courage in 1215 to tell John where to get off.

Among the provisions of the Magna Carta they forced John to sign at Runnymede were these that stemmed from his (and Richard’s) wars and taxes:

No scutage (a tax paid in lieu of compulsory military service) or other aid is to be levied in our realm, except by the common counsel of our realm.(Clause 12).

The City of London shall have all its ancient liberties and free customs both on land and on water. Furthermore, we wish and grant that all other cities, boroughs, towns and ports shall have all their liberties and free customs.(Clause 13).

Neither town nor man shall be forced to build bridges over rivers, except those who are obliged to do so by custom and right. (Clause 23).

No constable or other royal official shall take corn or other movable goods from any man without immediate payment, unless the seller voluntarily offers postponement of this. (Clause 28).

No sheriff, royal official, or other person shall take horses or carts for transport from any free man without his consent. (Clause 30).

All merchants may enter or leave England unharmed and without fear, and may stay or travel within it, by land or water, for purposes of trade, free from all illegal exactions (“evil tolls” by at least one translation), in accordance with ancient and lawful customs. (Clause 41).

If anyone has been dispossessed of lands, castles, liberties or of his rights, without lawful judgment of his peers, it shall immediately be restored to him.(Clause 52).

Wherefore we wish and firmly command that the English Church shall be free and that men in our kingdom have and hold all such aforesaid liberties, rights and grants, well and in peace, freely and quietly, fully and completely, for themselves and their heirs, in all things and in all places, in perpetuity.(Clause 63).

A pivotal moment in the long blossoming of human liberties had occurred.

It would not be a straight, smooth experience. And God knows that John’s last conflict was hardly “the war to end all wars.” Wars and their attendant taxes, as well as endless encroachments and corruptions of both Kings and Parliaments, would in turn produce endless struggles for the restoration or expansion of liberty in this “sceptered isle.”

Barely a century after Magna Carta, the Scots would find themselves bludgeoned by England’s Edward I and his son Edward II. In 1320 Scottish nobles issued another critical document in the history of liberty, the Declaration of Arbroath.

They asserted, 456 years before the Americans in the Declaration of Independence, that it was the duty of the sovereign to rule by the consent of the governed, and the duty of the governed to get rid of him if he didn’t.

“It is not for honours or glory or wealth that we fight,” they announced, “but for freedom alone, which no good man gives up except with his life.”

Important principles were put in writing at Runnymede that generations have called upon ever since and from many places. They include the notions that the King ought to ask before he takes and that his subjects aren’t mere dirt he can blithely step on when he pleases.

Arguably, in the last century or so, the liberties of the British people have eroded substantially as money, power, and welfare statism have mushroomed in Westminster.

Maybe it’s time for another Magna Carta.

[Pic from Shutterstock]

---

Lawrence W. Reed

Lawrence W. (“Larry”) Reed became president of Foundation for Economic Education (FEE) in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. 
This post first appeared at FEE.

Quote of the morning: It’s easier for demagogues

"It is often sadly remarked that the bad economists present their errors to the public better than the good economists present their truths. It is often complained that demagogues can be more plausible in putting forward economic nonsense from the platform than the honest men who try to show what is wrong with it. But the basic reason for this ought not to be mysterious. The reason is that the demagogues and bad economists are presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group. As far as they go they may often be right. In these cases the answer consists in showing that the proposed policy would also have longer and less desirable effects, or that it could benefit one group only at the expense of all other groups." -- Henry Hazlitt in Economics in One Lesson

[Hat tip Lawrence Reed]

NZ Housing Crisis: Local Government Still Confused

Guest post by Hugh Pavletich

Early 2007, soon after the release of Demographia’s housing affordability survey showing NZ’s housing beccoming increasingly unaffordable, Local Government New Zealand® and the New Zealand Planning Institute® expressed concern about housing affordability, stating:

The New Zealand Planning Institute® strongly supports Demographia’s call for planners, local councils and developers to collaborate more proactively and effectively on the provision of an adequate supply of affordable new residential housing.

Now, some seven-and-a-half years later, 10^th October 2014, Local Government New Zealand®  issues a media release stating … stating …

Local Government New Zealand (LGNZ) says local government, central government and the business sector need to work together with communities to address housing affordability across New Zealand.

The emphasis is mine. The sappy confusion is theirs.

My own assessment: Local Government New Zealand® is still lost and confused.

QUOTE OF THE DAY: On Education

"Credentialing, not education, has become the primary business
of North American universities. … One wonders at the docility
of the students who evidently must be satisfied enough
with the credentials to be uncaring about the lack of education."
- Jane Jacobs, author of The Death and Life of Great American Cities

[Hat tip Lawrence Reed]

Quote of the Day: On the hostility to property and ownership

“The Progressives’ hostility to ownership is neither well-founded nor
consistent. While they have a visceral distaste for private ownership
(and busy themselves taxing, regulating, seizing, and redistributing it),
they have few problems with state ownership. It’s as if men are
devilish with what’s theirs but angelic with what belongs to someone else.”
- Lawrence Reed, ‘To Own or Be Owned: That Is the Question,’
FOUNDATION FOR ECONOMIC EDUCATION

[Hat tip On Liberty Street]

QUOTE OF THE DAY: On opinions…

"The opinions of ten thousand men are of no value if
none of them know anything about the subject."
-- attributed to Marcus Aurelius
[hat tip Lawrence Reed]

How Capitalism Saved Europe From Starvation

When it comes to knowing their history, what most people know about about most of history just isn’t so.  There’s no more what-you-know-isn’t-so about history than what people think they know about the beginnings of modern capitalism and the coming of the industrial revolution…

[A selection from Economic Policy: Thoughts for Today and Tomorrow]
by Ludwig von Mises

Two-hundred years ago, before the advent of capitalism, a man’s social status was fixed from the beginning to the end of his life; he inherited it from his ancestors, and it never changed. If he was born poor, he always remained poor, and if he was born rich-a lord or a duke-he kept his dukedom and the property that went with it for the rest of his life.

As for manufacturing, the primitive processing industries of those days existed almost exclusively for the benefit of the wealthy. Most of the people (ninety percent or more of the European population) worked the land and did not come in contact with the city-oriented processing industries. This rigid system of feudal society prevailed in the most developed areas of Europe for many hundreds of years.

However, as [agricultural production improved and] the rural population expanded, there developed a surplus of people on the land. For this surplus of population without inherited land or estates, there was not enough to do, nor was it possible for them to work in the processing industries; the kings of the cities denied them access. The numbers of these “outcasts” continued to grow, and still no one knew what to do with them. They were, in the full sense of the word, “proletarians,” outcasts whom the government could only put into the workhouse or the poorhouse. In some sections of Europe, especially in the Netherlands and in England, they became so numerous that, by the eighteenth century, they were a real menace to the preservation of the prevailing social system.

Today, in discussing similar conditions in places like India, [China] or other developing countries, we must not forget that, in eighteenth-century England, conditions were much worse. At that time, England had a population of six or seven million people, but of those six or seven million people, more than one million, probably two million, were simply poor outcasts for whom the existing social system made no provision. What to do with these outcasts was one of the great problems of eighteenth-century England.

Another great problem was the lack of raw materials. The British, very seriously, had to ask themselves this question: what are we going to do in the future, when our forests will no longer give us the wood we need for our industries and for heating our houses? For the ruling classes it was a desperate situation. The statesmen did not know what to do, and the ruling gentry were absolutely without any ideas on how to improve conditions.

Out of this serious social situation emerged the beginnings of modern capitalism. There were some persons among those outcasts, among those poor people, who tried to organize others to set up small shops which could produce something. This was an innovation. These innovators did not produce expensive goods suitable only for the upper classes; they produced cheaper products for everyone’s needs. And this was the origin of capitalism as it operates today. It was the beginning of mass production, the fundamental principle of capitalistic industry. Whereas the old processing industries serving the rich people in the cities had existed almost exclusively for the demands of the upper classes, the new capitalist industries began to produce things that could be purchased by the general population. It was mass production to satisfy the needs of the masses.

This is the fundamental principle of capitalism as it exists today in all of those countries in which there is a highly developed system of mass production: Big business, the target of the most fanatic attacks by the so-called leftists, produces almost exclusively to satisfy the wants of the masses. Enterprises producing luxury goods solely for the well-to-do can never attain the magnitude of big businesses. And today, it is the people who work in large factories who are the main consumers of the products made in those factories. This is the fundamental difference between the capitalistic principles of production and the feudalistic principles of the preceding ages.

The development of capitalism consists in everyone’s having the right to serve the customer better and/or more cheaply. And this method, this principle, has, within a comparatively short time, transformed the whole world. It has made possible an unprecedented increase in world population.

In eighteenth-century England, the land could support only six million people at a very low standard of living. Today more than fifty million people enjoy a much higher standard of living than even the rich enjoyed during the eighteenth-century. And today’s standard of living in England would probably be still higher, had not a great deal of the energy of the British been wasted in what were, from various points of view, avoidable political and military “adventures.”

These are the facts about capitalism. Thus, if an Englishman – or, for that matter, any other man in any country of the world – says today to his friends that he is opposed to capitalism, there is a wonderful way to answer him: “You know that the population of this planet is now ten times greater than it was in the ages preceding capitalism; you know that all men today enjoy a higher standard of living than your ancestors did before the age of capitalism. But how do you know that you are the one out of ten who would have lived in the absence of capitalism? The mere fact that you are living today is proof that capitalism has succeeded, whether or not you consider your own life very valuable.”

In spite of all its benefits, capitalism has been furiously attacked and criticized. It is necessary that we understand the origin of this antipathy. It is a fact that the hatred of capitalism originated not with the masses, not among the workers themselves, but among the landed aristocracy – the gentry, the nobility, of England and the European continent. They blamed capitalism for something that was not very pleasant for them: at the beginning of the nineteenth century, the higher wages paid by industry to its workers forced the landed gentry to pay equally higher wages to their agricultural workers. The aristocracy attacked the industries by criticising the standard of living of the masses of the workers.

Of course, from our viewpoint, the workers’ standard of living was extremely low; conditions under early capitalism were absolutely shocking, but not because the newly developed capitalistic industries had harmed the workers. The people hired to work in factories had already been existing at a virtually subhuman level.

The famous old story, repeated hundreds of times, that the factories employed women and children and that these women and children, before they were working in factories, had lived under satisfactory conditions, is one of the greatest falsehoods of history. The mothers who worked in the factories had nothing to cook with; they did not leave their homes and their kitchens to go into the factories, they went into factories because they had no kitchens, and if they had a kitchen they had no food to cook in those kitchens. And the children did not come from comfortable nurseries. They were starving and dying. And all the talk about the so-called unspeakable horror of early capitalism can be refuted by a single statistic: precisely in these years in which British capitalism developed, precisely in the age called the Industrial Revolution in England, in the years from 1760 to 1830, precisely in those years the population of England doubled, which means that hundreds or thousands of children, who would have died in preceding times, survived and grew to become men and women.

There is no doubt that the conditions of the preceding times were very unsatisfactory. It was capitalist business that improved them. [Or as Ayn Rand observed, “Capitalism did not create poverty—it inherited it.”] It was precisely those early factories that provided for the needs of their workers, either directly or indirectly by exporting products and importing food and raw materials from other countries. Again and again, the early historians of capitalism have – on  can hardly use a milder word – falsified history.

This piece is an excerpt from Lecture One in a collection of 1958 lectures by Ludwig Von Mises published as ‘Economic Policy: Thoughts for Today and Tomorrow.’
Ludwig von Mises was the acknowledged leader of the Austrian School of economic thought, a prodigious originator in economic theory, and a prolific author. Mises's writings and lectures encompassed economic theory, history, epistemology, government, and political philosophy. 
His contributions to economic theory include important clarifications on the quantity theory of money, the theory of the trade cycle, the integration of monetary theory with economic theory in general, and a demonstration that socialism must fail because it cannot solve the problem of economic calculation.
He was also the man who walked out of a meeting in which Milton Friedman and his colleagues advocated a progressive income tax declaring “you’re all a bunch of socialists.”
This post first appeared at the Circle Bastiat.

RELATED ARTICLES:

• All hail the Industrial Revolution! – NOT PC, 2006
• The three horsemen of peace – NO TPC, 2010
• The destitution of pre-capitalist Europe - Andrew Bernstein, excerpted from his book, The Capitalist Manifesto
• Misreading the Industrial Revolution - Lawrence Reed
• When did the Industrial Revolution start? - Tyler Cowen
• Was there an Industrial Revolution? - Tyler Cowen
• The population problem that isn't - Sheldon Richman

How to Change the World, or, The Courage to Be Utopian

How do you change society’s ideas? This guest post by Lawrence McQuillan gives you Hayek’s answer.

Writing in 1949 when socialist totalitarianism in the form of Maoist China and the Stalinist Soviet Union was on the march worldwide, Nobel laureate F.A Hayek showed in his book  The Intellectuals and Socialism how ideas gain acceptance in modern society.

More importantly, he demonstrated how opponents of big government can win the battle of ideas themselves.

Over the long run, public intellectuals—Hayek called them “professional second-hand dealers in ideas”—wield an “all-pervasive” influence on public policy and politics by shaping public opinion.

A public intellectual need not be an original thinker, scholar, or expert in a field. He need not possess special knowledge or be particularly intelligent. But a public intellectual can readily talk and write on a wide range of subjects and he becomes acquainted with new ideas sooner than others. They serve as intermediaries in the spread of ideas.

Such intellectuals include journalists, teachers, ministers, lecturers, publicists; radio, television, and online commentators; writers of fiction, cartoonists, artists, actors, and even scientists and doctors who speak outside their fields of expertise. “It is the intellectuals in this sense who decide what views and opinions are to reach us,” Hayek wrote, “which facts are important enough to be told to us, and in what form and from what angle they are to be presented. Whether we shall ever learn of the results of the work of the expert and the original thinker depends mainly on their decision.”

Public intellectuals are the gatekeepers of ideas in modern society, and voters tend to follow them in the long run. It is no exaggeration to say that, once the more active part of the intellectuals has been converted to a set of beliefs, the process by which these become generally accepted is almost automatic and irresistible. . . . It is their convictions and opinions which operate as the sieve through which all new conceptions must pass before they can reach the masses.

True scholars, scientists, and experts find that such intellectuals understand “nothing in particular especially well,” but it is a huge mistake to dismiss them because, “it is their judgment which mainly determines the views on which society will act in the not too distant future.” So intellectuals must be won over, not ignored.

But how?

Since a public intellectual tends not to be an expert on any particular issue, he tends to judge new ideas not by their cogency but “by the readiness with which they fit into his general conceptions, into the picture of the world which he regards as modern or advanced.” In today’s politics and public policy, the “general conception” that guides intellectuals more than any other is that central planning and central control is always better than decentralised, individualized approaches. 

[To the modern intellectual, says Hayek], deliberate control or conscious organization is in social affairs always superior to the results of spontaneous processes which are not directed by a human mind; or that any order based on a plan laid down beforehand must be better than one formed by the balancing of opposing forces.

Yesterday’s public intellectuals have delivered the central planning and central control of today. So how does one change the general preconceptions of today’s intellectuals to stop them further undermining the foundations of a free society tomorrow?

It is not that they are consciously evil, says Hayek. For the most part, it is neither self-interest nor evil intentions that motivates them, but “mostly honest convictions and good intentions which determine the intellectual’s views.” Hayek advised liberty lovers to borrow a page from the playbook of the socialists, and play into those good intentions.

The intellectual, by his whole disposition, is uninterested in technical details or practical difficulties. What appeals to him are the broad visions, the spacious comprehension of the social order as a whole which a planned system promises.

Thus liberty lovers must play into this visionary character. They must have the “courage to indulge in Utopian thought” themselves, and to communicate abroad the results of this Utopian thinking.

Don’t consume yourself entirely with current policy debates, Hayek warned liberty lovers, but dive also into the kinds of long-run speculation that is the both the strength of socialists and its appeal to intellectuals. Classical liberals must be willing to be seen as “impractical” and “unrealistic” by the current political leadership in order to grab the imagination of today’s public intellectuals, who are essential to spreading ideas.

Rather than focus exclusively on piecemeal improvement of current legislation, which are ready to be wiped out by the next political spring-tide, liberty lovers must instead offer grand reconstructions and abstractions that will appeal to the imagination and ingenuity of intellectuals. They must provide a clear picture of future society at which they are aiming, without overstatement or extravagance, but which inspires the imagination of intellectuals.

To change the views of intellectuals, one must demonstrate the limits of government planning and control and why it becomes positively harmful if extended beyond these limits, so harmful that it undermines the very ideals that intellectuals hold dear. The key, he stresses, is to focus on ideals, because ideals arouse the imagination of intellectuals. For example, “relaxation of controls on opportunity” is a political compromise, and best left to politicians. Whereas “freedom of opportunity” is an ideal.  “An important step toward equality” is a political compromise. “Equality under the law” is an ideal.

Stress the ideal in debate today, and the practical reality will follow tomorrow. That was Hayek’s message.

He was realistic about the challenges ahead:

It may be that a free society as we have known it carries in itself the forces of its own destruction, that once freedom has been achieved it is taken for granted and ceases to be valued, and the free growth of ideas which is the essence of a free society will bring about the destruction of the foundations on which it depends.

This is the sort of “inner contradiction” of freedom Marxists would be inclined to rely upon as some sort of “historical necessity.”  We can avoid this ourselves by making the task of building a free society as exciting and fascinating to tomorrow’s public intellectuals as any socialist scheme they might encounter [or even moreso - Ed] by making it an intellectual adventure based on enduring ideals that when put in practice improve real human well-being. This will take time, but there are no shortcuts. Indeed, it is the very method by which we have arrived at the world of today—by a movement that, as Hayek recognised, was itself built top down.

Socialism [wrote Hayek] has never and nowhere been at first a working-class movement. It is a construction of theorists and spread by intellectuals.

It took a long time for intellectuals to persuade the working classes to accept this construction, and lovers of liberty likewise must keep their eyes on the prize while taking the longer view themselves.

If they have the “courage to be Utopian” and boldly follow Hayek’s battle plan, the road to serfdom could well reverse course. Something to ponder on Independence Day.

Lawrence J. McQuillan, PhD, is senior fellow and director of the Center on Entrepreneurial Innovation at The Independent Institute (www.independent.org) in Oakland, California.
This article first appeared at the Mises Daily. It has been lightly edited.

Homicide by welfare

With the murder of young JJ Lawrence in the news, I’ve been hearing it from talkback and around the traps all week. I’ve been hearing that “we” have a problem with family violence; that “we” are killing our kids; that “we,” you and I, are to blame.

Bullshit.

Let me tell you something: We—you and I—are not to blame. I didn’t kill those kids. You didn’t. The only thing “we” have done is pay children to have children they don’t want, then read too late about what those parent-children have done to them.

Because if there’s one common factor in all these murders, it’s the existence of a regular welfare cheque in these households of horror that appear in the headlines with frightening regularity. These scum were paid to breed, and JJ Lawrence, Cezar Taylor, Coral-Ellen Burrows, Lillybing Karaitiana-Matiaha, Delcelia Witika, James Whakaruru, Craig Manukau, Nia Glassie, Saliel Aplin, Olympia Jetson, Chris and Cru Kahui died of it.

These are little people who will never grow old because their parents, or those who called themselves parents, snuffed out their lives before they had barely begun.

You might call it homicide by welfare.  We pay no-hopers to breed, and then we wonder why their progeny have no hope.

Sure, not everybody paid to breed kills their children. Despite the incentives, most taking a welfare cheque do love and care for their kids--and thank goodness for that. But we all react to incentives, and the incentives set up by being paid to breed—which is what the DPB system promotes—are not good ones.

We pay children to have children. We offer money to no-hopers to have children they don’t want.

Why should we be surprised when so many of their unwanted children don’t survive?

We've been following this hopeless pattern now for more than three generations, and we’ve produced at least three generations of losers. The system has produced three generations of losers.

Who's really to blame here for the hopelessness of it all? Answer: those who put the system in place, and those who feed it and maintain it and argue for its continuing existence.

We don't need inquiries or more hand-wringing; the answer is much simpler than that: It's time to stop paying no-hopers to breed. Here's how to do it.

In the meantime, let’s stop taking the blame for these murders.  We didn't kill these children, either by commission or omission.  It wasn't us: it was the incentives offered by a welfare cheque and whole sorry whanau round each of them.  Babies who were paid paid by the system to have babies. 

Think about that when the busybodies are blaming us.

The End May Be Closer Than You Think

Guest post by Douglas French

We hear plenty about fiscal cliffs, the problems in Europe, and out-of-control government budgets every day. But tucked away in our comfortable homes, watching satellite TV and living the dream, these threats to interrupt our good life seem to be only abstractions.

Books about an impending financial collapse are a dime a dozen, and besides, we're already done the collapse thing. Thanks to Ben Bernanke's money geyser, we can all get cash from the corner ATM, and live happily ever after.

Don't bet on it.

The 2008 crash was just the beginning of the end, according to John Mauldin and Jonathan Tepper, authors of the readable, yet sobering Endgame: The End of the Debt Supercycle and How It Changes Everything.

Plenty of financial commentators and prognosticators want to treat this Great Recession as the average garden-variety gully washer. OK, stocks and real estate went down in price, now buy them and watch patiently while they go up. Of course, that boat has been missed in both regards. Stocks have more than doubled and house prices are bouncing.

The authors make the point that the entire world is connected. If you think Greece can collapse without repercussions on this side of the pond, you're wrong. The problem is debt. The Greeks didn't fund their own debt, the European banks did. And when that debt goes bad, so will the European banks. It will be 2008 all over again and then some.

Government debt, corporate debt, personal debt: It's all been piling up for 60 years. This debt must be liquidated. Piling on more debt on top of defaulted debt, recognized or not, will not solve the problem. Central bankers and government bureaucrats haven't figured that out yet, but investors must understand. Their financial lives depend on it. Thankfully, Maudlin and Tepper not only make their case convincingly that more trouble is ahead, but provide advice on what to do to protect yourself.

People make the mistake that the past provides a good indication of what the future will be. Aptly, the authors begin the book with a quotation from Jean Monnet: "People only accept change in necessity and see necessity only in crisis."

This goes especially for politicians, who talk about fixing the debt crisis when we all know nothing will be done until there is a crisis. After all, while they don't always act like it, politicians are human.

It takes a Minsky moment to wake the world up, and there are plenty of those coming. The economist Hyman Minsky did plenty of great work framing the causes and series of events leading up to financial collapses. The overriding Minsky message is that financial stability breeds instability, or as the authors repeat throughout Endgame, "The more things stay the same, the more complacent we get, until Bang!"

What that "bang" will look like is an open question that the authors don't exactly commit to. That's what makes Endgame such interesting reading. Mauldin and Tepper don't try to cram a point of view down the reader's throat. Will we have deflation? Or will it be inflation, or even hyperinflation?

The authors don't pretend to be clairvoyant. They make compelling cases for each possibility. What they believe for sure is that volatility will roil the financial markets going forward. Stocks for the long term -- or anything for the long term, for that matter -- is a prescription for a money-losing disaster.

The bond market will be tested, despite the world's deleveraging. Not even Japan has a homegrown source of bond demand anymore. The day will come again when cash will be dear as countries and corporations compete for funding. This will turn the notion that it is economic strength that forces interest rates on their head. Punk economies will lead to even greater strain on government receipts at the same time more money is needed to service debt.

There are two ways for governments to default: outright repudiation and inflating the debt away with central bank money creation and monetization of the debt. The latter is the modern solution for governments that can print their own currency, such as the United States. Greece doesn't have this luxury. Nor does California.

But how long can the Fed keep buying U.S. Treasuries with impunity? In a Wall Street Journal Op-Ed piece this spring, former Treasury official Lawrence Goodman wrote,

Last year, the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.

The Fed has taken the place of Japan and China as major buyers of Treasury debt, and in time, the results will be catastrophic.

This information comes after the 2011 publication of Endgame, and I can't help but think the author's chapter on the potential for U.S. hyperinflation might be different, given the latest information concerning Bernanke's bond-buying spree.

The authors devote a chapter to Carmen Reinhart and Kenneth Rogoff's book This Time Is Different: Eight Centuries of Financial Folly. In addition to quoting liberally from that book, Reinhart and Rogoff sat down for an illuminating interview. For those who look at the Japan experience and believe America has plenty of time to work itself out its problems, the authors of This Time think differently. Even John Mauldin was shocked and scared by what they have to say.

For the most part, Maudlin and Tepper manage to stay away from debates about what should be done to fix the problem. For example, advocates of the Austrian School of economics (like this writer) say get rid of the Fed, let the banks fail and let the system cleanse itself. The authors don't have time for this sort of ivory tower theorizing. "We find that a boring and almost pointless argument."

After all, "The people in control don't buy Austrian economics," they explain. "It makes for nice polemics, but is never going to be policy."

Well, fair enough. Instead, Mauldin and Tepper use 100 pages to lay out what the end of the debt supercycle will look like in various countries and regions around the world. Unfortunately, in this section, they drift into policy suggestions that require more government, rather than less, and their claim that it was the gold standard that lengthened the Great Depression is just not true. It was instead FDR's massive government intervention that kept the economy from correcting and, in turn, reviving.

While the authors' outlook is grim, in broad strokes, they provide investment advice for both the inflation and deflation scenarios. And ever the optimists (at least they keep telling the reader they are optimistic), they end on a high note, reminding us of the many technologic advances that make our world amazing today and speculating that future advances will be just that much more incredible.

Governments cannot print their way out of this mess. The end may be closer than you think. Read Mauldin and Tepper to get ready.

Douglas French is president of the Ludwig von Mises Institute and author of Early Speculative Bubbles & Increases in the Supply of Money, the first major empirical study of the relationship between early bubbles and the money supply through the lens of Austrian Economics. It is the only book to solve the most famous bubble in history – Tulip mania.