"Economic theory has identified four sources of economic progress"

In January Javier Milei explained to a room of Davos delegates to the WEF forum how the world works, and how economic progress and prosperity happens. This is an excerpt. [Milei's speech was originally in Spanish, and the English version at the WEF website has been transcribed by AI. I have edited slightly it for smoothness and clarity. Emphases mine]

As early as 380 BC, Xenophon pointed out that economics is a form of knowledge that enables men to increase their wealth while arguing that private property is the most beneficial vehicle for the life of individuals.

Xenophon ... [first] highlight[ed] the benefit of private property by stating that the owner's eye fattens his cattle. [Or as the English saying has it: "It's the master's eye that makes the mill go"]... Xenophon then delves into the dynamic realm, noting that efficiency also entails increasing wealth: that is, increasing the available quantity of goods through entrepreneurial creativity, namely through trade, innovation, and recognising opportunity. ...

"[T]he institution of private property deserves a separate chapter. By focussing on it, the Austrian School of Economics from Mises, Hayek, Rothbard, Kirzner and Hoppe to Huerta de Soto has demonstrated the impossibility of socialism, thereby dismantling the illusory idea of John Stuart Mill that postulated independence between production and distribution; a form of academic deafness that led to socialism, and cost the world the lives of 150 million human beings -- while those who managed to survive the terror, did so in absurd poverty.

In line with [those writers'] previous remarks, and consistent with Xenophon's second [point], economic theory has identified four sources of economic progress.

First, there's the division of labour, which was illustrated by Adam Smith through the pin factory example. At its core, this is a mechanism that generates productivity gains, manifested as increasing returns. Although its limit is determined by market size, the size of the market is positively affected by this process. However, it is also worth noting that this virtuous process is not infinite and that its ultimate limit lies in the endowment of initial resources.

Second, there is the accumulation of capital, both physical and human. With regard to physical capital, the interaction between saving and investment is crucial, highlighting the fundamental role of capital markets and of the financial system in carrying out such intermediation. On the human capital side, the focus should not be limited to education alone, but should also include the development of cognitive capacities from birth, as well as nutrition and health, basic elements for gaining access to education and the labour market.

Third, there is technological progress, which consists in being able to produce a greater quantity of goods with the same amount of resources, or to produce the same output using a smaller quantity of inputs.

Finally, there is entrepreneurial spirit, or rather the entrepreneurial function, which, according to Professor Huerta De Soto constitutes the main driver of the economic growth process. Because, although the three factors mentioned are important, without entrepreneurs, there can be no production, and living standards would be extremely precarious.

In fact, the entrepreneurial function is not so much focused on short-term efficiency, but rather on increasing the quality of goods and services, which, in turn, leads to higher standards of living. On this basis, what truly matters is to expand the frontier of production possibilities to the maximum extent possible.

Thus, dynamic efficiency can be understood as an economy's capacity to foster entrepreneurial creativity and coordination.

In turn, the criterion of dynamic efficiency is inseparably linked to the concept of the entrepreneurial function, which is that typically human capacity to perceive profit opportunities that arise in the environment and to act accordingly to take advantage of them. This makes the task of discovering and creating new ends and means fundamental, driving spontaneous coordination to resolve market imbalances.

Moreover, this definition of dynamic efficiency proposed by Huerta de Soto coherently and appropriately combines Schumpeter’s idea of creative destruction with North's concept of adaptive efficiency.

Naturally, given the role of the entrepreneurial function, the institutions under which it develops are of vital importance. In this regard, both Douglass North and Jesús Huerta de Soto consider one of the key functions of institutions to be that of reducing uncertainty.

So, while North presents them as a set of humanly devised constraints that structure social interaction in a repetitive manner, Huerta de Soto considers that these institutions, conceived by human beings, emerge spontaneously from a process of social interaction without being designed by any single individual, and that they reduce uncertainty in the market process.

As Roy Cordato points out, the appropriate institutional framework is one that favours entrepreneurial discovery and coordination. Accordingly, within this framework, economic policy should aim to identify and remove all artificial barriers that hinder the entrepreneurial process and voluntary exchanges.

Given the decisive influence of institutions on economic progress, this directs our attention to the importance of ethics, as societies that adhere to stronger moral values and ethical principles in support of institutions will be dynamically more efficient and will therefore enjoy greater prosperity.

Accordingly, the fundamental ethical problem is a search for the best way to foster entrepreneurial coordination and creation.

Therefore, in the field of social ethics, we conclude that conceiving human beings as creative and coordinating actors entails accepting axiomatically the principle that every human being has the right to appropriate the results of their entrepreneurial creativity.

So the private appropriation of the fruits of what entrepreneurs create and discover is a principle of natural law because if an author were unable to appropriate what they create or discover, their capacity to detect profit opportunities would be blocked, and the incentive to carry out their actions would disappear. Ultimately, the ethical principle just stated is the fundamental ethical foundation of the entire market economy.

So, what we've just demonstrated is that free enterprise capitalism is not only just but also efficient and also that it is the one that maximises growth.

[Full speech here]

RELATED: Here's Per Bylund at the latest Ludwig Von Mises conference explaining that it's entrepreneurs, not politicians, who change the world for the better.

Have Argentine voters truly voted to overturn their destructive economic past, and to rediscover liberty? As these four guest posts point out (including one from Milei's adviser Jesús Huerta de Soto), President-Elect Javier Milei has the credentials, and has offered as much liberty as (it seems) the Argentinian people are willing to accept. Will it be a revolution of liberty? History will only tell....

Have Argentine Voters FINALLY Chosen Liberty? Time Will Tell

Guest post by Octavio Bermudez

A historical event has taken place, not only for the libertarian movement but for the history of the world. The first libertarian president has been elected in none other country than Argentina.

The Argentinian people faced a dichotomy, either continue with the socialist road to serfdom embodied by the ruling Peronist regime or adopt a radical change towards liberty, the leader of said change being Javier Milei, self-proclaimed Rothbardian and anarcho-capitalist. Finally, with more than 55 percent of the votes, Argentinians elected Milei as their new president.

Argentina’s situation is critical and the people know it. 142,7 percent accumulated inflation this year, 40 percent of the population under poverty levels and at least 80 percent of public debt in terms of GDP, just to mention some of the main economic problems. Crime -which is rampant in many parts of the country- is the other main concern of the public that Milei has had to address in his campaign. He has done so mainly through his vice-president Victoria Villarruel, expert on defense and security matters.

Argentinians chose a free market path, a liberty road towards prosperity and justice.

Now, besides the celebration and enthusiasm that such an occasion merits, we libertarians (especially Argentinian libertarians) must draw upon the wisdom of the British economist Alfred Marshall who said that one must stay on our toes to keep our heart warm. Milei has introduced many libertarians’ ideas to Argentinian political discourse but not all of them have been received favorably by the general public or the media. Milei has had to engage in retreatism due to backlash regarding some free market-oriented ideas such as a voucher system for education, eliminating gun regulations, 100 percent bank reserves and privatising both education and the health system.

Milei has offered as much liberty as the Argentinian people are willing to accept. Socialist and collectivist ideals still prevail in major parts of the population, it would be an error to affirm that even half of the electors that choose Milei are full libertarians. Milei’s upcoming administration will be a test, if it succeeds in pushing for a libertarian program, then more people will rally behind the Gadsden flag and Argentina will serve as a beacon of freedom in Latin America.

Even more important is the cultural shift that has taken place due to Milei’s political activism. Books by the Austrian School of Economics and libertarians can be found in any bookstore (before Milei, those works were harder to access, almost clandestine) and liberty friendly universities and programs are now more frequented. Being a classical liberal or a libertarian is no longer a cultural crime in Argentina.

A libertarian hardcore has been formed and continues to grow, they are the vanguard of the movement, convincing lay people to support Milei’s reforms. True enough, many times they may not convince everyone to embrace libertarianism but at least they persuade them not to oppose it. That’s how the libertarian spirit in Argentina can grow.

Milei’s plan is a moderate one if seen through ideal lenses but as I have already pointed out, it is the most libertarian program that could be advanced upon without being ostracised by the public and mainstream media. Compromises were made after the general elections. The Libertarian-Republican alliance was formed to confront the Peronist regime in the ballot boxes, Milei allied himself with his former competitor Patricia Bullrich and former president Mauricio Macri to rally the necessary votes to win in the ballotage against the leftist Peronist candidate Sergio Massa. The alliance succeeded in calling for the votes necessary to win. It was an epic campaign, thousands attended Milei’s rallies crying out “Liberty!” In many parts of the country, shouts of joy and relief were heard when the Peronist candidate recognized his defeat on live TV. I of course joined the people in the cries for victory.

Bearing in mind the compromises made in the alliance to defeat Peronism, the most crucial libertarian proposals such as slashing public spending and taxes, deregulating the economy and labor market, free trade, privatization of public companies (like the oil company “YPF” and the state airline “Aerolineas Argentinas”) and abolition of the central bank are going to be implemented, at least on paper. Milei, although an anarcho-capitalist has had to moderate in order to gain office, once taking the reins of the state we shall see how much of the freedom program he proposes is implemented.

Will it be a revolution of liberty? History will only tell.

The Economics of Javier Milei

Guest post by David Howden

The election of Javier Milei brings the first libertarian/anarchocapitalist world leader in history. Although prolific in the Spanish-speaking world, English speakers know very little of the Argentine´s views. The fact that he heads the Libertarian Party of Argentina certainly hints at what direction his politics run.

Earlier this year, Philipp Bagus and I edited a two-volume book in honour of Jesús Huerta de Soto [see Bagus's and de Soto's post below.]. Milei wrote a chapter entitled “Capitalism, Socialism, and the Neoclassical Trap.” To my knowledge, it is Milei's only writing made directly in English for an English audience.

If anyone doubts Milei´s credentials, the chapter is a scathing critique of neoclassical growth theory. It also offers a full-blown Rothbardian alternative. Mises's work on interventionism and Hayek's knowledge problem form the basis of his analysis.

Milei identifies a crucial rationalistic error in neoclassical economic analysis:

Note that whenever situations arise that do not match the mathematical structure [modelled by the neoclassical analysis], they are considered “market failures,” and that is where the government appears to correct those failures. However, to successfully solve this problem, it is assumed that the government knows the utility function of all individuals (preferences) for the past, the present, the future, the time preference rate and knows the state of the current technology and all future enhancements, along with their respective amortization rates. In short, to solve the problem in question, the government should be able to master a significant amount of information that, by definition, individuals themselves ignore or are not able to handle, which exposes that the idea of the welfare state acting on the market to correct failures is a contradiction.

Furthermore, Milei concludes that:

when it is made clear that the correction of market failures by the government as proposed in the neoclassical paradigm is conceptually invalid, taking into consideration that the only ones who can internalize those effects are individuals, once the artificial separation of decision-making processes is eliminated, there will no longer be any reason for government intervention, which will not only stop the socialist advance but will also allow us to counterattack.

This is not your grandfather´s South American leader who politicises under the influence of neoclassical "Chicago Boy" economists. Milei is a full-blown libertarian. His Libertarian Party won yesterday´s run-off election by carrying nineteen of twenty-two Argentine states and 56% of the popular vote. After decades of socialism, a plurality of Argentine voters must surely be fed up with it.

A Statement on Javier Milei from Spanish Libertarians 

Guest post by Jesús Huerta de Soto and Philipp Bagus

Senior Mises Institute Fellow Jesús Huerta de Soto and Fellow Philipp Bagus write:

In our own name and in the name of the rest of the Spanish libertarians and anarcho-capitalists we want to send Javier Milei our most enthusiastic congratulations. Today is a historic day for liberty only comparable to the fall of the Berlin Wall and communism. For the first time in history an anarcho-capitalist has won the Presidency of a country as important as Argentina. This shows that in the end the ideas of liberty against statism, left or right, end up prevailing. Mises, Hayek, Rothbard and the great thinkers and theoreticians of liberty planted the ideas that Milei have had the enormous merit of making attractive to the broadest layers of the population and, especially, to the most vulnerable who are always the main victims of the manipulations of socialists and interventionists of all stripes. We are now advising him closely especially on the necessity to establish a 100 per cent reserve ratio on his dollarisation process to avoid any new "corralitos." Viva la libertad carajo.

Milei's Long-Term Victory Depends on Him Winning in the Battle of Ideas

Guest post by Ryan McMaken

Last Sunday, Javier Milei was elected president of Argentina by a comfortable margin, with 56 percent of the vote. He will be sworn in as president on December 10.

Over the past year, however, Milei has made a name for himself as an extremely vocal critic of socialism, central banks, and many types of government intervention in general. He has become memorable for fiery commentary condemning the Left's ideology and tactics while expressing an interest in immediate (i.e., not gradualist) change. He has said he seeks to abolish Argentina's central bank and introduce the US dollar as the country's dominant currency.

His fiscal policy is far more in the free-market direction than any other head of state in a country as large as Argentina (with 46 million residents). Milei has expressed admiration for the work of Murray Rothbard, F.A. Hayek, and a variety of economists who are more centrist than Rothbard and Hayek, but which we might reasonably describe as more-or-less free market. Moreover, Milei self-identifies as a supporter of the Austrian School of economics.

If Milei remains committed to reining in (or abolishing) the central bank, lowering taxes, and cutting government spending, Milei has the opportunity to push through real economic reforms that could provide relief to the beleaguered Argentine middle class. These people have suffered greatly under decades of easy-money-induced price inflation, and an ever-growing burden of taxation and regulation.

Many libertarian supporters of Milei (both inside and outside the country) have responded to Milei's candidacy with celebratory enthusiasm. Some have declared him the next Ron Paul, and many others seem to assume that his election will translate into actual implementation of his stated policies. That could happen, but unfortunately, the hard part has only begun.

It is entirely possible that Milei is sincere in his stated goals and in his apparent commitment to radical opposition against the disastrous status quo in Argentina. If so, that is excellent news. After Milei's election comes the real test, however. Assuming that Milei is sincere right now, that doesn't mean he won't later be unwilling to carry out such policies if they prove to be unpopular as his administration unfolds. Given his short history of serving in political office, we have little to suggest a likely outcome one way or another.

Another possibility is that we may find that he lacks the political skill necessary to harness and exploit what free-market sentiment in the country presently exists. He will have to do this to actually push through any of these reforms. What political skills are necessary? Milei must be able to convince a sizeable portion of the voting public that his policies will work or are working. This doesn't necessarily mean a majority have to be enthusiastically with him at all times. But he at least has to be able to use public opinion to pressure the legislature and powerful interest groups. Since Milei will not be a dictator as president, he will be forced to somehow squeeze concessions out of countless socialists and interventionists in government who quite literally hate him and his policies.

This is not just a problem in countries with democratic institutions. Not even dictators can simply enact radical policies at will. As absolutist monarchs and countless military dictators have found in their days, chief executives meet fierce opposition from entrenched interests within the state in all types of regimes—except, perhaps, in fully totalitarian ones. The sorts of reforms Milei wants will hurt many interest groups who have benefited from inflation and high government spending. The productive class may suffer greatly under these policies, but there are also millions of politically active voters who believe they benefit from Peronist-style economic policy. Those who think they stand to lose from reform will resist.

No Victory Is Possible without Progress in the Battle of Ideas

For the sake of argument, however, let's say that Milei is both sincere in his views and is also among the most skilled politician we've seen in decades. Let's say he is skilled at the tricks successful politicians employ to confound adversaries and build coalitions.

Ultimately, not even these skills can bring about the successful implementation of true radical free-market reforms if Milei and his supporters lose the battle of ideas in the meantime. Milei can only succeed if the public agrees that Milei's policies are "worth it." After all, as Milei tries to push through reforms such as tax cuts or limits on monetary inflation, his political opponents will flood the media with explanations of how Milei is hurting ordinary people, destroying the economy, or is somehow "a threat to democracy." Milei's intellectual opponents will trot out economists to explain how high taxes and inflation are actually good. The public will hear from various "experts" about how Milei is wrong, and that the usual socialists and interventionists have it right.

These tactics are especially dangerous in the short term because efforts by Milei to cut spending and rein in price inflation will be sure to cause plenty of short-term pain in the economy. Cuts in government spending and an end to easy monetary policy tend to pop financial bubbles and drive government-dependent industries into decline. Surging unemployment results in the short term as bankruptcies spike. That, of course, is bad news for any elected politician.

Unless the public can be convinced that this pain will lead to better days ahead, the public is likely to abandon Milei and his policies in short order. Then, four years form now, the Peronists will return to power and the status quo will proceed as if nothing ever happened.

The only antidote to this is to relentlessly fight the battle of ideas in academia, in the media, and with the public. Free-market intellectuals, activists, columnists, and speakers must never tire of endlessly recapitulating the truth about freedom, free markets, and peace. So long as a sizeable portion of the public thinks the Peronists "get it right," no free-market reformer can win.

After all, the only reason any people—including Milei—quote Austrian School economists or appreciate the wisdom of free-market classical liberals is because those people learned those ideas from some teacher, publication, or organisation. Without scholars like Rothbard, Hayek, and the others that Milei says he admires, there would be no Milei campaign as we know it. Without organizations like the Mises Institute, it is a safe bet we would not be hearing Milei call for the abolition of a central bank. Without hardcore classical liberals like Mises, Rothbard, Hayek, Molinari, and Bastiat, there would be virtually no one, anywhere, calling for radical cuts to taxes, spending, and state power overall.

Those who wage these battles of ideas provide the foundation for the political movements that build upon the ideas. Yet, these movements can only succeed if the public learns—to at least some extent—why fiat money is bad, why state power is a problem, and why high taxes are disastrous. The public doesn't need to know the technical details behind these arguments, of course, and is probably not interested. But the public must believe on some level that freedom and free markets are good things.

It remains to be seen if the voting public is willing to give Milei a chance to try beyond the very short term. Much of that will depend on whether or not Argentine libertarians have managed to sufficiently preserve or advance some lingering measure of pro-liberty sentiment. If they have not, Milei will fail politically, regardless of his political skills. If that happens, free-market activists and intellectuals will have to simply keep up the fight until the political situation again favours a viable free-market candidate.

The situation is no different for those of us in the rest of the world.

* * * * 

CONTRIBUTORS:

Octavio Bermudez is an Argentinian student and Austro-libertarian interested in Austrian economics, political philosophy, and history.

David Howden is Chair of the Department of Business and Economics, and professor of economics, at Saint Louis University at its Madrid campus.

Jesús Huerta de Soto is a Spanish economist of the Austrian School. He is a professor in the Department of Applied Economics at King Juan Carlos University of Madrid, Spain and a Senior Fellow at the Mises Institute. His website is here.

Philipp Bagus is professor at Universidad Rey Juan Carlos. He is a Fellow of the Mises Institute, an IREF scholar, and the author of numerous books.

Ryan McMaken is an economist and writer living in Colorado where he has taught political science since 2004. He has degrees in economics and political science from the University of Colorado and is an Associated Scholar of the Ludwig von Mises Institute in Auburn, Alabama.

These posts first appeared at the Power & Market blog.

Inflation Isn't What the "Experts" Say It Is. The Confusion in Terms Is Deliberate

“Inflation” isn’t what you think it is, explains Manuel Tacanho in this guest post, and the confusion about it is deliberate: it’s deliberate because those who profit from the real inflation want to keep stealing from you, and don’t want you to notice.

Inflation Isn't What the "Experts" Say It Is. The Confusion in Terms Is Deliberate

Guest post by Manuel Tacanho

Monetary inflation is highly desired by the state. This has been the case thought history and is still the case today. That is because inflation facilitates government spending beyond the revenue it takes through taxation. Government spending gives rulers, politicians, and bureaucrats greater centralised control and commanding power over people's lives (i.e., the economy and society).

Without inflation, the state finds itself shackled within the confines of what it can take via taxes. Therefore, governments will not miss a chance to gain control of the monetary system. Once the state does have control of money, inflation becomes inevitable and institutionalised. This is why, in recorded history, nearly all cases of great inflation and hyperinflationary socioeconomic collapse (e.g., Weimar Germany, Zimbabwe, and more recently Venezuela) have been a result of government (and/or its central bank) deliberate policy.

It is because of the insatiable appetite to spend more than they take through taxes that governments, through political deception and coercion, tend to undermine a sound money system and repress monetary freedom in favour of one that facilitates currency debasement (i.e., money printing). That is to say, a fiat currency regime monopolised by the state and forced on the people by legal tender laws.

As such, from the statist economics standpoint, the definition of inflation had to be distorted and the public miseducated about it —so that the process of currency debasement (i.e., monetary inflation) may go unnoticed and accepted by those whom it hurts the most, the general pupation.

Definition of inflation

The popular and textbook definition of inflation is ‘a generalised rise in the prices of goods and services.’ Commonly measured by the Consumer Price Index (CPI). This definition is not wrong per se but it is inaccurate and grossly misleading. Deliberately so.

The original ‘classical’ (and more accurate) definition of inflation is ‘the artificial increase in the supply of money (and credit).’ By artificial, it is meant that the expansion of the supply of money is not determined by the market (i.e., the people) but rather by the government, usually through a central bank. In the classical (pre-Keynesian) world, this generally meant and artificial increase in the money supply beyond the rate of growth of the gold that backed it.

So, you can see that this one word now describes two different things - indeed, one being the cause of the other! This confusion in terms is not coincidental, it is deliberate. Given the rise of Keynesian economics and the inherently inflationary times in which we, humanity, have lived under for many decades now.

Deliberate distortion

The original definition of inflation has been distorted for two principal reasons. 

First, the government and its monetary agency—the central bank—shield themselves from any future blame for the continuing rise in prices, and the currency’s loss of purchasing power, that inevitably happens as a result of inflationist monetary policy. This enables the government and mass media outlets to divert the blame to something or to someone else. Anyone but the real culprits. Their usual scapegoats (which we’re hearing again being blamed) are “greedy businessmen” or “corporations.”

Second, the official and distorted definition of inflation—a generalised increase in prices of goods and services—conceals the truth, the true source of inflation, thus preventing the public from knowing that inflation and the currency’s loss of purchasing power is a deliberate policy of government/central bank. Not knowing this, the public will not protest against it.

For example, this report claims that most Americans believe “corporate greed, profiteering and price gouging” is the cause of the current inflation crisis in the United States, where price inflation just hit a 40-year record high.

What’s more unsettling is that the same report found that the majority of those polled also believe that the government should step in and resolve the problem. In other words, the public wants the cause of the problem to solve the problem!

Such is the depth of economic misinformation and miseducation we face. Perhaps, if the public knew that since the establishment of the current US central bank in 1913, the U.S. dollar has lost more than 95 percent of its purchasing power relative to gold (the commodity that gave the dollar its initial value, stability, and global acceptability), they wouldn't blame the inflation crisis on “corporate greed”.

Economist and social philosopher Murray Rothbard wrote:

Government is inherently inflationary because it has, over the centuries, acquired control over the monetary system. Having the power to print money (including the "printing" of bank deposits) gives it the power to tap a ready source of revenue. Inflation is a form of taxation, since the government can create new money out of thin air and use it to bid away resources from private individuals, who are barred by heavy penalty from similar "counterfeiting." Inflation therefore makes a pleasant substitute for taxation for the government officials and their favoured groups, and it is a subtle substitute which the general public can easily—and can be encouraged to—overlook.

Put simply, the cause of today’s increasingly inflationary and chaotic monetary situation is not corporate greed, speculators, free-market capitalism, Vladimir Putin, or the weather. It is governments’ monetary agencies and their current fiat-money system.

You see, under the fiat currency regime that they administer, the central bank can easily, artificially, and systematically increase the money supply, almost like a magic trick. And they do, frequently! Which makes inflation (mild or severe) the norm. And this inflationary process gradually destroys the purchasing power of the currency resulting in higher prices. This policy, while benefiting the government and associates, defrauds the people and impoverishes society, economically and morally.

Economist Hans F. Sennholz noted:

It is not money, as is sometimes said, but the depreciation of money—the cruel and crafty destruction of money—that is the root of many evils. For it destroys individual thrift and self-reliance as it gradually erodes personal savings. It benefits debtors at the expense of creditors as it silently transfers wealth and income from the latter to the former. It generates the business cycles, the stop-and-go boom-and-bust movements of business that inflict incalculable harm on millions of people.

Professor Sennholz further noted:

Monetary destruction breeds not only poverty and chaos, but also government tyranny. Few policies are more calculated to destroy the existing basis of a free society than the debauching of its currency. And few tools, if any, are more important to the champion of freedom than a sound monetary system.

Conclusion

A generalised rise in the prices of goods and services is a consequence of inflation, not inflation itself. Inflation was classically (pre-Keynesian economics) defined as an artificial increase in the supply of money and credit.

Nowadays it makes sense to use the term monetary inflation to specify the artificial increase of the money supply, on one hand. And to use price inflation to refer to a generalised rise in prices of goods and services on the other.

Irrespective of the confusion in definition, inflation stealthily distorts and debilitates the economy, steals the people's purchasing power, and impoverishes society - all while benefiting the ruling political and business elites.(Want to know one main cause of contemporary, and ill-gotten, inequality? Here you are!)

History (and common sense too) makes it clear that fiat currency regimes are unsustainable arrangements that always and inevitably fail. As such, there is no reason to believe today’s cruel and oppressive fiat currency regime will defy Natural law to stand the test of time.

Evidence suggests it is more sensible to believe the fiat dollar standard too will crumble. And when it does, we hope economic miseducation and misinformation will crumble along with it.

* * * * *

Manuel Tacanho is founder of Afridom, a sound money based digital banking startup for Europe and Africa. He's also an advocate of free markets and sound money for Africa’s economic development. His post first appeared at the Mises Wire.

“Mercantilism was a system of special subsidy and monopolistic privilege to individuals or groups favoured by the state. Economically, this seems to be a tissue of fallacy..." #QotD

“Mercantilism … was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favoured by the state. Thus, mercantilism held that exports should be encouraged by the government and imports discouraged. Economically, this seems to be a tissue of fallacy; for what is the point of exports if not to purchase imports, and what is the point of piling up monetary bullion if the bullion is not used to purchase goods?”
        ~ Murray Rothbard, from his Economic Controversies.

"The single most disastrous influence of Milton Friedman has been the UBI... More efficient, perhaps, but also far more disastrous, for the only thing that makes our present welfare system even tolerable is precisely its inefficiency." #QotD

"The single most disastrous influence of Milton Friedman has been a legacy from his old Chicagoite egalitarianism: the proposal for a guaranteed annual income to everyone through the income tax system—an idea picked up and intensified [and now known as a 'universal basic income' or UBI].... In this catastrophic scheme, Milton Friedman has once again been guided by his overwhelming desire not to remove the State from our lives, but to make the State more efficient. He looks around at the patchwork mess of local and state welfare systems, and concludes that all would be more efficient if ... everyone were guaranteed a certain income floor. 
    "More efficient, perhaps, but also far more disastrous, for the only thing that makes our present welfare system even tolerable is precisely its inefficiency, precisely the fact that in order to get on the dole one has to push one’s way through an unpleasant and chaotic tangle of welfare bureaucracy. The Friedman scheme would make the dole automatic, and thereby give everyone an automatic claim upon production....
    "The Libertarian approach to the welfare problem ... is to abolish all coercive, public welfare, and to substitute for it private charity based on the principle of encouraging self-help, bolstered also by inculcating the virtues of self-reliance and independence throughout society. 
    "But the Friedman plan, on the contrary, moves in precisely the opposite direction, for it establishes welfare payments as an automatic right, an automatic, coercive claim upon the producers. It thereby removes the stigma effect altogether, disastrously discourages productive work by steep taxation, and by establishing a guaranteed income for not working, which encourages loafing. In addition, by establishing an income floor as a coercive 'right,' it encourages welfare clients to lobby for ever-higher floors, thus continually aggravating the entire problem. But Friedman, caught in the [mainstream] Anglo-American separation of “micro” and “macro” [economics], gives very little attention to these cataclysmic effects on incentives."
         

~ Murray Rothbard, from his 1971 essay 'Milton Friedman Unravelled'
Cited in the post 'Universal Basic Income Makes Welfare More Efficient, Which Is Bad, Dummy'

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Recovery? Must be around the **next** corner [update 7]

Remember that economic recovery you've been told is already under way? 

Turns out it wasn’t around the last corner, and is unlikely to be around the next.

Strong economic recovery is some way off, data suggests:
    “A raft of economic data suggests a strong bounce back from the recession is still some way off.”

Says the report, economists (many of whom were front and centre talking up “recovery” and cheering on government “stimulus”) now admit that “recent consumer spending and unemployment figures have been more disappointing than predicted” – not to mention figures showing production, if they even bother to look at those.

    “A UMR Consumer Confidence Index survey of 1000 people has found nearly two-thirds remain wary about buying new goods.
    “Official figures on electronic card transactions show core retail spending, which excludes fuel and car-related purchases, fell a seasonally adjusted 0.2% to $3.2 billion in February.
    “It is the second consecutive monthly drop.
    “ANZ National Bank has ditched its assessment that the first half of the year will record solid growth and now says it will be early 2011 before the economy fires up.
    “ANZ Chief economist, Cameron Bagrie, says with the unemployment rate still rising and consumers not spending, the economy is clearly still stagnant.”

Good to see economists actually admitting their crystal ball is broken—admitting what everybody in business knows who looks at their own situation instead of the pronouncements of the various economic sooth-sayers.

And Bagrie also admits that this is still an economy "not firing on all cylinders" – and how could it  be ? Recession should be just another word for recovery—that time in the business cycle when  all the malinvestments due to “irrational exuberance” are liquidated and things readjusted back onto an even keel.  But government policy has been focussed on resisting that necessary adjustment process.

Explains Murray Rothbard in America's Great Depression (which you can, and should, read online here in PDF),

    “The ‘boom’ ... [was] actually a period of wasteful misinvestment. It is the time when errors are made, due to bank credit's tampering with the free market. The "crisis" arrives when the consumers come to reestablish their desired proportions. The "depression" is actually the process by which the economy adjusts to the wastes and errors of the boom, and reestablishes efficient service of consumer desires…
    “The adjustment process consists in rapid liquidation of the wasteful investments. Some of these will be abandoned altogether (like the Western ghost towns constructed in the boom of 1816–1818 and deserted during the Panic of 1819); others will be shifted to other uses.”

Resources were misallocated during the boom.  The process of adjustment reallocates resources to more productive uses—that has to happen to have any “strong bounce back,” and it hasn’t.

It hasn’t, because  the  job of adjustment here and overseas has been made much harder by all the government work, all the government subsidies, and all the government "stimulus"—all of which has changed the economy’s price signals and made it harder for the necessary readjustments to take place.

The mainstream economists and government cheerleaders failed to heed the point of Eugen von Beohm-Bawerk, a giant of the Austrian School of economics: 

    "Either we let economic law run its course or we destroy the engine of prosperity. We must defer or we make matters worse by attempting to control society."

They have made things worse.  By trying to avoid economic law running its course, they have ensured that resources have remained misallocated instead of being put to more productive use.  By holding down interest rates to below inflationary levels, they have ensured that capital continues to be consumed instead of being profitably reproduced.  And, tragically, with all their bluster and boosterism, the crystal-ball gazers have ensured that many, many businesses in delicate positions have listened to the talk of existent “green shoots,” and instead of readjusting themselves to the new economic situation, they’ve been borrowing to maintain their unstable positions. 

That can’t last. 

As this blog was saying while all the “stimulus” was being talked up, there is no choice at all about the pain of recession—the only choice is how long the pain is going to take:

    “There is no choice at all about experiencing the pain of retrenchment and slump -- the only choice is whether recovery is allowed to be short and quick (by rapid liquidation of malinvestments) or, like Japan in the nineties, those malinvestments are propped up like corporate 'Weekend at Bernies' survivors that drain the economy for years to come.”

Your governments have made the choice for you. Everything that’s been done has ensured the pain is not going to go away any time soon. 

PS:  Plus ce change . . . here’s a classic cartoon from 1935 showing NZ’s then-Prime Minister Forbes and his Finance Minister Coates …

And remember, New Zealand was one who emerged first from the Great Depression.

UPDATE 1:  Christchurch blog readers should be excited to hear about a new economics study group organised by the local Mises Circle, starting tonight:

WHAT: Discussion and drinks
WHERE: 113D Tancred Street, Linwood.
WHEN: Wednesday 10th March, 7pm.

Discussion will centre around Frederic Bastiat’s article ‘What is Seen and Unseen,’ available on-line here. http://mises.org/resources/2735.

“Come along and learn all about the Broken Window Fallacy,” says organiser Michael Darby.

UPDATE 2: Crikey, even “The Sranded” gets it:

    “The world’s economy has not truly recovered from the recession, it has just been artificially reanimated by vast injections of Government bailout money.”

True!

    “Capitalism has been rescued by good old fashioned Socialist Big Government, and the bill is being sent to we the taxpayers. . . ”

Well, almost.  Capitalism isn’t being rescued, it’s being smothered.

UPDATE 3:  Courtesy of Bernard Hickey:

“A member of the European Central Bank, Jurgen Stark, has warned the global economy faces a ‘Japanese style’ lost decade because of a failure of many to restructure their budget situations.”

About friggin’ time the central bankers started noticing the bleeding obvious.

UPDATE 4: Even CNBC’s talking heads are starting to realise the obvious (around twenty-six months too late): “  Economic Stimulus Was a Waste of Time.”  And Keynes is wrong again.

UPDATE 5: Oh, and on a somewhat related note: 

Govt Debt 'The Most Dangerous Market' Now: Loomis Sayles .

UPDATE 6: In America, they’ve just passed a $15 billion jobs bill. ‘Jobs bill, by the way, is the new definition of stimulus bill,” says Allen Barton at Front Page, talking with Yaron Brook and others about “the recovery that isn’t.”

“It’s supposed to create more jobs, but what’s certain is that the latest big bill comes with another fat tab. With the Democrats obsessed with passing partisan health care legislation, a renewed economy and a reduced deficit hang in the balance.”

 

UPDATE 7:  All that said, there is some good news today from Statistics New Zealand of the sort we should be seeing during a recession.

    “There is some particularly good news on the capital goods front. The prices for capital goods continued to fall – they dropped 8.5% for the quarter, the largest quarterly fall since March 2003. This follows decreases of 7.2% and 5.2% for the previous two quarters.
    “This is partly driven by the high New Zealand dollar, and partly by suppliers overseas dropping prices in the face of the global recession.
    “That is not, in itself, particularly good news. What makes it so is when the volume figures for capital goods imports are looked at.
    “Capital goods imports rose 8.2% for the quarter, and these were the largest single component in the overall rise in import volumes. The main contributor within capital goods was increases of capital machinery and plant, which rose 4.3%.
    “That means New Zealand firms are, firstly, making use of the high New Zealand dollar and the other drivers of lower prices to boost their investment in plant and machinery.
    “That should pay off in higher productively as the economy turns around.”

Gibbs promotes gold standard at the Act Conference [updated]

Interesting to see that in speaking at the Act Conference over the weekend, Alan Gibbs was promoting the reintroduction of a gold standard.

About time.

Outside this sparse report at Kiwiblog few details exist of what was actually said, but I congratulate Mr Gibbs for stating the bleeding obvious. The one-hundred-year experiment with central banks and their fiat money has failed spectacularly. Time to recognise that.

For anybody with eyes to see, the global financial and economic crisis –- more accurately called a monetary crisis --  should be the last straw for anyone who thinks that the government’s paper money leads to anything but instability.

You’ll be aware, for example, of the problems that importers and exporters and travellers have with rapidly changing foreign exchange rates – with the NZ dollar going up and down like a yoyo against other currencies our customers and suppliers trade in.  The problem is created by a truckload of inconvertible paper currencies that are radically incommensurate with each other – a problem that the classical “gold coin” standard solves with what David Hume (who was a better economist than he was a philosopher) called the Price Specie Flow Mechanism, which renders the whole “balance of trade” problem nugatory.

You’re familiar with the vicious cycle that central-bank imposed interest rate increases have on a soaring New Zealand dollar – the state bank pushes up interest rates to “cool down” economic activity (activity that increases imports) which only attracts more hot money chasing the raised rates, pushing up the New Zealand dollar, making imports cheaper, meaning that interest rates are . . . 

The problem is caused by a failed economic model that uses interest rates as a blunt instrument to steer markets where central planners want them to go—but that unintended consequences mean they never succeed in getting there.

You’ll know about the volatility of house prices and interest rates (the former because of the latter); about the blasé way that politicians world-wide have tried to solve their short-run economic problems by loading up the debt burden on future generations; about the loss of purchasing power of every dollar every year.

These problems, and many more, are solved with a gold standard.

Money backed by gold and precious metals has been around since trading first began, and the result has been centuries of stability. As a store of value and a bulwark of “price stability,” the precious metals are unsurpassed.  “A small gold coin weighing approximately four grams—one-eighth of an ounce—and about the size of an American dime, appeared in various times and places as the French livre, Florentine florin, Spanish or Venetian ducat, Portuguese cruzado, dinar of the Muslim world, Byzantine bezant, or late-Roman solidus,” notes William Bernstein in his recent history of world trade. Factoring in increased productivity, all still buy roughly what could have been bought then.  The daily wage of a semi-skilled worker for much of history was equivalent to a coin the same size in silver -- the Muslim dirham, the Greek drachma and the Roman denarius, for example. At current rates, this means the daily wage of a semi-skilled worker of the Roman era could buy around ninety-five dollars worth of goods. Compare this with the same semi-skilled worker of the early 1920s who was paid in paper money – money that is now worth around ninety-five times less than it was then.

But there are many myths about gold and the gold standard. I addressed a few on that Kiwiblog thread:

@ Luc Hansen, you said: ““There is not enough gold in the world to go back to the gold standard . . .”
    Not so. There’s as much gold as you need. As Ludwig Von Mises points out in his book Human Action: “The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do.” [Frank Shostak explains what that means here.]

@TVB, you said, “Gibbs does not seem to understand that international best practice on central banks having their main focus as controlling inflation is the best way to ensure currency stability . . . ”
    But since the rise of the central banks we’ve seen just the opposite. Just to quantify the instability somewhat, since the rise of the central banks, the loss of purchasing power caused by central bank meddling means that every dollar is worth around ninety-five times less than it did a century ago. By contrast, when the gold standard was at its height over the half-century to 1901, the purchasing power of every dollar actually increased. [See for example the two graphs at the foot of this post showing the currency stability of the gold standard period, contrasted with the massive loss of purchasing power since.]

@Banana Llama, you said, “Forgive my ignorance but why would minting gold be any different than governments printing paper to shore up a deficit?”
    The answer is in your own response: Since gold requires some significant labour to extract, smelt and mint, reality itself places a check on the ability of governments to use the destructive expedient of inflation (i.e., printing paper money) to bail themselves out. That a gold standard places a check on government’s ability to run deficits is not a problem of the gold standard, it is its primary virtue.
    So a gold standard provides a check against inflation. Further, since gold (once produced) does not go away, then as long as fractional reserve banking is not contemplated, then there can never be any troubles with deflation either. After all, for that to happen it would mean that all the world’s stocks of one of nature’s basic elements would somehow have to disappear — a physical impossibility.

@ Luc Hansen, you said: ““There is not enough gold in the world to go back to the gold standard . . .”
    Well, there is — as I argue above. And it’s not beyond the wit of man to easily convert back to a stable currency unit based on gold. George Reisman, for one, indicates in this article how the remonetisation of gold can be very easily done: “Our Financial House of Cards and How to Start Replacing It With Solid Gold.”

@Stephen, you asked: “And what of the possible ‘meddling’ of countries like South Africa et al?”
    Well, the quantities involved just can’t match any “meddling” that countries like South Africa could do, even if they wanted to lose money by doing it. They achieve nothing by holding gold off the market. And the quantities involved mean they have no capacity to “dump” huge quantities onto the market.
    World gold stocks are around 4500 million ounces, yet the top four producers, China, USA, South Africa, and Australia produce around only 7-10 million ounces each per year, and total gold production last year was only around 75 million ounces.
    Hard to sway a market when you have so little traction with which to do it.
    A look at the historical record tells you the story. From 1800 to 2000 the world’s gold stock increased from just over 100 million ounces to around 4000 million ounces. But at no time did gold production (as a year-on year percentage) exceed five percent; the yearly increments to the above-ground stock of gold have always small — much smaller than the yearly increments of paper money pumped out by over-zealous central banks.
    Indeed, during the the period 1800-2000 the average year-on-year increase in the gold stock was just two percent. And as just one example among many, the peak years of production (the 1850s, when the Californian gold mines were coming on stream) saw the highest year-on-year increases ever, which was just 4.25 percent. Compare this to, for example, the increase each year of central bank paper, which in New Zealand (even since David Caygill’s’s ‘Reserve Bank Act’) has seen year-on-year increases every year of well over ten percent.
    Says Richard Salsman, “As a result, gold’s real value — what it will purchase in goods and services — is the least variable of any commodity,” and is the reason the late Roy Jastram from Berkeley called this tendency for gold’s real value to be stable as “the golden constant.”
    In fact, from 1550 to 2000 (the years that Jastram measured in his book The Golden Constant) the purchasing power of the pound was virtually stable for all that period, right until the First World War and the abandonment of the Gold Standard, when purchasing power started going through the floor.
    The same story can be told of purchasing power of the US dollar from 1780 to the present, which is virtually stable from 1780 until the introduction of the Federal Reserve Bank in 1913, when once again the purchasing power goes down like a league player at summer training camp.
    So in summary, there is very little ‘meddling’ with gold stocks that countries like South Africa can do, even if they wanted to. Whereas leaving central banks to print paper money positively invites destructive meddling – which has been precisely what we’ve seen over the last century.

UPDATE 1: Graphs of the world’s two once-major currencies tell the story of the failed twentieth-century experiment with paper money.  To use the words of a reader who emailed me, the graphs show the purchasing power of the gold-backed monetary units being stable for several centuries (despite the onset of plague, pestilence and several major wars) before shooting up and going all over the place like a mad dog’s shit once gold standard money is dropped for the money substitute of inconvertible paper.

 

A similar graph can be produced for New Zealand’s short history, which began in the middle of the classical gold standard (which lasted from 1815 to 1913).

So much for the argument that central bank management of paper money brings “stability.”

UPDATE 2:  Murray Rothbard succinctly explains the classical “gold coin” standard, which lasted from 1815 to 1914, in his excellent wee book What Has the Government Done to Our Money.

The Classical Gold Standard, 1815-1914

We can look back upon the "classical" gold standard, the Western world of the nineteenth and early twentieth centuries, as the literal and metaphorical Golden Age. With the exception of the troublesome problem of silver, the world was on a gold standard, which meant that each national currency (the dollar, pound, franc, etc.) was merely a name for a certain definite weight of gold. The "dollar," for example, was defined as 1/20 of a gold ounce, the pound sterling as slightly less than 1/4 of a gold ounce, and so on. This meant that the "exchange rates" between the various national currencies were fixed, not because they were arbitrarily controlled by government, but in the same way that one pound of weight is defined as being equal to sixteen ounces.

The international gold standard meant that the benefits of having one money medium were extended throughout the world. One of the reasons for the growth and prosperity of the United States has been the fact that we have enjoyed one money throughout the large area of the country. We have had a gold or at least a single dollar standard with the entire country, and did not have to suffer the chaos of each city and county issuing its own money which would then fluctuate with respect to the moneys of all the other cities and counties. The nineteenth century saw the benefits of one money throughout the civilized world. One money facilitated freedom of trade, investment, and travel throughout that trading and monetary area, with the consequent growth of specialization and the international division of labor.

It must be emphasized that gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium. Above all, the supply and provision of gold was subject only to market forces, and not to the arbitrary printing press of the government.

The international gold standard provided an automatic market mechanism for checking the inflationary potential of government. It also provide an automatic mechanism for keeping the balance of payments of each country in equilibrium. As the philosopher and economist David Hume pointed out in the mid-eighteenth century, if one nation, say France, inflates its supply of paper francs, its prices rise; the increasing incomes in paper francs stimulates imports from abroad, which are also spurred by the fact that prices of imports are now relatively cheaper than prices at home. At the same time, the higher prices at home discourage exports abroad; the result is a deficit in the balance of payments, which must be paid for by foreign countries cashing in francs for gold. The gold outflow means that France must eventually contract its inflated paper francs in order to prevent a loss of all of its gold. If the inflation has taken the form of bank deposits, then the French banks have to contract their loans and deposits in order to avoid bankruptcy as foreigners call upon the French banks to redeem their deposits in gold. The contraction lowers prices at home, and generates an export surplus, thereby reversing the gold outflow, until the price levels are equalized in France and in other countries as well.

It is true that the interventions of governments previous to the nineteenth century weakened the speed of this market mechanism, and allowed for a business cycle of inflation and recession within this gold standard framework. These interventions were particularly: the governments' monopolizing of the mint, legal tender laws, the creation of paper money, and the development of inflationary banking propelled by each of the governments. But while these interventions slowed the adjustments of the market, these adjustments were still in ultimate control of the situation. So while the classical gold standard of the nineteenth century was not perfect, and allowed for relatively minor booms and busts, it still provided us with by far the best monetary order the world has ever known, an order which worked, which kept business cycles from getting out of hand, and which enabled the development of free international trade, exchange, and investment.

So why did the classical “gold coin” standard collapse?  Answer: it didn’t.

“The gold standard was the world standard of the age of capitalism, increasing welfare, liberty, and democracy, both political and economic. . . All those intent upon sabotaging the evolution toward welfare, peace, freedom, and democracy loathed the gold standard, and not only on account of its economic significance.’
                         - Ludwig Von Mises (Human Action)

“It was not gold that failed; it was the folly of trusting government to keep its promises.  To wage the catastrophic war of Word War I, each government had to inflate its ow supply of paper and bank currency.  So sever was this inflation that it was impossible for the warring nations to keep their pledges, and so they went ‘off the gold standard,’ i.e., declared their bankruptcy. . .”
                        - Murray Rothbard (What Has the Government Done to Our Money.)

“The gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion, policemen, customs guards, penal courts, prisons, in some countries even executioners, had to be put into action in order to destroy the gold standard.”
                         - Ludwig Von Mises (The Theory of Money & Credit)

And to return to gold?

“The return to gold does not depend on the fulfillment of some material condition. It is an ideological problem. It presupposes only one thing: the abandonment of the illusion that increasing the quantity of money creates prosperity.”
                         - Ludwig Von Mises (‘Economic Freedom and Interventionism’)

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The problems with the Mises Institute

Let me take a moment to give you a brief public notice.  Since I regularly recommend that readers head to the Mises Institute for rational writing in economics, I need to also let you know that I have serious reservations about their non-economic writing.

That is to say that when the economists of the Mises Institute write about economics, using the insights of the Austrian tradition of economics, there are few better – as last year’s much-needed Bailout Reader should demonstrate. When the Institute’s economists write outside their field however, they are universally awful. Specifically, they are awful on intellectual property, on foreign policy, on religion, on anarchy, and on how the South will rise again.  (On morning drinking, of course, they’re fundamentally sound.)

And they’re not just awful: their writings on these subjects are in opposition to Ludwig von Mises’s own writings on these subjects – or the first four subjects, anyway.  So as a “Mises Institute” it’s only on economics (and morning drinking) they can be taken seriously on “what Mises would have said.”
Just thought you should know. In my view, for all their heroic work in resuscitating the economic thoughts and writing of Ludwig von Mises and his colleagues in the Austrian tradition, the Mises Institute should more accurately be re-named the Rothbard Institute, with all that implies.

And for those still confused about Mises’s own views on intellectual property (which includes his followers at the Mises Institute), Mises’s translator, editor, and bibliographer Bettina Bien Greaves summarises here. Short story: “Without copyright protection, musicians, authors, and composers are in the position of having to bear all the costs of production while the benefits go to others.”

Spending your way to penury

The governments’ economists are reciting the Keynesian mantra of the “paradox of thrift.”  Saving, they say, causes money to “leak out of the system.”  They’re reciting the mantra that consumption drives the economy.  Consumption, they say, drives more than two-thirds of the overall economy. What the politicians need to do to “rescue” the economy, they say, is to limit private saving and spend, spend, spend!

That’s a command that every politician likes to hear.

So governments are spending. Governments and their economists are exhorting you to spend.  Australian Kevin Rudd is giving Australians shopping subsidies, and he’s insisting that you spend it. The Obamessiah doesn’t trust you to buy up large, so he’s spending nearly a trillion on your behalf

The governments’ economists keep insisting that spending is good, and saving is bad. They’ll tell you that it’s consumption that drives the economy.  But what they’re doing is reversing cause and effect, and even a US$787 billion dollar bar tab can’t change that.  As Amit Ghate points out,

production must ultimately be understood as being for the sake of consumption...  But this of course does not mean that consumption makes production possible, manifestly it’s the other way around

The fact is that consumption spending directs productive expenditure to particular areas of the economy, but it's productive expenditure that drives it.

Here’s a model of the economy*.  See for yourself what drives it:

It sure as hell ain’t consumption.

And to answer the obvious objection: Yes, government spending is always consumption spending.

As Murray Rothbard used to say [hat tip Anti Dismal],

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a "dismal science." But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

* Figure produced by Paul Ekins & Manfred Max-Neef, and pinched from Mark Skousen’s book Structure of Production.)

Book-length baloney from a flat-out fool

NBR editor Nevil Gibson’s list of the “best business books of 2008” includes just two that might help understand the crisis that in future histories will define 2008 –- The Great Crash: How the Stock Market Crash of 1929 Plunged the World into Depression (“a fresh look back at world’s most serious financial crisis – what caused it and what can be learned from it”) and Currency Wars: How Forged Money is the New Weapon of Mass Destruction a “fascinating history of counterfeiting” and how it has been used to destabilise enemies’ economies in time of war -- which pretty much describes the Fed’s role in the current crisis, except that its abuse of the monetary printing presses destroyed in a time of domestic peace the economy it was supposed to be defending.

These two books only make nine and ten on Gibson’s list.  At three, for some reason only Gibson could explain, is a green paean by NY Times neocon Thomas Friedman – an anti-consumerist tract called Hot, Flat and Crowded -- a synthesis of the worst of neo-conservatism and green Gaia worship by a writer the Financial Times labels a “zeitgeist thermometer” (“even Friedman, one of the original cheerleaders for the spread of liberal, western democracy, is having authoritarian day-dreams” says the FT, apparently unaware that the neocon’s support for liberal, western democracy is only a thin veneer over their actual authoritarianism) and who the NY Press calls more colourfully a “porn-stached resident of a positively obscene 11,400 square foot suburban Maryland mega-monstro-mansion and husband to the heir of one of the largest shopping-mall chains in the world, reinventing himself as an oracle of anti-consumerist conservationism.”  In other words, an idiot with an M.O. not dissimilar to Al Gore.

    Many people [says Rolling Stone writer Matt Taibbi in his review in the Press] have rightly seen this new greenish pseudo-progressive tract as an ideological departure from Friedman’s previous works... Approach-and-rhetoric wise, however, it’s the same old Friedman, a tireless social scientist whose research methods mainly include lunching, reading road signs, and watching people board airplanes.
    Like The World is Flat, a book borne of Friedman’s stirring experience of seeing IBM sign in the distance while golfing in Bangalore, Hot,Flat and Crowded is a book whose great insights come when Friedman golfs (on global warming allowing him more winter golf days:“I will still take advantage of it—but I no longer think of it as something I got for free”), looks at Burger King signs (upon seeing a “nightmarish neon blur” of KFC, BK and McDonald’s signs in Texas, he realizes: “We’re on a fool’s errand”), and reads bumper stickers (the “Osama Loves your SUV” sticker he read turns into the thesis of his “Fill ‘er up with Dictators” chapter). This is Friedman’s life: He flies around the world, eats pricey lunches with other rich people and draws conclusions about the future of humanity by looking out his hotel window and counting the Applebee’s signs. 

Christ only knows what Gibson sees in this apologist blather, described by Iain Murray in The American Spectator as

a grand unifying theory for combating existential threats. The left worries about global warming and 14 inches of sea level rise extinguishing modern civilization and the right to choose. Neocons worry about evil Muslims lurking behind the bushes ready to set off one of their millions of dirty bombs in suburban malls… Friedman has a solution to both, which he calls Code Green. In Hot, Flat, and Crowded, he suggests that by the one simple, affordable step of, err, completely re-engineering the way we power America, we will stop global warming, destroy Islamic fundamentalism, and reinvigorate America’s position in the world at a stroke. Oh, and he can completely reform China too. This is, in short, the biggest conflation of wishful thinking, confused priorities, and megalomania that I have ever seen.

Friedman’s brand of Green scaremongering no doubt appeals intensely to the inner authoritarian as well as to the wistful Military-Keynesian*, but I’d thought much better of Gibson.

So by all means take the rest of NBR’s book list seriously (though if you want to understand the causes of the crash of 1929 and everything that was done to deepen the depression thereafter Murray Rothbard’s America’s Great Depression might be a better read than his recommendation) but don’t waste your money on Friedman’s book-length baloney.

He’s just another demonstration of the ongoing demise of American conservatism.

UPDATE: "Zeitgeist thermometer" he may have been, but as the global economy collapses the born-again Gaian zeitgeist might just be moving under Mr Friedman.  Victor Davis Hanson for example says: 

I'm very puzzled by the nexus between the current downturn and concern about global warming. Given that we were told we had to immediately cut back on carbon emissions (even before sustainable alternative energies are in place), largely by curbing our lavish energy-dependent lifestyles, why then all the concern about stimuli and global depression? Surely, the world right now is sort of what the radical Gorists wanted to see, since the current cutback in gasoline usage, and general economic slowdown are radically restricting the burning of fossil fuels in a manner that even the most optimistic green utopian could hardly have envisioned just few years ago? In other words, in the booming 2004-6 years, radical suggested scale-backs would have probably led to something akin to what we are experiencing now? So why the gloom instead of headlines blaring—"The Planet Continues to Green—as Archaic Consumption Practices Erode Further!"

And Tim Blair quotes Kathleen O’Brien asking "Are we done with green?”: 

Now that money is tight, will environmentalism turn out to have been just a passing trend—the political equivalent of the pet rock?

Now that the counterfeiters have inadvertently done to the global economy what the likes of Ralph Nader and Russel Norman wanted the politicians to do on purpose, it'd sure be nice to think so, wouldn't it?