Is it really true that we have too-much state involvement in finance? Do we really have some form of monetary central planning? Does this view not completely underestimate the power of the big private banks?

When one looks at the gigantic positions these private banks have on their balance sheets (and the even bigger positions they have ‘off balance sheet’), and when one looks at the outsized bonuses the bankers pay themselves, and when one furthermore considers that most money-creation is done by the private banks, then it appears as if ‘central planning’ or ‘the power of the bureaucracy’ appear inaccurate descriptions of the present system.

After all, J.P. Morgan just admitted to losing $2 billion and counting on complicated derivative positions. How can that be the fault of central bankers or imaginary monetary ‘central planners’? Isn’t this the opposite of central planning? Is this not capitalism running amok?

Maybe we need more regulation and more control by the state authorities. Is the main threat to our economic well-being really a too-powerful central bank? Isn’t it really a private banking system that is run for the benefit of the bankers rather than the ‘real’ economy and that may collapse as a result of uncontrolled speculation? Our system doesn’t look like grey and boring Soviet-style central planning at all but more like flamboyant capitalism spinning out of control.

And by going back to a gold standard would we not restrict the power of the central bank to save us from the mistakes of the bankers? Bringing back gold and restricting the maneuvering space of central bankers will make things worse.

The way I described the populist view here contains observations and conclusions. I believe the conclusions to be largely incorrect. They may appear intuitively sensible but they do not stand up to closer scrutiny. However, there is no denying that many of the observations that form the basis of this popular view are evidently correct.

There is no logical conflict, however, between these observations and the critique of fiat money as a form of monetary central planning. In fact, all the symptoms that the populist view concerns itself with and that form the basis of the widespread public anger – the apparent detachment of global finance from the real economy, the outsized and uncontrollable derivatives market, the bonus culture and the instant claims of the private banks on unlimited bank reserves and unlimited bailouts – all have their origin in the decision to abandon the gold standard and replace it with unlimited fiat money under state control.

Once this connection has become clear, more of the system’s critics should see that the cure is not more power to the bureaucracy and more regulation and controls but simply a return to hard money and thus a return of a system that is controlled, not by bureaucrats and bankers, but by the consumers of financial services.

The power of the consumer

In capitalism, in a truly free market, the consumer decides what is being produced, how resources are allocated, and who makes profits and who doesn’t. By buying from some and not buying from others the consumer ultimately directs production, economic activity and the use of scarce resources.

Under capitalism the consumer decides how capital is deployed. Our problem is that today we have no capitalism in finance, and the reason for this is quite simply the abandonment of a gold standard and the establishment in its place of a system of unlimited fiat money and of central banking.

What is money?

Gold and silver have been used as money in the form of coins for 2,500 years. ‘Modern’ finance started with the rise of banking, roughly 300 years ago. Banks have never really confined themselves to just taking deposits and making loans but, pretty much from the start, have been in the business of creating money, a business that they invented.

Of course, money proper was still gold or silver, and those could not be created by banks, but banks issued what I will call money derivatives. Think banknotes or bank deposits. As these were not gold or silver they were not money proper but they were usually claims on gold or silver, and they began to circulate in the economy and were used by the public as if they were money proper.

And of course, if all money derivatives in circulation had been fully backed by gold or silver in the banks’ vaults (i.e. by gold and silver that is not presently in circulation) then the supply of what the public uses as money would not have expanded and the banks would not have become money producers.

But as we all know, banks quickly managed to issue money derivatives that were not backed by gold or silver, or at least not fully backed by gold or silver. To the extent that the public accepted uncovered money derivatives as money, the banks had indeed a license to print money, and this allowed the banks to extend more loans and make more profits.

But the operative words in the previous sentence are “to the extent that the public accepted”. The consumer of finance, in particular the depositor, decided to what extent bankers could become money producers. If depositors became uncomfortable with the practices of their banker, they no longer accepted his money derivatives but instead removed their deposits and placed it with somebody else, or simply held physical gold and silver again. The consumer had the power to pull the plug on the bankers.

In defense of bank runs

What was money and what was not money had, with the arrival of deposit banking and fractional-reserve banking, become a somewhat fluid concept. And it has remained such ever since. It has become subject to change.

There is, in the words of Keynesian Paul Krugman, a continuum. But under a gold standard, what was accepted as money was ultimately decided by the public. The license to print money could be revoked by the depositors at any time. That put the banker in a perilous position. Being a money creator was lucrative but it placed the banker at the mercy of a fickle public. There was always the risk of a panic and a bank run.

Now, who would be in favor of bank runs and panics? Are they not a sign of a potentially irrational and panic-prone public that fails to make wise decisions in its own best interest? — That is today the generally accepted view, I guess. But the prospect of bank runs is also without question a drastic form of consumer power, of capitalism’s essential checks and balances.

The risk of a bank run, of the public’s sudden loss of faith in the prudence, reliability and solvency of a banker, is a powerful check on the banker’s risk-taking and overall business strategy. Not surprisingly, prior to the arrival of lender-of-last resort central banks and unlimited fiat money, banking seemed to have attracted a very different type of individual than it does today. Bankers were conservative and extremely concerned with a public appearance of restraint, prudence and the utmost reliability. Because they had to be. No macho-talk about “global business opportunities’” of market share and high “return on equity”.

Power shifts from the depositor to the bureaucrat

Enter the central banks. This is what Milton Friedman and Anna Schwartz had to say in their seminal book A Monetary History of the United States about the founding of the Federal Reserve:

“The Federal Reserve System was created by men whose outlook on the goals of central banking was shaped by their experience of money panics during the national banking era. The basic monetary problem seemed to them to be banking crises produced by or resulting in an attempted shift by the public from deposits to currency (currency meant specie at the time, DS.)”

This “attempted shift by the public” was none other than the sovereign consumer deciding that there were now too many money derivatives around and that he now preferred to hold money proper again, i.e. gold. It was apparently deemed okay for the consumer to shift from currency (gold) to deposits, thereby widening the definition of what was accepted as money and thus allowing the banks to create more of it.

But, so the founders of the Federal Reserve System decreed, it was not acceptable that the consumer would ever narrow the definition of money again and reduce the banks’ ability to place more money derivatives. The state thus entered the scene in order to protect the banks from changing preferences of the public, at least those changes in preferences that were bound to limit money creation and credit expansion.

You may say it was good of the Fed to reduce the risk of bank runs and make banking safe. That is the standard interpretation today. (By the way, the Fed has neither made the economy more stable nor banking safer, as George Selgin demonstrates nicely in this excellent presentation.) However, the good economist does not just look at the immediate and most obvious consequences of policy but also at the long run consequences.

There is no escaping the fact that the establishment of a central bank as a backstop for the banks’ production of money derivatives was the starting point of a process of disenfranchisement of the depositor as ultimate controller and arbiter of what is money, of how much there should be of it, and of what makes good and prudent banks. The power of the depositor — the consumer of banking — was weakened, and the power of the central banker, the bureaucrat, as ultimate judge of what is money and what is good banking was strengthened. The bond between banker and depositor was starting to be replaced with the bond between banker and central banker.

It is clear that the interests of banker and bureaucrat were closely aligned and both pointed toward ever more money production. The banker wanted to conduct the lucrative business of creating and placing money derivatives with the public without the risk of sudden changes in consumer preferences. The state officials wanted to encourage monetary expansion as this was deemed to be good for business and because the state itself was of course an important borrower. It is hardly surprising that with the advent of central banking and later unlimited fiat money, state borrowing began to expand.

The score at this point: Bankers/bureaucrats 1 – Consumers 0

There is no such thing as a free lunch. While that is a famous and very fitting quote of Milton Friedman’s (1912-2006), it is Ludwig von Mises (1881-1972) who the bankers and central bankers of the 1920s and 1930s should have listened to. The money-induced credit boom of the 1920s ended in the crash of 1929, and although the public had accepted more money derivatives during the boom as these now came with a government backstop from the young Federal Reserve (and this had made the extended boom possible in the first place), when the bust started the consumer definitely wanted to hold money proper again, and that was still gold.

Bank runs still ensued and now were much worse than they ever had been in the pre-Fed era, simply because the Fed had by now encouraged the issuance of vastly more money derivatives. Although the country was officially on a gold standard and the banks had promised their depositors repayment in gold as part of their strategy to place their money derivatives with the public, the state decreed that the banks would collectively default on this promise and that they could still continue as going concerns.

The state also decreed that money derivatives were now the new money proper and in order to leave the public no choice whatsoever – and no say in what was money or not -the state confiscated all previous money proper (that is gold) via executive order of the president in 1933. (In the United States of America private ownership of gold remained severely restricted until 1974.)

History is always written by its victors, and the victorious money statists, central bankers and Keynesian economists claim – to this day – that this was all for the better. It ended monetary contraction (true) and ended the Great Depression (not quite true but it probably provided a break). But – oh those long run consequences!

The money consumer had been disenfranchised. What bankers could do and not do, how much money there was in the economy and what interest rates were – none of this was any longer a give and take between profit-seeking bankers and their banking consumers, and thus identical in its dynamics to the relationship between any entrepreneur and his customer, but it was now the outcome of policy. In 1953 the Chamber of Commerce of the United States published a pamphlet entitled The Mystery of Money that roundly stated: “Money is what the government says it is.”

The bankers, by and large, embraced this change. It was better to be in bed with the state than the fickle public. The state had unlimited resources (almost) and could make laws. And most important, the state was interested in constant monetary expansion – a magnificently lucrative proposition for the bankers as money derivative producers.

The score: Bankers/bureaucrats 2 – Consumers 0…

Regards,

Detlev Schlichter

In Defense of Bank Runs was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

What if we had the following economic system?

This system would shower the globe with free goods day and night, asking nothing and giving nearly everything. Most of what it generated would be free goods, and every living person would have access.

Anyone who amassed a private profit would do so only because he or she served others, and the system would require this person to cough up communally owned information: Everyone on the planet would know the reason for anyone’s success.

It would serve all races and classes this way. It would serve the common man slavishly and knock the elites when they become proud and arrogant. It would make it beneficial to everyone to include ever more people in its productive potential and give everyone who wants it a stake in the outcome.

That system has a name. It’s called the free market. This is more obvious in the digital age, but the proliferation of free goods has always been a major feature of capitalism. It’s just that people haven’t really talked about it, though Robert Murphy’s outstanding Lessons for the Young Economist does an excellent job.

In fact, the free market is the most misunderstood idea out there, by its detractors and, just as often, by its proponents as well. As for the characterization of the market as a utopia for profiteers, moguls and scamsters, one doubts that people who think this way have ever really tried to make a buck in a competitive system. It’s hard as heck. The whole process is seriously tilted against private gain at public expense.

Now, I could go on with a theoretical argument here, but sometimes personal examples get the point across better. To be sure, we do not live in a free market now; instead, the world’s largest and most intrusive apparatus of intervention interferes with ours. But there is enough of a market remaining in this world to clue us in to how it works, and sometimes the simplest retail example suffices.

So let me tell you about the barbershop I stumbled into yesterday. The people there cut hair. But they also have pingpong tables, darts, pool and free beer that you can drink at a bar.

I walked in with a friend and stood marveling at the pingpong table and asked: “Can we play?” They said, “Oh, sure.” So we played and played.

Finally, after a while, I asked, “Pardon me, but can I have a haircut?” They were pleased but surprised since they thought I was just another person who wanted to only play pingpong! They were perfectly happy to let me play for free.

The haircut happened; I hung around for a beer, continued to be dazzled by this extraordinary entrepreneurial venture and finally asked if they had a Facebook page. “Of course,” came the answer. I took a picture, posted it on my page, liked their page and, within minutes, people all over the world were talking about this little place. “Salon de barbier avec tables de pool et pingpong, dards et bière gratuite,” said one share in France that swirled around that network.

Now, consider this: Did I do the place a favor? The owners probably think so. It is a new business just starting out. It needs advertising and promotion. On the other hand, look what I did: I immediately alerted every other potential competitor to a great idea to get customers in the door. Now every barbershop in town can “steal” the idea. They can buy a pingpong table, grab a case of beer, put up a dartboard and off they go.

The barbershop would absolutely love to find a way to reach possible customers without also giving away its tricks to its competitors. But you know what? This is not possible. One comes with the other. Information is a free good; once it is released, it can be consumed and used by anyone who runs across it.

What then happens to the competitive advantage enjoyed by the new and struggling place? It is seriously threatened. It faces wicked competition, even from big chains that can implement these suggestions in a few days at very little cost. The thing that made the new place cool and great is now copied by everyone else. If this happens, the new place will face new pressure on its bottom line. It will be forced to innovate again.

To be sure, every other barbershop in town is unclear whether this pool-and-darts thing really is the magic bullet to achieve success. So rather than emulate that strategy right away, others might wait to see how it works for the first adopter. It might flop. Or it might be amazing. If it is amazing, others will adopt the practices, but there’s a problem: The first mover has the advantage. It already has a loyal clientele and a fan base.

Billions of bits of information (free goods!) hit business owners every day that allow them to copy the successes (and failures) of others. Knowing which to implement and which not to is an essential part of the job. It might even be the hardest part of the job.

But here’s the point I’m making: It is not possible to succeed in this market without giving away the “secret recipe” to success. Fortunately, there is no patent or copyright on things like putting a pool table in a barbershop, so the government can’t stop learning from taking place. And this is the way it would be in a pure free market in every industry. To succeed means first to give — giving goods and services to customers (this is the key to profitability) and then giving away the method by which you succeed (or the reason for your failure) to everyone in the world who cares. The very act of doing commercial enterprise — which always tends toward being an open-source undertaking — make your methods an object of study.

The information you give away is the price you pay for the prospect of profits. But those profits are always being threatened by competitors who emulate your successes. This means that you can never rest, you can never be satisfied with the status quo. You must innovate and revamp on an ongoing basis — and you have to do this with an eye to bringing the public what it wants in the most-efficient possible way. This is what gives the market such dynamism, such forward motion, such an innovative spirit.

Chances are that you are reading this article in a venue that is perfectly free to you. Maybe you saw it on a website you did not pay for or saw it linked on a social network that you do not pay to use. These are free goods, the means that capitalists use to entice your interest in what they are doing.

But these free goods are only the start of what the market offers. The most-valuable free good that that market is cranking out by the minute is the ocean of information about success and failure, about what people want and don’t want, about what works and what doesn’t work. This vast reserve of information is being poured out globally and constantly, and it is like a relentless shower of blessings on civilization. Digital networks have increased the blessing by degrees no one ever imagined possible.

The example of the barbershop might not seem like much, but if you understand it — really understand it, and the underlying dynamic it reveals — you understand the thing that has lifted the entire world out of the state of nature into the glorious prosperity that is currently spreading all over the world. This is the market at work — that network of exchange, cooperation, service, innovation, emulation and competition that makes the world tick, all in the service of human well-being. The more market we have, the more progress we will see.

So let’s ask the question: Why is it that so many people think they are against the free market? It must be because they don’t really understand it. I would first suggest Robert Murphy’s book. Then I would invite them to join me for a beer and a game of pingpong and ask what they think made this little slice of heaven possible?

Regards,

Jeffrey Tucker,
Executive editor, Laissez Faire Books

The Market That Really Matters was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Camping doesn’t count as experiencing nature.

The natural world may look wonderful from a distance…or up close when experienced temporarily and with the benefit of modern camping gear…

But nature is in fact brutal and distinctly unpleasant. In “nature” lives are uncomfortable and unsure and notoriously short. Homes are cold, survival at birth relatively uncommon. And survival into adulthood isn’t too much fun either.

The environmentalists understand the achievement of their goals would at first make modern life cost more. Eventually they’d lower standards of living, too, replacing modern life with something closer to paleolithic life.

Of course, only a minority of masochists and ascetics seek poverty and misery. So the environmentalists generally turn to politics to ensure the ends that markets — i.e. human choice — tend not to.

In today’s feature article Jeffrey Tucker finds reason to warm up to environmentalism, however. And as you could expect, that reason has a lot to do with the market’s solution to satisfy the greenies. Read on below…

Whiskey & Gunpowder
by Jeffrey Tucker
March 26, 2012
Auburn, Alabama, U.S.A.

Warming up to Environmentalism

I’m starting to rethink the whole environmental craze in the culture, which is about as inescapable as pop music and jeans. It was born some 50 years ago and it has spread like a cancer ever since.

It’s always annoyed me that its most consistent dogma, pushed without evidence or argument, is that commerce, and all that is associated with commerce except on the smallest possible scale, is always and everywhere destructive to animals, plants, earth, air, water and (when they finally get around to this point) human health. So therefore, we should somehow eschew commerce, by hook or crook, in favor of some variant of asceticism.

This is, obviously, rubbish. Commerce is the heartbeat of civilization, the thing that makes possible prosperity, shelter, clothing, long lives, good lives, health, high and low culture, learning and every manner of fun. Without commerce, we lose all that we love and we are ground down to a primitive state of being, gathering and hunting and fighting for survival against the elements.

Nature on its own is terrifying and deadly — a relentless and mortal threat to all that is good. Looking at the big picture, the only kind of nature we really and truly like is that that has been thoroughly tamed by human hands. We only imagine otherwise because none of us has ever really faced real nature unarmed and unprepared — and those who have don’t live to tell about it.

Not only that, but environmentalist theory serves as the intellectual foundation of some of the greatest threats we actually face. It’s not globing warming; it’s the use of state power to dismantle the commercial society in the name of stopping climate change. Vaclav Klaus’ phrase and book is right: Blue Planet in Green Shackles.

So why am I coming around to environmentalism, despite its obvious absurdities and the threat it represents to the civilized life? Here’s why: Commerce has cracked the code. After years of struggle, the mighty capitalist machine has figured out how to use the environmental cultural ethos to sell its products at a profit. That’s good. Very good!

Let me just provide an obvious example that nearly everyone has experienced by now. When you check into a hotel these days, you will likely be asked if you are willing to participate in the “Green Hotel” initiative (the name varies). What this means is that the hotel will save water, reduce detergent use and otherwise save the planet by failing to wash your towel, provided you hang it back up again, rather than throw it on the floor.

Every patron readily agrees to this obvious cost-saving measure, and solely on grounds that he has done something pious and wonderful for Mother Nature. This is just great because the hotel now saves an average of $6.50 per night, per room, which means more money to invest in other things, pay employees or otherwise expand.

Now, if the hotel had dropped the whole environmental mask, this would never have worked. Imagine if the desk clerk said: “Sir, it would be great for our bottom line, saving this hotel vast sums, if we didn’t have to wash your towels or change your sheets. Would you agree to reduced service so that we can enjoy a higher probability to operate in the black?”

What would people say? Most people would see it as an obvious rip-off and complain. No one wants less service! But wrap the same thing in the holy cloak of green consciousness and everything changes. Now the hotel is able to call on the noble sentiments of the customer and elicit from him some sacrifice for the common.

This is nothing short of ingenious. Capitalism is so smart that it has conquered even the ultimate anti-capitalist ideology and managed to market it at a profit. Wonderful.

Of course, this has also happened in food. It is actually difficult these days to find anything to eat that isn’t pushed on us as organic, healthy, smart, socially conscious, fair-trade, earth-friendly and so on. For a long time, I tried my best to avoid such products in the same way I would try to avoid any appliance stamped “Energy Star.”

Finally I realized that most of this was hokum. Most these companies have taken the same old product and recharacterized it. That’s great. That’s what business is good at. It’s called marketing. It can take any shape. It wouldn’t matter if a large swath of the population suddenly converted to Rastafarianism, you would see this change reflected in the way products are marketed.

It’s this way with nearly everything you consume. Add the words organic or green-friendly to just about anything and you give it a new spin. This applies to just about anything in the physical world from mattresses to shoes to suitcases. Nothing escapes this designation.

As I say, I used to resist. Now I realize that there is not much point. Capitalism has captured this market and civilized it, and thereby robbed environmentalism of its teeth (except and insofar as it is embodied in politics).

You might say that this proves the sheer cynicism of the market economy. On the contrary. It underscores the obsessive, focused dedication of the market system to serving society in every conceivable way. It’s proof that most people have misunderstood the market. People tend to think that the market is about pushing things on us; on the contrary, it is relentlessly and desperately extracting information from us and searching for ways to meet our needs, whatever they are.

Now, you might say that this whole system is a fraud. These products aren’t really organic, not really healthy and green, not really taking us back to nature. It’s just the old stuff in new guise. All of that might be true enough, but in what sense is this contrary to consumer wishes?

We don’t really want to go back to nature. We don’t really want to eat food that is half-devoured by bugs or carries diseases or sleep on sheets that are scratchy and rough or wear shoes that are nothing more than slabs of animal skin. We want everything modern life gives us, but we want to believe that we are somehow not causing harm to anyone or anything in the course of our consumption.

I would suggest that capitalism is doing for us exactly what people want it to do. Authentic environmentalism would mean the end of life as we know it. The faux-environmental aesthetic that has been captured and domesticated by the market exactly matches what our culture really wants. The more difficult task lies ahead: defanging the politics of the environmental movement in the same way.

Regards,

Jeffrey Tucker
Executive editor, Laissez Faire Books

A Parting Shot:

“There’s no way the free market can take on something as big as GLOBAL WARMING,” says the politically-minded environmentalist who thinks coercion is a fine way to order human affairs.

“This time we definitely have you,” he continues, “Forget about juries, police and fire protection, roads and other infrastructure that you free market extremist guys are always claiming the free market could handle. The free market cannot prevent the earth from warming up.”

Probably not. And who’s to say politicians should prevent the earth from warming up either?

Who’s to say that the climate has only been the exact right temperature for the past couple of centuries? What about the previous glacial periods? Sure some species adapted to arctic conditions would lose out in a warming climet, but how many other species would benefit? And doesn’t this constant cycle of winning and losing the evolutionary game happen all the time as conditions on the earth — including climate — naturally change?

It amazes us that climate change is seen only as ruinous. If you mention that there could be more fertile land to feed more people, the environmentalist shut you up and imagine a world underwater (like in Kevin Costner’s laughable, career-destroying Waterworld) or a world completely frozen or a fetid swamp in which disease would run rampant.

They can’t agree on just how a changing climate would ruin the world. They just know that it would be all bad.

You get the impression that these politicians and environmentalists would have been crying “the sky is falling” if they were around 600 million years ago as the Cryogenian Period ended and the glaciers retreated. Or lamented the development of the first proto-mammal into its various descendants.

Maybe…just maybe…a warmer biosphere would not be the Seventh Level of Hell as the greenies fear. Maybe a warmer earth would be an improvement over a colder earth the same way a modernized 1938 Tudor mansion is an improvement over a drafty cave or single-room mud hut.

There are many like us, suspicious of all the state’s motives, but who either deny the climate is changing or who deny man’s role in it.

We do nothing of the sort. Further, we think mankind is doing life a service by warming things up (Go ahead and give yourselves a round of applause)!

Perhaps all of our descendants will prove incontrovertibly that mankind’s activities did indeed cause the biosphere’s temperature to increase. If so, they’ll thank us for it.

They will probably even develop other technologies to keep the climate on the warmer side since fossil fuels will likely no longer be the primary energy source… if they are used at all…

Fact is, fossil fuels take far longer to replenish (hundreds of millions of years) than they do to deplete. More sustainable and efficient sources of energy will have to become the norm. This means nuclear and geothermal, not wind or solar.

In the meantime oil, coal and natural gas will continue to reign…

(We imagine that if political types survive in the future, they’ll be blaming “the free market” for developing cleaner, more efficient technologies that are resulting in the dreaded Global Cooling.)

At the heart of the environmental movement are two very perverse motives. One is a hatred of humanity that casts all of man’s actions — especially those that lead to his increasing comfort and increasing numbers — as inherently destructive to the rest of the biosphere.

The other motive is the desire for control. A danger like climate change is posited as so big that only centralized regulation of every technology and nearly every commercial transaction is required to prevent catastrophe.

And haven’t you noticed how the climate paranoids have subtly changed their language over the last five years? They used to warn about “global warming”; now they say the real threat is “climate change,” which permits them far more wiggle room. No way can their predictions be wrong this time: one thing we know for sure is that that the climate will change!

We don’t think is by accident. No matter what the climate does — according to this kind of thinking — it’s the fault of man’s uncontrolled pursuit of improving his lot over the violent, brutish and short one that nature handed to him.

What’s funny to us is how the most vociferous environmentalists tend to live lives as comfortable as as any of us. Most of them (as far we know) aren’t living like Medieval farmers, Stone Age Canaanites or even modern Bantu Bushmen.

The greenies drive cars. Even if they eschew cars for bikes and trains, they will gleefully board airplanes to travel longer distances.

They turn up the heat in winter and crank the A/C in summer. They use light bulbs and laptops.

They try to make the rest of us feel guilty. But all of us — greenie, environmentally guilt-ridden and guilt free alike — keep living our comfortable modern lives. Our consciences eased by labels that say “organic” or “free trade”. Or by recycling a few cans and wearing a sweater with the heat turned on not quite so high.

But don’t fear. And don’t feel guilty. That’s our advice. The market is ever seeking ways to make everything profitable by satisfying human desires. Companies do exist to turn garbage back into things of natural beauty (Take a look at Penn & Teller’s episode of “Bullsh!t” that shows the what landfills end up looking like)… or into some useful thing. Meanwhile price automatically rations scarceness of resources, forcing economy when necessary…and driving new technologies and methods.

Don’t worry about living your modern life in comfort. And don’t be afraid to build your personal wealth by investing in commodities that make

We personally don’t worry that too much about the politicians and the environmentalists driving us all back into a Stone Age populated by a few million (over whom the politicians would lord like feudal chiefs). The forces of liberty and the markets are too strong, as is the desire for a better life than nature handed our pre-industrial ancestors.

Regards,

Gary Gibson

Managing editor, Whiskey & Gunpowder

Warming Up To Environmentalism was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Bah! I can’t even imagine a more inaccurate description of real life. In fact, the opposite is true. The marketplace encourages community-mindedness like no other institution. It prods and pokes and corrects, the rich especially, all with the purpose of inspiring decision makers to leave the self and the individual ego aside and think mainly about the needs of others.

By way of illustration, let me jump right in from a scene from the grocery store this morning. For more than a year, my favorite fruit juice was displayed right as you walked in the front door. There they were lined up. Early-morning shoppers could grab a juice and check out in minutes. It made it all very convenient.

I recall thinking, “Wow, what a science it is to know where to display stuff in a store!” One might expect that these juices would be with the produce, but no. Their inventory signals tell them about the existence of people like me who want to get in and get out in a hurry. Juice is what we want, and we want it fast. Good business!

But this morning, a change rocked my world. I went to my spot at the front of the store, and there was no juice. There were hats, scarves and a wine display, of all things. I was stunned. I called over the friendly store manager and asked him what gives. He politely pointed out to me that two weeks ago, the juice had been moved to the produce section. Stunned, I slogged all the way over there — it was like 100 yards away — and then back again.

Slightly burned, I confronted the guy again.

“Surely, you are losing sales. People want this juice when they first walk in. No one wants to walk to the other side of the store for one item!”

He laughed and pointed out that he had thought this, too. But then last week, a memo arrived from inventory management at the central office. Their tests had revealed that the fruit juices sell more when they are with the fruit. Taking a chance, but not really being a believer, he bundled them all up and moved them, completely changing the front-of-the-store display.

“And how is this working out?”

To my amazement, he had the data for me off the top of his head. It turns out that in the two weeks since he made the move, sales of the precise juice I bought were up by 160%! I was completely wrong. Good thing I’m not in charge around here. I’m only one guy among thousands. My behavior, which I had thought was what “everyone did,” turns out to be eccentric.

Not only that, but the manager was completely wrong, too. His intuition and his ego had been checked by the actual sales data. The profit-and-loss accounting system dictated another result.

Now, to be sure, the manager did not have the final answer. This new system for juice display could change again next week. Maybe there is somewhere else in the store that the juice could generate even more sales. Or perhaps last year, the juice at the front model was the best possible way.

There is actually no way to know, no way to perform perfectly controlled experiments that yield final results. The marketplace is not a laboratory with unchanging variables and elements that behave in predictable ways. The marketplace is made up of human beings who have the crazy habit of making choices and changing their minds for no apparent reason.

This means that the successful business enterprise must be constantly on alert to the decisions that people make. No detail is too small. Moreover, the business must change the way it operates in the face of the evidence of what yields the most profit.

The business that is led by egomaniacs who are always right about everything, implementing a rigid formula that can’t adapt to new influence, is absolutely doomed in a competitive world in which your competition is always free to copy your past successes.

Profits are always tending downward in absence of innovation. There must be new successes all the time, and these depend completely on the ability to bury the past, suppress the perception of managerial infallibility and adapt to seemingly random change.

What applies to the juice bottle applies to every single item in the entire grocery store.

Let’s say you are in charge, but you have no experience. You have to put the maraschino cherries somewhere. Play the game, please: Do they go with baking supplies (fruitcakes!), canned fruits (it is a canned fruit) or with cocktail mixers (they are great in drinks)? Which is it? It can’t be all three. That would create a terrible inventory problem, and shelf space is too scarce. You have to choose.

It’s a serious problem. Your chosen way may or may not be right. You have to try things out, look at the evidence, be prepared to change your mind. You must defer to the buying public. You must be community-minded. You have to be willing to admit error. Must be humble, open to correction. The unleashed ego has absolutely no place here.

(My store went with cocktail mixers.)

Again, this applies to every product in the store. Not only that, but this applies to every good and every service offered in the world economy, all untold billions of them. It’s not just about store display. It is about the whole of the production process: what to make, how much to make, how to make them, where to sell them, what features they should have, how they should be sold. There is a mind-boggling array of alternatives.

As you try to parse out this conundrum, you are free to be a jerk, to be an egomaniac, to be unteachable, to be uncorrectable. No one is stopping you. But you pay the price. You are in business to make money, and the only way to do that consistently over the long term is to be slavishly devoted to the needs of others over the rightness of your own position.

This is why I say that the market instills humility and service as an ethic. After all, you might be in this only to make a buck. But experience tells you that that only way to do that is to defer to and seek out the needs of others. The profits are a reward, but you dare not rest on your laurels. The service can’t ever end. After a while, this sensibility begins to shape the human character. You develop an outward gaze and leave aside the childish demand to always get your way.

This is what is forgotten in all the frenzied concern about how websites are collecting data on our shopping and browsing habits. Why are they doing this? Because they want to invade our privacy? No, it is because they care about us. They want to serve us better. They care for the same reason that the grocery store cares to put the most-demanded items at eye level. In a pure market economy, they are there to meet our needs. To be sure, to existence of the surveillance state changes the situation substantially, since these companies are easily browbeaten to cough up data for political purposes.

No, we don’t always get our way. But rather than a society in which know-it-alls rule with a fixed model, I would prefer to live in a society with a service ethic that drives economic life, one in which there are no final answers, one in which every decision is subjected to a test and that test is graded by the people and their everyday choices. In other words, a free economy is better than a controlled economy precisely because the free society curbs the human ego and keeps the infallibility complex at bay.

Regards,

Jeffrey Tucker

Who Moved My Juice Bottle? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

And what is the evidence of this failure? It is everywhere. Household income continues to fall all over the developed world. Unemployment is persistent, and to the extent that it is being fixed, it is by dramatic reductions in living standards, one paycheck at a time. Debt is egregious. Young people face terrible prospects. Complaints about inequality resonate in this environment not because the financial sector has bred such paper wealth, but because life is such a struggle for everyone else.

All of this begs the question: What exactly is this “system”? Our times are constantly being compared with the Great Depression, and plenty of people are hoping for an analogous ideological shift toward ever more state control of economic life. J.M. Keynes urged the destruction of the gold standard and the “end of laissez-faire.” Strongmen all over the world complied.

But back then, it was easier to bamboozle the public into believing that capitalism was the source of the problem and that the new scientific managers of the state machinery would restore prosperity. The Jazz Age was surely a time of free markets, was it not? Not entirely — there was the important matter of Prohibition as well as the central bank and its capacity to blow bubbles, such as the one that burst in 1929. That message did not stick, because only a handful of people truly understood, and they didn’t have the microphone. So the strongmen had a field day.

But today? The state machinery is the lumbering leviathan that leaves no part of life untouched. It taxes and regulates all things and uses the central bank as its unlimited credit card to pass out welfare to all classes and maintain a worldwide empire rooted in military violence and executive privilege. It takes chutzpah to claim that this has anything to do with a capitalist crisis. This is a crisis of a system of state-based social and economic management

This might explain why the socialist left has yet to gain much traction in the post-2008 environment. Does any living soul doubt the role of the government and its friends in generating the housing and financial bubble? It has been demonstrated 10,000 times, and this information is available to one and all in a world of digital information delivery. We are no longer hunkered down by the radio, waiting on a homily from the high priest in Washington. This guy no longer controls what we are allowed to read and think.

Writing as part of the series, former Clinton Treasury Secretary Lawrence Summers points out that a recent survey demonstrated that “among the U.S. population as a whole, 50% had a positive opinion of capitalism while 40% did not.” I’m not sure what the take-away from that survey really is, however, because it presumes a shared understanding of what “capitalism” really is. Is it a system of privileged protection for the financial elite at the expense of everyone else or it is a synonym for the free economy? These are two very different things.

What is especially striking about Summers’ article is his admission that Keynesian-style solutions seem pointless in this environment. He writes that, concerning the crisis, “there is no obvious solution at hand.” He further points out that some of the largest existing social anxieties are focused on three sectors in particular: education, health care and old-age provision. All three are run or lorded over by the state. He concludes with an honest admission: “It is not so much the most-capitalist parts of the contemporary economy but the least…that are in most need of reinvention.”

Another contribution to the series comes from Gideon Rachman. He presents a fascinating typology of the four ideological divides of our time. He says that public and intellectual opinion can be divided as follows: 1) right-wing populist, 2) social democrat, 3) Hayekian libertarian and 4) anti-capitalist socialist. This sounds right to me.

The right-wing populist camp (alive in the U.S. and Europe) is the warmongering contingent that opposes immigration, wants war on Islam, favors restrictions on civil liberties, obsesses over demographics, clamors for its own kind of income distribution and longs for a strongman to arrive to impose some kind of order. This penchant has a long history in politics, probably dating to the ancient world.

The social-democratic tendency is found in the Obama constituency, and it wants more of the same that got us into this mess: Keynesian fiscal management, union privileges, an ever-larger public sector, piecemeal planning and regulation, central bank-backed stimulus, democracy-spreading imperialism or some random combination of this list. This is the party in power here, there and nearly everywhere.

The anti-capitalist/socialist element is obvious enough. It consists of a strange coalition of intellectuals and down-and-out young people leading the Occupy movement, together with media idiots always looking for a splashy and simple story to tell. It is a ridiculously simple-minded view of the world that all would be well if we could just take the income from the tiny group at the top and spread it around the population. To them, the market-based social order is little more than a scam to rob and loot the iPhone-carrying workers and peasants and benefit the financial elites.

What’s most interesting is the emergence of what Rachman calls the Hayekian-libertarian tendency, represented most conspicuously by Ron Paul but actually encompassing a global intellectual and popular movement that sees through the fog of propaganda. Here we find total coherence: both realistic explanations of our current plight and clear answers for what to do about it.

Of the four groups, this is the only group that sees the importance of the issue of monetary reform. Keynes saw back in the 1930s that the most-important step to modifying the market system in favor of state management was the destruction of the gold standard. He hated it and dedicated himself to convincing all governments to give it up in favor of paper money. Without this step, there was no hope for Keynesian policies.

In a similar way, the libertarians recognize that the most-important step toward restoring economic vitality and a free market is to repair the quality of money. The gold standard would be wonderful but unlikely, since its reinstitution requires enlightened statesman and bankers who do the right thing. A more-viable path toward the restoration of sound money is through total monetary freedom: Let the market reinvent sound money in our time through the free use of any and all monetary instruments.

What’s critical is that the libertarians have put the money issue on the map. We are living under a form of monetary prohibitionism today, forbidden to use any means of payment other than that maintained by the state. And it is not unlike the alcohol prohibition of old. It redistributes wealth, steers gains to the unscrupulous, strengthens the state and promotes various forms of criminality.

In introducing this series, John Plender writes, “F. Scott Fitzgerald chronicled the moral vacuity of Jazz Age capitalism in The Great Gatsby.” Nonsense. Fitzgerald nowhere slams capitalism in his great novel. Jay Gatsby made his fortune as a bootlegger, a profession that would not have existed in absence of state Prohibition.

Our own age is filled with Gatsbys, people who have done well for themselves by manipulating a failed system. It is the system that must change, not the right to do well.

Regards,

Jeffrey Tucker

Capitalism or Money in Crisis? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Both Marx and Mises agree that what we call the middle class was a new creation in the history of the world, and it was brought about by capitalism. The caste chasms that once persisted between the peasants and the lords, those privileged by title and land grants and those fated to serve them, were melted away by the advent of commercial society. Universal possession of property and money replaced servitude and barter, and exchange relationships of people’s own choosing gradually replaced the required lifetime associations of birth and happenstance. The distinguishing mark of this new middle class was the prospect of social advance through rising prosperity. Fluid classes replaced fixed castes.

This was the world that serves as the backdrop to the tales of the Brothers Grimm.

A great example of this is the very short story called “The Elves and the Shoemaker.” A cobbler and his wife worked very hard at their craft, making shoes all day. But leather was expensive, and no matter how hard they worked, they could not put their business in the black. They were selling some shoes, but they couldn’t make enough fast enough. They were getting poorer, rather than richer.

One night, the shoemaker left his cut leather out on a table and went to bed. The next morning, a fantastic pair of shoes made out of that leather awaited him. The craftsmanship was impeccable. They were of the finest style. He was able to charge a very high price to a customer who was very impressed by them. This same series of events repeated themselves again the next day and the next. Some months later, the shoemaker and his wife were financially secure and part of the rising middle class. All their financial worries were gone, and they were comfortable and happy.

At this point, the shoemaker said to his wife: “I should like to sit up and watch tonight, that we may see who it is that comes and does my work for me.” The wife agreed, and they stayed up to watch what was happening in the night.

Now, to be sure, this turn of events strikes me as rather strange. One might think that curiosity would have caused them to examine this long before. Why didn’t they stay up after the second or third time that leather had become shoes? Why did they wait so long to investigate the cause of their prosperity?

In any case, they did stay up and look, and they found two naked elves there working away, turning scraps of leather into fine shoes. The wife thoughtfully decided to return the favor and make them tiny little clothes. When the elves found the clothes, they put them on and ran away with great delight. They never returned, but the story assures us that this was just fine because the shoe business stayed in the black. The shoemaker and his wife lived a long and prosperous life.

We can see in this one story an archetype of what was then a new type of middle-class success story in the framework of a commercial society. The couple went from poverty to wealth in relatively short order. This came about not because of favors from the king or the discovery of gold, much less from stealing or piracy, but purely by virtue of work and commerce, combined with the assistance of some benefactors in the night whose favors they never sought, but nonetheless came to deeply appreciate.

Apply this story in our times: We are all in the position of poor shoemakers with benefactors. In a state of nature, we would be struggling for survival as most all of humanity did from the beginning of recorded history until the late Middle Ages, when the first lights of capitalism as we know it began to appear on the horizon. Over the next several hundred years, and especially during the 19th century, life itself was transformed. The state of nature was vanquished, and the world completely re-made in the service of human well-being.

As William Bernstein summarizes the situation: “Beginning about A.D. 100, there had been improvement in human well-being, but it was so slow and unreliable that it was not noticeable during the average person’s 25-year life span. Then, not long after 1820, prosperity began flowing in an ever-increasing torrent; with each successive generation, the life of the son became observably more comfortable, informed and predictable than that of the father.”

We were born into a world of amazing prosperity that our generation did not create. We have the expectation of living to old age, but this is completely new in the sweep of history, an expectation we can only have had since about 1950. The shift in population reflects that dramatic change, too. There were most probably 250 million people alive 2,000 years ago, and it took until 1800 for the 1 billion mark to be reached. One hundred and twenty years later, that was doubled. Three billion people lived on the planet by 1960, and there are 7 billion today. Charting this out, you gain a picture of a world of stagnation and stasis from the beginning of recorded history until the Industrial Revolution, when life as we know it today was first experienced by humankind.

If we are shoemakers in this story, the prosperous world in which we live — the world that grants us smartphones, health care, gasoline to power our cars and the ability to communicate in real-time video with any living soul on the planet with the click of a button — might be regarded as the elves that came in the night to turn our leather into a marketable product. Most of us never did anything of our own merit to cause us to benefit from this amazing world. At our birth, we woke up in the morning and found a finished and beautiful pair of shoes given unto us.

Earlier, I said that it strikes me as strange that the shoemaker and his wife waited so long to become curious about who or what was nocturnally turning their leather into shoes. How could they have gone for months without wanting to know what was causing their poverty to turn to riches? How could they have treated the magic in their shop as something helpful but rather normal, and only decided to look into the cause as an afterthought?

Yet this is how most everyone behaves in the world today. We are surrounded by bounty in this man-made world, a world completely unlike anything that has existed in 99.9% of the rest of the history of the world. And how very few bother to investigate the causes! We take it all for granted.

We use our technology, eat foods from all over the world available for sale a few blocks from our home, hop on planes that sweep us through the air to any destination on the planet, instantly communicate with anyone anywhere and have the expectation of living to the age of 80 and beyond, yet we are remarkably indifferent and incurious about what forces operate within this world to have turned the cruel state of nature into an earthy paradise.

Actually, the situation is worse than that. Many are openly hostile to the institutions and ideas that have given rise to our age of plenty. We’ve all seen the protests on television in which mobs of iPhone-carrying young people are raising their fists in anger against commercial society, capitalism and capital accumulation and demand just the type of controls, expropriation and regimentation that are guaranteed to drive us back in time to the restoration of castes, poverty and shortened lives. They are plotting to kill the elves.

In the fairy tale, there are only two elves. In the real world, scholars have discerned that there are actually six, and they go by the following names…

First, there is private property, without which there can be no control of the world around us. It would not be necessary if there were a superabundance of all things, but the reality of scarcity means that exclusive ownership is the first condition that permits us to improve the world. Collective ownership is a meaningless phrase as it pertains to scarce resources.

Second, there is exchange. So long as it is voluntary, all exchange takes place with the expectation of mutual benefit. Exchange is a step beyond gift giving because the lives of both parties are made better off by the acquisition of something new. Exchange is what makes possible the formation of exchange ratios and, in a money economy, the development of the balance sheet for calculation profit and loss. The is the foundation of economic rationality.

Third, there is the division of labor that permits us all to benefit from cooperating with one another toward mutual enrichment. This is about more than dividing up productive tasks. It is about integrating everyone into the great project of building civilization. Even the master of all talents and skills can benefit by cooperating with the least skilled among us. The discovery of this reality is the beginning of true enlightenment. It means the replacement of war with trade and the replacement of exploitation with cooperation.

Fourth, there is risk-taking entrepreneurship that bravely pulls back the veil of uncertainty that hides the future from us and takes a step into the future to bring us every manner of material progress. Uncertainty over the future is a reality that binds all of humanity; entrepreneurs are those who do not fear this condition, but rather see this as an opportunity for improving the lives of others at a profit.

Fifth, there is capital accumulation, the amassing of goods that are produced not for consumption, but for the production of other goods. Capital is what makes possible what F.A. Hayek calls the “extended order,” that intertemporal machinery that stabilizes the events of life over time. Capital is what makes planning possible. It makes the hiring of large workforces possible. It allows investors to plan for and build a bright future.

The sixth elf is not an institution, but a state of mind. It is the desire for a better life and the belief that it can happen if we take the right steps. It is the belief in the possibility of progress. If we lose this, we lose everything. Even if all the other conditions are in place, without the intellectual and spiritual commitment to climb higher and higher out of the state of nature, we will slip further and further into the abyss. This state of mind is the essence of what came to define the Western mind, and which has now spread to the entire world.

Together, these elves constitute a team with a name, and that name is capitalism. If you don’t like that name, you can call it something else: the free market, free enterprise, the free society, liberalism or you can make up your own. What matters is not the team name but the constituent parts that make up that team.

The study of economics is much like the decision of the shoemaking couple that stayed up overnight to find out the cause of their good fortune. They discovered these elves and found that they had no clothes. They decided to make clothes for them as a reward for their service. So too should we clothe the institutions that made our world beautiful in order to protect them against the elements and their enemies. And even after they scurry off into the night, we must never lose consciousness of what they have done for us.

Regards,

Jeffrey Tucker

The Elves of Capitalism was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

For this reason, the news that American Airlines has filed for bankruptcy — an actual large company that is finally throwing in the towel — comes like a blast from the past of the way things used to work (remember the failure of Lehman?). The tide receded, and nothing could stop it.

Not that the company didn’t try. But its capacity to adapt to new realities was hindered by its own hectoring unions, rising fuel prices, mounting debt and a blizzard of mandates and restrictions imposed by federal regulators. Whatever the reason, the company could no longer deny reality, as much its stockholders, managers and even paid-for politicians would like it to be otherwise.

The blessed power of economic law! It operates without anyone pulling levers. It imposes itself, even against the determined will of the world’s princes and potentates. It is what keeps the world honest and truthful about what is and is not possible. It keeps the material world on track, so that fallible people cannot do stupid things forever. It’s no wonder the political class hates it.

As goes American Airlines, so goes the whole of Europe. A credit crunch not unlike what the U.S. faced in 2008 is now threatening the Continent. Banks are looking at their own portfolios of toxic government debt, and they are concerned about their own liquidity going forward. They have begun calling in loans and cutting credit lines, even from big players. This is starting to send the first signs of panic through the land. Given the U.S. precedent here, all stemming from the housing crisis, the problems can only get worse.

Think back to those days of 2008, when the reality began to surface, housing prices went into tailspin and Lehman fell. We had not seen a financial hysteria, on this level, in our lifetimes. The political class, the banking class and the financial pundit class all seemed to agree that if we let the credit crunch continue, the next step could be mass starvation.

Just look at the boats filled with goods that can’t even leave harbor because of cut credit lines! Look at Iceland, with its empty grocery-store shelves! Imagine a future in which people might have to actually save money to buy things, rather than relying on the fictitious prosperity as created by the fiat-money machine!

We could have gone one of two directions. We could have recognized that the failure of Lehman represented a reassertion of reality. We could have let the deleveraging continue, so that the signs of false prosperity could be washed from the system. We could have let housing prices fall to their market level, and let the same market have its way with banks and financial institutions that had built their houses on the sand of bad debt, rather than the hard rock of real savings.

But that is not what we did. The addiction to credit had been permitted to permeate too deeply, and hardly anyone could even imagine a world in detox. One in prosperity was rebuilt on real things and not illusions. So while even President Obama admitted the sheer size and scale of the financial bubble, no one in power had the guts to sit back and let the deleveraging take its toll. Had we done that, say many economists, we would already be back on the road to building a reality-based civilization.

Instead, what did we see? Many trillions in real resources were sucked out of the the private economy and dumped onto companies that should have but did not enter bankruptcy. Interest rates were driven down to zero and negative levels, a move designed to inspire borrowing but which only ended up punishing savings and guaranteeing that banks could no longer make a profit from its lending operations. (The grim details are all reported here.)

Three years later, what good did it do? The latest news on housing is rather devastating. Prices are still falling. Year-to-year unadjusted September prices declined 3.3% for the 10 major markets. The 20-city index dropped 3.6%, to levels not seen since 2003. Some commentators tried to find a silver lining, noting that the pace of falling prices has actually slowed.

Let’s just admit something: This is one of the most gigantic failures of Keynesian-style economic policy in human history. The central planners started with the theory that the whole mess was caused by falling housing prices, so clearly the fix was to bring them back up again. They pulled out every contraption in the grab bag of tricks but nothing worked. And why? It turns out that prices are determined by agreement between buyer and seller. The planners have a lot of power but not yet the ability to tap into our brains and force us to do stupid things like buy and sell at a loss.

Every new report on housing prices is like a stern rebuke to the Fed, the Treasury Department, to Congress and to two successive presidential administrations. There is nothing wrong with protesting their policies and lobbying against them, but in the end, nothing speaks as loudly and plainly to their failure than the dazzling and bracing forces of the price system and the balance sheet. This is where we find the undisputed speaker of truth in a world of lies.

If they had to do it again, would the establishment react differently? Probably not, because in the end, it really isn’t about creating or protecting the conditions of prosperity for the rest of us. It is about protecting their own power and the profits of their friends. We will soon see the whole scenario repeated against throughout Europe: hysteria followed by folly followed by failure.

This is why the bankruptcy of American is really an occasion to celebrate, not because a once-great company was taken down by stultifying regulations, union demands or poor management; rather, it is a victory for the forces of supply and demand, which, contrary to the claims of dictators from time immemorial, are the best friends that the common man ever had. It’s proof that the politicians only pretend to rule the world.

Regards,

Jeffrey Tucker

Deleverage the World was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Let’s just start with the obvious thing: the food. It is, of course, wonderful and full of varied textures: crunchy shells, robust meat, cold and fresh lettuce, stringy cheese, and all the fatty stuff that we love because it both satisfies and gives us energy. It arrives quickly, and its ready to eat, mostly with your hands, which is really how we all want to eat.

The menu itself is an absolute blast. Should we get a dozen tacos, mix in a few steak burritos, throw in an enchirito or two, or just fill up on nachos? And what’s the deal with these prices? For $2 I can get just about any standard menu item. For $10 I can walk away with a case full for great stuff to share, or, better yet, munch on from breakfast through to the midnight snack.

But there’s more going on than just fun food. The company obviously puts a great deal of thought into the ethos of the restaurants themselves. The decor gives us things to look at that we don’t see anywhere else. The colors are all those we associate with the Southwest, but not in a conventional way. The shapes are geometric and modern, with a daring flare that delights the eye and fires up the imagination.

The details around the place add to the sense of adventure, but you don’t take note of them individually unless you are looking closely. The backs of the chairs all have a bell shape cut out in the steel. The lighting is not mainly in the ceiling but rather comes from orange hanging glass lamps in the shape of cones, and I was trying to think where I had seen this before. Is it like the knave of a chapel in a monastery in a Spanish mission territory? Maybe that’s it. I’m unsure but it conjures up something different.

Hold on here. Perhaps you have already realized this and I’m slow on the take, but the whole Taco Bell experience is suggestive of that Spanish mission sensibility. That’s why the buildings are shaped the way they are. And, obviously, that’s the whole meaning behind the bell, and why it adorns the front entrance of the place. It’s a church bell! It taps into something deep and lasting in our cultural sensibilities, something that shaped our ancestors and their communities, and presents it all anew in our times.

Have you seen the paintings on the wall? They are very peculiar and aggressive in their use of color and shape, kind of like the iconography of Latin America. Most seem to have some walking man or robot, abstractly designed but with sharp edges, and the words “Taco” and “Bell” appear somewhere on them. They are unframed, such as you might see in a gallery. I want to meet the person who put these together. He or she has talent, for sure, and I want to congratulate this person for using that talent in the service of the public good.

Next time you are there, take a close look at the gorgeous photography of the dishes themselves. There’s never been a prettier taco, never been a burrito that looks more exciting, much less a plate of nachos that seems as if every chip is practically dancing with joy at the prospect of being eaten.

Each image features a splashy use of color, depth, and action. How do you make food look this way? It’s must be a rare skill. I could take pictures of tacos with my iPhone all day and never get one to look presentable by comparison.

Now, the usual response is to point out that the food doesn’t actually look this way once it arrives on your plate. No kidding! But does anyone really care? Not really. The point of the images is to get you in the mood to eat the thing, rev you up into the spirit of the moment, create that deep sense of longing for the real deal.

You don’t feel a bit of disappointment when the food doesn’t look like the picture, and why? Because you can’t eat a picture. And the food is right there in front of you ready to be eaten. Part of Taco Bell’s secret must be that it makes its images so ridiculously unrealistic that you sound like an idiot to point it out.

This restaurant came into existence in 1946 and really caught its stride in the 1990s. It’s another reason we are all fortunate to live in our times, right now.

Go ahead and dismiss that statement as hyperbole if you want to. But I seriously submit to you if you had dropped this restaurant on any spot on the planet before about 1940, to say nothing of 1200 or 1000BC, all the people would have been in profound awe and regarded it as a sector of heaven that had somehow dropped from the sky. There weren’t enough travelers and traders alive to make it possible much less affordable.

This is the free market at work. It has gathered corn, flour, beans, tomatoes, meat, and fresh lettuce from all the ends of the earth, combined it with advanced kitchen technology, added experienced management, brilliant entrepreneurship, and a service ethic to give us something more wonderful than that the teller of tales of yesteryear could have ever dreamed up in his wildest imaginings.

It’s inconceivable to me that a small group of parasitic activists could have targeted this place for destruction. But that’s what they did a few year’s ago with the lawsuit against Taco Bell. They claimed that Taco Bell was not serving 100% beef in its tacos. Of course the organized left rallied around this lawsuit, a fact which confuses me because you would think that they would be glad that the company doesn’t serve 100% beef. They hate the cow for its demand for vast pasture land on which to graze and even its biological functioning which alleges adds to the “problem” of climate change.

The whole hysteria was like a joke. Of course Taco Bell adds stuff to its beef to make the final product. So do you when you make tacos at home. At least I hope so. You drain the fat and add spices and flour and other things to turn it into the right texture for eating. I don’t see the big deal. But the activists were so desperate to destroy this place that they acted like this company, which is all about service, was somehow guilty of mass fraud.

The news media jumped on the campaign in hopes of giving Taco Bell a bad name. The response by the company was brilliant. It added a whole new series of menu items not based on hamburger but on sliced up steak. These are the most expensive items on the menu. So now you go in with the intention of spending $3 and instead spend $7 or more! Good for Taco Bell.

Even better, after the dopes withdrew their silly lawsuit, Taco Bell launched a nationwide advertising campaign with the slogan: “Would it kill you to say you’re sorry?”

Fantastic!

The genius of capitalism is that it always ends up outwitting its opponents, whether they are central planners and regulators or crazed activists armed with lawsuits. But capitalism is not just an anonymous, nameless, faceless force operating in the universe. It is flesh, blood, and brains dedicated to serving humanity at a profit and always through voluntary means. The owners and workers at every one of its 5,800 restaurants deserve our admiration and thanks.

Regards,

Jeffrey Tucker

How We Adore Taco Bell was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The television monitors are inescapable these days. We’re not sure when it happened, but there’s hardly a corner of the waiting area to hide from them. At the airports, they’re all tuned to the same station. We believe it’s called the Talking Head Channel (THC). We can’t be sure. It’s been years since we’ve owned a television, and we haven’t kept up on the offerings.

What caught our attention, however, was footage of Peter Schiff among the Occupy Wall Street protesters. He was holding a microphone and a sign that said, “I’m the 1%. Let’s talk.”

And talk they did. There was a lot of shouting from the people on the street about “paying fair shares.” Mr. Schiff held up admirably, making his case for the entrepreneur.

After that, we were treated to a debate between Schiff and Dr. Cornel West, moderated (sort of) by Anderson Cooper. The folks at The Daily Bell summed it up nicely:

“Libertarian financial tycoon Peter Schiff has done the free market yet another service by blasting socialist/communist Princeton professor Cornel West virtually into the stratosphere with a brief debate moderated by CNN’s Anderson Cooper on his ’360′ program.

“Dr. West, a leading light of the progressive movement — someone who has worked for the most prestigious universities in the world — proved on-air that he didn’t know the first thing about economic history and that his much-vaunted beliefs (endlessly quoted by the media) are based not on faulty analysis, but simply on ignorance.

“This cannot be denied. It is on video for anyone to see. One example is West’s astoundingly ignorant claim that 1930s depression in America was, basically, the result of the 1920s rampant capitalist speculation and greed.

“Schiff immediately attempts to rectify Dr. West’s misunderstanding by informing him that the 1929 stock market crash was caused by the newly formed Federal Reserve’s expansion of the money supply in the 1920s. He doesn’t bother to tell West that this expansion was, in fact, both stealthy and criminal, and that FDR ended up shutting down the banks in the 1930s to ensure that people didn’t try to exchange their phony, overprinted dollars for the Fed’s nonexistent gold.

“West denies it, of course. He, apparently, musters the most cogent argument he can; it goes something like this: ‘No, no, no…Brother Peter. No, no, no…’

“West’s ignorance is breathtaking and further evidence that the Internet Reformation is beginning to penetrate the last bastion of the Anglosphere power elite’s defenses — its brainwashed progressive allies who call for yet more government, more regulations, more taxes, without knowing even the rudimentary elements of real economics, let alone economic history.”

It also sounded very familiar, like the debates I’d had with my own father (who wore an Afro for two decades and resembled Dr. West, to boot)…and one that we carry on here at the Whiskey Bar.

Mr. Schiff, of course, championed free-market capitalism. Dr. West went on about necessary government protections and the failure of a completely free market. Bank accounts, for example.

To this, Schiff replied that legislation like Glass-Steagall was only “necessary” after the government got into the business of guaranteeing bank accounts. After FDIC insurance, banks were free to take more risks with the money on deposit. One extra-market protection led to distortions that required yet another extra-market fix.

Every nonmarket action — every application of political force or coercion — has a knockoff effect somewhere down the line. Often, it’s the opposite of the intended consequence.

A guarantee not provided by market mechanisms tends to create a moral hazard. Just as government-funded welfare, government-funded money for unwed mothers and their children and unemployment benefits, actually, all create more poverty, fatherless households and people willing to stay out of work longer. This is why we often accuse government of propagating the problems it purports to solve.

We don’t dare compare ourselves to the impressive Mr. Schiff, but today, we stand like a pygmy against our own intellectual, market-blaming giant…

In a recent article, Nouriel Roubini writes:

“The result is that free markets don’t generate enough final demand. In the U.S., for example, slashing labor costs has sharply reduced the share of labor income in GDP. With credit exhausted, the effects on aggregate demand of decades of redistribution of income and wealth — – from labor to capital, from wages to profits, from poor to rich and from households to corporate firms — – have become severe, owing to the lower marginal propensity of firms/capital owners/rich households to spend.

“The problem is not new. Karl Marx oversold socialism, but he was right in claiming that globalization, unfettered financial capitalism and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct. As he argued, unregulated capitalism can lead to regular bouts of overcapacity, underconsumption and the recurrence of destructive financial crises, fueled by credit bubbles and asset-price booms and busts.

“Even before the Great Depression, Europe’s enlightened ‘bourgeois’ classes recognized that, to avoid revolution, workers’ rights needed to be protected, wage and labor conditions improved and a welfare state created to redistribute wealth and finance public goods — education, health care and a social safety net. The push toward a modern welfare state accelerated after the Great Depression, when the state took on the responsibility for macroeconomic stabilization — a role that required the maintenance of a large middle class, by widening the provision of public goods through progressive taxation of incomes and wealth and fostering economic opportunity for all.

“Thus, the rise of the social-welfare state was a response (often of market-oriented liberal democracies) to the threat of popular revolutions, socialism and communism as the frequency and severity of economic and financial crises increased. Three decades of relative social and economic stability then ensued, from the late 1940s until the mid-1970s, a period when inequality fell sharply and median incomes grew rapidly.

“Some of the lessons about the need for prudential regulation of the financial system were lost in the Reagan-Thatcher era, when the appetite for massive deregulation was created, in part, by the flaws in Europe’s social-welfare model. Those flaws were reflected in yawning fiscal deficits, regulatory overkill and a lack of economic dynamism that led to sclerotic growth then and the eurozone’s sovereign debt crisis now.

“But the laissez-faire Anglo-Saxon model has also now failed miserably. To stabilize market-oriented economies requires a return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of unregulated markets and the continental European model of deficit-driven welfare states. Even an alternative ‘Asian’ growth model — if there really is one — has not prevented a rise in inequality in China, India and elsewhere.

“Any economic model that does not properly address inequality will, eventually, face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability, eventually, harming long-term economic growth and welfare.

“Nouriel Roubini”

Roubini seems to be arguing that the welfare state, as funded by progressive taxation, was a necessary gift to quell the middle class against the “natural” widening of wealth disparity that results from laissez-faire free markets.

Oh, where to begin…

If we’re to tackle an intellectual giant such as Dr. Roubini, we ought to aim low. We’ll start at the foundations.

Like many ready to expound on the failures of the free market, Roubini lists the free market’s shortcomings, while failing to mention that the most basic element of the market isn’t free at all…

We point out, yet again, that monopolization of currency issue by a government-backed entity (whether a “private cartel”) lays the seeds for the destruction of the free market. We speak, again, of the central bank.

But legal tender laws and an inflationary issuance of fiat currency aren’t the only problems, even if they are the problems that lie at the root of all economic malaise. Besides nonmarket interference with the supply and cost of money, there are direct state interventions into the market itself.

These interventions are especially destructive when they are done at the behest of powerful companies in order to protect their own interests…when state power is used as a cudgel to damage competition and protect profits. Even more distressing is when this type of corporate purchase of the state is called “capitalism”…as if capitalism can exist once political force is used.

And even when industry is injurious to the worker or the consumer, it’s generally because that industry has sought some extra-market legal protection from the state (this includes patent protections, by the way).

Left to themselves, markets address imbalances before they become world-destroying. Much has been made of the market’s failure to correct itself, but how can self-correction occur when central banks make borrowing to cheaply, disastrously skew demand and the resulting production, while the state restricts competition and bail out losers deemed “too big to fail”?

We agree that the roles of the market and state need to be rebalanced. We’d suggest that the states reverse their intrusion into the markets. A full retreat would be nice. After all, it was these intrusions in the form of currency monopoly, legislation bought by the powerful and ill-thought regulation, that caused the imbalances that eventually lead to protest.

The common man no longer seems to have any idea how wealth is really generated. Or what keeps it growing. He just suspects that everyone with lots of money got it unjustly, that those with “too much” ought to be forced to share. The problem, he thinks isn’t the government. It’s greed.

Granted, there are some who did get their riches unjustly. But their accomplice in that thievery was the state itself, either through inflation or legislation.

So the common man is up in arms, taking to the streets. Asking for redress and rebalancing…by the same state that caused the imbalance in the first place.

We admire Mr. Schiff bringing his alien message about liberty and the world-improving power of free markets to the masses. But we’re not sure it’s going to do much good. We couldn’t help but smile as we sat in the airport and watched him.

We expect that the majority will call for more of what made them poor and miserable in the first place.

Regards,

Gary Gibson

Peter Schiff Takes on Cornell West and the 99% was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

In a way it’s not surprising that protesters involved in Occupy Wall Street have been, as far as I can tell, silent about Steve Jobs because his death was so recent. At the same time, it’s a little surprising to me that Occupiers haven’t used the opportunity to condemn someone who has been one of the leading members of the “1%” — corporate billionaires — against whom they have expressed such disgust. From the perspective of most (though not all) of them, Jobs should have been Exhibit A in the case against capitalist exploitation. Even though his personal wealth is said to have exceeded $8 billion, I haven’t been able to find very much in the way of outrage against him or his company.

Instead, young and old around the world have mourned his passing and displayed heartfelt gratitude, even reverence, for a man who in one generation changed for the better the lives of nearly everyone on the planet. California Gov. Jerry Brown declared Oct. 16 Steve Jobs Day. Far from being vilified, his life has been celebrated internationally almost like that of a secular saint.

Is it because, like Bill Gates and Warren Buffett, Jobs has given billions away through a well-endowed charitable foundation? Turns out there isn’t anything like a “Steve Jobs Foundation,” nor does Apple today even have a philanthropic arm, at least not since Jobs dismantled it in 1997.

No, I believe it’s because in Jobs’ case, it’s so painfully obvious, especially to the generational and cultural demographic to which most of the Occupiers appear to belong, that his business acumen and the massive profits it has earned him and his company have improved the quality of life for a large chunk of humanity to a level few could have imagined in 1976 when he and Steve Wozniak founded Apple. The convenience, profitability,and sheer coolness that Apple and its host of competitors and providers in the high-tech industry have made possible is simply undeniable. Where would we be without the iPhone, iPad, iPod or the Mac — and their imitators at Google, Amazon and elsewhere?

What Has Steven Jobs Given Back to Society?

But no large-scale philanthropy? Where’s the outrage? Or as some might put it, “What has Steve Jobs given back to society?” Most of us, though I suppose not everyone, recognize at a gut level the sheer absurdity of such a question.

The charities of Gates, Buffett, Soros, Bloomberg and Turner are certainly praiseworthy. At the same time, they really didn’t have to do this to elevate our material standard of living; their businesses did it just by buying and selling stuff. But what about Jobs? Didn’t he get rich off our backs?

Well, could it be that when I paid $140 for my iPod that, in fact, I valued it more than the $140? Could it be that Apple valued my $140 more than the iPod? And could it be that people who work for and supply Apple value the incomes and payments more than the services and goods they sell to Apple. And that Apple values what they offer more than what it pays them? Could it be, in short, that these voluntary exchanges take place because the parties expect to gain more than they give up?

If so, would it make much sense for me to ask Apple to “give back” to me the profits it earned from my $140? Well, that would make about as much sense as it would for Apple to demand that I “give back” whatever value I get from my iPod over and above the $140 I paid for it.

What About Sam?

And how is Steve Jobs different from the late Sam Walton, whose Wal-Mart discount stores have made life more comfortable, convenient and less costly for the demographic they serve — lower- and middle-income working families in the suburbs? Perhaps Wal-Mart’s products don’t appeal to the tastes of those occupying Wall Street, either in Zuccotti Park or in the office buildings that tower over them. But like Jobs, the competition he brought to the retail business has benefited them all.

Jobs is just an extreme example of businessmen and -women and entrepreneurs who make their living not by government intervention, but mostly by voluntary exchange. From the pushcart vendor to the trucking company to the mall developers to the big Wall Street financial concern, insofar as they make their profits without resorting to political power, all do their part, though in a smaller way, to benefit those with whom they buy and sell.

Did Walton and Jobs ever take a government handout or gain from government regulation? I’m told that Wal-Mart benefited from eminent domain and Apple from patent enforcement. So while they were probably not “pure” in that sense, they were more so than the car manufacturers, financial companies, labor unions and others that would have disappeared long ago without government privileges and bailouts. From my perspective, of course, those are the crony capitalists the Occupiers should mainly be targeting, and to some extent have been.

An Aha! Moment?

It’s hard to live pure in a mixed economy. So I’m not criticizing the Occupiers for using iPhones or Twitter or the cheap bottled water produced by the capitalism most of them hate. I work for the State University of New York and my salary comes from taxpayers, even though I’m committed to the principle of voluntary exchange. I might well lose in a contest of libertarian lifestyle purity (as would U.S. Rep. Ron Paul). What I’m after isn’t purity of ideological lifestyle, but simply intellectual consistency… and honesty.

Either Steve Jobs is among the worst of profit-seeking capitalists (even if he got rich largely without government privileges) — the worst 1% of the repugnant 1% — or he’s not. And if Steve Jobs is honored for the way his corporate juggernaut made life better for most of us, then so should Sam Walton be and for the same reason. Some might respond to this by saying, “Right, we should despise Steve Jobs!” but I’m pretty sure few would. Maybe I have too much faith in common sense.

Let’s honor the Steve Jobses (and Sam Waltons) of the world; but let’s also recognize that it’s the market (however hampered today) that makes them and their contributions to humanity possible.

Regards,

Sandy Ikeda

Steve Jobs and Occupy Wall Street was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.