Normally we would not look upon buying a single family house for personal use as an investment. But these are strange times we live in.

Why don’t we consider a single-family house for personal use an investment?

In a completely free market (and a free market means no central bank with a monopoly on currency issue and the ability to manipulate interest rates) housing prices would probably act like the price of all other goods and services. That is to say, that they would tend to move downward over time due to increasing production efficiency and competition among producers against the backdrop of precious metals money and competing currencies that would tend toward stability.

The notion that housing prices should rise at all is born of generations experiencing constant expansion of the money supply by the central bank. Rising house prices are just a byproduct of inflation. A house’s price has no more natural inclination to rise than the price of a gold coin, a good suit or a laptop sans inflationary policy and artificially low interest rates.

A house is at base merely a very durable good for consumption. It provides its user with an essential function: shelter. In terms of assets a house for personal use is more like a car or a kitchen appliance than it is like a stock in a company.

That is unless the house is used like an apartment building. When bought and rented out at a profit, then a house becomes sort of like a dividend-paying stock.

Even in a fiat currency environment with its strong inclination toward inflation, we see small pockets of the free market driving prices downward over time. Technology springs first to mind. But even items whose prices rise due to inflation tend to do so more slowly than wages so that the items themselves require shrinking percentages of median income.

This is not the case with markets in which the state tinkers most: things like medical care, education and housing.

In the case of both education and home ownership, government has tried to increase availability by encouraging increasing levels of debt thus driving up the costs. This is the opposite of the market’s mechanism of fostering lower prices through innovation and competition.

We want to make clear that housing for personal use would likely become increasingly cheaper in a free market. A home would never have been misconstrued as an “investment” in such a free market. It would have been seen for what it really is: a durable good meant for consumption and enjoyment.

The population would have rightly cheered the tendency for homes in this environment to get more and more affordable, just like they do when their electronic geegaws get more sophisticated while coming down in price. (The laptop on which your editor is typing this has a 17” screen, an absolute luxury that would have costs thousands of dollars just a few years ago which now costs us a little over $400). There wouldn’t have been this happy expectation of rising home prices (and simultaneous perverse fretting creating “affordable housing” for the poor who find home ownership increasingly impossible because of those rising prices).

As it is we don’t live in the fantasy land where free markets reign. We live in a world of government tinkering and central bank manipulation of currency supply and interest rates. We live in conditions that foster speculative asset bubbles. We have no choice but to act accordingly.

So while we lament the absence of freedom and free markets, we remain on the lookout for the financial pitfalls of a bubble-prone world. And we look out for the resulting opportunities.

And the opportunity right now? Use borrowed money to get a house for personal use. (Then fill the basement with nickels and silver, guns and non-perishable food).

Ten years ago our advice was different. We said to anyone who would listen, “Sell your house, rent a place instead of buying another house and use the proceeds from your sale to buy silver.”

That was the trade to make back when silver had been languishing in the single digits for two decades, having tumbled from an all-time high of nearly $50 in 1980. Housing in the meanwhile was starting to feel the effects of artificially low interest rates and becoming the bubble du jour. Real estate prices were rising fast as people took on more and more debt to buy houses.

The prices rises were beginning to fuel a bona fide mania. The public came to believe that real estate was a “can’t miss” investment whose prices would never go down again. Just about everyone wanted to get in before they were left behind forever.

Little did they suspect that there would be plenty of opportunity to get into real estate cheap in just a few years.

Silver was clearly undervalued for many reasons. Meanwhile real estate was in full speculative bubble mode. Anyone not caught up in the mania (and who recognized silver’s potential because of monetary and industrial demand reasons) would have sold the increasingly overvalued asset and bought the undervalued one. How well would that have worked out?

Pretty well. After 2006 real estate prices started sliding while silver started really taking off. Real estate is down around 30% from its 2006 while silver is up over 500%.

Now this may seem so clear in hindsight, but it’s the exact kind of clarity that the masses and the mainstream media never seem to have while honest money advocates often have it in spades. That’s because hard money advocates can see speculative bubbles for the central bank-induced temporary distortions they really are. Even when those bubbles are growing in precious metals.

For example, we have no problem admitting that at some point gold and silver will be in absolute bubble territory. There will be a time to get out of precious metals and into something else. We don’t know what shape the dollar or other currencies will be in at that time. But gold or silver may have reached their highs against other things. Like houses. Surprisingly, that time may be right now for gold.

Take a look at this chart:

It shows the median home price in the U.S. priced in gold going back over a century to 1890. Notice that in 2010 gold could buy as much house as it could during its previous all time high back in 1980.

The only other time gold has been able to buy as much house was back in 1980.

What is more likely at this point? Will houses get cheaper or more expensive in terms of gold? We would argue that the trend is ready to revert to the mean. The dollar may continue to fall so that both gold and houses get more expensive in dollar terms, but houses would get expensive more quickly. If the gold price in dollars stays relatively flat, then house price in dollars is likely to go up.

Bottom line: houses are set to get more expensive in terms of gold. Just as it was a good idea to trade your house for gold and silver before 2006, it is now a good time to trade your gold (at least) for a house.

Or more specifically, you should trade your gold for a down payment and then mortgage the rest. Get dollars for your appreciated gold in order to place a down payment. Then borrow the other dollars necessary.

You see, we wouldn’t actually recommend staying in dollars more than you have to. The dollar’s long-term fate remains the same. So locking in a fixed amount of dollar debt at today’s low borrowing cost means you are almost guaranteed to be paying back in much cheaper dollars in the future.

You can take advantage of gold appreciation to secure another inflation hedge at the bargain rates created by the Federal Reserve with the housing bubble and bust and today’s low interest rates.

The Fed is handing you a gift. Sure it is wrecking the economy, but like we said before, you can’t stop that. All you can do is act accordingly to protect yourself.

We may have our problems with Warren Buffett as a shill for the state in general and taxes in particular. We often wonder if the government actually pays the man to act as its charming spokesperson to lull the masses with his homespun advice.

But we have to acknowledge his business acumen even as we scratch our heads at his economic and political philosophy. The man has made ungodly amounts of wealth from knowing where to place his bets. And now he’s calling real estate the smartest place to put your money.

In a February 2012 interview with CNBC Buffett said that if he had a way to buy “a couple hundred thousand single-family homes” and easily manage them, he would “load up on them” and “take mortgages out at very, very low rates.”

Buffett said that right now a single-family home with a 30-year mortgage is a better choice than even stocks for investment purposes.

According to Buffett, “It’s a terrific deal. It’s a leveraged way of owning a very cheap asset now and I think that’s probably as an attractive an investment as you can make now.”

Why would we take Buffett word’s so seriously now? Because we can’t help but notice that he seems to be on the money no matter how you slice it.

Also it lines up with the opinion of another uncanny investor with a very sound understanding of economics…

Agora Financial managing editor Chris Mayer spotted this trend a while back. A little over a year ago he wrote:

During the past few years, rare was the investment thinker who said you should buy a house. Housing was in a bubble that was deflating.

But the investment seasons turn. Today some smart investors are once again saying you should a buy house. John Paulson is one of them.

You may know him as the man who turned the greatest trade of all time. Betting against the housing market, he netted a cool billion dollars for himself in 2007. One fund he managed rose 590% that year. Today, he is one of the richest men in America.

His advice today is very different. “If you don’t own a home, buy one,” Paulson said. “If you own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.”

That’s a strong endorsement. It sounds similar to the advice another investor gave his audience in 1971, at the dawn of one of America’s biggest housing bull markets. The investor was Adam Smith (George Goodman) on The Dick Cavett Show. Here is a snippet from that conversation:

Smith: The best investment you can make is a house. That one is easy.

Cavett: A house? We were talking about the stock market. Investments…

Smith: You asked me the best investment. There are always individual stocks that will go up more, but you don’t want to give tips on a television show. For most people, the best investment is a house.

Cavett: I already own a house. Now what?

Smith: Buy another one.

It was good advice. In the 1970s, US stocks returned about 5% annually, which failed to keep pace with inflation. Still, it was an up-and-down ride. In 1974, the stock market fell 49%. But here are the average selling prices for existing homes in the 1970s as inflation heated up:

1972 – $30,000

1973 – $32,900

1974 – $35,800

1975 – $39,000

1976 – $42,200

1977 – $47,900

1978 – $55,500

1979 – $64,200

You can see that housing held up pretty well. And think about the effect of a mortgage on 80% of that house in 1972. That would mean $6,000 in equity, a sum that went up fivefold in eight years. It’s hard to find a better inflation fighter than that. Granted, today’s market is different, but still.

Apart from this, you might also reflect on the fact that it is quite absurd today to think that anyone can buy an average house for any of these prices – and that, too, is the point. The average price today is $257,500 – even after the great collapse in the last few years.

“If you have a 7% mortgage and your house is worth half a million dollars,” Adam Smith writes, “you may gripe about shoes and lamb chops and tuitions like everybody else, but your heart isn’t in it.” Your heart won’t be in it because you’ll be in fine fettle with your house.

Of course, you can do a lot better than 7% today. For the first time, the rate on 30-year mortgages slipped below that on the 30-year Treasury bond. You can get a 30-year mortgage at little more than 4% today.

Factoring in mortgage rates, housing affordability is back to where it was in September 1996. Then mortgage rates were 8% and the average price of a home was $171,600. As Murray Stahl writes: “One can actually buy a home for a monthly payment that is not very many dollars different from the monthly payment one would have needed in September 1996, when rates were significantly higher.”

Adjusted for inflation, Stahl points out that the payment for an average-priced home today is about 30% lower than it was 14 years ago.

The advice of Paulson and Smith starts to make sense now, doesn’t it?

Essentially, real estate is a way to buy now and pay later. And the case for housing extends to other property types, too. Owners of quality real estate are getting deals on mortgages that we are unlikely to see for a generation.

Real estate, after a long absence from the menu, is back on.

–Chris Mayer

Now, if you don’t plan on sticking around for around three years or more, then buying a house for personal use could be much more expensive than merely renting.

Sure, your monthly carrying costs will ultimately be lower than paying rent (at least in a non-bubble market when people would rather have a pricey mortgage than a cheap rent for a comparable property).

And of course you can deduct the interest payments (structured to be a higher portion of the monthly payment in the earlier years of the mortgage) from your income taxes. Add it all up and your monthly mortgage and interest payments could be as little as half renting a comparable property. And you are also moving toward ownership of the property (in a mere thirty years…after which time if you don’t pay the local government “rent” in the form of taxes, they will show you to whom the property truly belongs).

But that lower monthly carrying cost doesn’t come for free. There are those property taxes you’ll have to pay as long as you “own” the property, along with the transaction costs which could be 2-3% of the selling price. You would have had to save up as much as 20% of the total cost of the home in order to qualify for those lower monthly costs.

When you rent, that down payment money is available to do other things. When you buy that money is locked up in the house. In this environment, however, that may not be such a bad thing. The Fed has abolished the reasons to save the money while precious metals prices have already moved much higher making them less attractive to purchase now. The bargain now lies with housing. The advantage is more in favor of taking on a mortgage than it has been in years.

Lower housing prices, artificially low interest rates and almost guaranteed rising inflation make taking on a mortgage a smart move right now. It’s almost like getting a low interest loan in order to make a huge purchase of gold or silver back when they were cheaper.

Again, this wasn’t the case years ago when houses were expensive and precious metals were incredibly cheap. Try securing a fixed low interest rate loan from anywhere in order to buy precious metals. You won’t get that sort of a deal. But you will for a single family house, which right now can provide the same sort of hedge against a falling dollar that gold and silver do.

Right now perhaps the greatest opportunity to hedge yourself against inflation is getting a mortgage. Buy your inflation hedge now and pay for it with devalued dollars later.

Essentially real estate is the new inflation insurance that you can get on the cheap, much like silver and gold were back around the turn of the century.

Further a mortgage taken out now lets you leverage a whole lot of this cheap insurance, giving you command of much more money than you likely have available. If inflation takes off in the coming years, you could sell your house for far more inflated dollars than you would owe at that point.

Imagine if someone had lent you $250,000 at 5% interest fixed for thirty years in order to buy 50,000 ounces of silver in 2003. You would be sitting on over $1.5 million in silver right now.

That’s sort of the situation that getting a mortgage now could put you in. Of course a house has maintenance costs that precious metals do not. But these are costs you’d be covering with renting in any case.

And with this particular inflation hedge, you have a place to store your silver…along with your ultimate deflation and inflation hedge, the humble nickel (but more on that another time).

Regards,

Gary Gibson

Is a Mortgage a Better Inflation Hedge Than Gold and Silver? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

It’s true that inequality is growing, but the focus on that alone is sheer folly. Equality applies to math equations. You could also use it to describe how the law should be impartial with respect to persons — the traditional use of the term “equality” in the classical liberal literature. But that’s it. Otherwise, an obsession with this topic is very dangerous for a free society.

That’s because the people who invoke equality have no intention of creating the conditions to make it easier for the poor and for middle-income earners to grow rich. Leveling upward is never the goal. Egalitarians want to flatten incomes at the top so that the rich no longer exist. This can’t help anyone but the envious, those who get a kick out of destroying, rather than creating.

As Shikha Dalmia writes, “Income inequality tells us zilch about the only thing that really matters: Are the lives of Americans, rich, poor and in between, getting better or worse?”

Try an experiment in your mind with a society of 10 people. Five people earn $50,000 and five earn $100,000. Let’s say we flatten out the top half so that everyone earns the same. Equality! But who benefits? Absolutely no one. Society as a whole is poorer, and that is to the detriment of everyone: less capital, less wealth available for wealth-forming projects, demoralization among the smartest and most inspired and a ceiling on those who might have previously desired to move from the lower half to the upper half.

In any case, the supposed egalitarian ideal can always be achieved by driving everyone into the dirt and universalizing poverty. There is a serious problem, with an ideal that can be achieved by wrecking the lives of absolutely everyone.

In a free society, we just have to get used to the idea that some people are going to be vastly richer than other people. And those rich people do act as benefactors to the rest of us. They give more to charity. They start the new businesses that employ us. They take the risks that make capitalism dynamic and progressive. They act as society’s economic leadership team. And the individual members of that sector of society are constantly changing, and this is a good thing.

What’s more, in a free society, the rich are completely dependent on the poor and the middle class, who, in a market setting, make it possible for the capitalists of society to accumulate wealth in the first place. It is the voluntary choices of the masses that direct the use of society’s resources. The “distribution” of wealth is a result of the choices we all make in our capacity as consumers.

Yes, I’ve watched lectures by people who claim that societies with more equality are happier places. What they end up pointing to are places like Finland, Sweden, Denmark, Japan, Norway. This is just a mistake: These countries are demographically homogeneous and cannot be compared in any way to places like the U.K. or the U.S.

Consider this… Where would you rather live? Ethiopia or the Netherlands? Ethiopia has more income equality, according to the statisticians who calculate the so-called Gini coeffiicient. Another example: Tajikistan or Switzerland? The former has more equality than the latter. Another: Bangladesh or New Zealand? According to the egalitarians, we should rather live in one of the poorest places on the planet than one of the richest.

Again, the degree of equality is not in any sense related to the quality of life.

So why the hysteria right now? The real problem is more fundamental in the United States. The poor are growing and entrenching. The unemployed are staying this way. The middle class is slipping, and more substantially after the the recession statistically ended than when the statistical recession was on (and polls show that hardly anyone believes we are out of recession).

Now, this is catastrophic, not because this increases the income gap, but because it is killing the American dream. What the political left is doing is attempting to change the subject away from what matters (we are all getting poor) to what doesn’t matter (the income gap between the top and bottom). And this rhetorical shift is scary: It prepares the way for higher taxes, more redistribution, more attacks on the financially successful and more of all the policies that are causing our worst problems right now.

So why the focus on the equality? As Mises says in his great work Socialism (1922): “The principle of equality is most acclaimed by those who expect to gain more than they lose from an equal distribution of goods. Here is a fertile field for the demagogue. Whoever stirs up the resentment of the poor against the rich can count on securing a big audience.”

Americans should know better. Even when our economy was the freest in the world, we had one of the most unequal distributions of that wealth on the planet. It was during these years that the lifespans of everyone increased, when the chances of moving from poor to rich were huge, when the per capita income was growing as never before in human history. Growing inequality is likely to coincide with growing wealth (see How the West Grew Rich, the masterpiece by Nathan Rosenber).

We need to learn to admire the justly rich and strive to emulate them and their outlook on life. This is what the advice manuals of the late 19th century said. The most popular magazines of the time chronicled their lives, and they were held up as national heroes. This is a sign of a healthy society. It is because of this ethos that the poor of today live vastly better than the richest of the rich 100 years ago.

Today, on the other hand, we are told to resent the rich, attack them, hate them, expropriate them. This is the sure path to disaster. Freedom is what enables the poor to become rich. The state is the means by which everyone in society is driven into poverty. We need less state and more freedom.

Regards,

Jeffrey Tucker

The Income Gap Obsession 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.

Many regard it a dirty word and it is tarnished most of all by its supposed guardians. Wall Street giants fancy themselves capitalists even as they live off the taxpayer and thrive on the state’s gifts of privilege, inflation, and barriers to entry. In the military-industrial complex they champion it by name as they produce devices of murder for the state. In the Republican Party and every conservative institution they talk it up while making such vast exceptions to the principle as to swallow it whole. When many think of capitalism, they think of the corporatist status quo, leading even some who favor economic freedom to abandon the term.

But we should not abandon it. For one thing, most opponents of capitalism do not merely oppose Goldman Sachs or Halliburton or even McDonalds. Rather, they oppose free enterprise as a matter of principle. They object to employers’ liberty to hire and fire whom they want, at whatever wage is mutually arranged. They protest the right of entrepreneurs to enter the market without restriction. They disapprove businesses designing infrastructure; providing energy, food, water and other necessary commodities; and running transportation without government meddling. They lament the rich getting richer, even through purely peaceful means. They oppose the freedom to engage in short selling, insider trading, hostile takeovers, and corporate mergers without the central state’s blessing. They begrudge the worker who dissents from the labor establishment. It is exactly the anarchy of the free market they despise, not the consolidated state-big business nexus they most want to smash. For every liberal who hates monopoly capitalism for anything approaching the right reasons, there are ten who deplore the capitalism part of it more than the monopoly.

It is simply a fact that capitalism, even hampered by the state, has dragged most of the world out of the pitiful poverty that characterized all of human existence for millennia. It was industrialization that saved the common worker from the constant tedium of primitive agriculture. It was the commodification of labor that doomed slavery, serfdom, and feudalism. Capitalism is the liberator of women, the benefactor of all children who enjoy time for study and play rather than endure uninterrupted toil on the farm. Capitalism is the great mediator between tribes and nations, which first put aside their weapons and hatreds in the prospect of benefiting from mutual exchange.

A century ago the Marxists acknowledged the productivity of capitalism and its preference to the feudalism it replaced, but predicted that the market would impoverish workers and lead to greater material scarcity. The opposite has happened and now the leftists attack capitalism mostly for other reasons: it produces too much and is wasteful, hurts the environment, exacerbates social divisions, isolates people from a spiritual awareness of their community, nation, or planet, and so on.

Yet all the higher, more noble, less materialistic aspirations of humankind rest on material security. Even those who hate the market, whether they work in it or not, thrive on the wealth it generates. If Marx’s buddy Engels hadn’t been a factory manager, he would have lacked the leisure time needed to help concoct their destructive philosophy. Every social sciences grad student, every Hollywood limousine liberal, every Christian-left do-gooder, and everyone for whom socialism itself is the one religion; every anti-market artist, scholar, philosopher, teacher and theologian screams atop a soapbox produced by the very capitalist system he disparages. Everything we do in our lives – materialistic or of a nobler nature – we do in the comfort provided by the market. Meanwhile, the very poorest in a modern capitalist system, even one as corrupted by statism as the United States, have it much better than all but the wealthiest people a century ago. These blessings are owed to capitalism, and unleashing it further would finally erase poverty as we know it.

There is a myth that capitalism is the dominating doctrine. It seems almost everyone believes this, most finding it at least somewhat unfortunate, which itself should tell you there’s a problem with assuming capitalism’s unchallenged popularity. In fact, capitalism has few authentic defenders. Conservatives pretend to support it, but make exceptions for education, energy, agriculture, labor, central banking, borders, intellectual property, and drugs, to say nothing of national defense and criminal justice. Even worse, many conservatives of the anti-corporatist, localist variety are more protectionist and economically nationalistic than the establishment right. They will sacrifice property rights for their cultural preferences on guns, religion, so-called family values, and certainly patriotism. With friends like these, capitalism needs truer allies.

Progressives and socialists are downright hostile. They claim to have made their peace with the market but have a new scheme every day to restrain it, punish it, manipulate it, and beat it into submission. Liberals insist they don’t want to rid of it, only refine it, only save it from itself. But if capitalism needs saving, it is not from itself, but only from liberals and conservatives.

Libertarians will speak up for capitalism, but often with some reticence. It has gotten such a bad name, and it is so despised by the liberal culture, that many do not wish to defend it outright. It is indeed crucial to be clear and precise in explaining what we mean by capitalism. But this great force for progress deserves our bold support, not our qualified testimony. It has given us everything we have. The least we can do is not pretend we’re embarrassed of it.

For the last century, capitalism’s most ardent defenders – the school of Mises, Hayek and Rothbard, and even the less radical followers of Rand and Friedman – have been clear that they mean the individual’s freedom in property rights and exchange, and almost everyone understands this. The enemies have mostly meant the same thing, when they weren’t disingenuously conflating free enterprise with state-sanctioned privilege.

Mises said “a society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society.” Hayek believed “the preservation of what is known as the capitalist system, of the system of free markets and the private ownership of the means of production, as an essential condition of the very survival of mankind.” While always careful to critique state capitalism for its interventionism and violence, Rothbard espoused “free-market capitalism [as] a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at.” Capitalism and freedom go hand in hand, and it is no wonder that the enemies of the market target libertarians as the most extreme proponents of what they loathe, rather than mostly focus on the corporatists and social democrats that dominate the modern left and right.

Some libertarians worry that “capitalism” puts too much focus on capital, but this is in truth no problem. Only through deferred consumption can we build civilization, by the amassing of higher order goods and the lowering of our orientation toward the present. This is the essence of the capitalist emphasis. Maybe it takes longer to explain ourselves when we adopt the battle cry of capitalism – it also takes longer to be a capitalist than only a consumer. In the long run, however, it is worth it. Libertarianism is a long-term struggle, and so why not take the long-term view of capitalism, both as a term worth embracing and a label for the economy we envision? Anarchism, too, is a hard pill to swallow, a tradition with a mixed history where a plausible case can be made that its conventional meaning does not always encompass the values we hold dear, but rather a lack of social order. Yet libertarian anarchists embrace the term, as we should the term capitalism.

Rothbard was particularly sensitive to the fact that the term was coined by its enemies, and many today believe that defenders of free markets should not allow the opposition to define the debate. Yet this point leads me to a very different conclusion. First, even insofar as the word has negative connotations in popular culture, we might still want to adopt it. The anti-Federalists were initially opposed to the label affixed to them by the Hamiltonian statists. But now I would uphold that descriptor with pride. This is an area where we can take a cue from the gay rights activists who were smeared as “queer,” only to proudly appropriate the term for their own uses.

Second and more important, if Marx and his ilk – whose ideas, to the extent they have been implemented, have yielded unparalleled human misery, starvation, and slavery – position themselves as the adversaries of capitalism, we should be so lucky to have these be the terms of the debate. The socialists of all stripes argue that real socialism has never been tried, and some say we market radicals are stuck with no better a response than to say that real capitalism has never been tried, either. However, unlike “real socialism,” which Mises demonstrated was impossible on a large scale, capitalism simply exists wherever it is left unmolested. It is the part of the market that is free. But regardless of how we define it, in terms of feeding the masses and sustaining society, I will take flawed capitalism over flawed socialism any day. I will take state capitalism, crony capitalism, or corporate capitalism over state socialism, democratic socialism, or national socialism.

Yet we need not make that choice, since opposing state capitalism is part of the capitalist cause, as should opposing state religion be the calling of every religious anti-statist, opposing state schools be the goal of every libertarian who loves education, and opposing state law and order be the creed of those who endorse the natural law and peaceful social order.

The capitalist portion of state capitalism is the part that works. The fruits of capitalism can be used for evil, and they are surely used this way by the state. For instance, the military-industrial complex’s evil is due to the socialist state military feeding off the production of semi-capitalist businesses. The one downside to capitalism is that the state becomes richer in absolute terms than with any other system. If the military were fully socialist it would be less effective – this is true. But this is merely a practical and moral indictment of the state, not the concept of capitalism.

If this is the only real confusion that confounds capitalism’s detractors we should simply ask them: Are you for a complete separation of capitalism and state, then? Of course they are almost to a person violently opposed to such a prospect. For them the problem is not the state having weapons and law enforcers and soldiers and national boundaries. Instead, the problem is unfettered entrepreneurism and the inequality of profit. Anti-capitalism is best defined, to paraphrase Mencken, by the fear that someone, somewhere, is getting rich. Looking at the warfare state, the anti-capitalists object to someone making money off the militarism, and indeed they should be embarrassed that the state institutions they favor can only successfully mount a military machine by exploiting the profit system. Yet, tellingly, their primary objection is often not with the profiteers’ war; it is with the war’s profiteers.

Some words are harsh and the concepts they embody seem harsher. Some notions seem too idealistic for many cynics. Peace, love, and freedom are all words that get a bad rap as head-in-the-cloud concepts that don’t describe reality as it actually exists. But we do know that in a world where not all is peaceful, love is sometimes hard to find, and freedom is always in peril, all of these ideals, insofar as they are allowed to flourish, point the way to a future of harmony and plenty. The same is true of capitalism. Don’t let its enemies spoil a good word for the greatest economic system in the history of the human race.

Regards,

Anthony Gregory

Why Capitalism Is Worth Defending was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

“Liberty: One of Imagination’s most precious possessions.”

— Ambrose Bierce, The Devil’s Dictionary

BECAUSE I KNOW EVERYONE WILL BE WONDERING ABOUT IT as they read this, I have to disclose something right up front: I’m one of the few people you’ve ever met (if one can say that writers and their readers have “met”) who has never used tobacco in any form. Never smoked any, chewed any, snorted any, whatever. Not once. That means I don’t know what it’s like to crave a cigarette, nor what an addiction to nicotine feels like…

But I know all too well what such things look and smell like. That’s because for my entire adult life, I’ve been in the presence of a good number of smokers. Most times I’ve chosen (an important word, as I’ll explain in a minute) to go out to local pubs, concert halls, clubs, fairs, festivals or sporting events with friends or dates in my home state of Maryland…

No longer, though. As of February 1, 2008, smoking of any type is now banned in the Old Line State’s bars, restaurants and many other venues — including American Legion halls and other such private clubs.

Like with a lot of other states where indoor smoking has been banned in public places, poll results show that most people consider this a victory for Marylanders. And in truth, I personally will not miss the passive-smoking headaches and congestion I get from nights out in smoky bars or concert halls. Nor will I miss my clothes reeking of smoke in the laundry hamper — or my truck’s upholstery smelling like an ashtray simply because I’m not in the habit of stripping naked to drive home (not typically, anyway)…

However, what I will miss is yet another way in which we Americans can exercise our liberty to do what we want to do, even when it’s arguably not what’s best for us. This is the bittersweet essence of freedom, and I believe it’s something worth preserving — even when personally distasteful to me. I also lament the demise of yet another opportunity for the free market to accommodate both personal liberty and the varying preferences of individuals. This was what the Constitution’s framers had in mind, after all…

Not the arbitrary domination of The State to serve politicians’ majority-pandering — or even bona-fide cost-benefit calculations.

Freedom of/and Choice Extinguished

In my opinion, the smoking debate transcends fact, science, statistics and economics. To me, it isn’t about health or public safety or tax revenues or insurance costs so much as it is about the fundamental nature of government (and the greedy, devious hacks that run it) to hobble and ransom liberty for its own ends. The smoking issue is more emblematic than anything else that comes to mind of both the corruption rampant in our system and that system’s perversion of its freedom-first, free-market roots.

Don’t misunderstand me, here. I’m all for the government looking out for us. I think it’s entirely appropriate that they should regulate whatever they must in order to make sure we have reasonably pure food and drugs, high-quality housing construction, relatively safe roads, toys without toxic lead paint on them and so on (whether they do this properly or not isn’t today’s can o’ worms)…

And I don’t think it’s the least bit in conflict with the principals of freedom to restrict smoking in places we have no choice in going — places like airports, offices and on public transportation and its hubs. After all, the ultimate litmus test of personal liberty is “Does my exercise of freedom infringe on anyone else’s freedom?” If the answer to this question is “yes,” then regulation is appropriate.

However, I’m very wary (and weary) of a government that confounds the free market as it regulates away our liberties. That’s exactly what banning smoking in bars does. Here’s what I mean, from personal experience:

As I mentioned above, for years I’ve been going out to pubs, clubs, concert halls and taverns, either solo or with a wide variety of friends and dates. But whenever I go out with one particular friend of mine (I’ll call him R.A. Hill), the degree of cigarette smoke we’d likely encounter would factor heavily into our calculus in deciding where to go. R.A. Hill, being more smoke-sensitive than me, knew which bars attracted the greatest ratio of smokers, which had the best “smoke-eater” filtration systems, which had the highest ceilings to dissipate smoke — even which had their ceiling fans rotating in the proper direction to waft smoke up and away, instead of forcing it back down into the hair and clothing of bar patrons…

You see, that’s the free market at work. When we’d go out, we’d make a priority of choosing bars based on the “exposure to smoke” criteria — and we always found a way to have a blast without smelling like an ashtray or giving ourselves passive-smoking headaches.

It has always been my feeling that the marketplace responds better to people’s needs and desires than the government does. I also think that if the market can sustain non-smoking bars, clubs and restaurants, they spring up. They have in many places — without regulatory mandate. Consider as proof how many restaurants currently either prohibit smoking entirely in dining areas, or have dedicated “smoking” sections. I remember when this started to be a widespread policy (the 1980s). It was in response to the demands of the market, not the mandates of state or federal lawmakers…

Now, I know what a lot of you are thinking: What about the non-smoking employees of bars and restaurants in which smoking is allowed? (It’s under the auspices of concern for these folks that a lot of states pass smoking bans, by the way.)

Again, I look to the free market. People have a choice of where to work, but not the unalienable right to work there. If you can’t tolerate smoke or are afraid of the health risks, don’t apply for jobs in which you’re likely to be exposed to smoke. Those jobs will be filled with people who smoke themselves, are not worried or offended by the smoke — or who may be, but choose to forego their concerns in exchange for the money…

This idea of “choice” is the beautiful, self-regulating linchpin of the whole free-market concept upon which America is founded, yet that seems all of a sudden so foreign to our politicos and pundits.

Principle vs. Principal

Make no mistake, politicians regulate smoking for one reason only: Votes.

By ever-further restricting smoking (but not banning it outright), they get to have their cake and eat it, too. They get to curry favor and leverage votes from the non-smoking majority as crusaders for better public health and lower health-care costs. But at the end of the day, as long as smoking remains legal, people will still smoke, get sick and require medical treatment — yet politicians will still get every penny of the enormous corporate taxes tobacco companies pay, all the federal excise tax money from cigarette sales, plus all the sales tax and other revenues at the state and local level…

Oh, and all the money they can extort out of the tobacco industry — like the $206 billion 1998 Master Settlement Agreement and other high-dollar lawsuits.

This multi-streamed delta of tax-and-blackmail cash dwarfs any increased costs that smoking levies on society (or at least on the government) — and is the reason why they’d never ban cigarettes outright. Their “dirty little secret” is that they know there’s little, if any, correlation between restrictions on smoking (like taxes and public-area bans) and reduction in cigarette consumption. Smoking, after all, is an addiction, and politicians know that smokers will continue to smoke, even if they can’t do it in their favorite bars.

Consider this, to In 1976, the Feds banned Red Dye #2 based on 1969 Soviet research linking the food coloring to cancer in laboratory animals (the FDA’s own attempts to duplicate this research was inconclusive, by the way). Did they jack taxes up on food-makers and sue them for a few billion dollars, issue public alerts, mandate warning labels on products with Red Dye #2 in them, then let the public decide what level of risk they were comfortable with? No, they didn’t hesitate to simply ban the substance…

Why do you suppose this is? Don’t you think it’s because there was no real money for them to wring from the situation? After all, tens of millions of people weren’t addicted to Red Dye #2, and it wasn’t the cornerstone of a mega-billion-dollar industry from which billions in corporate, sales, excise and other taxes flow — and from which hundreds of billions more in “damages” could be ransomed.

In other words, it cost them very little to ban Red Dye #2, so they did — on nothing more than the suggestion that it might cause cancer in lab rats.

Now, in the case of cigarettes, an overwhelming amount of decades worth of scientific, clinical and anecdotal evidence from every corner of the world — not to mention leaked internal memoranda of tobacco companies — proves that smoking is strongly correlated to lung and other deadly cancers in millions of humans, yet the U.S. government won’t ban it…

This couldn’t have anything to do with the money, could it? Nah.

Look, I know that this is obvious stuff here. I just want to re-emphasize it to hammer home a larger point: That nowadays, personal liberties in America stand or fall based not on their fundamental value as exercises in freedom — but on whether or not they’re profitable to the government.

The Liberty Equation, Revisited

I’ve written in Whiskey & Gunpowder before about what I call the “liberty equation,” most recently in July 2007, as a companion essay to a speech I gave that same month at FreedomFest in Las Vegas. Back then, I wrote:

“Today, it’s the tendency of politicians, commentators, advocates on both sides of an issue — and increasingly, American citizens — to distill the debate about any personal liberties to one of numbers. Statistics, not principles, rule the day…

“Is there any liberty-based debate in the public discourse today that doesn’t center on an argument about numbers — that hasn’t become merely a contest of “dueling statistics?” The point of those statistics is always the same: To determine whether a freedom makes bottom-line sense in a twisted equation in which liberty is allowed to stand or fall based solely on its mercantile merits…

“The smoking debate is a good example. Few are talking about smoking in terms of its intrinsic value as an exercise in personal freedom. Most only talk about it in terms of economics: Mainly, whether the increased costs of health insurance and medical treatment for both active and passive smokers is greater than the profits bars, restaurants, public sports venues, and the like (tobacco-company profits are rarely mentioned) gain from smoking.”

As you can see, my beef with politicians isn’t so much that they’re self-serving, greedy, grandstanding hoodwink artists. Everyone knows this. I’d even go so far as to say that our elected leaders are so consistent in their avarice that the lack of a ban on tobacco constitutes conclusive proof that smoking MUST be an overwhelming net economic positive to America’s bottom line. However, since that’s not PC to say that in the media — and no politician would garner any votes talking about it — we never hear it. But I’m digressing…

What boils my noodles is that this kind of bottom-line thinking rules the day instead of concern for the proper care and feeding of freedom.  Politicians and the mass media have used the smoke and mirrors of number-crunching to transform the way Americans think about their liberty. They’ve colluded in force-feeding us their balance-sheet mentality for so long that we’re starting to be brainwashed en masse by it. We’re all weighing statistics the media spews at us, counting money politicians promise us, and doing all sorts of convoluted math in our heads to try and figure out how to prove the merits of the freedoms we love — or to justify the regulation (or eradication) of freedoms we don’t…

No longer do we seem to remember that liberty has value in and of itself, and that the free exercise of it is a healthy thing, whether we always find it tasteful or not.

No longer do we seem to realize that it’s not the government’s job to protect us from ourselves.

And no longer do we seem to have the righteous indignation to question exactly WHY our freedoms are regulated or abrogated — we simply accept it as part of a “greater good” scenario the politicos and pundits are pushing…

Am I the only one who thinks this sounds a lot like Marxism?

Jim Amrheim
Freedoms Editor
February 19, 2008

Freedom’s Great Big Pain in the Butt was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.