What type of crisis is this?

This is a financial crisis, for sure. Its root causes are firmly located in money, credit, debt and banking. And I don’t think that the governor was exaggerating when he speculated about its magnitude. This is the Big One.

As we all agree that this is not just another business cycle, the question is what are we dealing with here? How should we define this crisis, and in what context can it best be understood?

This crisis is systemic, not cyclical. It is a crisis of institutions. It is a crisis of policy. It is a crisis of our financial architecture.

When this crisis started in 2007 and intensified throughout 2008, it was often labelled a “crisis of capitalism.” You don’t hear that so often anymore. Granted, there are still the occasional lapses, sadly, even by economists, but the longer the crisis goes on and the longer the spotlight remains on money and banking, the more it dawns on the public just how much the present financial architecture is evidently defined not by the “invisible hand” of the market, but by the controlling hand of the state.

When yet another round of bank “recapitalization” is announced (presumably, at taxpayers’ expense and, thus, driving home the point, once more, that the banks are above the fray of normal and fallible capitalist enterprise)…

…And when the salvation for our debt-laden economy is declared for the umpteenth time to be sought in yet more debt-funded government spending, or in yet another injection of more money created under state monopoly by the central bank and handed to the public as an apparent incentive to take on yet more debt, the public is beginning to wonder if policymakers have not lost the plot, and if we should not fear the “stimulus” more than the unchecked market.

Why are we in this mess?

“Undercapitalized banks” is code for banks that lent too much. How can banks have lent too much — and, obviously, have done so for years, decades even, and have done so the world over in the most enduring and persistent credit binge in history — when they are all under the control of the state central bank, which, in a paper money system, has the monopoly of printing (unlimited) bank reserves and administratively setting short-term interest rates and, thus, controlling lending conditions? Is this not properly called state failure, rather than market failure?

Please remember, the switch from apolitical, inflexible and hard commodity money to limitless paper money under state control was a political decision, not the result of market forces. And it only came into full bloom with the closing of the gold window by the politician Richard Nixon in 1971. Our financial system is the outcome of political design and popular macroeconomic theory. Both have now revealed to have been self-serving and flawed, not the result of spontaneous human cooperation on markets.

The move to fully elastic fiat money freed both the state and its proteges, the banks, from the golden fetters of inelastic commodity money. Without the straightjacket of a gold standard, the state obtained unrestricted control over the printing press and could engage in “managing” the economy, saving the banks, avoiding or shortening recessions and determining borrowing conditions — and setting them more generously, not least for itself.

After 40 years of government-controlled money, this is the result.

This crisis is the inevitable outcome of the dangerous belief that low interest rates, and investment and lasting prosperity, can be had via the shortcut of money printing — and its twin sisters, artificially low lending rates and never-ending bank credit creation — rather than the time-honoured hard way (and capitalist way) of saving and true capital formation.

This is not a crisis of capitalism. My good friend Brian Micklethwait coined a much better phrase for it: This is the second crisis of socialism. We are witnessing the demise of the paper money standard. 40 years after the global fiat money system was freed of its last link to gold, money everywhere became simply an unchecked territorial monopoly of the state. What we are now finding out is this: The state and the banks need a straightjacket, or they will sooner or later drag us all into a black hole.

Why is this system socialist?

There are two ways in which a monetary system can be organized: Either the market chooses what is money, or the state does.

The money of the free market, of capitalism, has always been commodity money that is outside of political control. Wherever the trading public was free to choose, it picked commodities of fairly inelastic supply as monetary assets. Almost all societies, throughout all cultures and civilizations, have come to use precious metals as money.

Commodity money is apolitical money. Nobody can create it at will and use it to fund himself or to manipulate the economy. Crucially, human cooperation via trade does not stop at political borders, and commodity money has always transcended such borders. If gold was money this side of the border, it was usually equally money on the other side, regardless of whose image was printed on it:

Image by FreeDigitalPhotos.net

By contrast, complete paper money systems that have no link to an underlying commodity are always creations of politics. In such systems, money can be “printed” at essentially no cost and, thus, practically without limit. But not by everybody. Money printing is the privilege of the state and its central bank. Money, in this system, is entirely elastic. But it is political money and closely linked to political authority.

In a paper money world, if you cross a political border you have to swap your money for different money. All the efficiency of today’s 24-hours-a-day, multi-trillion-dollar foreign exchange market, which so easily impresses the untrained observer to whom it may epitomize global capitalism itself, is nothing but the market’s attempt to cope as best as possible with the inefficiency of monetary nationalism and monetary segregation that is the result of every national government wanting its own paper money under its own territorial political control.

To call this system capitalist means depriving the word “capitalism” of its meaning.
In this brave new system of fully elastic fiat money, we put our financial affairs not in the hands of the unfettered market, but in the hands of the state, of politicians and central bankers. This system is properly called a socialist one, not a capitalist one. And this system has failed.

Who are the beneficiaries?

For decades, this system has benefited the state, the banks, the wider financial industry — all of which have grown relative to any other section of society — and those who have assets to be used as collateral for leveraging the balance sheet: real estate, equity portfolios, company stock options. The costs of this system have been spread across the broader public via inflation and the occasional taxpayer bailout. This has been socialism for the rich.

Just like the first crisis of socialism — the collapse of the planned economies under Soviet guidance in 1989 — this crisis, the crisis of government-controlled finance, will also see the overthrow of the present establishment. Although the party leadership is still telling us that they have things under control: Fear not, comrades, with some deficit spending and some astute money printing, tractor production will soon reach targets again.

And just like the collapsing socialist state, the state-paper-money bureaucracy, too, has its true believers. People like Adam Posen, the Bank of England’s quantitative easing enthusiast, who maintains his childlike optimism for and unwavering faith in the power of the printing press. If £200 billion of newly printed money, cleverly placed by the apparatchiks into the coffers of the banks and government, have not solved the crisis, surely, the next £75 billion will. And why stop here? With another £175 billion or £275 billion or £375 billion, everybody in the U.K. should find a nicely paying job again. To people like Posen, the problem with the planned economy is not that it is planned, but that the plan wasn’t bold enough.

Mervyn King, on the other hand, strikes me as a more Gorbachev-like figure, not a nonbeliever, but too sceptical and too smart to be a fully signed-up party member. There is a fascinating interview with him from September of last year that got little attention in financial market circles, presumably, because it was part of a BBC history program on Chinese paper money, rather than on today’s monetary policy. The question asked was this: Are all paper money systems doomed to fail? King answers: No, he thinks, not all of them (although every single one has indeed failed), but he admits that the recent crisis has made him a bit more cautious in his assessment. Maybe the jury on whether paper money could be made to work at all was still out. Remarkable for a central banker, I thought.

Regards,

Detlev Schlichter

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

Lew Rockwell writes this week on the Obama Administration’s crackdown on businesses who hire “illegal” immigrants. According to the New York Times, federal immigration officials raided 14 Chuy’s Restaurants in Arizona and California, arresting not immigrant workers but the owners of the businesses.

Of course, those familiar with Barack Obama’s past sympathies with “illegal” immigration might find bizarre his wanting to actually crack down on businesses hiring “illegals,” given how beneficial such a voting bloc would be for Obama’s party, the Democrats. On the other hand, Obama seems to want more socialist government control over businesses and their relationships with employees. And, as Rockwell notes,

Socialist ideology plays a role here, and another authoritarian anti-market ideology, protectionism. But…The unions hate any employee who works for the going market wage…

You can see, then, that this crackdown has nothing to do with nationalism or racialism or securing the borders or anything else. It is all about bolstering the power of the state and its unions over the American economy, and making the rest of us poorer.

The supposedly “pro-business” conservatives support laws punishing businessmen for employing “undocumented workers,” and those laws were recently upheld by the U.S. Supreme Court.

The problem with today’s immigration and border control hysteria is that Americans are going after the wrong people. The problems are not caused by the immigrant workers or those Americans who are hiring them. It is the other socialist controls – the Drug War, mainly – that is the problem, and is causing many people in Arizona and other border states to be victimized and terrorized.

Future of Freedom Foundation President Jacob Hornberger has written on the destructive nature of socialist central planning in immigration and labor:

As Mises, Hayek, and the Austrians showed long ago, central planning can never succeed because the planner can never possess the requisite knowledge to centrally plan a complex market, especially one as complex as an international labor market. All the planner inevitably does is produce chaos, distortions, and perversions into the market process…

(The free market) doesn’t rely on central planners. Instead, it simply uses the price system to enable people to coordinate their activities with others. Farm workers needed in Wyoming? The price of labor goes up. Mexican workers learn of the wage increase and immediately travel to Wyoming to earn the money. No central planner, but instead people planning and coordinating their own lives.

Apparently, the conservatives support central planning socialist government intrusions in employment matters that should be the right of businesses to control. We have seen that recently in New Hampshire’s proposed “right to work” law, in which the conservatives do not really support the right of businesses to control their employment matters.

Unfortunately, some people just seem to think that the State owns both the people who currently live and work in the U.S., as well as those who wish to come here to live and work.

Some questions to ask are: Who owns a business? And who owns the contract between employers and employees? And who owns the life of an individual who wants to work at a job that is available?

Here are my answers: The business is owned by the one who purchased it or built it up from one’s own assets or capital. It is not owned or even partially co-owned by the State, by the community, the neighborhood or by others who did not contribute capital to the business and participate in a voluntarily-agreed-upon contract of ownership with the actual owner. Therefore, economically and morally, the control over the business and every aspect of it is solely that of the owner(s). Any law or ordinance, regulation or mandate, regarding how the owner deals with one’s business or employment contracts, is a property intrusion – a trespass by the State – and is in violation of the businessman’s right of sovereignty over one’s busines

And the contract between employer and employee and the terms of the contract are morally and economically the property of and under the sole control of the employer and employee by voluntary agreement, and no one else. Those matters are no one else’s business. Any intrusions by laws, regulations, or mandates by the government are trespasses, and should be forbidden.

And that brings me to the American Declaration of Independence. In the Declaration, Thomas Jefferson wrote that “all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

Each individual has an inalienable, inherent right of ownership of one’s own life, person, labor and justly-owned property, and pursuit of happiness, and the right to be free from the aggression against one’s life by others, including agents of the State. With the right to life and the right to sustain one’s life, each individual has a right to trade his labor with others for a compensation or good in return for such labor, within a voluntary and mutually-agreed-upon contract, as long as one is peaceful and does not interfere with any other individual’s equal right.

Here is where we lose the conservatives. The Declaration of Independence does not state that such rights apply to “only Americans.” No, such rights are inherent in all of us, regardless of where we are on Earth. Unfortunately, some people do not believe that non-”American citizens” possess such rights.

Here is an example of a Mexican who is in need of work, and can’t find a job or get hired in Mexico but doe s find a job and gets hired at a business in Arizona. Now, as we saw in the Obama regime’s raids at the Chuy’s  Restaurants in Arizona and California, some people apparently do not believe that the Mexican here should be permitted by the U.S. government to work at the American restaurant, even though the owners of the business voluntarily hired him and are satisfied with his work, and the happily-paying customers enjoy their food there.

Please place this image to the right of the preceding paragraph.

So, who is it exactly that owns the Chuy’s Restaurant in Arizona? Is it the government? In that case, then I suppose it is the government’s right to control the employment status of that business. But if the ownership of the restaurant is of the businessman himself, and not in partnership with the community or with the government, then shouldn’t the businessman have the sole authority over the business, including who works there and who does not? Should his right to decide what’s best for his business and his customers be trespassed by others, including the State?

And does not the individual in Mexico have a God-given right to sell his labor to a voluntarily-contracting employer for a mutually-agreed-upon wage, so the individual can sustain his life and provide for his family? If one believes in the truly moral right of self-ownership, then one must answer yes, because all individuals have a right to work, including Mexicans, and including businessmen who must provide for themselves and their families.

Now, just where do the other members of the Arizona community or the federal government get such authority over the contract between the Mexican worker and the American businessman? The U.S. Constitution? But, as referred to in the Declaration of Independence, all people have a right to life, liberty and the pursuit of happiness.

But if one is saying that the community or the State shares in the ownership of the business with the business owner, then one must say that, really, the State is the true ultimate owner, because the State out-powers the businessman, and the community or the collective also are the ultimate owners because they outnumber the individual.

Unfortunately, in the socialist conservatives and statists’ belief that the government should prevent non-”American citizens” from entering the U.S., they are really advocating that the government should control labor and employment, and that individuals do not really have sole sovereignty ownership of their lives and that someone’s business is really co-owned by the community and the State.

I know that conservatives and others are concerned about increased crime rates because of “illegal” immigration, especially from the Mexican border. But in their control-freakish hysteria they are neglecting the real problems that need to be addressed: No, the problem isn’t the jobs that are available for immigrants in the U.S. The problems are the tax-funded welfare and social services that attract many people into the country. An even worse problem is the War on Drugs – which many conservatives also support, because they believe in a Nanny Police State, in which we need government officials to decide for us what chemicals we may or may not ingest into our own bodies. Like the 1920s Prohibition against alcohol, the current War on Drugs causes black markets, incentivizing the pushing and trafficking of drugs for huge profits, the corrupting of the police, and the terrorizing of innocent Mexicans and Americans by drug cartel criminals as well as corrupt government criminals.

Instead of repealing drug control socialism and welfare socialism, and thus removing all the problems those policies cause, too many misguided Americans like the conservatives call for more socialism in immigration, and in turn more restrictions on individuals’ and businessmen’s right to work and do business, more restrictions on everyone’s freedom of movement and right to travel (and the right to not be searched and asked, “Your papers, please”).

As we have seen years ago in the U.S. government’s using immigration central planning to turn away Jews attempting to escape from Nazi Germany, and more recently in the U.S. government’s prevention of Americans from leaving the U.S., the more control we allow governments to have over the people, including their right to travel and right to work and do business, and the more power of intrusion we give to the government-monopolized police, the less freedom, security and prosperity we will have.
We must repeal each and every socialist control over our lives and businesses, and that includes not only the drug war, but central planning in immigration and labor.

Regards,

Scott Lazarowitz

Scott Lazarowitz is a commentator and cartoonist at Reasonandjest.com.

Repealing Socialism in Immigration, Employment, and Drugs was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

This is a very prevalent attitude in Canada. Here was the main thrust of his argument:

“The Canadian system delivers world class healthcare at half the cost due to disintermediation. The system is run like infrastructure, like the highways, and is more economical. I’m still an advocate of government running infrastructure, as there has to be a method of collective participation. I do think that without government, the bullies would be in charge (they are hard to restrain under any system). Nothing is perfect, including freedom.”

The following is my response:

Laurence, I respectfully disagree with your comment.

First, we would hope that healthcare is ultimately not run like “infrastructure”, especially not like the highway system. A warlock of Austrian Economics, Walter Block, who wrote a book lobbying for a return to private roads and highways, notes:

“If the highways were now commercial ventures, as once in our history they were, and upward of 40,000 people were killed on them annually, you can bet your bottom dollar that Ted Kennedy and his ilk would be holding Senate hearings on the matter.  Blamed would be “capitalism,” “markets,” “greed,” i.e., the usual suspects. But it is the public authorities who are responsible for this slaughter of the innocents.”

Aside from your comment on “infrastructure”, if you are going to compare the Canadian system to the US system we need to first recognize the difference.

In Canada there is a state monopoly in the provision of medical care (though not in the provision of essential goods to the medical system monopoly).

In America they have had increasing state intervention into the medical industry starting with the AMA who in 1904 limited the number of doctors entering the field and closed down a bunch of schools. This was done in the name of protecting the consumer, but in reality the doctors got together and did it to raise their incomes.

They essentially created a labor monopoly within a private system. This is typical, by the way. In Canada the state likes to control the industry; in the US monopoly power is doled out by the state but usually vests in private hands — so up here you have state monopolies and crown corporations while down there you have antitrust and cronyism…or “state capitalism” (or corporatism) — in Russia you have oligarchs.

Progressively, over the years, the US government eventually forced employers to contribute, then granted the power of licensing to the states, and began to underwrite (subsidize) medical care demand a few decades ago.

Economics teaches us that when you restrict supply and subsidize demand you will get shortages and higher prices — and that’s even before we throw the Fed into the mix. The so-called free market medical system in the US has been progressively sabotaged over the past century. The universal coverage — Obamacare — is just a final straw.

So the high price of medical care has nothing to do with it being relatively more private in the US than in Canada — in fact economics teaches us also that prices would fall if the industry were free from government. So make sure to put the blame for the high cost where it belongs: on government regulation and subsidy, as usual.

As for Canada’s healthcare system costing half as much, undoubtedly the figures do not account for the lower ‘quality’ and the greater shortages we get here. So in reality you are getting half as much too.

As the US system is more socialized you will find that our medical costs not only start to rise more, but also, their quality/availability will fall. Like it or not Canada has been a big beneficiary of the innovations of the relatively freer market down south in this industry. I can attest to that personally. If you slow down those innovations, because, say, the system is totally socialized, then our state monopoly system will suffer as well.

That is, costs will rise and quality will fall.

The soviets were the first to try out universal medical care. As one of Gorbachev’s economists pointed out, the system basically deteriorated to the point where a black market developed based on bribery — outside of which the doctors would quip that their patients “pretend they are paying us and we pretend we are working”. And if you were dying, they pushed you out the door so that the hospital statistics wouldn’t look bad.

The only reason this hasn’t happened in countries like Canada that have adopted a similar system is that the rest of the economy here is not centrally planned. Thankfully, there is a relatively free market in the goods that supply the medical provider monopoly. And the state is loosening its grip on some provisions lately.

But the main point is that it is a matter of economic law that a private system in medical care would result in lower prices and better quality. After all, all we want is to allow competition. It’s a ridiculous argument to say that we are better off because our government restricts competition. Effectively, that is what our system is.

In regard to your comment that “nothing is perfect, including freedom”, of course you are correct.

Undoubtedly nothing is perfect. Let’s not put that stick man up. The socialists are always criticizing the imperfections of the market but the idea is not to achieve perfection.  Neither Jeff nor I nor von Mises would claim the market is perfect. Far from it.

It is a matter of what is better — a state monopoly service or free market competition.

The socialists will decry the quality of movies produced by Hollywood or the books written in a capitalistic society. No doubt that in many cases they can produce better quality stuff — even better quality goods — if it were planned. But the market may not want the “best” quality goods. In a free system it gets what it wants.

People get what they want.

I hate what Hollywood produces personally, and it does show that the majority of people (the market) has bad taste, etc. That doesn’t mean that I would favor a centrally planned movie industry. It would produce movies no one would want to watch even if by someone’s standards they would be considered perfect.

I’m sure that a centrally planned body could build better cars than we have on the road —but would everyone get one? Would it be as cost effective without any competition? In a market economy you would have goods that are near perfect that only a few millionaires could afford – like the Lamborghini — and you would have goods like the Hyundai that everyone could afford. You would have a full range for everyone. This is just not possible through a state monopoly.

We’d all either be driving the Yugo or only the despots would be driving their perfect autos.

But one thing is for sure — apodictic — competition ensures that the costs of providing goods are lower than they would be otherwise.

In regard to your comment about the Government needing to intervene or we’d all be taken over by bullies. How ironic to say that bullies would take advantage in a voluntary society so let’s replace voluntarism with a coercive apparatus that prevents free competition. Whenever the state controls an industry it is the coercive apparatus that is used instead of voluntary decisions that are being made.

This stuff about a “bully” is another socialist tactic. They’ve been using it on essential services since time immemorial.  It’s almost as bad as the first stick man you used above!  But it’s okay. We’re indoctrinated that way up here in Canada. Unless you have read von Mises and Rothbard you’re defenseless against the socialists.

In order to discredit the myth about bullies in a free market system one of my favorite authors, Frederic Bastiat, used to say: “In war, the stronger overcomes the weaker.  In business, the stronger imparts strength to the weaker”. This is 100% true. It is pure irony to say that the state protects the weak from bullies.

The state is the biggest bully of all.

It’s this simple. If you would not put the state in charge of providing electronics goods why put them in charge of providing ESSENTIAL goods? Explain to me how anyone is “bullied” in any other industry that we’d agree was a free market industry. I don’t see it. I see that businesses are accountable to consumers. I also see that government is not. I pay FEDEX for any important mail. The post office is a great example of how government does things.

Sure, it all looks great as long as there is no free market alternative.

Free market medical care would be cheaper and it would be better. It would be better all around. I don’t expect anyone to agree. No one agrees, after all, that we could eliminate recessions altogether by going to a real gold standard. They don’t buy it because we’ve had a gold standard but we still had recessions. For the same reason, people won’t buy that a true free market would be 100 times better than what they call free medical care!

They don’t buy it because they see the so-called private system in the US costing more.  But they fail to credit the state with that problem, just like they failed to acknowledge that the gold standard of old was rigged too.

For every story about a private doctor not treating someone, say, because the customer has no money, there are a dozen such stories under universal medical care systems where patients in dire need are either shoved out the hospital door or discharged by a death committee or otherwise mistreated. There are many stories. I can tell you from experience with markets in general that if I had a heart attack and no money I’m confident that the doctor in a free market system would still help me even if he wasn’t going to get paid.

Charity is something only a free market system can afford.

Regards,
Ed Bugos
Whiskey & Gunpowder

April 18, 2011

Thoughts from a Canadian on the Canadian Socialized Medical System was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

You might be asking, where is Human Action? Where is Man, Economy, and State? And where is Money, Bank Credit, and Economic Cycles? Well, these books are there too, further along the shelf. But the Big Three bob in an exalted gravitational bubble of their own, because they form the solar core of my own personal life-long cure from socialism, along with various lesser satellites which rotate around them, including 1984, Atlas Shrugged, and An American in the Gulag.

As a hard-core Stalinist by the age of nine, after having read Das Kapital in my local state library, by the time I had reached thirty I had mellowed slightly into a hard-core Marxist and a willing clandestine ex-Militant Tendency foot-soldier in the Machiavellian rise of the New Labour army in Britain, most of us following the camp magazine, Marxism Today, edited by Martin Jacques, the man who invented the term “Thatcherism”. I was so far entombed within this appalling Death-Eating dark side, that I’m convinced, looking back, I must have had snake’s eyes, a forked tail, and diabolical horns.

Fortunately, I managed to cure myself from this orcish horror, mainly due to the fact, of course, that socialism is utter self-serving elite-generated nonsense and the most evil destructive bone-headed religion that mankind has ever invented. Amongst many other disastrous human-hating onslaughts it has engaged in, in its bid to keep people stupid, sick, and poor — and thus easier to rule over and exploit as tax cattle — socialism has slaughtered tens of millions of people, particularly in the twentieth century, which must truly be its envious bloody golden age. Alas, it took many years to cure myself from this virulent mental infection, involving a decade of self-realisation, self-study, and many tough self-directed questions, as well as several broken relationships, memorable bitter accusations of treachery, and the painful sloughing of mental habits burned into my mind through years of angry hatred and vicious envy.

The three books which finally wiped the usually-immune virus of socialism clean from my mind were the exalted Big Three above, especially Socialism, by Ludwig von Mises, a book which always remains fresh and inspirational on every re-read, a sort of non-fictional equivalent of Lord of the Rings.

But did room exist for a fourth book within my hallowed core? Was I genuinely fully cured or was there the remotest chance I could slip back into the skeletal clutches of Voldemort’s Sauronesque worshippers, the fatally conceited socialist Death Eaters?

Fortunately, I think I am now fairly resistant to the drenching poison of Marxism, and all of its goblinesque derivatives such as environmentalism. However, as the fabulous George Carlin pointed out in one of his amazing HBO specials, you always need to keep your immune system in tip-top fighting order to kill off the re-entry of old familiar viruses. Perhaps I needed a fourth book to provide this required re-inoculation of my fighting spirit against the seemingly endless mindless legions of the state-indoctrinated cannon fodder of socialism?

I think I have now stumbled upon this fourth book.

Although my self-education had kicked socialism back into the envious schoolyard nursery where it belongs, all the books I had read had never clarified one last question, which had nagged at me for years. Why does socialism keep taking so long to fail, with the Soviet Union surviving for 70 years and the fiat currency union of the west surviving for 40 years, since 1971? Yes, there is economic calculation, the short-sightedness of fools, and the system of organised criminal lies which we name government, but what is the essential mechanism that separates the free market from the jackboot of socialism and how does a typical rancid and rotten bloom of socialism survive for decades, when from my previous readings such a malodourous bloom ought to fail within years or even months, once the hideous mask of its hateful spiteful envy is revealed?

Even the most virulent and aggressive form of the creed — the National Socialist German Workers’ Party — managed to survive for a dozen years, from 1933 to 1945, before this particularly cancerous party of socialism imploded, with milder forms of the disease, such as our own British Labour Party, managing to survive for a hundred years before collapsing in 1979, only to re-appear in a more camouflaged form as the more fascist variant of New Labour, which predictably blew itself out after thirteen unlucky years of boom and bust, hopefully to now die under the feeble and pathetic leadership of the spectacularly inglorious Ed Miliband, son of the influential Marxist intellectual, Ralph Miliband.

Yes, we can talk about western subsidies to the Soviets and the misplaced faith of people in central banks to refrain from inflating, but this is skirting the central issue; why does socialism survive for decades, no matter how appalling its variant form? If we are to believe that socialism is stupid and self-destructive, why has it taken such a hold of humanity and why does it keep surviving and prospering for so long in its various incarnations? If the flowering Hayekian market of ideas and the evolving Schumpeterian market of freely creative destructionism really do work in partnership to drive out failed innovations and to promote successful inspirations, why are there so many Keynesians and so few Austrians? Why is there so much government and why is there so little freedom?

Jesús Huerta de Soto uncovers and reveals the mysterious ghost-in-the-machine hiding behind these questions in a beautifully simple connective way, in Socialism, Economic Calculation, and Entrepreneurship. He distils the rough juniper berries of human action into the Bombay Sapphire gin of entrepreneurship and elegantly blends this with the chilled quinine tonic of economic calculation. Delicately mixing this with the limes of Salamancan history and the Andalusian bitterness of political analysis, the resulting 300-page book is one of the finest Austrian monographs I have ever had the privilege of reading and easily breaks into my triumvirate of heroic works, to help form a new quadrumvirate.

Yes, the top-ranking book is still Socialism, as Gandalf the White, with the other three jostling alongside as Aragorn, Gimli, and Legolas; Socialism, Economic Calculation, and Entrepreneurship now plays the role of the far-seeing prince of the Mirkwood elves.

So how does Legolas achieve this far-sightedness, where Gandalf, Aragorn, and Gimli fall short? Because Huerta de Soto uses both sides of the mind in equal measure, including the parallel-processing right-mind, whereas most writers typically concentrate on the serial-processing left-mind. Drawing parallel-processed pictures with his words to complement a serial-processed stream of ideas, Huerta de Soto achieves a delicately balanced act between the right and the left conscious minds, enabling them to work together to see through to the root causes of the failure of socialism and the triumph of the free market. As I sat reading his book, I could see a sparkling and ever-changing set of shimmering human connections constantly changing and shifting, with the lights of new ideas twinkling in a flexible Hayekian blend of free human thoughts and actions, always evolving towards — though never achieving — a final perfect form where humanity is best served by this diaphanous liquid molecular structure.

I could also see the destructive boot and the mindless compartmentalising scalpels of the blind self-serving socialist elite, constantly trying to wreck this evolving form and to cut its connections to make this glittering form do what they wanted and to do what served their personal immoral interests, against the independent temporal wishes of the rest of the nodal system. However, despite this constant unwelcome interference, no matter where the socialist boot falls and no matter where its regulatory controls cut the informational connections, the entity always tries to survive, like an ants’ nest disturbed by a spade in your back garden.

Socialism thus survives because of the free market, which constantly tries to repair the damage socialism causes through its taxations, regulations, and debt-fed inflations. The free market self-repairs, re-connects, and re-organises itself — spontaneously — like a river in flow coping with the damming of malcontented beavers. The final triumph of socialism can thus be seen as the complete damming of the river and the obliteration of humanity, and the final triumph of the free market will be when this evil dam is finally dissolved, destroyed, and eradicated, and the river can flow freely again without obstruction.

Thus, the more socialism we have, the quicker it kills itself, destroying that which it parasitises, as with full-blooded national socialism and soviet communism; the more anaemic versions of socialism allow a more bloodless monster to survive longer, as with social democracy in the western world.

However, socialism is an always-expansive beast, feeding upon the seven deadly sins of wrath, greed, sloth, pride, lust, envy, and gluttony, via the mechanisms of warfare and welfare. Although the ongoing fight between socialism and the free market may sometimes be balanced for long periods, as in a fiercely contested but static Sumo wrestling contest or a brutal but static rugby scrum, socialism is thus constantly trying to break out and to crush the free market, therefore we need to obliterate this green-eyed aberration completely, if we are to achieve a safe, free, and prosperous world.

All this, and much more, becomes clear when you read Professor Huerta de Soto’s book and this short review does it little justice; you must read the book yourself to form your own conclusions. I can only say, however, that I thoroughly recommend that you do, especially all those people who wish to understand the insidious and self-righteous evil of socialism and therefore how to remove its suicidal and destructive human-hating impulses from the face of the Earth, before these self-immolating impulses destroy us in their turn.

Regards,
Andy Duncan
From the article “Jesús Huerta de Soto: Socialism, Economic Calculation and Entrepreneurship.”
Whiskey & Gunpowder

November 17, 2010

Books to Rid the Soul of Socialism was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

“Good,” we replied.

“How can you say that? Aren’t you worried you’re going to upset your readers? They won’t become customers if they’re angry with you.”

“That’s true. But you probably misunderstand what our business is. I don’t want a customer who’s easily offended by ideas. It’s my job to provoke thought. And you do that by presenting ideas, challenging conventional wisdom, and just thinking harder about things.”

Warming up to our task, and perhaps inspired by a sip of Maker’s Mark, we continued, “When I see someone say something idiotic – or, if you prefer – something I think is totally wrong, I feel compelled to point it out. You have to challenge that stuff when you see it, or else people start to believe it. And once they start to believe it without really thinking about it, the game is up. You become a servile, passive, brain-dead whip dogged to be kicked around and cuffed about the ears by the Welfare State. You’ll be lucky to get a bone.”

The discussion came up because of this quote by the Prime Minister earlier in the week on the radio. He said:

The core element of conservative economic management, in which I believe, is expanding the role of government in the economy when the private sector is in retreat. Had we not done that we would have had a quarter of a million more Australians out of work, many small business [sic] collapsing. Now that the economy globally is on a pathway to recovery it’s time for the role of government to retreat. That’s what conservative economic management is all about. That’s what I believe in.

You have to give the Prime Minister credit. He says what he believes. But what he believes is all wrong. And we wish he’d stop using the phrase “the business of government.” It’s an insult to businesspeople. Government is not a business. It does not take risks with its own capital to create value and jobs. The Prime Minister is not an entrepreneur.

He is, however, by his own admission, a manager. And in that respect, his hubris and his error are revealed. It is not “conservative economic management” for the government to massively intervene in the private sector. It is Socialism.

You might agree with it or believe in the moral rightness of that intervention, mind you. But let’s at least call things by their right names. It’s one of the surrealities of the modern world that things are often given names that are in direct opposition to what they actually are. Examples include the Democratic People’s Republic of Korea, which is neither Democratic nor a Republic, and Britain’s Liberal Democratic Party, which is neither Liberal nor Democratic either. We would add to the list Kevin Rudd as a “conservative economic manager” of the economy.

In any case, the Prime Minister’s error (shared by many members of the opposition who fail to rebuke him), is that he does not understand the inherent impossibility of managing a complex system like the economy. The second order error is probably just a disagreement about the government’s role in the economy. But you can’t have the second error without the first. And the first one is a fundamental question about the limits of human knowledge.

No human being, economist, and philosopher made this point more clearly than Friedrich Hayek. One of Hayek’s great achievements – picked up today we think by Nassim Taleb – is forming a clearer picture about the quality of knowledge and what we can say that we really know. What does that mean?

Hayek simply pointed out that in a complex system like an economy, no single person can have enough information or even know what information is required to correctly allocate and direct the use of society’s resources. To believe otherwise is to have an exalted sense of your own abilities as a micro-manager.

Hmmn.

Hayek’s critique of central planning – what he called the fatal conceit of socialism – was, and remains, the most sensible criticism of centralised economic authority. It can’t work because human action is too complex and unpredictable and ultimately unknowable in a strict cognitive sense. You cannot plan and organise for what you do not know and cannot understand.

Market prices, on the other hand, are the sum total of human action. Those prices contain information and help maintain the relationship between supply and demand. That is the essential triumph of a free market: it allows people to be free and choose their own path and, at the same time, manages the most efficient allocation of resources.

It does this based on what people want as expressed through their own choices, not what government tells them they should or should not want. It produces this kind of peaceful and prosperous order – most of the time – without being organised by a smart man in an expensive suit serving on the public payroll.

But the basic idea simple. Individuals and firms know better how to plan their own future than the government. If you believe otherwise, you believe the government has the right and the obligation to make plans on behalf of people who are not fit to govern themselves. Proper names for that include: Nanny State, coercion, tyranny and more!

The Prime Minister is a planner and a world improver. That is the “business” he is in. And perhaps his motives are building a better world. But the way to do that is to sweep your own doorstep and tend your own garden, we’d submit. His belief about the proper role of government in the management in the economy is based on an overweening pride in the knowledge and skill of government ministers and career bureaucrats.

How else can you explain a piece of tax law like the Resource Rent Tax which effectively makes the government a silent partner in the profit and the losses of the resource industry without the consent of shareholders? Only a man who believed government had the right and the ability to insinuate itself into private business relationships would so pridefully propose a scheme like that.

That’s not to say that the government doesn’t have a role in civilised society. It most certainly does. Its role is to guarantee and enforce clear rules that establish and protect the ownership of private property and enforce contract, as well as punish people who take what is not theirs. The Law – transparent, providing equal justice, and impartially administered – is as important an institution to civilised society as the free market, which itself is could be described as a mechanism for communicating prices.

By those standards – which are, of course debatable – this government has done the exact opposite of conservative economic management. It has changed the rules in mid-stream, proposed to enforce them retroactively, and demanded equity in private enterprise without paying for it like the rest of us.

To be fair, that is “business” of a kind. Monkey business perhaps. Or “business” in the same way organising payments through the threat of violence is a “business.” Or less threateningly, it’s just meddlesome troublesome “business” that gets in the way of real people doing real business.

As the economist and thinker Henry George wrote, “It is not the business of government to make men virtuous or religious, or to preserve the fool from the consequences of his own folly. Government should be repressive no further than is necessary to secure liberty by protecting the equal rights of each from aggression on the part of others, and the moment governmental prohibitions extend beyond this line they are in danger of defeating the very ends they are intended to serve.”

The world is complicated enough. Europe’s sovereign debt crisis will eventually migrate its way to America and the super cycle in fiat money will end in either a debt deflation or massive inflation or both. Real wealth will be destroyed. Sound economic management would have been to leave well enough alone. But that is not what the government has done…and it’s going to reap the whirlwind…

Regards,
Dan Denning
The Daily Reckoning Australia
Whiskey & Gunpowder

May 20, 2010

Even a Little Government Intervention Is Destructive Socialism was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

America has a cancer which has been eating at it for 77 years. Literally. The cancer America has, is the same cancer that killed the Roman Empire, and others as well. The cancer is government growth, and all that goes with it. When FDR started his Social Security system, many warned against it, but no heed was paid. After all, it would only cost 1% of rich people’s paychecks, and the old would be secure. We were a rich nation, we should care for our elderly, and make their old age free from worry. When the first public housing was built in 1937, the minimum wage installed in 1938, or various forms of welfare instituted, a few shouted “fire,” but were ignored. Republicans and Democrats both voted for all of FDR’s schemes. As years passed, wars fought, and more and more ‘programs’ approved, voted upon, and signed into law, they were just like an un-detected cancer or a home being eaten from within by termites.

The pressure on gold backed dollars became so strong that Nixon removed the backing, thereby allowing virtually unlimited printing. Politicians then could spend as much as they pleased because the bucks could be printed without any regard of re-paying the debts that were incurred as a result of irresponsible spending. After all, as the saying used to be, “We owe it to ourselves.” Not to worry, we’re going to raise everyone’s standard of living, take care of the poor, and eliminate poverty. We’re going to build an interstate highway system, and even though it will kill the passenger train and tens of thousands of businesses, when the highways by-pass their towns, everyone will be able to drive anywhere at high speed. We’ll sponsor a government passenger train, which will only cost a hundred million a year. “Not to worry, we are a rich nation and so rich that we can do anything we want,” was the usual explanation given by politicians.

Everyone got so happy that they didn’t need to do much hard work any longer, that Mexicans were imported to do what we white folk wouldn’t do. More and more welfare and public housing was handed out and built. The cities were going down pretty quickly, forcing “white flight,” but we were a rich nation, so not to worry. The cancer hadn’t really been noticed as yet. We’d start HUD and fix the cities.

In 1965, Medicare was passed, and the cancer caused a little pain, but we were caring for the sick, and we “Owed most of it to ourselves,” so not to worry. The cancer was at the point where it was at about a 25% cure rate, but few noticed. In 1972, the brains in D.C. brought on food stamps. Truman, LBJ, and Bush got us into wars in Korea, Vietnam, Iraq, and Afghanistan, but after all, our soldiers were going into battle, “To protect us,” even though that was a blatant lie. The costs were usually not part of the budget, or were hidden, so even though the cancer was advancing, few bothered to worry. George Bush passed the prescription drug bailout program, and it’s only cost a trillion so far, and Republicans and Democrats voted for it. We need to ‘help’ the aged, of course. Government had robbed them of the dollar value, and incentives to save and plan ahead, but we furnished Social Security, Medicare, and Prescriptions. We were a rich nation.

Obama got nominated and elected, and as he was running for office he told everyone that he wanted to nationalize medicine and health, and actually turn America into a socialized state, but most were so sick of George Bush, and the Republicans picked a highly unelectable Senator as a candidate, that Obama got elected, and promptly kept his word. Now the cancer was so obvious that even the Republicans recognized it, and the majority of Americans recognized it also. The Democrats knew all along, but they thought that the cancerous handouts, welfare, programs, and other effluvia, were benign, and after all “We owe some of it to ourselves.” Now, America owes China a trillion unbacked dollars, Illegals are everywhere, and the deficit is hundreds of billions every month. Welfare recipients, Social Security recipients, Medicare recipients, public housing dwellers, and millions and millions of businesses, groups and citizens which have been addicted to government handouts, contracts, and checks, are totally incapable of going it alone, because it would be impossible to go it alone…thanks to the cancer which now is at the 95% fatality stage.

Suddenly, when it is probably too late, Republicans, who have been feeding the cancer for 77 years, say that they are opposed to Obama care. In strong speeches, and threats of lawsuits, Republicans now are covering up all the misdeeds they have committed, which fed the cancer. They, like the Democrats, have acted irresponsibly for 77 years, and now they are supposed to be able to cure the cancer? A vote in November will save America? Like it did when Republicans took over both houses before? When they controlled both houses, they quickly reverted to feeding the cancer.

The cancer has metastasized into the whole body of America. The few of us who have been warning of upcoming death have not been heeded. The cancer has given us a virtually worthless currency, unpayable debts, upcoming runaway inflation, and a huge, worthless, underclass. We are now bogged down in two pointless, expensive wars, which seem to be un-winnable, and we are about to lose our credit rating. America needs huge infusions of cancer hiding loans to keep alive, and the purveyors of those loans have about decided we are a bad risk.

Now what? Reform the Republicans with Tea Party threats? Throw the bums out in November, and take over the Congress? Even if that happened, and I hope it does, the debts are unpayable, and welfare recipients cannot be denied, because if they were, America would be in ruins pretty quickly from the riots and arson…which may happen anyway. Best thing, to me, is to get out of big cities and protect yourself with historic, beautiful, real, money, not government issued scrip.

Regards,
Don Stott, ColoradoGold.com
for Whiskey & Gunpowder

April 2, 2010

Government Is a Cancer was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

My corner of Baltimore seems like a good place to ride out a storm. After all, innumerable cars are plastered with Obama bumper stickers, and windows display signs like “Universal Healthcare Now.” In essence, it’s a very liberal neighborhood in an extremely liberal state. What better neighborhood to be in times of need, right?

The architecture ranges from early 19th to early 20th century row homes, which as a result demands parallel parking. This isn’t a great inconvenience most of the time, but with the snow, it’s an absolute nightmare. First the clouds drop forty inches. Then the city snow plow piles another mountain from the street onto your car.

Successfully liberating the vehicle from its icy prison can take hours. After leaving the spot, anyone can take the laboriously freed space. Restoring regular parking conditions quickly requires everyone chipping in for the common good.

During this street clearing process, my neighbors sorted themselves into four groups:

1.    The Saint (1% of the neighborhood) — Every couple of blocks resides a truly amazing human being living to serve others. He’s shoveling out his neighbors’ cars, dumping bags of rock salt down the whole street, and passing out shovels like he owns a hardware store.

2.    The Good Citizen (15% of the neighborhood) — A caring person doesn’t just shovel enough snow to drive away. He carves out the front and back. After leaving his spot, someone else can parallel park without digging. If everyone did this, normal parking would resume in a day — if not less.

3.    The Self-Interested Person (70% of the neighborhood) — This guy doesn’t really care about helping anyone. He carves just enough in the front to get out. The next person must dig before parking.

4.    The Malicious Creep (14% of the neighborhood) — Instead of shoveling snow to the curb, the creep stacks snow onto his neighbor’s car. This saves the creep approximately fifteen minutes while adding an hour to his neighbor’s work.

While my neighbors love Obama and universal healthcare, they obviously aren’t such good socialists on their own block. This is no surprise; everyone on earth is an armchair Mother Theresa. We all have noble thoughts at the coffee shop or over beers. But when the snow shovel has to come out, so does the truth.

So let’s face it. Universal healthcare supporters are much like the folks on my street. There are a couple of saints, a few good people, and a large chunk who are either self-interested or just plain selfish. Most support it either because they will benefit directly, or they think the tax burden will not be placed on them.

According to a recent Gallup poll only 34 percent believe that healthcare reform will personally increase their costs. Gallup also points out that most don’t think healthcare reform will benefit them personally — hence they are supposedly altruistic. But it’s not altruism when only 34 percent believe that they will do the shoveling.

You don’t think this is true? Just look at the Republican Party’s anti-universal healthcare campaign. The GOP hasn’t appealed to morality or fairness, but instead to selfish elements among universal healthcare supporters. The message is that the plan will cost more for everyone and your healthcare will get worse. So far the campaign has worked.

One can speak sweet nothings while pleasantly sitting around a warm fireplace. But in the end, a snowy day and a shovel will always reveal the selfish nature of a socialist underneath.

Regards,
Vedran Vuk, Casey Research
for Whiskey & Gunpowder

March 2, 2010

Snowstorm Recovery Reveals Truth About Socialism was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

However, that is not why people like Paul Krugman and other socialists champion tax-funded road building. Instead, they insist that the money spent in itself will revitalize the economy, and that is pure nonsense. Interestingly, this past year has seen a huge amount of government “public works” spending, but the effects have not been what the Krugmanites/Socialists have claimed.

A recent AP article notes that a number of economists have examined the results of this road building, and find them wanting:

Ten months into President Barack Obama’s first economic stimulus plan, a surge in spending on roads and bridges has had no effect on local unemployment and only barely helped the beleaguered construction industry, an Associated Press analysis has found.

Spend a lot or spend nothing at all, it didn’t matter, the AP analysis showed: Local unemployment rates rose and fell regardless of how much stimulus money Washington poured out for transportation, raising questions about Obama’s argument that more road money would address an “urgent need to accelerate job growth.”

This is not surprising, but no doubt the Krugmanites/Socialists will have an answer declaring that the real problem was that the government did not spend enough. Spend more, they tell us, and then you will see the positive results.

Why has this spending not had the desired effect? To answer that, one has to understand that an economy is not an amorphous blob into which one pours money in order to make the recipe complete. An economy has a very complex set of relationships in which all factors are valued relative to one another, and in the end the value of those factors of production is determined by the value that consumers place upon the final product that those factors create.

In other words, coal is valuable because it helps to make electricity, which we value. Electricity does not receive its value from coal; coal receives its value from electricity.

Furthermore, an economy that is functioning correctly is one in which the factors either are in balance or are not prevented from finding their proper relationships with one another. By piling on spending and forcing factors to be expended on pet government projects, the Obama administration (like the Bush administration before it) actually is diverting factors from the use that consumers prefer to uses that the political classes and their allies prefer.

This move actually makes economic activity more distorted and prevents the recovery from occurring. In fact, I can say confidently that this forced “massive public works” emphasis is making us poorer because it actually is a massive wealth transfer from the productive to the non-productive economic sectors.

To use a term from Peter Schiff, the government is destroying wealth, and that makes us poorer. Furthermore, as government continues to pound square pegs into round holes, the net effect will be to destroy more wealth and throw many more people into unemployment and poverty.

This is something the Austrian Economists understand instinctively. Keynesians and Krugmanites are clueless, and while they revel in their cluelessness and their ignorance is celebrated in the media as Great Wisdom, nonetheless, they are ignorant people, but (unfortunately) ignorant people who are influencing the government to destroy what is left of our economy.

Indeed, the “shovel-ready” projects are shoveling something, alright, but it is not dirt. I don’t think I need to emphasize that the nonsense they are shoveling at us comes from the back end of a bull.

Regards,
William J. Anderson
LewRockwell.com

February 4, 2010

Prosperity Through Road Construction was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

A new BBC poll finds that only 11 percent of people questioned around the world – and 29,000 people were asked their opinions – think that free-market capitalism is a good thing. The rest believe in more government regulation. Only a small percentage of the world’s population believes that capitalism works well and that more regulation will reduce efficiency.

One-quarter of those asked said that capitalism is “fatally flawed.” In France, 43 percent believe this. In Mexico, it is 38 percent. A majority believes that government should rob the rich to give money to poor countries. In only one country, Turkey, did a majority say that less government is better.

It gets even worse. While most Europeans and Americans think it was a good thing for the Soviet Union to disintegrate, people in India, Indonesia, Ukraine, Pakistan, Russia, and Egypt mostly think it was a bad thing. Yes, you read that right: millions freed from socialist slavery: bad thing.

That news must lift the heart of every would-be despot the world over. And it comes as something of a shock twenty years after the collapse of socialism in Russia and Eastern Europe revealed what this system had created: backward societies with citizens who lived short and miserable lives. Then there is the China case, a country rescued from bloody barbarism under communism and transformed into a modern and prosperous country by capitalism.

What can we learn? Far from not having learned anything, people have largely forgotten the experience and have developed a love for the ancient fairytale that all things can be fixed through collectivism and central planning.

As to those who would despair at this poll, consider that it might have been much worse were it not for the efforts of a relative handful of intellectuals who have fought against socialist theory for more than a century. It might have been 99% in support of socialist tyranny. So there is no sense in saying that these intellectual efforts are wasted.

Ideas also have a life of their own. They can lie in waiting for decades or centuries and then one day, the whole of history turns on a dime. Especially these days, no effort goes to waste. Publications and essays, or any form of education, is immortalized, ready for the taking by a desperate world.

As for the opinion poll, we have no idea just how intensely these views are held or even what they mean. What, for example, is capitalism? Do people even know? Michael Moore doesn’t know, else he wouldn’t be calling bailouts for elite, Fed-connected financial firms a form of capitalism. Many other people reduce the term capitalism to: “the system of economics in the U.S.” It is no more complicated than that. This is despite the reality that the U.S. has a comprehensive planning apparatus in place that is directly responsible for all our current economic troubles.

Now, let’s take this further. Among the people around the world who do not like the U.S. empire, many believe they don’t like capitalism either. If the U.S. economy drags the world down into recession, that is a prime example of capitalism’s failure. Even more preposterous, if you didn’t like George W. Bush, his ways and his cronies, and Obama is something of a relief, then you don’t like capitalism and you do like socialism.

Another point of view misunderstands the idea of capitalism itself. It is not about creating economic structures that benefit capital at the expense of labor or culture or religion. It is about a system that protects the rights of everyone and serves the common good. Capitalism is just the name that happened to be identified with this system. If you want to call freedom a banana, fine. What matters is not words but ideas.

I do know that none of these messed-up definitions of capitalism follow. You know this too. But for the world at large, serious ideological analytics are not the animating force of daily life. Many people attach themselves to vague slogans.

Further, as Rothbard has forcefully argued, free-market capitalism serves no more than a symbolic purpose for the Republican Party and for conservatives. Economic liberty is the utopia that they keep promising to bring us, pending the higher priority of blowing up foreign peoples, jailing political dissidents, crushing the left wing on campus, and routing the Democrats.

Once all of this is done, they say, then they will get to the instituting of a free-market economic system. Of course, that day never arrives, and it is not supposed to. Capitalism serves the Republicans the way Communism served Stalin: a symbolic distraction to keep you hoping, voting, and coughing up money.

All of which leaves true capitalism – a product of the voluntary society and the sum total of all the exchanges and cooperative acts of people all over the world – with few actual intellectual defenders. They are growing, but the educational work we need to do is daunting, and we are facing the most powerful forces in the world.

There is nothing new in this. In the history of the world, freedom is the exception, not the rule. It must be fought for anew in every generation. Its enemies are everywhere, but the leading enemy is ignorance. For this reason, the main weapon we have at our disposal is education.

Education includes explaining that socialism is an unworkable idea. There is nothing better than Ludwig von Mises’s 1922 book Socialism, a comprehensive presentation of the fallacy of the socialist idea. Another essential work is The Black Book of Communism. Here we have a wake-up call that shows that the dream of socialism is actually a bloody nightmare.

Then there is the issue of the positive case for capitalism. One can do no better than Mises’s own Human Action, which is not likely to ever be surpassed as a treatise on the free economy. True, it is not for everyone. And that’s fine. There are many primers out there too.

The fashion for socialism and the opposition to capitalism should alarm every lover of freedom the world over. We have our jobs cut out for us, but with numbers this bad, it is not difficult to make a difference. Every blow you can land for free markets helps protect freedom from its enemies.

Regards,
Llewellyn H. Rockwell, Jr.

November 13, 2009

Editor’s Note: This article orginally appeared as “The Triumph of Socialism” on LewRockwell.com. To view the original article, please click here.

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

I find it perplexing that only 20 years after the collapse of the Berlin Wall, the West continues to implement laws that mimic all of the failed policies of our former “communist” foes. In fact, our current president won the election by promising to “spread the wealth around.” But… truth be told… we don’t have to look to Eastern Europe or the Soviet Union to find a society destroyed by coercion, socialism, and the overreaching power of the State. We could just look at Detroit…

In 1961, the last Republican mayor of Detroit lost his re-election bid to a young, intelligent Democrat, with the overwhelming support of newly organized black voters. His name was Jerome Cavanagh. The incumbent was widely considered to be corrupt (and later served 10 years in prison for tax evasion). Cavanagh, a white man, pandered to poor underclass black voters. He marched with Martin Luther King down the streets of Detroit in 1963. (Of course, marching with King was the right thing to do… It’s just Cavanagh’s motives were political not moral.) He instated aggressive affirmative action policies at City Hall. And most critically, he greatly expanded the role of the government in Detroit, taking advantage of President Lyndon Johnson’s “Model Cities Program” – the first great experiment in centralized urban planning.

Mayor Cavanagh was the only elected official to serve on Johnson’s task force. And Detroit received widespread acclaim for its leadership in the program, which attempted to turn a nine-square-mile section of the city (with 134,000 inhabitants) into a “model city.” More than $400 million was spent trying to turn inner cities into shining new monuments to government planning. In short, the feds and Democratic city mayors were soon telling people where to live, what to build, and what businesses to open or close. In return, the people received cash, training, education, and health care.

The Model Cities program was a disaster for Detroit. But it did accomplish its real goal: The creation of a state-supported, Democratic political power base. The program also resulted in much higher taxes – which were easy to pitch to poor voters who didn’t have to pay them. Cavanagh pushed a new income tax through the state legislature and a “commuter tax” on city workers.

Unfortunately, as with all socialist programs, lots of folks simply don’t like being told what to do. Lots of folks don’t like being plundered by the government. They don’t like losing their jobs because of their race.

In Detroit, they didn’t like paying new, large taxes to fund a largely black and Democratic political hegemony. And so, in 1966, more than 22,000 middle- and upper-class residents moved out of the city.

But what about the poor? As my friend Doug Casey likes to say, in the War on Poverty, the poor lost the most. In July 1967, police attempted to break up a late-night party in the middle of the new “Model City.” The scene turned into the worst race riot of the 1960s. The violence killed more than 40 people and left more than 5,000 people homeless. One of the first stores to be looted was the black-owned pharmacy. The largest black-owned clothing store in the city was also burned to the ground. Cavanagh did nothing to stop the riots, fearing a large police presence would make matters worse. Five days later, Johnson sent in two divisions of paratroopers to put down the insurrection. Over the next 18 months, an additional 140,000 upper- and middle-class residents – almost all of them white – left the city.

And so, you might rightfully ask… after five years of centralized planning, higher taxes, and a fleeing population, what did the government decide to do with its grand experiment, its “Model City”? You’ll never guess….

Seeing it had accomplished nothing but failure, the government endeavored to do still more. The Model City program was expanded and enlarged by 1974′s Community Development Block Grant Program. Here again, politicians would decide which groups (and even individuals) would receive state funds for various “renewal” schemes. Later, Big Business was brought into the fold. In exchange for various concessions, the Big Three automakers “gave” $488 million to the city for use in still more redevelopment schemes in the mid-1990s.

What happened? Even with all of their power and all of the money, centralized planners couldn’t succeed with any of their plans. Nearly all of the upper and middle class left Detroit. The poor fled, too. The Model City area lost 63% of its population and 45% of its housing units from the inception of the program through 1990.

Even today, the crisis continues. At a recent auction of nearly 9,000 seized homes and lots, less than one-fifth of the available properties sold, even with bidding starting at $500. You literally can’t give away most of the “Model City” areas today. The properties put up for sale last week represented an area the size of New York’s Central Park. Total vacant land in Detroit now occupies an area the size of Boston – Detroit properties in foreclosure have more than tripled since 2007.

Every single mayor of Detroit since 1961 has been a Democrat. Every single mayor of Detroit since 1974 has been black. Detroit has been a major recipient of every major social program since the early 1960s and has received hundreds of billions of dollars in government grants, loans, and programs. We now have a black, Democrat president, who is promising to do to America as a whole what his political mentors have done to Detroit.

Those of you with a Democratic political affiliation may think what I’ve written above is biased or false. You may think what you like. But there is no way to argue that what the government has done to Detroit is anything but a horrendous crime. You may think what I’ve written above is merely a political analysis. Perhaps so, but politicians drive macroeconomic policy. And macroeconomic policy determines key financial metrics, like the trade-weighted value of a currency and key interest rates.

The likelihood America will become a giant Detroit is growing – rapidly. Politicians now control the banking sector, most of the manufacturing sector (including autos), a large amount of media, and are threatening to take over health care and the production of electricity (via cap and trade rules). These are the biggest threats to wealth in the history of our country. And these threats are causing the world’s most accomplished and wealthy investors to actively short sell the United States – something that is unprecedented in my experience.

Regards,
Porter Stansberry

November 2, 2009

Editor’s Note: A big thanks to Porter Stansberry for this article. We here at Whiskey were very eager to run it. If you would like to read more from Porter and find out about his investment research, just take a look here.

Detroit’s Socialist Nightmare Is America’s Future was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.