Working On A Full Length Description

 I used to post my stuff here. Haven't in years. If you're an old friend or fan (did I even have those?) just checking this out on a lark, head over to http://www.reddit.com/r/dasaw. My ideas are finally standing still long enough for me to give it a good solid written word treatment, and that is will you find my drafts.

Traffic Enforcement

I had a really bad near miss the other day. I was trying to merge onto the freeway, but there was a guy overlapping my rear bumper by a foot or so. I had already hit my signal, and accelerated to the gap in front of him. He accelerated too. I accelerated a little more; so did he, maintaining almost the exact level of overlap. I slowed down, intending to merge behind him... and even that didn't seem to help.

So I started moving over slowly, slowly enough to get the message across: coming through! Get out of my way, asshole! The moron accelerated, laying on his horn, pulling up alongside me. I was almost out of road, so I slammed by brakes to dodge behind him and finally managed to get in. I swear, if I wasn't in a company vehicle and a company uniform, there's a good possibility I would have followed this individual to do a little "citizen enforcement". As it was, I was just left with a bad taste in my mouth, with regard to how sporadic enforcement is, and how much it focuses on arbitrary targets like numerical speeds instead of real driver misbehavior.

It got me thinking about a furutistic method of traffic enforcement I've been toying with on and off (usually after witnessing some particularly egregious example of what I call "offensive" (in contrast to "defensive") or "competitive" driving. Current enforcement seems to rely exclusively on cruisers (or sometimes motorcycles) and radar guns. Expensive, and thus offering insufficient coverage. But imagine yourself in the following scenario.

You get home from work. You had a rather close encounter on the road; some asshole tailgated the fuck out of you, and then sped around you, nearly clipping your bumper as he went back into the lane in front of you (gaining a whole car length; yay). Or maybe you were trying to merge, and he seemed to be deliberately denying you entry. Or maybe you're in China or Russia, and someone literally jumps out in front of your car in an effort to defraud you.

You turn on your computer, intending to check your email and social media. One program in particular is indicating you got a message: your official government communications program. "What now?" you think to yourself, as you click on the message. In the message there is a short body of text and a link to a video on the traffic enforcement server. It's a video of what happened earlier, from start to finish, with a message saying, "We saw what happened today. Don't worry; we're on it. The video should be sufficient, but if you want to testify against the other driver the court date is at place on day and time." Seeing this, you know that two others have also received this link and a report: the asshole that damn near ran you off the road, and the judge assigned to traffic cases.

Here's how the system works from the cop's perspective. He sits at a terminal in a climate controlled building. On his screen(s) there are a bunch of video feeds, each coming from a camera drone perched on top of a combination charging station and landing pad. They are high up enough that he has a birds eye view of the entire stretch of highway he's responsible for. If someone's driving catches his eye, if their errant behavior is consistent enough he thinks he can get a good video of it, he can switch to drone pilot mode and follow the car from the air. Once he thinks he's got footage good enough to hold up on court, he sends the video to the court, the offender, and any other drivers he thinks might be interested in the case.

I don't know if we're yet at the point where a bunch of drones would be cheaper than a cruiser (though I'd be very surprised if we're not close to that day), but it would certainly allow the individual officers to monitor traffic patterns more efficiently, enabling them to locate and prosecute those drivers who's habits make them a dangerous disruption to that flow. Further, the use of video allows them to document actual dangerous driving, rather than having to rely on the simplistic record keeping of the radar gun.

On Negative Interest Rates

Reading Tuure Parkkinen's Fixing the Root Bug exposed me to a new idea: the notion that lowering interest rates actually can improve the economy, and that the only thing holding it back is the zero percent lower bound, that it is possible that a negative interest rate on risk free credit is necessary to bring the supply of and demand for labor into balance (that is, to bring the economy into a state of full desired employment). Initially, it seemed like an insane idea, my background favoring Austrian Business Cycle Theory, which proposes that it is excessively low interest rates that cause market crashes, and that more of the same can only set the market up for an even worse crash in the future. But I suspended my disbelief long enough to fully appreciate his argument. And further reflection on the idea made me realize that it's quite possible that, once risk factors are discounted out of the going rate, negative interest rates can and do exist, in the absence of government monetary and/or fiscal policy creating a "floor" on interest rates.

Imagine the following scenario. Parkkinen's argument takes hold, and a policy of pursuing negative interest rates (either through higher rates of inflation, or through nominally negative interest rates in a cashless currency system) is enacted. Maintaining cash balances may cease to be a method of preserving wealth. I am assuming here that the interest rate is stable; this is not a hyperinflation scenario. I am also assuming that gold is no longer taxed like an investment (people can buy and sell gold freely without having to report or pay taxes on it). Let us suppose certain people decide that, rather than holding their wealth as money, or buying a risk bearing real investment, they decide to preserve wealth as a stockpile of gold. Have they dodged the "inflation tax"?

That depends on the exact real interest rate, security costs, and so on. For the hoarder of gold is not without expenses. Gold can be stolen; it must be stored in a secure fashion. This cost must be discounted out of the benefit of evading the negative interest rate. And even with that cost covered, there is still a risk that security measures will fail; thus, the cost of insuring against such a loss must also be discounted out. Thus, holding one's wealth as gold has costs built into it, and these costs must be compared against the cost imposed by a negative interest rate in the government's money (and the opportunity cost of buying gold, as opposed to a real investment in productive activity, or even a desired consumer good).

It isn't necessary to include the government's money in this analysis. All this does is demonstrate that, in the absence of the government imposing a zero percent lower bound (through such measures as providing security for property and deposit insurance without corresponding user fees), "aggregate" negative interest rates can and will exist (even if it is borne unevenly by those who fail to secure their stockpiles against theft).

Additionally, costs of securing and insuring stocks of a commodity money are not fixed, but rather vary by circumstance. And one factor that should strongly influence the costs of security is the ratio between the potential rewards of larceny and the potential rewards of productivity. The more that can be had stealing from those who already have, relative to the rewards that can be had engaging in productive activity, the higher the costs of securing stockpiles of money. In other words, as the wealth gap grows, ceteris paribus, the lower the "aggregate" "risk free" interest rate becomes, potentially going well into the negatives.

Government credit with a negative interest rate can be seen as a competitive option, in this case. There are times when one is less worried about the return on one's money than the return of one's money. And I can't help but think it would be preferable, even for those who have money to save (and particularly those who lack the skills to provide their own security), for this negative interest rate to be expressed in a regular, central price, rather than being little more than the balance of successful and unsuccessful efforts to protect a stock of commodity money against theft. The former encourages people to "flee" into real investments; the latter, an ever spiraling cycle of envy and jealousy.

A change of heart: Government and Monopoly

Anyone who has perused this blog at any length will note my rather extensive libertarian background. Heck I was once a Libertarian, a member of the party. I attended meetings and everything. That was years ago, but I still carry the basic impulse to shun the centralization of power and value freedom over all else.

But over the years, I've explored many other areas. The work of Henry George was what got me started on this path, and the work of Tuure Parkkinen has taken me even further. I've been following the Comcast scandals. I'm deeply concerned both by ISIS and the possible unintended consequences of actively supporting their only marginally preferable opposition. In short, my views have become substantially muddied from my early anti-State origins.

One thing I've decided is that "government" vs. "private" is a false dichotomy. It doesn't really exist. What matters is "monopoly" vs. "competition", and whether a particular service is offered more competitively or monopolistically is dependent not upon the laws of men or the evils of industry, but upon the unique characteristics of that particular industry.

Monopolies will tend to arise in any area where three factors are present.

The best known but, in my opinion, the least important is a high cost of entry, which can slow the emergence of competition. I call it least important because even if it takes time for competition to emerge, if the potential profits of a competitor are high enough, and if the financial system facilitates it, a competitor will emerge.

The second, more important factor (particularly in combination with the first) is network value: when a product is literally more valuable because more people use it. In this case, even if one can bear the expense of entering an uncompetitive industry, it can be very difficult to establish a sufficient customer base to entice customers to switch to their product. Things like communications networks and (patented or copyrighted) computer development environments have this quality.

The third, most important factor is the ability of an existing provider to physically exclude competitors. This would include roads, particularly when space for a route is limited (a mountain pass, for example). It also includes communications networks, due to the fact that the electromagnetic spectrum is not infinite, and neither is space for cables.

Restaurants have a fairly low capital cost to get started: ingredients, cooking tools, skills, and just a little space, and you're good to start. If people like it, then you can expand. But a man can sell sandwiches out of a truck if he wants. And it doesn't really matter how few or how many people favor the restaurateur's services; a meal is just as good (or bad) if only one person eats that type of meal as if thousands, millions, or even billions.

Contrast that with a telecommunications network. Laying cable is expensive. Acquiring the right of way to lay cable is expensive, and potentially exclusive. Even without cable, the electromagnetic spectrum is limited. In short, establishing a network is very, very expensive. On top of that, firms with more customers can, by the very nature of the industry, offer superior service to firms with fewer customers; you can contact more people on the big network than the small network. While any new industry will have a competitive phase, any industry that has these three factors will tend toward the monopolistic, as the largest company can provide the most valuable service, and the costs of competing are prohibitive. There is just too much more profit available to a monopoly than to any other form of organization.

As I mentioned in a previous entry (The Anarchist Underpinnings of The State), protection from violence also tends toward monopoly.

First, a clarification on the nature of "monopoly". "Monopoly" is not a global phenomenon. There has never been a global monopoly on anything. This is not the same thing as saying there has never been a monopoly. Monopoly is a local phenomenon. If there's only one cable company in town, that's a monopoly (and if there's only two ore three, that's an oligopoly). It doesn't matter if the next town over is serviced by a different company. It's the same thing with roads and rails: whoever owns the road that leads to your house has a monopoly. It's the same with whoever owns the only bridge over a particular river in a particular place; the existence of other bridges in other places is irrelevant to the person who must cross that bridge. It's the same thing with health care under the old US model. If your company only does business with one company, and that's your only choice, its a monopoly. It doesn't matter that you could do business with a different insurance company if you had a different employer; if you only have once choice where you are, that's a monopoly. You don't even need to append "local" to the term; all monopoly is local. Even if there was one global company that did all business in a particular industry, it would still be local... to Earth.

And the theory of monopoly is the reality of monopoly: the customer gets screwed, in price, in service, or, most likely, both. Whether we call it "government" or a "private company", the unaccountable provider of a vital service has no real incentive to treat its customer with respect. And while the monopoly provider of violent protection can, if it chooses to do so (and it often does), create artificial monopolies, oligopolies, and otherwise zones of restricted competition, there are industries where a certain level of monopoly is unavoidable, without some form of violent intervention.

And this is the traditional (Modern tradition, anyway) response to the threat of private monopoly: regulation and anti-trust law. Break up the monopoly, put them under the partial control of some (tax funded) government agency. And though it doesn't work that well in my opinion, it's still better that the alternative: totally unaccountable monopoly. But is it the best alternative?

My libertarian past cannot explain why my favorite sources of news are the BBC, the CBC, and NPR. My libertarian past cannot explain my disappointment with the behavior of companies in non-competitive industries. My libertarian past cannot explain how to avoid the inevitable monopoly on the provision of violent protection. My libertarian past can explain my Geoist beliefs... but I haven't found that explanation very useful for anyone other than myself.

I reject my libertarian past.

The chief difference, I think, between what we call "private" and what we call "government" is that government, at least in theory, has responsibilities beyond providing profit to principals. It is enmeshed in an ancient tangle of reciprocal responsibility, most recently expressed through the popular election of representatives in the West. It must consistently balance its desire to provide benefits to its factional supporters with its need to avoid provoking a loss of legitimacy among the masses. The monopoly on violence is a tenuous thing, and its most important asset.

What I figure is that, if monopoly is inevitable in a given industry, if we're pretty well guaranteed to get screwed by whatever company has control in a given area, why should we consent to both pay the expense of doing business with an oligopoly (since that seems to be the best government can manage) and the expense of paying for a regulatory infrastructure? What if, instead, we got screwed by government owned monopolies (in those industries that are going to inevitably be monopolistic) in exchange for more public services and/or lower taxes?

How to fix the debt:

Step One: Balanced Budget Amendment

The wording I propose is very simple. With the addition in red:

The Congress shall have Power... To borrow Money on the credit of the United States in a time of War as declared by Congress.

I personally don't see any reason why Congress needs the "flexibility" provided by the opportunity to borrow outside the circumstances of a life-and-death struggle... that is, War. Note that the adoption of this amendment amounts to a declaration of bankruptcy. Without the authority to roll over the debt day by day, the Treasury become incapable of managing the debt within months, possibly weeks, maybe even days or hours. This leads us to

Step Two: Organize US government debt holders for a massive class action suit. The representatives of debt holders would be empowered to renegotiate the debt.

Step Three: Seek an appropriate mediator of the renegotiation. If most of the debt were held by US citizens, the the Supreme Court would be an appropriate venue... but a lot of the debt is held internationally. I don't know how much. Possibly a special tribunal appointed by the United Nations would work.

Step Four: Establishment of a realistic schedule of repayment.

The fact of the matter is that the government can't actually repay the current debt. Instead, it relies on others to repay it for them. They get the money to pay back the debts by borrowing from other lenders. They then pay back those lenders by borrowing from someone else. I'm guessing the reason that the "debt ceiling" has been in the news so much over the past decade is that, during a bad economy, it becomes difficult to find the next borrower to pay back the previous one.

This is the government equivalent of shifting credit card debt around from one card to another, and back again. It only works until the card issuers pull the plug. What I am suggesting is the government equivalent of debt consolidation.

Let new bonds be issued, with repayment lengths as long as 50, 100, even 200 years, if necessary. Let some of the principal be written down. Restructure the entire debt into a form that can be gradually paid off without having to shuffle it around. With the amendment from Step One in place, there's no other option.

The Anarchist Underpinnings of The State

For most people, it seems, The State "just is". While a lot of thought seems to have gone into the question of what the purpose of the state is, whether or not it is a desirable institution, I've not read a whole lot about the question of why The State exists in the first place, outside old assertions that it was originally brought about by a deity. In the following paragraphs, I hope to describe how The State is favored by market forces in the same fashion as productive enterprise, and in so doing advise caution when contemplating Anarchist Utopia.

Most analyses of market processes I have read contrast market action with violent action. It is presented as a choice: wealth acquisition by production and exchange OR by theft. But not everybody makes the same decision in that contrast: there will always be those who steal, and so people must have some means to defend themselves and their property. Even in this matter, there are many choices to make: to defend oneself and one's own property, to act in concert with others, to hire help, to rely upon the State. The ability to do violence, wither initial, defensive, or retaliatory, thus shapes the decisions market actors the same as the availability of capital, prices, and so on.

Let us suppose a situation of Anarchy, in which there is no State, but rather all relations are either voluntary or violent. What are the market incentives to various forms of violence?

First off, the distribution of violent capabilities must be considered. In some societies, the capacity for violence will be more generally distributed; in others, more concentrated in select individuals. I think it can be assumed that, ceteris paribus, the capacity for violence (for whatever purpose) will be more concentrated in societies with a more developed division of labor, less concentrated where the division of labor is lower. I don't believe there is anything special about the skills and tools associated with violence. In a society where few know how to grow, process, or preserve their own food, there will also be fewer who know how to use and maintain weapons. So while in a less economically developed society every person can be assumed to have access to and be familiar with the use of a serviceable weapon or two, in a more developed society there are and will inevitably be some who develop violent skills and arsenal to a point where they can make a living off them, and others who cringe at the thought of even handling a weapon (at the extremes). What professional use of weapons will the market favor in such a situation?

I divide the "professional" use of weapons into a spectrum bounded by two extremes. At one end you have the violent criminal: one who uses his capacity for violence purely for the satisfaction of his desires at the unwilling expense of others. On the other hand you have the virtuous mercenary: using violence only in exchange for payment, to prevent or remedy the violence of those at the other extreme. But ultimately, this is a spectrum. Even the most virtuous might succumb to the temptation, not necessarily to rob someone outright, but perhaps to bully a bit? Strongarm a deal? Maybe take a somewhat iffy contract, enforcing questionable property rights? On the other end of the spectrum, perhaps a robber might take pity on a pretty girl and protect her, instead of robbing her (or worse)? Maybe he has an aged mother who needs help with some of the local toughs? Maybe someone finally offers him enough money to take up legitimate employment... for a time? And then there's the middle of the spectrum, where you've got men of violence who are concerned purely with the money. If it is profitable to protect, they will protect. If it is profitable to rob, they will rob. This suggests the traditional "protection racket", a forerunner of The State if ever there was one. But which does the Market favor?

Consider the costs of living by violence. First, there is the material: the direct costs of maintaining weapons, a stock of ammunition, as well as the opportunity costs of developing and maintaining the skills of violence. There are the moral  (purely psychological and social) costs, which will be greater or lesser depending on the individual's level of aversion to the use of violence for various purposes. Finally, there is the cost of managing mortality risks. He who lives by the sword dies by the sword... but not necessarily right away if he is careful and clever. For whom will the gains be greatest relative to the costs?

We can assume that whomever is engaged in a particular kind of violence has found a way to minimize the moral costs of their particular kind of "business". While the moral cost is an important component when discussing cultural degeneration, the importance of tradition, religion and/or spirituality and such, I think it can be ignored for the purpose of economic analysis. But what about material costs and mortality risks?

The virtuous mercenary must defend his clients against both the ordinary thug and the operator of a protection racket. He must maintain a capacity for violence sufficient to deter both, and must risk retaliation and the hands of either. The operator of the protection racket, on the other hand, particularly if he has successfully "horizontally integrated" the various protection rackets in his area of operation, needs only maintain that capacity necessary to deter the basic thugs; his own enforcers can be kept in check with but a command. The virtuous mercenary will not be a problem unless he chooses to attack the mercenary's clients.

This brings us to a second factor: economies of scale. A larger business in protection (whether they allow their customers the choice or not) will, assuming they don't surpass the technical limits of effective coordination, be able to provide more protection for lower costs. This is due to their ability to concentrate more force than their competitors; the mere threat discourages violence they would otherwise have to remedy at full cost.

Of course, to be competitive in the market, firms must pass on a portion of their own savings to their customers. If one is in the market for protection, the services of a large firm who makes offers one "can't refuse", is not only the less risky option... it's also probably cheaper (assuming away the cost in personal pride, of course). The larger and more responsive to their "customers" such an operation is, the more "State-like" it becomes.

Thus, from a situation of anarchy, absent a culturally homogeneous population that is willing and able to incur the costs of excluding something like The State, The State will inevitably arise from nothing more than the primordial soup that is the market in a situation of anarchy. The process by which the State arises, however, is messy, as violence is as much a part of the process of "horizontal integration" as "production" itself, and violence, like other "industrial" processes, can have undesirable "byproducts" (read: "collateral damage").

On Negative Campaigning

Something I've figured out during my 35 years on this earth and only just now found the words for is this: people seem to identify most strongly in a negative fashion. Go among a group of like minded people and try to say something good about what they all ostensibly like, and usually you'll get a lukewarm reception. Go in their midst and insult their common interest and, of course, they'll rally in defense. But nothing gets quite so much of a reaction as going in and insulting something they collectively hate.

I'll give you an example of what I'm talking about. I am a nerd. As such, I am a devoted fan of a number of different things, Japanese music included, and I mod a Google Group dedicated to this interest. If someone shows up and posts a song, or a picture associated with the subject, they'll get a few +1s, maybe one or two, maybe even eight or ten. Then some kid comes in with a "Justin Bieber sucks" memepic... and the forum goes nuts in agreement. Then I mod it out of existence, since I don't want this group to be about what we hate, but what we like, and Justin Bieber is decidedly off topic.

This is just a juvenile example, but I've seen it everywhere. Tell me the same doesn't happen in political groups. A politician talking about how good his policy will be will maybe get a few yawns and some accolades from a few marginalized intellectuals. Claim that his opponent eats babies and maintains a shrine to Hitler in his basement... now that will get a supportive reaction. Politicians understand this, of course, and the most savvy of them will always make use of this. I pity the poor, principled politician who attempts to campaign in a purely positive manner.

I can guess why this is. In a past world, one in which people were divided into far more, and far smaller, and far more independent groups of people, warfare was pretty much a constant in life. A tribe or clan needs unity most when an enemy threatens from without, and a people who lacks this negative unity is likely a people who will not pass their ways onto the next generation.

But perhaps it is time we become conscious of, and reexamine, this particular impulse. What was once an important adaptation may well now be maladaptive. So next time someone shows up with a post decrying something you agree is a bad thing... stop and think a moment. Is this really necessary? Is it a true threat? Is the self-congratulatory dogpile that is almost guaranteed to ensue worth the psychic damage that hate, even of the best intentioned kind, can cause?

Capital and Capital

Two Distinct Concepts under One Word

Thinking about the Civil War, I was working a concept over in my head. I believe that, though there is some question as to whether or not Slavery was the principle issue motivating those fighting the Civil War, it is most certainly the reason the South lost. The reason for this, is "Slavery ties up capital in the purchasing of labor, which would be available with or without the institution of slavery." Then I reformulated it, "Capital was tied up in the purchasing of things which are not Capital." I suddenly realized, that there are two concepts in play here, which are related, but not the same, yet they are both referred to by the same word: "Capital."

In one usage, Capital refers to wealth (the outcome of a previous productive cycle) which, rather than being consumed, becomes an input into the next productive cycle, whether as seed, inventory, tools and machinery, extra consumer goods (which free up labor to produce more capital), or even simply insurance against unexpected costs or losses. In this sense, Capital is simply one of the three classical Factors of Production, alongside Labor and Land.

However, in another usage, Capital refers simply to accumulated funds. This concept is related to the previous usage, because before someone can purchase additional capital goods in a money based market economy, the funds necessary to purchase them must first be accumulated. One who decides to save money rather than living check-to-check thus gains additional influence over the production structure, as the entrepreneur who most successfully anticipates his needs is the entrepreneur that is rewarded. Thus, people tend to refer to accumulated funds as "Capital", as well.

Thus, Capital and Capital are not the same thing. One use represents an accumulated claim on anything that may be bought or sold. The other represents an earlier phase's output that becomes a later phase's input. They are similar, but not the same. This accounts for the rather large gulf with regard to the accepted meaning of the word "Capitalism."

Simply put, when a person buys something, it's because he wants control over it. Whether it be a capital good, a consumer good, a slave, or a plot of land, what the buyer buys is the right of exclusive control over the object. It just happens to be a happy accident that, in purchasing a consumer good, he provides employment to his fellow man, and in purchasing a capital good, he both provides employment and creates opportunities for others. This is the nature of Adam Smith's “invisible hand”, that in pursuing his own interests, a man quite unintentionally benefits society.

However, it is not the same thing, for accumulated funds may be used to purchase anything society allows to be bought and sold. It can be used to purchase capital goods, but it can also be used to purchase other things. It can be used to purchase more expensive consumer goods (a big house, a nice car, a boat, etc.), thus turning the productive structure toward the production of these sorts of things. It can be used to purchase political influence, through the support of political campaigns or perhaps direct bribes. If the society permits Slavery, it can be used to purchase a slave, which because this can enhance the purchaser's revenue stream as surely as a wise investment in capital goods, can be miscategorized as a kind of "capital investment". He could also purchase land—physical space, that is.

These accumulated funds are a sort of potential power, a kind of authority. If it is invested in the right capital goods, society benefits from access to desired consumer goods (or more and better capital goods) at lower prices than would otherwise exist. If it is spent on durable consumer goods, society does not benefit... but if the buyer earned this money honestly, in service to the consumer, society benefited earlier, and this is the producer's proper reward. Even the employment of publicists and advertisers in service to a political cause creates something where it did not previously exist... though the benefit is questionable. But then there is another kind of purchase, the spending of these accumulated funds on things which are neither capital nor consumer goods.

For some, it refers simply to a complex of law and custom that respects property rights, allows free trade, and encourages the accumulation of wealth for the purpose of creating more wealth. This is as opposed to a system under which others have claims on the individual's wealth, such as the State, the Poor, the Family, the Sick, the robber down the road, or whoever. Any accumulation of wealth is nothing more than an attractant to these others who come to claim "their rightful share" (a bit like how lost relatives are suddenly found when someone wins the lottery), thus people decline to accumulate wealth, thus capital does not develop, thus society remains in constant poverty.

But the other definition of the word "Capitalism" refers to a society in which lawful authority to dominate other men by violence and threats of violence is up for sale. The Ruling Class is determined not by military prowess, nor by dynastic inheritance, nor by religiously derived authority, nor by any other principle. The Ruling Class is composed of those who are able to, first, accumulate capital, and second, leverage that capital into political influence, among other things. Whatever form of power is up for lawful sale opens the door for the first kind of Capitalism to become this kind of Capitalism.

Land and Labor

For example, it could be used to purchase a slave. The purchase of a slave does not reward the bringing into existence of wealth that would not otherwise exist. People will reproduce, whether or not they are locked in a shed for “breeding” purposes, and so long as work is necessary to eat, they will work. Slaves need not be purchased to bring labor into existence. Even in the early days of the Virginia colony, when planters continually complained about a shortage of labor, it wasn't actually labor that was short, but rather laborers who, in a place where land was cheap and plentiful, were willing to work at the planters' preferred rates, when self-employment remained a better option. Thus, a pool of unwilling laborers was bought.

Similarly, with a land purchase, nothing is brought into existence by the seller. Outside the realm of ancient holy texts, there is no “producer” of physical space. With both slaves and land, accumulated funds, “Capital” as people call it, is wasted on something that would be there whether or not someone was around to buy it. The land's existence predates Man's. In both cases, “Capital” is wasted. So why do people spend money on these things?

However, that does not mean that our institutions of property should not be periodically reexamined, for there are things a man can buy that offer no benefit to society, outside efficient allocation of these resources, which can be achieved without permitting these things to be capitalized on an open market. Labor is one of those things. When a man buys a slave, he rewards only violence—the enslavement of other men—and is not creating labor, but only increasing his own power at the expense of others. Today, we do not allow labor to be capitalized; rather, all labor is rented from its proper, inalienable owner: the laborer itself. This allows efficient allocation on the market without dispossessing men of their birthright: liberty.

Likewise, with land, the buyer does not reward any kind of producer, but rather yet more violence—that of the conqueror. I do not believe there has ever been a spot on this earth that was homesteaded into our property system; rather, all land was made property through the violent removal of other men from that land. Efficient allocation of land does not require that the land be capitalized any more than the efficient allocation of labor does. Rather, we need simply to identify a proper, inalienable owner for the land, as well, and allow it to be rented, rather than sold outright, just as we do with labor.

In the absence of such a being, if we believe in the democratic ideal that all men are created equal and endowed by their creator with certain inalienable rights, particularly Life, then the proper nature of a land regime naturally follows. If we all have an equal right to live, that means we all have an equal right to exist. To exist, we must have physical space in which to exist. No man can have a greater right to the land than any other. While it is convenient to allow people who are better able to make use of the land greater control over the land, it does not necessarily follow that some should be a landholding over-class (however fluid)  while others can be legally deported from reality itself (or at least from solid ground) should the landowners decide they are not wanted. Thus, an equal right to Life implies an equal right to the Land.

Interestingly enough, the former, in the only religiously based land code with which I am familiar, is remarkably similar to the latter. (“You shall not sell the land forever, for you are but wanderers and sojourners  The Land belongs to God.”). In that system, the land was divided evenly among tribes, clans, and families. People could sell their land to others (allowing for efficient market allocation of land), but only temporarily. Every fifty years, land ownership was reset to their ancestral titles, and even before those fifty years were up, the original, inalienable owner had the right to reclaim his land in exchange for the prorated value of the remaining years of ownership.

Clearly, such a system is not workable in the present-day United States. We have no ancestral titles to restore. This does not, however, mean that the basic principle of a basic human right of equal access to the land should be abandoned in favor of a capitalist allocation of land, which I see as being morally equivalent to capitalist allocation of labor (Slavery). To implement an equal right to land is to implement a “social safety net” of sorts, rooted in nature, lacking the moral hazard intrinsic to the means tested programs currently used to alleviate poverty.

EDIT: Years later, this entry is an absolute mess. Did I mess up in my editing, or did something somehow happen to the files?

The King's Table

I was thinking about the distinction between the traditional King's Table and the ideal of the Round Table at the Court of Camelot. At the traditional medieval table, the sovereign (whether King in the royal court, or local lord in a local court) sat at the head, and people were seated closer to or further away depending on their level of power and influence. The Round Table exemplified the ideal of equality: there was no "head" of the table to sit at, so all who sat at it sat as equals... even the King, himself.

The Federal Reserve system is interesting in that is is also like a long rectangular table, but it can be difficult, for those who know how it works, to distinguish which end of the table is the "head". For at one side of the table (the Federal Open Markets Committee) sits the Chairman of the Board of Governors, ostensibly the head of the most numerous component of the FOMC: the seven members of the Board of Governors. The second component of the FOMC is five Presidents of the twelve Federal Reserve Banks, four of which serve in rotation, one of which is a permanent member, and therefore the other potential "head" of the FOMC: The President of the Federal Reserve Bank of New York.

I'm not sure if there's any point to this rambling.

Abortion: One The Inconsistent Nature of Both Sides of the Debate

Recently, a picture came across my Facebook feed, which inspired the following. I find it difficult to place myself in this debate, between the so-called "pro-life" and "pro-choice" crowds, because I consider the substance of both arguments to be generally lacking.

On the one hand, there's the pro life crowd. I can respect a consistent pro-lifer, who is simultaneously opposed to abortion as well as other forms of wanton killing, particularly war. But all too often, the very same person who speaks, perhaps even eloquently, about the sanctity of life when speaking of an infant other than his own is the same person who cries out shrilly for the blood of foreigners the moment the flag is hoisted. Additionally, I dislike the simplistic view that any practice that is reprehensible should simply be made illegal, without any reference to the nature of the penalty which should be imposed, the method of enforcement, or the actual outcome of a given policy.

But the pro-choice position also has its issues, the largest of which is a seeming dishonesty with regard to what I regard as the central issue of the debate: at what point in a person's development does a child become legally "human", and as such entitled to the protection of the State? This issue is easily dodged if you regard the State simply as not having standing to pursue the case; however, it is my understanding that the vast majority of those who advocate this position are not typically consistent with regard to what is and is not outside the purview of the State. Also, it isn't as if those on the "right" regard women as not having a choice as to whether or not to bear a child; the characterization of the "pro-life" position as one which regards women purely as breeders in service to the State is highly disingenuous. Rather, the question is at what point the choice has been made, and a woman (and perhaps a man, as well) becomes legally obligated to bear the consequences of that choice.

(Note that I bring up the man because this question also has bearing on another issue: the point at which a man becomes legally responsible to provide material support.)

The "Pro-Life" position is consistent on the first question: they regard a person's legal existence as beginning at the moment of conception. If one disagrees with this, one should say so, and further, one should propose an alternative which can be medically tested for using current technology. Do you regard birth as the proper beginning of a person's legal existence? What would you define as "birth"? For example, would it be legally allowable for a woman to kill her child just before it emerges? How about a week before labor would normally commence? How about a month? And there's another alternative: some cultures (ones which developed in a period when infant mortality was very high) do not "induct" the child into their society until some time has passed after the birth (some do not name a child until it has survived for a number of days, and one might regard the point of circumcision under traditional Judaism as legal recognition of the child's position in their society). And how about the practices of classical Greece and Rome? Should death-by-exposure be allowed up to a certain point?

I'm not making a slippery slope argument here, but posing a legitimate question (at least, under the generally accepted paradigm with regard to the relationship between the State and Society): at what point in a child's development, if ever, does the State gain the authority to require the parent to sustain the child's life?

The second question is when one should regard the "choice" as having been made; when does the life become a legal obligation? Once again, the most extreme of the "pro-choice" crowd is consistent, and might even be open about it from time to time (as socially unacceptable as this position is). To them, the moment of decision is the same as the moment they believe life begins: the moment of conception. Under this ideal, chastity is a viable option, birth control is a gamble (or perhaps even an immoral act, under certain religious traditions). What is the pro-choice alternative? Where is the point at which the child goes from being a choice, to being a legal responsibility? (Same question as before, restated.)

Ginsburg's quote is well received, but my question is this: by what legal principle do we distinguish the woman who makes the adult decision to terminate her pregnancy, from the woman who fails to care for her infant child?

Now I should distance myself from this argument. I do have my own position, but it stems from a highly non-traditional (though increasingly prevalent) view of the relationship between the State and Society (in other words, with regard to the law I dodge the issue presented above). That, however, is the subject of another essay, as is my regard for the most common variety of the pro-life position (and "religious rightisim" generally) as idolatrous and spiritually bankrupt.

Re: You're crazy.

A fellow calling myself Dr. Chief recently posted the following on an earlier post on the Broken Window Fallacy:

You're crazy, even if he does spend the money for land, or ownership that benefits what you see as only himself, others will benefit in the future. You're argument takes for granted that at least half of people who have money are dishonest and will take advantage of the system to make "dishonest" honest purchases. It is a moot point either way, there is no morality injected at all and forcing there to be some sort of moral choice is your fallacy.

It got me thinking on how to express these thoughts again, and so I decided to respond. It grew until I decided I needed a full post. Here is my response:


I don't assume dishonesty on the part of any person in this analysis. Access to land must have a price; how else would we allocate this scarce resource? My only assertion (not apparent in this particular piece, as I only analyze the broken window fallacy from the perspective of Geoist economics) is that the particular institution that makes access to physical space as a fully alienable right is, itself, an immoral institution, comparable to slavery. It just that the effects aren't as obvious as slavery.

Perhaps I should have avoided value judgments in this particular piece. It's an old piece, and I'm still developing my rhetorical style. But the whole point of this series was to point out the immoral nature of certain institutions.

At any rate, your error is assuming that buying land has the same social benefit as buying capital or consumer goods. It doesn't. When one buys things, one sends a signal to the market: producing this was a good idea. You compensate those who were involved in the production of that good. One would only produce the good if one expected to receive payment in return.

Land is different. By "land" I am referring, of course, not to fertility or a dug mine or anything like that. I'm referring to physical space. It was there before we got here. It will still be there after we're gone. When one pays for land, one does not reward a producer. Unlike Labor and Capital, it exists, has existed, and will exist regardless of any person's decision. The only social benefit is the benefit the market always provides: efficient allocation. (The market also efficiently allocates slave labor; that does not make slavery a moral, or even efficient, institution.)

To whom should that payment be rendered? It is my belief that, if there be a God who created the Heavens and the Earth, such a being is the only rightful Landlord. In His absence (may His Kingdom come...), if we assume all persons have an inalienable right to life, liberty, and property (or the Pursuit of Happiness, as Thomas Jefferson put it), we must assume that every person has a right to that pre-requisite not merely to life, but to existence itself: physical space, at the very least, the airspace we displace.

But the fact is, in our current society, the right to physical space is a fully alienable right, bought and sold like a commodity. The privilege of existing is held by a subset of society. Some hold a lot of the keys to existence. Others hold only a few. A majority have to pay someone else for the right to exist. I'm not talking about food, water, and shelter here; I fully agree that no person has a right to anybody else's labor... even for such "necessaries" (every man a right to the water, no man a right to force someone else to draw it for him). I'm talking about "land as standing room", as Ludwig Von Mises put it.

If it sounds insane to question the ancient and sacred institution of landownership like this, recall that for most of human history, the notion that a man's freedom of action could be bought and sold like a commodity (and that the condition of slavery was an inheritable status) was also regarded as an unquestionable and necessary institution. All the civilized world has since outlawed the institution... and the cotton continues to be picked.

But what is the alternative to the way we currently allocate land ownership? I have spent the past decade thinking and writing on that very subject. Henry George had a beginning to an answer to that question. It was John Locke (in what some call the "Lockean Proviso") who most famously posed the question in the first place. A short synopsis: the institution that could replace our current land institutions could also completely replace the current welfare state without a single violation of the principles of liberty, without doing even a remote amount of damage to the economy, and without sending a segment of the population social democrat types currently claim as their chief concern spiraling back into desperate poverty.

Possibly irrelevant addenda:

A brief statement to provoke thought: banking (fractional reserve banking, which is what is generally meant by the term "banking") is to Capital, what Slavery was to Labor. The institution of fee-simple landownership (let alone alloidal title) is similarly related to Land. I will leave the explanation of the relationship for a future entry.

I'll also reiterate the analysis of the broken window fallacy, if only because I like the way I wrote it and don't feel like discarding it:

The fact is, when more resources go to landowners, less goes to providers of labor and capital. Less is earned; more is gained by virtue of an indestructible past legacy. ("Capital" might also be described as a legacy, but unlike land, it must be continually replaced, whereas an investment in land has an indefinite lifetime.) When you break the window, a capital and labor expenditure becomes necessary. Overall production of wealth drops... but a (slightly) larger share goes to providers of labor and capital, at the expense of landowners. This is how the "Broken Window Fallacy" actually "works" better than Bastiat concluded... though there is a far better alternative for those who are presently wholly dependent upon their labor and capital for their livelyhood than the welfare/warfare state.

That's how I should have written it, anyway. Thanks for your comment.

Redrawing Democracy: A Vision

I've been thinking today about my personal vision for the kind of society I would like to live in, a sort of "ideal picture" of an ideal country. It's actually pretty specific, and I think I am finding words to describe this picture. The first part is unabashed utopianism. The second part is serious "political science-fiction" as I like to call it.

Physically, visually, it looks somewhat like a plant, with each part being of equal importance, though some parts are more visible than others. The roots would be in the countryside, where much of the population growth would occur and a reserve of unspecialized yet hardworking people would be maintained, where both new population and raw materials would originate. The stem would be a network of incrementally larger transportation arteries and commercial hubs, from an unmanaged network of dirt and gravel backroads linking rural communities to more paved roads and rails, to factory towns that process the raw materials, finally to the flower of the society: the cities. The cities would be clean, dynamic places, where the great variety of cultural, commercial, and industrial forces that originate in the countryside would shine, hybridize in ever changing ways, as people, products, and ideas moved in and out.

The Root (Country)

The roots would be an essentially unorganized countryside. There would not, in this society, be an organized, State-driven effort to extend the amenities of urban civilization to the farthest reaches. In other words, tax dollars would not be spent to directly extend or subsidize the extension of things like transportation and communication networks to these places. If the phone company sees no profit in extending phone lines to a particular community (and the people of that community are unwilling and/or unable to finance the extension of the network to their community), the lines would not be extended. If the only way to build a paved highway to such a place is coercive finance, the road would not be built.

Th result of this would be that unique rural communities would be more able to continue their existence. Places where labor specialization is less, where jacks-of-all-trades flourish, where traditional values are under less pressure by a ubiquity of instant communication with the rest of society. The various communities would be highly diverse, with some being ethnically diverse, others ethnically homogenous. Some places would host things like free-love hippie communes, while others would host more religiously motivated communities. Some would be essentially commercial operations, focused on profitably providing raw materials for a market. Others, particularly ones further off the beaten path, could be more idealistically founded. There would be a government over this all, but the primary purpose of this government would be to ensure that no particular group of individuals could either monopolize the available resources or impose their communal visions on others.

From these places more adventurous souls could come, migrating to the cities with no particular specialization but a well developed work ethic, revitalizing urban cultures that all too often lose sight of the value of hard work and perseverance in favor of blaming their neighbors for their woes. To these places could go the world-weary of the urban world, who would have a wide range of communities to choose from, and be able to revitalize rural cultures that all too often lose sight of the value of innovation in favor of a dogmatic adherence to tradition.

Ultimately, the character of the root would be a spectrum of degrees of connectivity to the world market, ensuring that there are always places where the value of hard work and personal perseverance is always apparent, unlike in urban societies where the value is often more abstract, hidden as it is by layer upon layer of business-controlled access to capital and other resources.

In our current society (Western civilization and the more urbanized Asian civilizations), the root is undervalued, weakened by well-meaning but misguided efforts to extend the benefits of modern civilization to these places by any means necessary. The result is a sort of grafting-on of the rural societies in other parts of the world, as population growth slows in over-urbanized societies and are are gradually replaced by alien populations. The civilization I describe would be a more balanced civilization, accepting its less incorporated rural populations as kin (being linguistically compatible with their urban counterparts), with an economically resisted but politically free flow of individuals between the root and the flower. Urban civilization would also be more evenly distributed, as opposed the overconcentration of urban communities in the geographic West, with rural populations on the outside.

The Flower (Shining City)

Cities would ideally be clean, prosperous, diverse, and well-engineered, with multi-use buildings being the norm, "zoning" being minimal. These would be the places to which raw materials would flow, both physical and cultural, and from which refined materials would be released, from manufactured products to novel cultural movements. Populations would be dense, and the ubiquity of mass transit would make it possible to travel by foot alone (auto accidents would be few, with most of the drivers being those who have no choice due to their professions). Further, most of the cities would be linked by advanced mass transit (high speed rail?), allowing convenient, almost seamless movements of people and goods between the most advanced cities. Travel between the cities and less urban communities would have a continuum of convenience, from being able to reach the larger towns via older rail systems, the smaller towns via less developed roads, to remote communities that one can reach by inconsistenly maintained gravel roads... at best. And there would yet be places the hardiest of urban tourists would have to themselves, reachable only by foot (whether human or equine).

To these places would come the more adventurous persons of rural origins, hungering for a faster paced and more competitive life than exists in the countryside. From these places would depart those who are weary of that same fast pace and high level of competition, and they would have a wide variety of places to choose from. Thanks to the equitable distribution of access to natural resources (most chiefly, access to physical space, to be described in a later section on the political institutions defending this society), "captive" populations mired in urban poverty would not exist. Further, due to those same institutions, city boundaries could shift and move periodically, to account for changes over time, speeding the decomposition of the dead institutions of dying cities.

Branch and Stem (Everything In Between)

The cities would not be walled; the country would not be isolated. The chief characteristic of the connecting tissue would be variety, variety, variety. There would not be one single plan defining the nation's transportation system. Larger towns, serving as hubs of trade and manufacturing between the two extremes, could be connected by robust transportation systems. But there would yet be places connected by only the most tenuous threads, with minimal (but still present) commercial connection to the urban flower. The further one got from the most rural communities, the more diverse the communities would become. While the great megatropolises would connect with others around the world, the smaller cities would connect regionally. But new transportation systems would be established in an organic fashion. Megatropolises could shrink to more regional status; new cities could rise (though this happens less often than one might think, with the oldest city sites having been continually occupied).

I'm not sure what else to say about this.

Bark and Thorn: Government

There would be, constitutionally speaking, two levels of government: the national and the local. Local could be big in some places, representing the populations of entire cities or wide-ranging territories. It could also be small in other places, representing entirely independent villages or even individual homesteads.

The concept would be that all individuals have an equal right of access to the land. By default (due to the absence of equally distributed "ancestral estates" in most of the world), this right would be exercised by equal and inalienable ownership of shares in a single corporation, which would function as the national government.

This government would collect "taxes" in form only. In substance, they would simply be rents paid for the privilege of excluding others from use of land resources, which would include everything from physical, geographic space, to the limited capacity of the atmosphere (locally and globally) to process the byproducts of human activities, to exclusive use of segments of the electromagnetic spectrum. It would always seek to collect the most it could, keeping rents at revenue-maximizing levels (seeking neither to raise them so high it hurts productivity, nor lower than necessary). It would spend these revenues on whatever the board of directors, elected by the population at large, decided was necessary. Any extra would be returned to the shareholders (read: again, the population at large) as a dividend.

Ideally, in my opinion, this government would focus primarily on defense of people against aggressors, both foreign and domestic, keeping the peace and leaving more in-depth governing to the lower levels of government, and thus returning as much of its revenues as a dividend as possible (this practice is what is meant by "geolibertarianism"). This is what I would advocate as a participant of the political process. However, the actual results could be whatever the citizenry enabled via the board of directors.

Local governance would not be set in stone, and would be formed in the following manner. Groups of shareholders would have the right to redeem, temporarily, their corporate share in exchange for a physical share of the land equal in value to their share of the corporation. Essentially, segments of the population could "secede" from the level and govern themselves in whatever manner was mutually agreeable to the participants. They would, first, have to had legal occupancy of that land; they would have to already "own" it and be paying the appropriate rents for it (which would tend to be higher per square foot in urban areas, and potentially nearly-free in the most remote rural areas). The value the population would receive back as a dividend if the rents could somehow be collected without bureaucratic overhead and the government returned the entire amount as a dividend would have to equal the rents that would normally be paid for protected occupancy.

From that point until the expiration of the charter, no more than fifty years later, the national government would not collect physical land rents from this area, nor would they exercise jurisdiction over internal affairs in this area. (They would still collect, and its people would still participate politically, in a limited fashion as joint-owners of overlapping broadcast regions and pollution basins.) At expiration, the population would be re-issued their shares in the national government, the land be returned, and if they so desired and the re-assessed rental-value still matched the re-counted population (and they all still wanted to participate), the charter could be re-established. I suspect, however, that people more often would take this opportunity to adjust borders, try entirely new divisions, or even return to direct national governance.

Examples of how this might work include cities that make the decision to become "free cities", establishing independent political institutions (particularly independent of more tradition-bound rural populations), collecting local revenues more efficiently, spending them locally on urban priorities, and so on. It could include a small town that wants to defend it's unique local character from what it perceives as an overbearing national government. It could include an individual homestead, the members of which want to attempt a fully "market anarchist" type of political life. It could include a pioneering community, who believe the rental-value of an area could be substantially higher given some work, and who could use this institution to secure the benefits of putting in that work and taking the risk over a period of fifty years... but not allowing their descendants to perpetually place themselves over the remainder of the population.

Most importantly, it would include a great variety of different sizes and types of local governance, making such a country, overall, into a true "laboratory of democracy." Successful experiments could be easily extended and imitated; unsuccessful experiments would liquidate by default after a time. Populations that wish to break away could do so peacefully; others that wish to join together could do so without dragging their neighbors into it. THINGS COULD CHANGE... and nobody would have to fight a war to make it happen.

The national legislature could even be bicameral. One house would be the board of directors elected by all who choose to be governed directly by, and participate directly in, the national government. The other could be the representatives of voluntary contributors (a version of the "openly sold Senate" I described nearly a decade ago).

Anyway, that's what the vision of this particular brainstorm looks like.

Redrawing Democracy Again

The earliest posts on this blog are a series I had written on an even earlier blog (my old xoom.com site which no longer exists) on a blueprint for an entirely new kind of government. Nearly a decade has passed since I originally wrote these essays, and I've continued to put a lot of thought into the subject over that decade.

That original plan suffered from severe complexity issues. I've also learned a lot more about economics, delving deeply into both Austrian economics and Geoist political economy. Finally, I have, in the interim, pretty much completely lost my faith in what many of the founders (United States) referred to as "parchment barriers" (bills of rights, lists of enumerated powers, etc.) to contain the abuses of government... but I've also been finding other methods. Over the past month or so, my thoughts on the subject have begun to gel into something coherent.

This, over the next few months, I will be posting to this blog again. I will try to keep the articles short and purely descriptive, leaving the theory behind it and my predicted outcomes for a longer work I intend to publish at some point in the future.

Can the President order assassinations?

While I am displeased by the spinelessness of the Judicial branch when faced with a matter of "national security" these days, ironically enough I do believe it is possible for the President to indirectly authorize the assassination of any person he pleases... without any violation of the Constitution. I'm not saying he SHOULD do this... merely that he can. The political fallout would be what it would be, and Congress could use it's constitutional power to impeach every bit as arbitrarily if they chose to do so... but while it may be politically unsafe for the President, it can be safe for the trigger man.

Here's how it works:

1. The President secretly confers with the trigger man. At this point, the President steps out of matters entirely for the time being.

2. The trigger man does the deed, committing an act that, legally speaking, is murder.

3. Someone charges the man with murder, and he is tried, convicted, and sentenced.

4. The President issues a pardon.

Now, I'm not complaining that Anwar Al-Aulaqi is dead; the fact is, the man most likely needed killing. I'm also not necessarily complaining that the President is getting away with it. However, I am very disappointed with the courts for refusing even to hear the case, basically saying that it is legal for the President to have anybody killed that he wants. They ought to have convicted the people involved in what should be interpreted as an illegal order, forcing the President to use his power to pardon for the exact purpose Alexander Hamilton suggested it should be used years ago. Congress can then sort out whether they think it was appropriately immediately, or the electorate can do so next year.

Silver and Gold

I keep reading "silver is the sleeping commodity!". "Silver has the potential to rise x percent!" "Buy silver, you won't regret it!" Always this is predicated on the fact that the ratio of prices of silver to gold are at a historic low. And this is true. But does it necessarily matter?

I'm thinking "no." The problem is that gold and silver are used differently than they were historically. Prior to the twentieth century both were money: silver for the average person, gold for people moving larger quantities of value. During the early twentieth century, silver was not money per se, but coins were still made from silver, though they were valued at a considerably higher rate relative to the dollar (in gold) than they were worth on the open market. Once the dollar was decoupled from gold, of course the silver price had to rise relative to the ever expanding dollar, and ultimately had to be abandoned as the material of choice for coinage.

Today, silver is not money. People still use gold as a store of value. Central banks still use gold as a store of value. In the face of a changing world monetary system, in which the U.S. Dollar can no longer be relied upon as a reserve currency, central banks and individuals are using gold as a store of value more than in the recent past, and this trend will probably continue. But silver? In an era when even paper money is giving way to electronically transmitted credits, I sincerely doubt silver will return to a monetary role, not to any appreciable degree, anyway. I believe the prior advantage of silver was that it could be used for smaller transactions than gold, and had many of the advantages of gold to a lesser degree. Paper and electronic credits have completely replaced silver in the "small transactions" world, even in places that completely lack a government, like Somalia. Of course, this could easily change were the world's political system to collapse in a violent and lasting fashion and paper and credits became unreliable in the chaos that followed... but if this happens I sincerely doubt the lack of silver would be the greatest of one's problems.

That isn't to say I don't believe people that don't own any silver shouldn't buy any. It's probably a good idea to keep some small amount around "just in case". But while gold retains a monetary function and will likely continue to do so, I don't see silver doing so. I believe the historic lows in the silver-to-gold ratio is not the result of sleeping investors. I believe it is the result of fundamental changes in demand for the two metals. Gold retains a monetary demand in addition to its industrial and luxury demand. Silver does not.

Animal Spirits Pt. 4: Conclusion

Having finished this book, I can say I do like what I've read. Certainly I don't agree with every conclusion they've reached, nor do I agree with every analysis. But their approach is certainly more valid than the approach made by even the standard economics stories I'm familiar with. In a way, by acknowledging the fact that individual and cultural variations make most dry quantitative approaches to economic study less than helpful, their approach has more in common with the approach promoted by Ludwig Von Mises than that of those labeled Kensian and Monetarist.

That's not to say they are the same. Where Mises described a discipline that stuck to exploring the structure of logic that can be built upon certain basic, knowable facts (including the fact that human motivations are infinite and complex), Akerlof and Shiller explore the impact of specific psychological and cultural information on economic analysis. Indeed, were one to engage in a multidisciplinary approach that deliberately combined Misesian praxeology with psychology and cultural studies, it would likely look something like this (assuming the reader can accept that "Misesian" and "Rothbardian" are not necessarily the same, and that two people can attempt the same approach and, thanks to the role "understanding" plays in the comprehension of complex phenomena, can come to different conclusions). I can only hope their ideas have some effect on the overall profession.

So this book is a starting point, though I suspect there is a hurdle the authors are not anticipating. They speak of the role of "animal spirits" (and yes, they are using the term in the fashion I had hoped when I wrote Part 1) in shaping the overall economic and driving economic events. They say government regulation is an appropriate remedy to the excesses that can be caused by these "animal spirits". The question then becomes: how do we get appropriate policy out of the government? For it is not only the overall economy in which "animal spirits" plays a role; it is also in politics, and administration, that human motivation plays an important role.

In other words, would would be the result of applying "animal spirits" theory to public choice theory? For the government isn't a machine that inputs information and outputs policy: it, too, is made up of human beings with diverse motives. It, too, suffers from the effects of a confidence cycle, corruption, notions of fairness that may or may not be good for the overall output, changing stories, and other things identified as "animal spirits." Any policy recommendation resulting from an analysis must take this into account as surely as the original analysis must.

Animal Spirits Pt. 3: Natural Wage Theory, Money Illusion, and Wages

I just finished reading Chapter 9 of Animal Spirits. Now I see the point of criticizing Natural Rate Theory. I mentioned in an earlier installment that I suspect that, over the long time, wages will tend to track inflation, but lag behind. Akerlof and Shiller appear to be saying that this is precisely the point. Steady inflation holds wages at a lower level, one which allows a lower level of unemployment. Employers can grant employees raises for the financial purpose of keeping it in line with the purchasing power of money, while still giving the employee the feeling that they are being rewarded for their efforts. In the absence of inflation, the employer can't afford to give so many raises, the employee feels he's not being treated fairly, and worker productivity falters. So, in their analysis, because of money illusion and fairness, a certain level of inflation is required to keep productivity up.

Outside factors they failed to take into account (which I will get into below), I can find no fault with their analysis. Particularly in a world in which people have, over multiple generations, come to regard raises as a regular obligation, perceived unfairness (that very phrase is redundant, given all fairness is subjective) could well result in productivity losses in the absence of inflation-motivated raises.

Of course, this likely leads to the recommendation that a level of inflation should be maintained at all times. Further, it makes something like a commodity money seem untenable. However, there is something else to put into the analysis: the credit cycle. Wages are downwardly rigid, therefore deflation can damage employment levels, as falls in wages fail to keep pace with falls in other prices. But what if "fractional reserve" banking were abolished, and therefore the bank created inflation that ultimately leads to deflation never occurred in the first place? The downward rigidity of wages could become irrelevant, in this scenario. But then, it could also lead to an extended (possibly multigenerational, meaning it would be politically unsustainable in reality) period of adjustment, until people finally realized psychological satisfaction is not going to come from making the numbers bigger.

It's a big hurdle to get over. From a strictly logical standpoint, wages generally rising over time, but lagging behind prices is not as good for workers as wages falling slowly but lagging behind prices. But falling prices, though it is good for a person whose wages have not yet fallen, is an impersonal phenomenon. Rising wages, though, feel like a personal reward, even if the employer is only keeping the wage in line with rising prices, and even lagging behind. The gradual price drops of a stable money supply may be better for workers materially, but rising wages, even insufficient to cover rising prices, are more emotionally satisfying.

Were it not for the dangers inherent in a fiat token-based (whether paper or digital) currency (which we are seeing today, as the results of bad monetary policy hit the economy like a hurricane), a fiat currency would definitely be better... IF the money supply expanded evenly. Unfortunately for fiat money supporters, it does not. Industries grow beyond what they should because of investment bubbles, and then people lose their savings, workers lose time building knowledge and experience in bad industries (not to mention their jobs for no good reason), people lose confidence (which the authors just spent a chapter talking about). I'm presently convinced the negatives of fiat money and an inflationary policy outweigh the negatives.

That, and I have moral difficulties with the idea of a monetary elite making things better by deliberately deceiving laborers.

Worst Case Scenario

It occurs to me the world could actually end (or rather, begin to unravel) in 2012. This has little to do with Mayan calendars and what not, and more to do with the potential consequences of the unraveling of the final bubble, the bond market. In the late nineties bubble money fled from the stock market on the wake of the tech boom, into the real estate market. Real estate collapsed, and bubble money has fled into gold and bonds. What will happen when the bond market collapses? Will the gold market collapse?

2012, the bond market collapses. Many, many businesses find themselves unable to roll over their debts, and aside from those businesses politically connected enough to receive the next round of bail-outs, many businesses fail, and unemployment doubles, at least. The government rolls its own debt into a much higher interest rate, and debt-servicing beings to swallow a majority of government revenues. Those who continue to work pay out ever more taxes to finance the debt as services are reduced.

The tug-of-war over public funds intensifies to something more like a real war, as those with wealth held in treasuries pour enormous amounts of money into the political system to ensure that the idea of repudiating even a portion of the debt never sees the light of day. This further corrupts the two-party system, as increasing numbers of Americans come to realize they simply are not represented, and find any efforts to change this thwarted by the rigidity of the two parties, in the thrall of all this political money.

Riots break out at various places and time over the government's increasing inability to pay out social security, medicare, and other welfare "entitlements", the political system mostly denied to them. The democratic system begins to break down. Radical cutting of military spending results in a combination of large numbers of unemployed, militarily trained young men and resentful elements of the former military-industrial complex. Brigandry and the necessary government response (which brings many military suppliers back into the money stream) result.

This occurring all over the world, the largest country without debt problems, China, begins the process of establishing hegemony over most of Asia, and carving out sizeable spheres of influence in Africa. Most of the mainland countries fall into China's orbit without complaint. Russia and China maintain a low level of conflict over spheres of influence in the central asian countries between them. Violence erputs in Taiwan between pro-Washington and pro-Beijing forces, and China moves in to forcibly re-establish order. Either this, or a war between China and Japan, trigger war between the United States and China. The war is brief, and the US leaves just as quickly as it entered, as the American economy finally collapses completely under the strain, governments collapse with it, law and order collapses, all vestiges of civil society collapse, plunging most of the Western world into a new dark age. This assumes nuclear weapons are not a factor.

Even without them, the total break-down of the division of labor in the Western world results in a severe drop in the efficiency of the use of natural resources... resulting in unmitigated environmental disaster as people desperately try to survive in the absence of a functioning market, concerning themselves more with day-to-day survival than long-term viability.

All of this begins with the collapse of the bond market bubble. Stocks can collapse, and we're okay. Real estate can collapse, and still we're fine. But when the bond market collapses, it will affect the ability of the government, itself, to meet its own obligations.

Animal Spirits Pt. 2: Money Illusion

I am unfamiliar with the term "money illusion", but from what I'm gathering from this chapter as I read it, this refers to the failure by many people to account for changes in the purchasing power of money in their financial planning. In short, the term "money illusion" is kind of like the inverse of another term I am familiar with, "Neutrality of money". Most economists operation under the assumption that money is a neutral medium of exchange. Akerlof and Shiller, in advocating a return to the idea of "money illusion", appear to be saying something similar to what is said in Misesian circles: that money is not neutral.

As evidence of this money illusion, the authors point out that the vast majority of labor contracts fail to include wage increases to account for cost-of-living increases. In other words, in the vast majority of cases, workers bargain in monetary terms, not in "real" terms. But, there is another explanation other than "money illusion". It could be that both sides are simply less concerned with future prices than they were with current prices. The workers want to get as much as they can right now, gambling that future negotiations will enable them to keep up with the costs of living. The employers want to avoid built-in cost increases, and gamble that future negotiations will enable them to avoid excessive wage increases. Since nobody can truly predict the future, neither side can effectively negotiate in terms of future wages.

Then again, that whole argument could be the same thing as "money illusion". I'm still not sure what it means, exactly.

Still, if it is true that, as Akerlof and Shiller assert, conventional economists (I suspect they are referring to monetarists here) actually make the assumption that people see through the veil of inflation naturally... I weep for the profession. I suspect, however, that there is more to it than this.

In the sort term, of course many people are going to fail to account for inflation. People differ in their degree of financial savvy. Furthermore, people who maintain minimal savings have little to lose from inflation (aside from wage erosion, but those are not entirely under their control in the first place), and thus have little incentive or opportunity to think in terms of inflation. So if monetarists, when they say people behave "rationally" and "see past" inflation (in the authors' words), actually mean people are smart and know about inflation... obviously they fail. Hard.

However, though wages for unskilled labor will always tend to lag behind inflation, they will also tend to track inflation, quite in spite of the worker's lack of knowledge about inflation. For workers are not aiming at a specific level of "real wages". They are simply trying to get as much value out of their jobs as possible (including money, but also including such intangibles as job satisfaction, job security, risk aversion both physical and psychological, etc.). Likewise, their employers are not trying to maintain some specific "real value" in their wage rates, but are rather, day to day, simply trying to get as much value out of as little money as they can. Inflation is entirely irrelevant in this calculation, so long as both parties are dependent on that third, unassailable economic force: the consumer, who is simply trying to get as much value for as little money as possible, also. (Most labor contracts I am familiar with that include COLAs are those of government workers, such as teachers, who are not dependent on the consumer, but rather the taxpayer and the voter; entirely different incentives apply.)

So as workers move from job to job, they will tend to go with the highest bidder, regardless of who that is. Someone who fails to get a raise he thinks he deserves may attempt to move to a different company. A company that finds its wages too high and finds themselves unable to lower those wages will tend to look for excuses to fire overpaid workers outright, replacing them with new workers with whom they can negotiate lower wages. Whether either party will be successful is ultimately not up to either the employers and the workers, regardless of whether or not they "understand" inflation, but to market conditions as dictated by the consumers.

However, "money illusion" will still tend to skew the economy. Downward wage rigidity is part of this. Consumer resistance to price rises is another. The "wealth effect", in which people tend to spend more when the monetary value of their assets rises despite the unchanged form of those assets, is another. All these forms of resistance will ultimately crumble in the long term, as market realities force reassessments; however, these "money illusion" phenomena do tend to transform what should be gradual changes over time into sudden and traumatic lurches, which skew perceptions and beliefs even more.

At this point in the book, the authors have failed to point out the source of money illusion. Some changes in prices simply reflect changes in consumer disposition: a price for one thing drops because consumers value it less today than they did yesterday, or because costs in producing this good have dropped; a price for another thing rises, because consumers value it more today than they did yesterday, or because production costs have risen. However, when ALL prices rise, it can only be because consumers value the money, itself, less today than they did yesterday, OR because the supply of money itself has risen. And there is only one entity with the power to increase the money supply to the degree it has over the twentieth century: the State. This "illusion" is not a natural phenomenon: it is man made. I hope to see Akerlof and Shiller point out this fact later in the book.

Animal Spirits

A friend of mine and I occasionally discuss questions of politics and economics. He recently read George A. Akerlof's and Robert J. Shiller's Animal Spirits. At his recommendation, I am also reading it. Of course, I can't help but read it from the Misesian perspective I've been absorbing as I read through Von Mises's Human Action. I'll be using this space to comment as I read through.

I just finished the introduction. So far, I have only two problems with the text. The first is the implication that the Classical model of economics (which Akerlof and Shiller are calling "traditional economics") was somehow the last word in economics before the entire profession was awakened by first the Great Depression and, today, this recent series of closely followed crashes. This is not true, as in both cases there were those who successfully predicted the events (and were at the time universally derided for it). Ludwig von Mises, for example, successfully predicted the Great Depression as the inevitable result of Federal Reserve policy during the "Roaring Twenties." More recently, Peter Schiff, a follower of the same set of ideas, called this recent recession several years before it materialized.

There are similarities between the Misesian approach to economics, and the approach proposed by Akerlof and Shiller in this book, which brings me to the second problem I have: the terminology the authors chose to employ. For while "Animal Spirits" may have good book-selling shock value, the term is highly misleading in that it has both a surface meaning (the new-agey ideas about totems and ghosts and stuff the average reader would get from it) and the more archaic meaning the authors are using, which simply refers to the fact that human beings make their own decisions according to the world as they see it, rather than the world as it actually is (or rather, I dearly hope this is what they are getting at).

This is similar to Von Mises' approach, which he termed methodological dualism. Von Mises, in Human Action, briefly alludes to the philosophical debate about whether or not human beings have "souls" or "spirits", whether or not people have free will or are slaves to a chain of cause and effect going back billions of years that determines what we do. He then dismisses these questions as being outside the scope of economics and without satisfactory answer as of the writing (and even as of today, so far as I can tell). According to Mises, to be correct, the economist must theorize as if people have the ability to decide upon action independently of this chain of cause and effect the strict materialist believes determines our actions, since economics has no way of following this chain beyond the confines of the human mind (the way I always put it is that, from the perspective of economics, the mind is a black box), and psychology, as yet, cannot follow it reliably. Thus the term methodological dualism. The term "dualism" refers to the idea that there are two sources of "cause" in the universe: the physical chain of cause and effect that can be analyzed and predicted by the physical sciences, and the actions of human beings which cannot. The term "methodological" refers to the fact that the economist is laying no claim to the the truth of the idea of human free will... merely that this assumption is a requirement for economic analysis under the current scientific conditions.

In other words, these ideas are hardly new... they simply have never been taken seriously in the context of mainstream economics (whether neoclassical or Keynsian). I'm looking forward to getting to the meat of this book and seeing where the authors go with this.