Per Bylund

Business Scholarship with a Swedish-Austrian Twist

Political Economy

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The War and International Tax Payers

[ad]I have been following the discussions on the economy lately, especially the discussions on the larger TV networks such as CNN. What is striking about the commentary and “analysis” is the total lack of understanding (or should I say ignorance?) for what is going on. Most analysts and experts seem to blame recession for the weakening dollar and inflation in prices, as were it some kind of natural market flaw.

We’re told recession is something that “just happens” in the market; something that we cannot get around and that we cannot really understand. They don’t say the wave-like ups and downs in the market are results of what Marx called inherent conflicts in capitalism, but they sure seem to mean exactly that. The experts don’t know why, but the market seems to go up and down in periods – in general boom and bust cycles.

As gold hits and passes $1,000 per ounce, and oil reaches beyond $110 per barrel, we are destined to see a weakening dollar as a result of the overall recession. The fact that the Fed is frequently pushing out more dollars in the international market system, sometimes as loans and sometimes as alms, to cover the massive costs for the ongoing war in Iraq and Afghanistan, is something that isn’t mentioned at all.

Where does all this money come from? If the Fed decides to offer another loan to the market or hand out treasury bonds, where is the reserve of value from which this money is taken? The sad truth is that there is none, which means any such action by the Fed is adding more of the fiat currency to the market without any kind of value backing.

But judging from the “experts” on TV, I guess the number of dollars “out there” has no effect on the value of the currency. Prices of any goods that have heavily increased supply go down – that is something any economist knows for sure. But this reasoning seems to not affect money. After all, money is money and has nothing to do with other things people trade with?

The falling dollar has in only seven months cost me more than 10% of the value of my annual salary as a Graduate Research Assistant at the University of Missouri measured in my “home currency” Swedish Kronas (see August 15 vs. March 14). This is not because the Krona is unbelievably strong; on the contrary, the Krona is – like any other fiat currency – inflated, but it is so at a much lower rate than the American dollar.

How much has the dollar fallen? (Or, in more correct language: how much poorer have Americans become “thanks” to their politicians?) Let’s have a look at the exchange rate five years ago, on March 14, 2003, about the time when the war began. The dollar has fallen almost 29 % since then as compared to that small, insignificant country‘s fiat currency.

Theoretically, this should mean American products are a helluvalot cheaper now than five years ago, which should be good for exports and for countries importing American goods. So the problem of the dollar shouldn’t be anybody else’s problem.

Even considering that the dollar is a “world currency” (whatever that means), and that a lot of companies and corporations have signed contracts in dollars, shouldn’t affect e.g. European countries too much. At least not in the long term – such losses are nothing but temporary and should therefore be covered by temporary measures or productivity increases.

The reason the world is so closely following what is happening with the dollar exchange rate (but no one is of course asking why this is happening) is that the international system of trade is 100 % political. It is managed by political organizations that enforce political rule; it is traded through political channels with political favors and with politically controlled currencies; and the corporations acting in the system are almost without exception heavily subsidized by “its” country’s political government.

This is the reason politicians around the world are now aiming to collectively save the dollar (link in Swedish). The natural thing to do in a time of crises would of course be to take whatever measures to strengthen one’s own nest, to make sure the “home market” is strong enough to survive a dollar crisis. Which can only be done through massive deregulation and depoliticization of the market (broadly defined). This is, of course, not in the interest of politicians and political power – even though it is definitely in the interest of people and firms everywhere.

Instead of taking advantage of the situation, politicians around the world get together to do what they do best: make things even worse. The dollar is to be saved only so that status quo is unaffected by the problems caused by political meddling with the economy – and this can only be achieved through intervention in support of the dollar.

What we are about to see is therefore a collective effort by politicians worldwide to make their central banks spend enormous amounts of tax payers’ money to buy paper dollars so that the supply in the market is limited (or decreased), which will make the dollar regain some of the illusion of value. This may seem like another one of politicians’ stupid ideas to try to do something about something they are utterly ignorant about.

But let me assure you it is worse than that.

The reason the dollar is crashing is because there is a war going on in Iraq and Afghanistan (and there might soon be another one in Iran). Wars are costly and they certainly cannot be financed through regular taxation – the Iraq war will cost as much as the U.S. federal income tax for two full years according to Nobel prize-winning economist Joseph Stiglitz. It is obvious that such costs cannot fit in the budget; it is also impossible to “temporarily” raise taxes to cover for such costs.

In other words, costs have to be covered in other ways than direct taxation. When a thief cannot steal enough to cover his costs, what does he do? He starts another lucrative business: counterfeiting. The Fed is literally pumping billions of dollars into the market to cover the costs of the war, which causes the dollar to fall. And then politicians all over the world take tax payers’ hard earned money to “rescue” the dollar from collapse.

So when people work hard in Europe and Japan to make a living, their politicians are taking their money and literally sending them to Washington D.C. to be spent on killing more people in Iraq.

What a wonderful world.

Update: The Financial Times is now writing on how non-American central banks will bail out the United States financial problems. They don’t mention what it means, of course, but they report on what is about to happen.

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More on the Recycling Myth

[ad]In a recent post I covered and elaborated on some of the points in an article I had published on mises.org February 4th discussing the Swedish recycling scheme. This kind of article is obviously scarce in the market for environmental discussion – it immediately became the third most Digged article in Digg’s environment category. And it has been a reason for discussion on numerous discussion forums, and the object of commentaries on blogs and ezines. I have also received plenty of comments by e-mail.

What strikes me about almost all of these comments is the total lack of interest in what I am trying to say. Rather than attacking the main point in my article, that recycling schemes based on force and power don’t work and that they are generally very bad ideas (for multiple reasons), most commenters seem to conclude that I am against recycling or against the environment.

It thus seems my article created quite a big market for straw men.

I readily admit that the point about coercive systems might not be very clear for anyone reading the article. The reason for this is not my inability to express myself using English (which has been insinuated), even though it is my second language, as it is a conscious choice. The article was written for publication by the Ludwig von Mises Institute. The institute is very clearly pro-freed markets and anti-government; in other words, the audience is already aware of the moral problems of government and would not be interested in an introductory course in the moral costs of coercion.

The article therefore doesn’t focus on this fundamental statement as much as it describes the Swedish government-enforced system for recycling to further elaborate on the general point that coercion is wrong.

This is probably one of the reasons so many seem to just not get what it is I am saying. But I suspect it isn’t even half of the reason; environmentalism is more of a religion than it is a science – if you do not whole-heartedly believe in all governmental measures to protect the environment, you simply don’t care about the environment. I do not need to elaborate on the philosophical fallacies in drawing such conclusions. Let us instead have a look at one of the most outrageous statements on my “opinions” about the environment.

I don’t intend to discuss statements such as “Bylund is against recycling” or “Bylund doesn’t care for the environment” (usually expressed in terms of “Bylund wants everybody to destroy the environment”). Such statements are nothing but stupid, and when reading the article without the intent to find support for one’s bias, it should be pretty obvious that they are totally groundless. Instead, I would like to address a very interesting anti-market argument that has been expressed in different forms in a number of places. I’ll quote one of the more clearly articulated commenters:

The Swedish recycling policies, as Bylund describes them, place responsibility on the individual for their waste products. He maintains that such a system of personal responsibility is extremely socialist and bad for the market: “Imagine a whole population spending time and money cleaning their garbage and driving it around the neighborhood rather than working or investing in a productive market!”

So personal responsibility equals socialism, because the government is making Swedes assume responsibility.

I find this comment interesting in many ways, partly because of the masterful use of contradiction to “prove” that my opinion (as it is described here) is… well, crazy. I call it “masterful” because I think it is: it is completely unfounded and obviously based in total ignorance of who I am and what I stand for, but it is so simple and clear a critique that anyone can see what a nut job I am.

It is also interesting in how it turns most of the concepts on their heads, calling it “personal responsibility” to be forced at the barrel of a gun to do something and saying that I think it is [state] socialism to take responsibility. In a sense, the comment is totally correct while being totally wrong and at the same completely miss the point of the article. It is right in the sense that I do consider the current Swedish recycling scheme [state] socialism and that I am totally against any such (i.e., [state] socialist) schemes.

But it is totally off the scale in claiming that to be forced to do something is the same as assuming responsibility. As a matter of fact, I am strongly in favor of private and personal responsibility and there is no doubt in my mind that people would have to take full responsibility for their trash in a free market (and I am for that too).

In a freed market (call it a free society, if you will) there simply wouldn’t be anywhere to put your trash except for in your own garden, and people definitely don’t want to live in a dump. So they would want to get rid of the trash, and for such a service they would have to pay – and such services would likely be cheaper the more efficient the garbage collector would be in taking care of the “problem.” And the more can be turned around and sold in the market, the more profitable the business would be.

But to get to this point you need to understand how the market works and reason in multiple steps. Most bloggers and commenters “out there” lack both of these qualities. Instead, they tend to apply their faulty statist logic on my reasoning (if you don’t have a clue, go with what you know…): if I am against a state-enforced, coercive system for recycling it is concluded that I am against recycling; if I am against government force used to make people take care of their trash in a certain way, it is concluded that I am against people taking care of their trash.

Being convinced by fallacies being truth, most seem to conclude the opposite is also true. Their conclusion that I am against recycling per se means I would like to see the environment destroyed; the conclusion that I am against people taking care of their trash means I want people to be able to (indeed, they should) throw their trash wherever they see fit, without any thought of consequences. My being convinced that the guns of government cannot be used productively, interpreted as my disbelief in private responsibility, leads to the conclusion that I want everybody to be able to act without ever having to take responsibility or face the consequences of their actions.

This would be as far from my real views as one can get. Actually, this latter statement is similar to the actual state of affairs in the Soviet Union (in other words, a lot of government) just before it collapsed under its own weight, rather than any market I am aware of. As a matter of fact, the beauty of the freed market is that it is based on each individual acting and making the choice to act – and with each individual having the same right to act, there is no way of avoiding the consequences of one’s actions. Personal responsibility is absolute in a freed market; it is only possible to avoid taking the consequences of one’s actions through directly making someone else take on the costs. That would mean force, which, in turn, would call for a counter-action and increased costs as a result – perhaps even destroyed reputation and therefore increased costs for acting in the future.

As a market anarchist, with political, philosophical, economic, and moral views somewhere between agorism and mutualism, such a system of total personal responsibility for one’s actions is the very basis of any sound and moral society. However people voluntarily agree on cooperating to distribute or assume collective responsibility is fine; the only thing that isn’t fine is forcing someone else to bear the costs of one’s actions. And this is exactly what the government does. On a daily basis.

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The Profit Motive Drives Government

[ad]When analyzing the State (government) it is often claimed that it has nothing to do with market. In a sense, this is absolutely correct: the State is coercion, force, and violent means whereas the market (in a fundamental way) is the opposite, as it is based on voluntary cooperation and freedom to associate. However, if we take on another point of view it should be fairly obvious that the size of the State is utterly dependent on a market-place incentive: the profit motive.

Of course, the State has no competition – actually, it prohibits competition. Also, it does not work in a market and it does not offer goods and services to customers who have the right not to pay for them. Also, the State isn’t known for making profits – it seems utterly inable even to balance the budget. In this sense, the State doesn’t even behave like a monopolist; even monopolists earn profits, which are maximized through utilizing the influence of the monopolist on the market (also known as “market power”).

It might not even be true that the officials of the State make profits, even though they are sometimes (or always, depending on your philosophical view on government) overpaid. The profits politicians make through accepting bribes (“campaign contributions” from special interests) aren’t really profits made by the State, so in no sense does it provide prosperity to its “shareholders,” the citizenry and those elected for office.

We might even ask: Has there ever been a State that has consistently balanced the budget or had excess funds at the end of the year? The answer is most likely no.

But I would still argue that it is the profit motive that drives the State, or rather that it is the profit motive of those who, according to the myth, control the State. It is the profit motive of voters that drive the State.

People in general seem to believe that the State is a good deal for them. Taxes are paid, but most people tend to think they get more benefits from the State than they pay in dues. In some cultures, like in the Scandinavian Jante based culture, this statement is equivalent to getting benefits for which someone else pays more. You are better off is if you are worse off but someone else is even more worse off.

Most people have adopted the illusion of somebody else paying most of the goods and services provided by the State, and thus they, relative to other people, come out as “winners.” This illusion is supported by the State, which often makes sure to have a system of progressive tax rates, meaning “the rich” pay higher percentages in taxes, while offering loopholes, rebates, and deductions effectively making the tax system regressive rather than progressive.

As my undergrad economics professor Ken Schoolland frequently reminded the class, “there has never been a tax system beneficial for the poor.” The reason for this is simply that the rich have the means to get professional help to find loopholes, and they also have the means to purchase influence through lobbying. And, which is an often disregarded fact, those elected to office are often both rich and influential – why would they tax themselves to have others reap the benefits?

But this illusion of who pays the taxes that finance the goods and services provided by the State seems literally impossible to do away with. People genuinely believe they are better off (or less worse off) than others because of the tax system. And since taxes means there is an enormous pool of resources managed by the State, there is plenty of reason to make sure the benefits granted are granted to you.

The incentive is thus not to lower taxes and also not to decrease State spending – it is to redirect spending in such a way that it benefits you (or to increase spending on the benefits you find most valuable). People in general recognize that a small tax cut for everybody means you get a little more money out of each pay check, whereas a small tax increase could mean you pay a little more but get a lot more benefits (assuming you receive the benefits, of course).

In this sense, it is the profit motive that drives the constant and increasing growth of the State. The individuals in the voting populace correctly identify the chance to make a profit while others (are forced to) pick up the bill. The profit motive, as those of us who are economists know very well, is a very strong motive power (whether it is expressed in monetary terms or not) and it fundamentally affects the political environment.

It is thus the profit motive of individual citizens, suffering from the illusion that benefits handed out by the State are actually to their benefit, that makes for a constant growth in the State’s powers and the size of its budget. It is the same profit motive that gives politicians the opportunity to seize power through outbidding competitors in terms of number and size of State benefits.

Politicians are therefore not guilty of how power politics has come to [not] work, even though they are of course guilty of their actions. The incentive structures or framework of rules making the political system what it is, is the product of individual citizens believing they are acting rationally: asking for [increased] benefits for which they mistakenly think somebody else will pay.

Without exaggeration, it can be claimed that this is the fundamental structure of all political systems of power: they always tend towards increased State budgets and promises of benefits.

It is easy to realize that the continuation of this logic, letting the system of politics have its course, eventually leads to a change of the meaning of taxes in society. From being a “necessary evil” increased taxes will tend towards meaning “increased benefits [at somebody else’s expense]” and thus from negative to positive. This is the case in extreme high tax States such as Sweden, where political parties can get elected through promising to raise taxes. The voting population in such societies have learned to directly associate “higher taxes” with “greater benefits.”

What drives people in such societies is the same motive power as in all people: to maximize utility. The profit motive is one of the human being’s most fundamental instincts; to maximize the outcome of one’s “investments” is a means for survival.

This is a major reason why political systems, like any system of power, are dangerous – to all of us.

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Why Is Inflation So Bad?

[ad]A cornerstone of government economic policy is to “fight” inflation and make sure we do not have too much of this problem, to make sure we minimize the costs of inflation. This is in a sense why we are taught there is a need for the Federal Reserve: they manage the currency and interest rates in such a way that inflation is kept at a minimum. This is an important task, and that is why the news media so frequently reports on inflation and talks of “inflationary” policies, etc.

But why is inflation a problem? According to the common definition used in the media, in politics, as well as in economics, inflation is an “increase in the price level of goods and services.” It is therefore pretty obvious why inflation is bad for most of us: with higher prices we get less for our hard earned dollars. Indeed, the latter is sometimes made part of the definition: “prices for consumer goods rise, eroding purchasing power” (emph. added).

So we, i.e., all of us, would definitely have an interest in keeping inflation “as low as possible,” or – even better – at zero (if possible). In other words, we should be grateful that we have government and the Federal Reserve to protect us and the economy from inflation, which would make us a lot poorer were it allowed to increase.

It is a well known fact that prices tend to increase. Ask anyone and they know for sure that prices will go up, which makes it better to buy whatever you need now, if you have the funds necessary, rather than wait for later. Especially if you are not sure how much your salary will increase (if at all). In other words, those of us who do have funds could very well become richer through spending than holding on to their money.

So there seems to be a bias in the economy to increase differences in wealth. Those who already have enough funds don’t have to wait for higher prices, and thus get more for their dollars than those of us who don’t have that much money. In other words: if you are rich, you will get richer; if you are poor, you will stay poor.

This is the problem with the capitalist economic system, if you ask any Marxist economist or theorist. The economic system does not only distribute wealth unevenly, it also augments the differences; this is the very basis for exploitation – the rich industrialists are given the opportunity by both the state and the economy to make more money, to get even wealthier, while the poor labor workers’ salaries are literally swallowed by inflation.

And it is conventional wisdom that prices do indeed always go up. Prices of groceries and clothing go up; prices for energy go up; prices for houses as well as rented apartments go up; prices of cars, transportation, and travel go up; prices for health care and education go up. Up, up, up. They don’t ever go down, at least not in the long run. Or do they?

Let’s have a look at an example of a free market, without regulation, and what would happen to prices. Imagine there is a market for goods and that it is at equilibrium (or close to it), so that demand is approximately the same as supply. In other words, prices are set at such a level that there isn’t a great shortage (demand higher than supply) or surplus (supply higher than demand). In other words, the market “works.”

In this market, if relative demand suddenly goes up the prices will follow (upwards). This would also be true if relative supply goes up, which would lead to prices going down to adjust for the increased number of goods in the market that would not be sold if the price was not lowered. Prices may be different in different areas, but the market as a whole (at any level) is somewhat stable in that it “tries” to approach equilibrium. There will thus not be a long time period of constant surplus or shortage; such inefficiencies will be corrected through price changes.

But let us make something clear: such price changes are not the same as constanly increasing (or decreasing) prices. We haven’t gotten that far in the example yet. So far, all we know is that prices fluctuate naturally in a market.

What happens over time? One thing that is for sure is that producers have a great incentive to be efficient, or more importantly: to increase efficiency. Increased efficiency means the products can be offered in the market to a lower price than competitors are able to match, which means increased market share and thus (hopefully) increased profits. Such increased efficiency, which is caused by constant market competition (from existent competitors or probable future such), is largely the same as economic growth.

There should thus be a tendency in the market for these products towards lower prices. Of course, if prices for energy, capital goods, and labor go up, prices might not go down as much. But as long as there are markets for energy and capital goods the prices in these markets would tend to go down as well.

If we assume salaries are kept at a constant level, the purchasing power of each dollar earned would increase. This should mean any consumer with income or funds at hand would be better off waiting for lower prices rather than to purchase the goods immediately. In other words, there is a fundamental market incentive for saving rather than spending, which in turn should put extra pressure on producers and sellers of goods and services to “make” consumers purchase as soon as possible (and therefore also increased competition).

At this point (or sooner), the Marxist would definitely ask about the market for labor – wouldn’t it too tend towards lower prices and thus lower salaries? Well, so far we have only discussed the supply side, companies supply the market with goods and services. These companies are however not suppliers of labor – they are consumers of labor, and therefore companies employing labor workers would bid prices up rather than down. The supply side competes and thereby push salaries down; in this case, labor workers themselves would, through competing for the best employment available, push salaries down. Would labor workers compete to such degree that they would not only accept, but compete for, exploitation level salaries?

In a free market, which is the fundamental assumption in this example, there are no regulations restricting the market in such a way that labor workers are forced to accept employment. Companies compete for labor workers not only with other companies, but also with the possibility of labor workers starting their own businesses (individually or together), making use of their competencies and reaping the full profits. It is very unlikely that a freed market would tend towards a situation where a whole class (if such a thing at all exists in a market) would choose slave labor or exploitative employment.

If this is indeed true, you might ask why not the market for capital goods work the same way – companies are consumers of capital goods. This is true, and I have so far only discussed the supply side of this; there is also a demand side for capital goods competing for consumption in such a way that prices are bid up.

But it is important to understand that a new type of capital good (like a machine), used by an entrepreneur seeking new and more efficient ways of producing some good, is expensive at first – but as soon as the market realizes that there are profits to be earned from adopting the same type of capital goods in production, the market grows and the market therefore generates incentives for increasing efficiency in producing the capital good itself.

(The same is true in the labor market, where unique knowledge in a new market is highly rewarded, whereas relative salaries may go down as this knowledge becomes a common characteristic sought for in the market.)

What we have in such a market is therefore deflation rather than inflation, at least if we assume there is no secret meddling with the currency itself. If the currency used in the market place is stable, actors in the market will see the value of each dollar measured in goods and services go up. In other words: prices go down.

If the market works in such a way that a stable currency is effectively deflated, then the cause of inflation in our contemporary markets must be something other than the market itself. As we have already established, prices do tend to go up and the value of one’s salary, measured in the amount of goods and services it can purchase, is constantly abated.

To understand the inflation from which we suffer, we need first ask: 1. why do prices go up rather than down? and 2. is the currency stable?

The first question can be answered rather easily without having to study the market or the details of it. In our example we assumed a free market without regulation, whereas the real market today is extensively regulated by [at least] three levels of government. The market mechanisms are restricted (if at all allowed) and therefore the market does not function as a market. In other words, the regulated market may not deliver the positive effects expected.

The second question can as easily be answered. No contemporary currencies are stable, partly because they are not fixed in value (through for instance an exchange value set in commodities) and partly because the money supply is constantly increased. In other words: the value of money is based thoroughly on expectations that it will be accepted by sellers of goods and services in the future and that it will retain some or all of its value; and the volume of currency notes (bills and coins) is increased relative to the market estimate of number of products and services already available, which causes a pressure on prices upward. The supply of money without backing in “real” value is in other words increased, while the market has not created a corresponding increase in available goods and services.

Inflation according to the mainstream definition is therefore a product of government-imposed restrictions on how the market functions, while government at the same time is supplying a currency without a real value base that is constantly suffering from an [artificial] increase in supply. The reason inflation is such a problem is thus that the market is not allowed to generate wealth through economic growth to the degree (or even fraction of) it would if left unregulated, and that government is constantly devaluing the currency the market uses. No wonder inflation is a problem – we are getting poorer from not reaping the full profits of our investments (in terms of money, labor, effort, and ideas) while being stripped of the value we have at hand (as currency).

And then government comes to the rescue claiming to fight inflation?

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Money Is the Root of All Evil

[ad]The radical left generally plays with the thought of a society completely devoid of money and market. According to their reasoning, money is the root of all evil. This is the complete opposite to the view of objectivist philosopher and writer Ayn Rand (read or listen to an excerpt from her magnum opus), but still a view shared by, it seems, a majority of people around the world. Perhaps this is the reason Ayn Rand’s views are considered so radical, even though they are rather “mainstream” among economists.

However, I would say the radical left isn’t as far out as many claim it is. Some of the arguments and aims of this rather communist movement are definitely both ignorant and stupid as well as “evil.” But that does not make the radical left very different from most ideological movements: there are bad ideas (sometimes called dogma) prevalent and even dominant in most traditions of thought.

But the existence of such dogma should not make us throw out the baby with the bath water. No one is infallible or perfect, and thus we should be magnanimous and patient enough to assess the ideas for what they are. We shouldn’t disregard from all mail simply because the carrier in some respects is despicable, so to speak.

Actually, I claim we could learn from the radical left in how we understand and appreciate money. What I am saying here is that it really is the root of evil. But before you panic and appalled vow to never visit this blog again, allow me to explain what I mean and in what sense money is indeed evil.

The left despises wealth as they see it as the fruits of exploitation. Part of this is their insistence to believe in the labor theory of value, a value theory that, to say the least, has some shortcomings. Since wealth is expressed in money and money in turn means power it is a symbol of oppression. As such a symbol it is literally hated by many on the far left.

The power of money is evident since large amounts of money brings the power to e.g. build or shut down factories (thereby creating and destroying jobs), boss people who lack money around, as well as corrupt the minds of those desperately wanting this kind of power. Money, it would seem, is both an instrument and symbol of power, and as such it is reasonable to assume things would be for the better without it.

I tend to agree with this view, but strictly in the light of contemporary corporatist (or fascist, if you will) state society. Money doesn’t have to be evil and it certainly isn’t inherently so, but it definitely is as things are today. The reason for this? The state.

Money is an instrument of oppression simply because it has been monopolized by the state and therefore is no longer a voluntarily accepted market instrument. Wealth as we see it today is hardly ever a result of hard work, ingenuity, and respectable conduct; it is literally never a natural outcome of being at service to the masses. Rather, wealth is the result of not hesitating to use corrupt and utterly immoral measures to become market leader and bar others from offering better and cheaper products: wealth is what you get if you have enough friends in Washington, D.C., and if you manage to play the game of politics masterfully.

Wealth is not a result of masterfully producing products cheaper, faster, and at a higher quality than your competitors. It is a result of producing while using the guns of government to slay or tie the hands of the competition; to legally limit the number of suppliers and producers in the market to perpetuate the privilege of acting as a monopolist (or oligopolist); to maintain a constant flow of cheap labor to exploit; to prevent, block, hinder, and stop any kind of market mechanisms that might arise.

There are of course some exceptions to the rule, but most of them can only come so far. Sooner or later they will need to buy politicians off and call for legal support, if nothing else simply to not let competitors use government against them without a “fight.”

This is the reason we have corporate empires that seem unaffected by time – everything changes, but the corporate empires seem to prevail.

There is however another piece to the puzzle that must not be forgotten. It is definitely not the case that Capital is rotten and makes whatever immoral use of a neutral state they possibly can. The main problem is the system of force in which these corporations and business leaders act: the state.

Money as it is today is not a tool created by Capital in order to exploit labor workers and use the state to protect profits. It is a tool created and used mainly by the state and political power. The reason we see corporations and politics working so tightly together, i.e. in symbiosis, is not an effect of the state desperately trying to stay alive in corporate society. It is quite the opposite.

Controlling money is essential for government: if money is a voluntary, market-based and market-controlled commodity as a means of exchange it sets narrow limits of government influence, authority, and power. In a market with free money government is literally forced to act like any other actor in the market: it would be impossible to constantly mismanage public finances and deceive people as to what degree government controls society. Government would have to tax its subjects the exact amounts it intends to spend, since it would only be possible to borrow so much – and loans would have to be paid back.

Sound, free money would thus effectuate a strictly limited government and a government which would not be able to have a secret agenda. And most of all: such a government would not be able to wage wars unless absolutely necessary. To engage in war the state would have to get the funds like anybody else, i.e., borrow in the free market. Or it could (not like anybody else) tax citizens and make them directly finance murder abroad without being able to deceive them about the intents or real costs.

With a government-controlled money that is not based in real value (such as commodities or precious metals) all such restrictions immediately vaporize. Whenever the state wishes to engage in wars it can simply print more money and thus dilute money supply, which inevitably results in a decrease in the money’s purchasing power and thereby an indirect tax on its users.

Money printing has another effect, knowledge of which is essential to understanding the ingenuity of the money monopoly. The market doesn’t react immediately to the increase in money supply simply because there is no knowledge available on whether and how much money supply has been diluted; there is a “learning curve” to dilution, which means only when the increase in money gets publicly known through the price mechanism (increase in prices to adjust for the increase in the money available) will the full effect of it be seen.

In other words, those who learn about the increase first get to react to it before the market as a whole gains this knowledge. Increasing the money supply, government can thus reward friends and allies while indirectly punish others. With more money printed, government can purchase products from corporations it wishes to support (and even pay excess prices) and these corporations can use that money for profits or spending in a market that does not yet know all money is worth less.

Money, i.e., fiat money, is thus what grants political government its powers and offers a way to constantly let its representatives escape responsibility for their actions. It is thus the root of not only immoral and unmerited wealth – it is the root of all evils government can do (and does) when not being subjected to the laws of the market. It is the root of the system of government that chains us all and makes us slaves to its whims, quirks, and distortions. It is the root of poverty and the class system!

Fiat money and the command money system is what brings State and Capital together in a symbiosis of corruption that enriches those close to power and enslaves those further away. It thus seems money, in the sense of the fiat monetary system, is indeed the root of “all” evil. Such money is the enabler and driver of a corrupt system of power and force that thrives on the subjugation and exploitation of the people.

This kind of money must indeed be abolished, so that free men and women can establish free monies as enablers and drivers of universal prosperity through voluntary exchanges.

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What Is Property?

[ad]Pierre-Joseph Proudhon is not the only one to ask the question of what is property. Many throughout history have asked that very same question, yet no one has managed to answer the question satisfactorily. At least, that is my conclusion after having read many treatises on property.

John Locke, in the second part of his famous 1690 work Two Treatises of Government, maintained God has created man more or less as a self-owner and through working his mind and body, through labor, he creates new value and has a right to the fruits of that labor. Whenever he mixes that which is unowned (unclaimed) with his own labor he gains a right to the product, be it a cleared field, a harbor, a backyard…

The Lockean concept of property is without question the most universally accepted concept of property, it was both a defense of status quo at the time of writing (at least regarding how property was defined) and is a guideline for governmental definitions of property and the origins thereof. The Lockean property rights theory is the one that has gained most following theoretically or philosophically, and is the one closest to the real world property privilege in state society.

However, the Proudhonian anarchist concept of “possession” rather than property is interesting. Rather than accepting the Lockean “absolute, unrestricted right forever” the possession right is volatile and temporary – it makes a more efficient use of resources possible through not making it temporally exclusive. At the same time, however, the possession concept might (depending on how it is interpreted) work at the direct opposite – through only allowing temporary “occupation” it might discourage or deter investments thereby making the use of resources monstrously inefficient.

The two concepts are fundamentally different and seem to be at two extremes. While the Lockean property concept, often championed by “the right,” distributes rights to property “forever and ever” and “without limits” to how they are used (except for regulation through state coercion) , the Proudhon possession concept is extremely volatile and temporary. Is there no Aristotelian “golden mean” or “middle way” between these concepts?

Such a “middle way” concept of property/possession should be able to abrogate the inherent problems with both extremes: it should not accept the problems of “absolutism” in the Lockean concept, and it should try to compensate the negative effects of a very volatile possession type of ownership.

I tried to establish such a concept in a thesis in political theory (2005) through launching the concept of “use-right” to resources. The use-right is a Lockean concept in the sense that the right is awarded through “mixing one’s labor” with that which is unowned, but it is not a Lockean concept in that it awards ownership only of the fruits of the individual’s labor – not the matter itself. Thus, the right is gained to the function rather than the physical object.

The right is enjoyed for as long as it is not abandoned, which makes it distinctly different from the Lockean concept – as soon as the owner dies or leaves it behind it is “for the taking,” while a Lockean property is owned “forever” if the owner does not award it to someone else upon his/her death. Also, a physical object can be “owned” by a number of people at the same time but for different (non-conflicting) uses, thereby ensuring efficient use of resources. For instance, a piece of land can be used for hiking, mining, bird-watching, berry-picking, etc. as long as any added use does not conflict with the uses already established.

Comments appreciated.

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Illogical Free Market Logic

Matt Jenny of the Der freie Markt web site has translated one of my 2006 articles, originally published on Strike the Root, into German: Free Market Thinking: Not Applicable has become Denkweise des freien Marktes nicht anwendbar. 

Thanks to Matt I got a reason to go back and read this article, which is a rather short treatise on how “the free market” is used as argument in the political discourse. This topic is very interesting and extremely important, yet severely neglected in the libertarian discussion. Someone really should elaborate on it, so here’s a first attempt to do so.

The article mentioned above discusses a fundamentally important issue: what is the true meaning of “voluntary”? The immediate response to such a question would commonly be something like “a choice made according to the chooser’s individual interest (or apprehension thereof) without being restricted by other people using force.” Someone would plainly say it is whatever comes out of “free will.”

Well, to a certain extent I would agree. Most choices made according to the chooser’s own will would mean it is voluntary since it is a choice made without there having been force or threat thereof to make you choose it. In other words: if you would have chosen differently if you were allowed to choose freely, then it is not a voluntary choice. Most people would agree on this, but it really is the other side of the definition that is important: what you would not have chosen without being forced to.

Let’s say you have a number of options to choose from, what would constitute force in such a situation? What we’re looking at here is really what involuntary means, which might not necessarily mean the exact opposite of voluntary. I know how strange this sounds, but bear with me.

Choice, in its very essance, is always voluntary – having “no choice” does not exist in reality, only in our own minds. But from a political or philosophical this isn’t interesting. What is interesting is what there is to choose from. This is why we would say the choice was not voluntary if the most attractive options to the chooser are illegal, forbidden, or means you will get your ass kicked by that big guy over there.

Such involuntary choice-making does not necessarily mean there are fewer options available, but that the chooser’s ranking of the options has been forcefully tampered with. If someone says “go ahead and choose whatever you want, but if you choose number 32 I’ll kick your butt,” then that would mean there is an additional cost to number 32. That additional cost, in this case, is artificial since it is based on a rights violation – the person saying it is using the threat of force to make you choose in another way than you would have, had he or she not been there.

Thus, we could say involuntariness of choice exists where there is artificial, force-based cost added that will inevitably affect the way you rank the options.

An important part of this additional cost is often neglected: options that don’t even exist anymore, of which the chooser might even be ignorant, due to artificial, force-based cost added. What we have here requires a deeper analysis than the rather obvious definitions in the voluntary/involuntary discussion above. Could it be that a fully voluntary choice, i.e. a choice from a certain number of options made to 100% without added artificial, force-based cost to the decision, is still a forced decision?

The answer is yes if force has limited the options available to the chooser. This is where many free-marketeers often get lost: they argue a choice made with no force added to the direct choice-making must be voluntary. But the conclusion doesn’t follow from the premises in this piece of reasoning. It is like saying you voluntarily chose to eat your food without knife and fork – because someone had stolen your cutlery. Are you voluntarily eating with your hands? Hardly.

This reasoning is fully applicable on the so-called free market logic argument. Yes, a choice might be voluntary and so it should be allowed and respected in the free market, but if the number of options have been forcefully limited the choice is not voluntary. In other words, choosing to work in a lousy job because all better options no longer exists due to government regulations means it is not a voluntary choice. It may very well be the best option available (that’s why you choose it), but it isn’t voluntary – it is made as an effect of rights having been violated.

This is where the left has it right, and the “free market” right has it wrong.

Champions of neo-capitalist globalization like Johan Norberg, author of In Defense of Global Capitalism, frequently argue that globalization brings better choices to poor people of poor nations, and that there is nothing wrong with it. Contrarily, they argue, this is the great prosperity-creating power of capitalism – and it brings wealth to these people voluntarily.

I do agree that globalization has created a number of options for people in poor nations, and that these options often are better than the existing. But it still doesn’t mean that the choice to work for, for instance, Shell in Nigeria or Nike in Viet Nam is nothing but voluntary. Actually, the greatness of these opportunities is partly due to the immense regulation and taxation of all other options – the previously available options were simply what the state “allowed.”

The reason a job for Nike is so well paid in poor countries is because it is indirectly subsidized through the regulation of the local markets – were local entrepreneurs and businesses allowed to act freely in a freed market nobody would choose to work for Nike (the pay would simply be too low).

The fallacy of the argument is perhaps easier to understand when discussing the situation for most poor people in the western, so-called liberal democracies. These people are forced to take a number of lousy jobs without good pay in order to survive. Yes, they do choose to work hard for almost nothing in order to stay afloat and put food on the table for their families to eat, but a free market would not limit their choices to “take this shitty job and pay your taxes or live in a cardboard box in an alley.”

A freed market wouldn’t, to begin with, make people work for monetary payment so that they can pay their taxes. It would be perfectly possible to live off the land somewhere if that would be your choice – this isn’t possible today simply because you have to make money to pay for taxes. So what we have here is a regulated force-based economy that takes the self-sustaining live-off-the-earth option out.

The same force-virus injected in the economy by the state makes it literally impossible to go from practically nothing to something. It becomes much, much harder to “travel” from one class to another – the regulated economy provides so much fewer options to the chooser than a freed economy would, that some become so desperate from this situtation that they resort to crime.

So free-market logic isn’t necessarily applicable on the command economy we are experiencing. It would be perfectly alright to say that someone made a “voluntary” choice to take a job they don’t really like and that cannot really provide a sufficient salary from the options available. But as champions of the free market we must realize that this person would likely have chosen very differently had the opportunities of the freed market been available to him.

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The Importance of Illusions

After having spent 28 hours traveling I seem to remember most things in a kind of blur – they blend with each other in a haze, making it almost impossible to separate one event from another. One thing is however very clear, and that is, I’m afraid, the only memory that will remain weeks or months from now: security checks.

Copenhagen’s international airport Kastrup, where my journey started, is incredibly “secure” in the “many annoying checks of people and their properties” sense. I do not remember how many times I was checked or “sweeped,” my identity was in question, or my luggage was searched – but I know this happened many, many times.

Arriving at Atlanta international airport meant a few more checks, and to get to my connecting flight to St. Louis I, like everybody else, had to take off my belt and shoes to have them x-rayed. I reckon my carry-on was x-rayed four or five times going from Copenhagen in Denmark to St. Louis, my papers were checked five times, and I had to stand in line for hours (literally) only to get harassed by grumpy men and women in uniform.

The costs of this bid to make flying safe and secure can be nothing but enormous. It is, in a sense, flattering that so much time and money is invested to make my traveling between two cities safe. And with such extensive security one would have to feel safe and secure, wouldn’t one?

No.

The problem with these checks is that they are very costly while they at the same time are likely to be quite worthless. It does feel like security is “tight” when flying, but that is nothing but an illusion caused by the great number of stops where passengers and their luggage is checked.

There is no reason whatsoever to presume more terrorists (I assume terrorism is what they are trying to stifle with these check-ups) are stopped from carrying out their heinous deeds just because passengers’ luggage is check three or four times instead of one. Things don’t change simply because you decide to have another look at them – if there wasn’t a bomb in my bag a minute ago there won’t be one there two hours later either if I was in a controlled environment where it isn’t possible to find bombs. Also, my papers will be the same when checked by security officer #3 as they were when checked by security officers #1 and #2.

The only reason for having repeated checks is that the environment cannot be trusted – if someone is likely to get a bomb into the airport and give it to me, I would be able to have a bomb at security check #2 even if I had no bomb at security check #1. But this would also mean there is no reason to have security checks at all, since someone could pass a bomb to anyone at any time if this was the case.

So the security checks are really worthless unless the environment, in this case the airport, can be fully trusted to always be free of bombs (or whatever they are trying to be free of).

But this isn’t the only problem of these security checks – the real problem is that as soon as the checks are established, the real “bad guys” (whoever they are) will try other ways of accomplishing their goals (whatever they may be). It isn’t reasonable to assume a would-be hijacker will try to get a knife through the x-rays to hijack a plane – he or she would, if hijacking the plane is important enough (and I assume it is, otherwise they wouldn’t risk it), try other strategies.

If making a plane crash is the goal, getting explosives onto the aircraft might be a first thing to try. When it becomes harder to do this, other ways are tried. It might be easier to get a pilot and a fighter jet to shoot down the aircraft instead. And if that is too difficult one might try to shoot it down from the ground. Or the engines can be tampered with. Or the pilots can be fed a poison that will cause certain death in a certain time. If that doesn’t work, then one or many passengers could be infected with a virus causing nasty symptoms in a certain time frame that will cause panic on the aircraft.

The simple truth is: if there is a will, there is a way. Repeating the same procedure doesn’t make the procedure itself less likely to fail – it is rather the opposite: if a certain kind of control procedure is repeated, those wanting to avoid being spotted will have greater incentives to try other methods.

So what are the repeated security checks at airports really about – what or who are they for?

I think the increasing harassment of people traveling by air is nothing but a very expensive way of making people believe someone is doing something. There is fear involved in this issue on two levels: passengers’ fear of terrorism and the government’s fear of being accused for not doing enough.

Passengers’ fear of terrorism is based on the media’s over-reporting on the terror threats (you are, after all, many times more likely to die from a car accident or cancer than from terrorism), and this fear ultimately makes people call for security. Since airplanes were used in the terrorist attacks on 9/11, it is easy to think airplanes may be used in another such attack. This, in turn, makes the air transportation industry very exposed to threats that under normal circumstances could and should be ruled off. But if a greater part of the market fears there is a lack of security when flying great losses can result but from ill-founded rumors that “something” might happen. There is simply a lot at stake; a whole industry can die out.

This risk is of course of importance to those running and profiting from the airlines. But it is at least as important for the government, since a sudden drop in market demand for airline services means a huge technological retrogression in society (which means bad publicity for “the nation”) as well as increased unemployment creating a basis for increased social conflict and causing greater pressure on public finances.

It should thus be concluded that from the point of view of government and airline capital “something” must be done. It should also be concluded that it doesn’t really matter, at least not to the two interests mentioned, that this something is effective, but it must at least create a feeling of security when flying.

If everybody about to board an aircraft is stopped once and asked for papers, they will realize that something is done. But if they are stopped multiple times, when entering the airport, when approaching and entering the gate, and when boarding the plane, then the apprehension of these controls is not that the one and same thing happens over and over – what most people will feel as a result of repeated checks is that security is tighter than if they were stopped only once.

Looking at this from a different point of view, it becomes obvious that the “tightened security” at our airports is nothing but a costly attempt to create an illusion of security rather than a real strategy to make flying safe. The fact is that government-enforced security at airports is fundamentally a reaction to an event that has already taken place. There is no reason to believe the crooks will use the same method again even though it was, in their eyes, successful; they should be more likely to use another – and thus less expected – strategy next time.

What is needed is thus a proactive approach where intelligence efforts and knowledge of what these groups might do next should be important. Doing the same kind of routine multiple times at airports should have minimal effect on security.

But the illusion does serve a purpose: it creates an alibi for the government and the airline corporations. The latter could lose everything from another such attack while the former can gain a whole lot if people’s fears are translated into support for increased powers to “do something,” which means abolished limitations on government powers and restricted or repealed political rights of the citizenry.

The illusion of tighter security at airports is thus a result of mainly two things: the airline corporations playing on the defense to keep the industry alive, and government playing on the offense to gain powers. The costs of this are paid for by passengers spending hours having their bodies and bags searched and their privacy intruded, and taxpayers having to pick up the bill.

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Politics vs. Reality in Education

In one of my essays on LewRockwell.com this year, I discussed the fact that the Swedish government finances foreigners’ academic degrees. This is not to say that the government lets foreigners benefit from the tuition-less, i.e., taxpayer-financed, monopolized state university education. The student financing schemes available to Swedish citizens, which consists of a grant and a very beneficential “student loan,” is also available to all foreigners. There is no limit to what non-Swedish students get from Swedish taxpayers.

Some try to raise a discussion on this through advocating the instating of tuitions for students who are not Swedish citizens (and, since Sweden is a member of the E.U., citizens of other E.U. countries), but it seems the political establishment isn’t interested in this issue.

The reason there is no discussion, as I argue in my essay, is the fact that people advocating the high tax welfare state do not want to even discuss this matter. The main underlying reason for this is that if a discussion on tuitions for foreigners emerges, the rather ignorant “no one can afford to pay for the great Swedish education” goes down the drain. If foreigners are allowed, well: required, to pay for their education at Swedish universities quite a few things will become apparent:

  1. Very few will choose to attend Swedish universities to get a degree (they are only there because it is “free”), which will prove to the public Swedish university education isn’t the best in the world;
  2. Some will, no doubt, attend Swedish universities (for whatever reason) and thus obviously be able to afford 1) paying tuion and 2) living expenses. This will prove the fact that education can be paid for privately, and possibly that ordinary people (not only the filthily rich) can afford it.

These two points show very clearly that the Swedish state system of education is fundamentally based in two “welfarist legends”: that the domestic education system is the best in the world, and that such great education is too costly for people to pay themselves (and thus it needs to be “collectively” financed through levying taxes).

It is easy to understand the underlying reasons for these myths. If Swedish education isn’t the best in the world, i.e., if people from all corners of the earth didn’t choose to attend Swedish universities rather than American or British, there is no reason to accept the fact that it is extremely expensive. Also, if it isn’t a world class educational system there is no reason to prohibit private universities (except for the very few, very old private institutions like the Stockholm School of Economics, which is, by the way, dependent on government subsidies), since the public good universities obviously aren’t better than everything else.

The fact that Swedish universities aren’t the best in the world also means paying tuition to cover the real costs of running the universities would make education mediocre yet expensive. Thousands of students would simply choose to go to better universities abroad, while other would-be students would choose not to get an education at all. This would in turn put an end to the Swedish government’s plan to make everybody equal through supplying everybody with a university degree.

The economics of reality would thus call the great Swedish bluff and reality would then barge in havocing the glorious illusion of the superior Swedish way of doing things. Seeing it this way makes it rather “rational” for the political pushers and pullers to not want to discuss tuition for foreigners. It is, from their point of view, much better to let Swedish taxpayers finance everybody’s education than facing reality and risk smiting the political construction earning them a living.

What is interesting here is that this analysis, even though many may find it provocative and perhaps “too radical,” is very rational in how the incentives of political actors are analyzed. It is in the interest of the so-called “political class” to not let anyone publicly or authoritatively question the “public truths” about Swedish education. There is simply a lot – too much! – at stake here. A discussion on the educational system – no matter the outcome of it – would risk the whole system.

The analysis is, I agree, somewhat limited and seems very “simple” in the way I propose it. Yet there is reason to believe the excuses for not wanting to discuss an educational system falling apart are based in something else – something of greater value to the those refusing to discuss the issue at hand than the quality of public education. The question I am asking is simply: what could that value be?

Even though I might err to some degree in this analysis it is fairly obvious that what is happening is a typical “politics vs. reality” dispute. The choice is either politics or reality – the options are mutually exclusive.

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