How is that drug war working out for you?

The war on drugs is wrong, both tactically and morally. It assumes that people are too stupid, too reckless, and too irresponsible to decide whether and under what conditions to consume drugs. The war on drugs is morally bankrupt. ~Larry Elder

We have been waging a war against some drugs in the USA my entire lifetime. We have put about 8 times more people in prison than Western Europe does and we still are not one bit closer to “winning” the war on drugs than we were the day we started this unconstitutional fool’s errand.

About the only industries doing really well in America at the present time are the war industries (you don’t call it the “defense industry” do you?), the prison industry, and smuggling drugs. We know from the experience with alcohol prohibition that trying to stop drugs that people want to have is not going to work. There will arise a smuggling operation to fill the needs and desires of the customers.

Prohibition gave rise to organized gangs, turf wars for distribution rights, corrupt cops, corrupt judges, corrupt prosecutors, corrupt politicians at all levels, and a distrust of government by the people. Prohibition created vast criminal organizations the like of which this country had never seen before. It was well known that the cops and the smugglers were prohibitions staunchest defenders. But prohibition had be enacted starting with an amendment to the constitution and the people finally demanded that the amendment be repealed. It finally was repealed and some normalcy returned to the land.

With the drug war, the government decided to just ignore the constitution and enact legislation against drugs that people wanted. After all, the US Empire has not really followed the constitution for at least a century. Anyone could see this was not going to end well, and only those who stand to make money off the deal (directly or indirectly) are supporters of the horror. With drug prohibition we have seen vast amounts of illicit money create vast amounts of corruption. Imagine that! We have wholesalers and retailers distributing drugs all over America even into the most back-water places in the country.

So how is the government doing putting down the sale of illegal drugs? Well, they can’t even keep the drugs out of a maximum security prison. That should tell you something. On the other hand, the price of drugs today should tell us something also. Reason Magazine recently published the following chart showing various aspects of the drug war.

embarrassing-drug-graph

Let us see: the number of people in prison is way up since 1970 while the cost of hard drugs continues to decline.

The ineffectiveness of supply-control measures is rooted in the economics of the black market. Illegal drugs acquire most of their value after arriving in the United States. Attempts to destroy drug crops or intercept shipments on their way to the U.S. therefore do not cost traffickers much and do not have much of an impact on retail prices. Nor does busting drug dealers in the U.S. and seizing the relatively small quantities they are apt to be holding. Both the dealers and the drugs are easily replaced. And to the extent that police succeed over the short term in raising prices by raising the risks involved in selling drugs, they also raise the returns from the business, attracting new participants and boosting the supply  … (Reason Magazine)

Look, if the police tell us that there are a lot of drugs in the area but that they can’t find the drug suppliers then we need to ask them how the hell the customers can find these suppliers while the high paid cops can not. But of course the real answer is that many people are getting paid off today just like in the days of Prohibition. Money corrupts just like power does.

There are only two options to find a real answer to the drug problem in the US. One alternative one is to crack down hard and levy severe penalties on users and the other is to legalize all drugs and let people exercise their freedom of choice over what they ingest into their own bodies. Drugs like marijuana, cocaine and heroin are dirt-cheap to produce and they yield profits that boggle the mind — and corrupt all sorts of people. You can eliminate the profits on illegal drugs by making them legal. Simple really.

If drugs were legalized, then the price would drop dramatically and users would not need to ever commit crimes to obtain them. The cost of prisons and police could be reduced as the drug war is producing the vast numbers of their “customers”. On purely pragmatic grounds this madness called “the war on drugs” needs to end. The government is using this war on drugs to increase its power over the people and it was never legal anyway. End it now!

Basic Economics of Money and Inflation for the Distracted

Introduction and Medium of Exchange

Economics is often called “the dismal science” but it is not really dismal nor is it hard to understand. Economics can be made to look hard or boring but that is the job of government paid teachers and they do it to keep people from understanding how the state is screwing them over.

We are in hard economic times at present in the USA and some economists have called it a “recession”. It is called a “recession” because the word “depression” which was used for most of our history is so scary to the modern man, given “the great depression”, that we are afraid to use the word anymore. We are also seeing prices rise and that hurts everyone, but it hurts the poor the most. People wonder what causes these things, but before answering that large question one must first start with some basics and the first one might as well be “money”. So, what in the world is this thing called money? Why do we even need it? Have not many people called money the “root of all evil”?

Once upon a time people would use barter to obtain the goods and services they needed. That is, two individuals each possessing a commodity or a service that the other party needed would enter into an agreement to trade so that both would be better off than before the trade. It was not always simple even with just two people, consider if you had a horse and I had a dozen eggs — that does not seem to be a fair trade most of the time. This direct form of barter does not provide the transferability and divisibility that makes for efficient trading. Another example is the one if you have cows but want apples. Then you need to find someone who has apples and the desire for your beef. What if you find someone who has the need for beef but no apples and can only offer you shoes? To make the trade now the two of you need to go find a third party, or more people, who want to trade to see if something can be worked out. This is very confusing and inefficient.

What if most people wanted salt and you had extra salt? You could barter for needed goods by offering some of your salt for whatever you wanted or needed. If you wanted to get just enough beef for the week from the farmer in town, the two of you could decided on a fair exchange rate between salt and pounds of beef. This works if the farmer thinks that many other people, who have things he needs, also value the salt and will also take it in trade. In this way the salt would be traded just so he could trade the salt with others since everyone needs salt.

In the “new world” of colonial America colonialists used beaver pelts, tobacco, whiskey, dried corn, and other items as currency for transactions. These commodities were chosen for many reasons. These commodities were widely desired and easy to trade with, but just as importantly they were also durable, portable and easily stored. Tomatoes are the fruit of the gods, but they go bad so fast that one could not use the delicious tomato as a trading commodity.

Since these commodities were used to trade for goods and services, one could say that these commodities formed the basis for exchanges. Heck, one could even say that they were a medium of exchange“. That, by the way, is how most experts define the word “money”. What would be the best commodity to be used as money? One needs to look for the commodity that is easy to exchange and it needs to not deteriorate for long time periods. The commodity chosen also needs to be easy to carry around and store.

What did the ancient world decide to use for money? Gold and silver. Both metals last a long, long time as they don’t rust away like iron. Both metals have inherent value in the arts and in the jewelry trade. Both items are in sort supply so that the law of supply and demand does not diminish the value of either for the most part. Gold and silver do have problems. How much do you have in your sack? How to weigh it? How pure is that “gold” anyway? Gold dust is easy to divide up and that helps a bit, but it is still a pain to have to weigh out gold every time you buy a darned happy meal for the kids at that fast-food joint.

Money, Coins, and Inflation

Consider How Much things cost in 1974

Year End Close Dow Jones Industrial Average 616
Average Cost of new house $34,900.00
Average Income per year $13,900.00
Average Monthly Rent $185.00
Cost of a gallon of Gas 55 cents
Average cost new car$3,750.00
Samsonite Case $62.00

It would be very difficult to talk the new car dealership out of a new car for only $3,750 today! Why do prices rise? The progressive often says it is simply “corporate greed”. That answer is wrong of course, but what does cause prices to rise? To answer that we need to look at “money” more closely.

If you take a look at the “coins” in your pocket change you will see that the dime, quarter, and the half dollar all have little groves on them. That was to prevent anyone (the government most often) from clipping off a bit of the edge before passing it along. No one would do such a thing today of course since the “coin” in not really a “coin”, but rather it is a token. The US government stopped issuing “coins” in 1965. They issue tokens instead.

The “coin” was invented by the ancients to overcome the problem of how to trade conveniently in gold or silver. The real coin is a disk of precious metal, usually gold or silver. This coin has three things stamped on it; the weight of the coin, the fineness of the metal, and the name of the mint where it was manufactured. The name of the mint is called the “hallmark” and it became the “brand name” and naturally some brands were trusted more than others just like today. Notice that the object did not need any government backing as the object itself was of a certain value regardless.

The Romans had a silver coin called the Denarius. It was a 940 fine silver coin, which means it was 94% silver and 6% base metal for strength. The Romans had a welfare program as well as a warfare program and continually needed money, so when they collected taxes they started clipping off a bit of metal from each coin and minting new coins. The groves on a coin called “reeding” is there to prevent this sort of theft of metal. That was not enough so they started counterfeiting by melting the coins and adding base metal to reduce the silver content which allowed them to mint new coins from the stolen silver. This is called “debasing” the money. The Denarius went from 94% silver in 54 AD to under 50% by 200 AD and then to 1% silver by 250 AD and therefore became nearly worthless. It would have to take 94 coins to equal the silver content of one non-counterfeited coin.

The middle ages saw a mint in Czechoslovakia introduce and then produce a coin called a Joachimthaler that was popularly called a “thaler” because, hell, who can pronounce those Czech names anyway? It was a one ounce silver coin and became so popular, trusted, and demanded that the very name “thaler” came to mean the same thing as one ounce of fine silver. As language changes the name “thaler” became “daler” and later on it became “dollar”. The “Dollar” was defined in the mind of the people of Europe as one ounce of fine silver.

Paper Money and Inflation

We have seen how government counterfeited by debasing the precious metal content of the coins when the government took in coins via taxation. Now we will look at “paper money” and the debasing of that commodity.

Once upon a time when real gold and real silver were the coin of the realm, it was difficult to keep all of your money with you. Gold and silver are metal and they are heavy! It is also dangerous to haul around all of your money due to the robber that might take it from you. There were money warehouses where one could store his gold and silver, and these became known as banks. There was a fee for the storage and you got a receipt for the metal that you deposited in the bank. These receipts became known as “bank notes“.

Sometimes two men would arrive at a fair price on a trade and one would just give the other the correct amount in bank notes rather than go to the trouble of going to get the actual gold or silver from the money warehouse. With reputable banks this worked out very well indeed. Thus the idea of “paper money”, which was just trading receipts (which were just claim tickets or IOUs) became accepted.

In the USA the government issued a one dollar bank note called a Silver Certificate up until the 1960s. The government promised to redeem the paper bill with once ounce of fine silver upon demand. Until the 60’s the US Dollar was valued throughout the world as very good money and the phrase “sound as a dollar” meant that one was in good shape. In the 60s the US government started issuing fake coins (“token” is the technical term) that you can see in your own pocket today. The government also started issuing Federal Reserve Notes which were not backed by anything and could not be redeemed for Silver. Now you may wonder how this came to be. It was not just some experiment, rather it was necessary. You see, the US government had been engaged in a massive fraud and had issued far, far more Silver Certificates that it had silver to redeem the paper with. So, they changed the rules of the game by issuing paper backed by nothing. So what gave these pieces of paper any value at all? The “legal tender law” is what.

The idea of “legal tender” goes back to Kublai Khan who issued pieces of paper that said they were 20 ounces of gold! He passed a law that said if you refused to accept such a piece of paper you would forfeit your life. (the Khan’s were not very warm and fuzzy) Other governments after that time tried other versions of “legal tender” and the USA settled upon the idea that one accepts the unbacked paper for a debt or the debt is canceled. In other words, if I owe you $100 and offer US money for the debt you have to accept it or the debt is legally canceled! Neat, eh? This allows the US government to print up all the money they dare to print up. The only thing holding back the government from printing up Billion Dollar Notes by the truck load is the law of supply and demand leading to hyperinflation.

FDR stopped gold coins in the 30s, silver coins and paper Silver Certificates were done away with in the 60s, and the constitution says that all this is illegal. The document says the the government can not “make any Thing but gold and silver Coin a Tender in Payment of Debts”. But we don’t follow the constitution any more so few care about this small problem.

Paper Money and Runaway Inflation

We have looked at how governments could debase the currency and steal money even if the currency were gold or silver coins. This was a time honored way for the government to steal money to pay for wars and welfare, without high taxes which can lead to unwanted unrest among the population. Ah, but paper money, now there is a concept that turns out to be a wonderful concept for governments to loot the public. If a government prints more money, then the money already in circulation is worth less. With paper money not tied to any redeemable amount of precious metal, the government may print as much as it deems it needs to do. Heck, sometimes it prints too much money even if it has “promised” to redeem the paper currency for solid precious metal. Governments sometimes don’t tell the truth, perhaps you have noticed this.

Inflation is an increase in the money supply. Inflation leads to rises in price because the increase in the amount of money in circulation has made all the old money worth less than it did before. As an example, if I were selling apples for a dollar a piece today, and the rate of inflation were 10% then I would have to rise my price to $1.10 by the end of the year just to keep at the same level I was before. I have not raised my price in real terms; I have only kept up with inflation. So, how high can prices go? How fast can it happen? Has it ever happened in real countries on the planet earth before? Let us look to history for answers. Wikipedia has an excellent list of countries that have experienced hyper-inflation. See it here.

In Germany in 1914 the cost of a pound of butter was a little over one Mark. By 1918 the cost had risen to 3 Marks. By 1922 a pound of butter was 2,400 Marks, and the next year it went to 6,000,000,000,000 Marks. Yes, one pound of butter went from a Mark to six Trillion Marks in 9 years. One egg in 1914 was under a Mark and 9 years later it was 80 Billion Marks. This level of inflation is such a society killer that governments have tried to cause runaway inflation in the economy of their enemies during wartime.

In the 1920s the German government bragged about its efficiency at printing money. They had twelve printing operations running 24 hours a day pumping out new currency! How could anyone set a fair price for something? If I sold a farm for 3,000 marks to you one year, it might cost 3 Trillion to buy one like it a few years later! How can society run in this sort of chaos? I believe that most humans can understand the evils of runaway inflation. The only people who would want such a thing (mistakenly) are those so deeply in debt that forcing even a large debt to become mere pocket change is a “good thing to them personally”. (assuming they give up eating food that is)

Money, Inflation, and the Central Bank

Money is a crucial part of our economy and our society. Untold numbers of voluntary exchanges enable a division of labor in society. Everyone benefits because the division of labor allows for all of us to be much better off than we would be if we had to be self-sufficient which would reduce us to a pitiful standard of living.

As Rothbard noted:

Money is different from all other commodities: other things being equal, more shoes, or more discoveries of oil or copper benefit society, since they help alleviate natural scarcity. But once a commodity is established as a money on the market, no more money at all is needed. Since the only use of money is for exchange and reckoning, more dollars or pounds or marks in circulation cannot confer a social benefit: they will simply dilute the exchange value of every existing dollar or pound or mark. So it is a great boon that gold or silver are scarce and are costly to increase in supply.

But if government manages to establish paper tickets or bank credit as money, as equivalent to gold grams or ounces, then the government, as dominant money-supplier, becomes free to create money costlessly and at will. As a result, this “inflation” of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy.

The natural tendency of government, once in charge of money, is to inflate and to destroy the value of the currency.

So how does the American system of today work? In modern central banking in the USA, the central bank is called the “FED” The FED is granted by the force of law the monopoly of the issue of bank notes. These ‘bank notes’ are identical to the the government’s paper money. If the my bank needs to get cash for its customers, it must go to its own checking account at the FED which is, in effect, the bank’s own bank. It turns out that banks keep deposits at the FED in its checking account and these are its “reserves”. It may then leverage that amount by ten fold.

Here’s how the counterfeiting process works in today’s world. Let’s say that the Federal Reserve, as usual, decides that it wants to expand (i.e., inflate) the money supply. The Federal Reserve decides to go into the market (called the “open market”) and purchase an asset. It doesn’t really matter what asset it buys; the important point is that it writes out a check. The Fed could, if it wanted to, buy any asset it wished, including corporate stocks, buildings, or foreign currency. In practice, it almost always buys US government securities.

Let’s assume that the Fed buys $10,000,000 of US Treasury bills from some “approved” government bond dealer (a small group), say Shearson Lehman on Wall Street. The Fed writes out a check for $10,000,000, which it gives to Shearson Lehman in exchange for $10,000,000 in US securities. Where does the Fed get the $10,000,000 to pay Shearson Lehman? It creates the money out of thin air. Shearson Lehman can do only one thing with the check: deposit it in its checking account at a commercial bank, say Chase Manhattan. The “money supply” of the country has already increased by $10,000,000; no one else’s checking account has decreased at all. There has been a net increase of $10,000,000.

But this is only the beginning of the inflationary counterfeiting process. For Chase Manhattan is delighted to get a check on the Fed, and rushes down to deposit it in its own checking account at the Fed, which now increases by $10,000,000. But this checking account constitutes the “reserves” of the banks, which have now increased across the nation by $10,000,000. But this means that Chase Manhattan can create deposits based on these reserves, and that, as checks and reserves seep out to other banks (much as the Rothbard Bank deposits did), each one can add its inflationary mite, until the banking system as a whole has increased its demand deposits by $100,000,000, ten times the original purchase of assets by the Fed. The banking system is allowed to keep reserves amounting to 10 percent of its deposits, which means that the “money multiplier” – the amount of deposits the banks can expand on top of reserves – is 10. A purchase of assets of $10 million by the Fed has generated very quickly a tenfold ($100,000,000) increase in the money supply of the banking system as a whole.

All economists agree on how this process works. They might disagree on the effects of this process, but all agree on the above process as described.

The US Dollar is worth about 1% of what is was in 1913 when the FED was established. This comes about because the FED continually produces more “money” and the law of supply and demand will mean that each dollar is worth less than it was before.

The 1974 Nobel Prize in Economic Science went to the Austrian free-market economist Dr. Friedrich A. von Hayek. It was for the Hayek theory of the business cycle that puts the blame for the boom-bust cycle squarely on the shoulders of the government and its controlled banking system and it completely absolves the free-enterprise economy from the blame.

When a government’s central bank causes the expansion of bank credit by inflating the money supple it causes price inflation. But that is not all it does; it causes malinvestments, unsound investments in capital goods, underproduction of consumer goods and many other errors in economic judgment which are caused by all the “easy money” coming into the economy. Then, when that “easy money” stops as it always does — a depression is the result. By the way, in the ’20s the economist von Mises warned of the coming depression which was being caused by the intervention of the government. His call was on target, was it not?

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Money Velocity and Inflation

We have seen that the central bank is the main engine of inflation and that inflating the currency leads to higher prices and the boom-bust cycle. But we need to look a bit closer at how the inflationary cycle works. That means looking at a thing called “velocity”, or fast money!

Economists talk about “velocity” and they mean the speed at which money is changing hands. For example, imagine I sit 20 people around a table; each has a dollar and a pencil. Each buys a pencil from the guy to his left with his dollar. Every dollar was used one time and so “velocity” was one. Now imaging the same situation but there is only one dollar. Mr. Jones has that dollar and buys a pencil from the guy on his right and the guy on the right does the same all around the circle. Twenty pencils have been sold and one dollar was used 20 times. Hence, “velocity” is 20. So we see that a small amount of money can do the same job as a large amount of money given the right conditions. Professionals define “velocity” as M/PQ but that hurts my head to think about. This post is about understanding the concepts not hiding them in econ-speak.

The dollar responds to the law of supply and demand and when demand for the dollar falls then people are more willing to spend the dollar than hold it. They buy more goods and services and keep less dollars. On the other hand, if demand for the dollar rises then people then to buy less and keep more dollars. Get it? So, we see money demand is what causes changes in velocity. Economists look at “velocity” to figure indirectly the demand for dollars at a given time. Simple really.

Now we can look at the three stages of inflation. Let us imaging you want to buy a new aluminum mountain bike.

If the prices are stable (1) and the item has been the same for a long time, say $600, then there is no real hurry to get one and you hope that the price might fall a bit and you can pick up a bargain. But instead the price rise (2) to $650 and you decide to buy the darn thing before it can go up any more! Your good friend does the same and he was not even going to get one until Christmas! Then the price goes up steeply (3) to $1,000 and you buy another one as an investment because bikes look to be a better deal than holding dollars.

In the first stage the velocity was low and you held on to your dollars. In the second stage velocity has gone up and you spend dollars. Velocity is going up. In the third stage everyone is looking to get “stuff” and not hold dollars and velocity is way up. Velocity is always very high in the third stage of inflation. There are many examples of this that a person could look at; the USA in the 70s would be a good example. The depression of the early 80s was the correction from the economic mismanagement of the 70s. Remember that inflation goes through three stages, caused by money demand, and one can look at velocity to see what stage a country is in.

Fractional Reserve Banking

It is impossible to understand our modern economy without looking at our fractional reserve banking system, so let’s first see how the fractional reserve process works without a central bank.

Let us imagine we start a bank, called Stolen Booty, and invest $10,000 of cash to get the darn thing going. I now “lend out” $100,000 to some people, for whatever purpose they have in mind. But how can I “lend out” far more than I have? It works like this; with my original 10,000 I then open up a checking accounts that add up to $100,000 which I lend out to customers. I can charge a lower rate of interest than savers would charge if they were handing out money that they had worked for. I don’t have to save up the money myself, but simply can counterfeit it out of thin air. Before the 20th century, I would have issued bank notes, but the Federal Reserve now has a legal monopoly on the issuing of note issues. Since demand deposits at the Stolen Booty Bank function as equivalent to cash, the nation’s money supply has just, by magic, increased by $100,000. The inflationary, counterfeiting process is under way.

But without government support there are some severe hitches in this counterfeiting process. Firstly, why should anyone trust me? Why should anyone accept the checking deposits of the Stolen Booty Bank? Why do they not just use RedState Bank instead? Or a bank backed by the Koch Brothers? But even if I were trusted and able to con my way into the trust of the gullible, there is another severe problem. Since the banking system without a central bank is competitive the people I loaned money to would spend it (why else did they borrow it?) in various places and the bank notes would end up in a competitor’s bank. Say RedState Bank had $50,000 of my bank’s paper and decided to cash it since they don’t want any bank notes from other banks. Now what? I don’t have $50,000. I only have my original “reserves” of $10,000 so I am finished. Bankrupt. I am out of the money supply game and should go to jail.

As you can see under free competition without government support and enforcement there is very limited opportunity for fractional-reserve counterfeiting and this is why under “free banking” in the past the reserves were supposed to be 100% and were nearly that at all times in honest, respected banks.

Central Banking

The bankers themselves set out to get the government to cartelize their industry. This was by means of a central bank. Central Banking began with the Bank of England in the 1690s. Central banking came to the United States by the Federal Reserve System of 1913. The FED was greatly welcomed, in particular, by investment bankers such as the Morgans who by this time were moving into commercial banking as well. Banksters were in on this idea from the get-go.

Today the FED, our Central Bank, is granted the monopoly of the issue of bank notes. These bank notes are now identical to the government’s paper money and so is money in this country. A bank puts a deposit in the FED and then can issue up to 10 times that amount because we have a fractional reserve system. The FED backs this scheme by law as we have seen. By the way, the originally written or printed “bank notes” were, in fact, warehouse receipts for gold or silver kept in a warehouse as opposed to the intangible receipts of bank deposits today. Neat how we bastardized that term is it not?

Who benefits? This system was set up to inflate the money; but who benefits? Why the largest debtor benefits by making a debt smaller in real terms all the time. So who is the largest debtor in our country? Why the US government is. Coincidence? The banksters also benefit by getting the money first before the inflationary effect; plus the effects of the FED scheme mentioned above. But the benefits also include the minions of the central government who are paid by the central government with the looted wealth.

The theft called “taxes”

I was reading Murray Rothbard the other day and he reminded me about the way income taxes were collected up until World War II.

“… Before World War II, Internal Revenue collected the full amount, in one lump sum, from every taxpayer, on March 15 of each year. (A month’s extension was later granted to the long-suffering taxpayers.) During World War II, in order to permit an easier and far smoother collection of the far higher tax rates for financing the war effort, the federal government instituted a plan conceived by the ubiquitous Beardsley Ruml of R.H. Macy & Co., and technically implemented by a bright young economist at the Treasury Department, Milton Friedman. This plan, as all of us know only too well, coerced every employer into the unpaid labor of withholding the tax each month from the employee’s paycheck and delivering it to the Treasury. As a result, there was no longer a need for the taxpayer to cough up the total amount in a lump sum each year. We were assured by one and all, at the time, that this new withholding tax was strictly limited to the wartime emergency, and would disappear at the arrival of peace. The rest, alas, is history. But the point is that no one can seriously maintain that an income tax deprived of withholding power, could be collected at its present high levels. ~Rothbard

It is hard to believe that the people just paid their income tax out of their saving once a year is it not? It is hard to imagine what would happen today if the people had to cut a check each year for the total amount of their income tax burden.

Over my lifetime I have seen all sorts of arguments over taxes in this country. They have mainly dealt with how the government could extract the most money from the people. The entire idea behind Ronald Reagan’s reduction of marginal tax rates was to increase total revenue to the central government. Yes, that was not a misprint. The great tax reducer really was working on increasing the amount of taxes collected.  During the Reagan administration, federal receipts grew from $618 billion to $991 billion which is an increase of 60% (according to Wikepedia). There has been too much talk about the type of taxation or its “fairness” and not nearly enough on the total amount extracted from the population. I have seen endless tinkering with tax types and tax rates but I have seen little to no talk about the idea of taxation itself.

According to Black’s Law Dictionary, a tax is a “pecuniary burden laid upon individuals or property owners to support the government […] a payment exacted by legislative authority.” It “is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority” and is “any contribution imposed by government […] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name.” (source Wikipedia)

So just how much should be siphoned away from the producers by threat, intimidation, and the force of a gun? How much should the non-producers be allowed to steal from the productive via the theft called taxes?

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Some sycophantic state worshipers will claim that taxation is not theft at all, but merely a “donation” made while having a gun pointed at your head. Sure, and those same people wonder how the US became an Empire that murders innocent women and children all over the world on a daily basis. Taxation is the theft that feeds the Evil Empire and enables its many horrors.

Frank Chodorov once wrote:

It will be seen that indirect taxation is a permission-to-live price. You cannot find in the marketplace a single satis­faction to which a number of these taxes are not attached, hidden in the price, and you are under compulsion either to pay them or go without; since going without amounts to depriving yourself of the meaning of life, or even of life it­self, you pay. The inevitability of this charge on existence is expressed in the popular association of death and taxes. And it is this very characteristic that commends indirect taxation to the state, so that when you examine the prices of things you live by, you are astounded by the disproportion between the cost of production and the charge for permis­sion to buy. …

The main lesson I have learned about taxes is that all taxation is robbery plain and simple. What else could it be? The dictionary tells me that robbery is the use of violence or threat of violence to to take a man’s property against his will. That is taxation in a nutshell.

I have heard some claim that taxation is really “voluntary”. That always makes me wonder if they are that stupid or if they are just blatant liars. On the off chance that they are just completely deluded I offer an experiment I read about long ago. Let us make the paying of all taxes really voluntary just like giving to the Church. Those who want to support the Empire may send all the money they want to and the rest of use can do with it as we please. Let us see how long that arrangement lasts before the state falls.

But taxation really is robbery as we all know, even the liars who will not admit it know it, so it then follows that anyone who is part of government is a thief. Any government worker at any level should be treated exactly like we would treat a mugger in the city. We can only hope that Karma delivers a just “reward” to anyone who works for the largest criminal gang on the planet.

There is no “fair tax” just as there is no “just murder”. Any taxation is theft and the proceeds of the crime goes to pay for even more crime — the murder of innocent men, women, and children worldwide.

The assault on the individual and the 4th amendment

Someone, it does not matter who it was, on a thread of conversation at a large political site said to someone else:

“You are rejecting Enlightenment, liberal values. For they are the mother’s milk of our “American 4th Amendment.”

The trouble is that so many people out there that even if they are anti-war and mostly pro “civil liberties” still don’t seem to have any idea what the Enlightenment was, nor what the liberalism that came with it was.

” … From the struggle of the Dutch against the absolutism of the Spanish Hapsburgs issued a polity that manifested basically liberal traits: the rule of law, including especially a firm adherence to property rights; de facto religious toleration; considerable freedom of expression; and a central government of severely limited powers. The astonishing success of the Dutch experiment exerted a “demonstration effect” on European social thought and, gradually, political practice. This was even truer of the later example of England. Throughout the history of liberalism, theory and social reality interacted, with theory stimulated and refined through the observation of practice, and attempts to reform practice undertaken with reference to more accurate theory. …” (historian Ralph Raico)

Another source puts it this way: “Classical liberalism (also called classic liberalism or simply liberalism) is the original form of, and is today a tendency within, liberalism. It is a political school of thought that first emerged in the 17th and 18th centuries, upholding individualism and free market economics. Classical liberalism focuses on concepts of individual autonomy and private property, and argues that the sole legitimate function of government is to defend these. Classical liberals promote the use of precisely delineated constitutions that are difficult or impossible to modify, intended to prevent governments from assuming an interventionist role.”

I do wish today’s collectivists who act as if they hate the individual with a passion would stop using the word “liberal” since they are the opposite of the liberals who gave us the philosophy in the first place. Collectivists like the “modern-liberal” or the “social-liberal” have worked hard in the US to give us this world wide Evil Empire by destroying all notion of the natural rights of the individual. I hope those people are happy with the dystopia that they have built, but one is led to believe that they never meant for it all to turn out like it has.

The idea of the 4th Amendment to the US constitution was supposed to be like England’s idea that a “man’s home is his castle and all the king’s men are unable to enter uninvited”. But now that security of a man’s home and papers, in both countries, is just a fable told of old times in a mythical place called England. The sovereign’s minions have grown strong and totally without constraint. In the USA it was done in the name of the welfare/warfare state — a thing supported by both so-called conservatives and so-called liberals. Make no mistake, the destruction of individual liberty started long, long before the 2001 attacks in New York City.

Egalitarianism, that Revolt Against Nature, has destroyed the idea of the sovereign individual in the western world. Look around and see the fruits of this evil. Why do I pick “egalitarianism”? It was the idea that no one should prosper above the others that led to the belief that stealing from the productive to give to the non-productive is morally legitimate. It was the justification of the ancient evil of thievery. To enable that theft and wealth re-distribution in society required the support of the state as it was the entity with the force and power to make a great leveling happen. And now here we sit; all of us with no protections of the constitution at all — only an illusion of constitutional protections. And the so-called “liberals” in the US are crying in their beer (or is that their white wine?) at the power and force of the central government that is being used against them.

It is on that day that you agree to use the force of government to coerce others to act in a manner you would have them act that we first trod down the road to collectivism and tyranny. If a man is not committing aggression against anyone else, then there is no reason to interfere with his life. To feel bad for certain groups in society is natural and you should do what you can to help your fellow man; as long as you don’t become a thief stealing from one group to give to the other. For as soon as you join the state and will the taking of anyone’s property you debase all property rights and toss the right to own what is yours out the window.

And now the Obama administration wants to bypass the 4th amendment and use the large phone service and Internet providers to know everything about you there is to know, and all without any warrant or judicial oversight. We already have SWAT teams busting down people’s doors and attacking people in their homes. We already have militarized police that swagger around in full military gear. When the society first allowed people to be robbed “for the good of the poor” we started down this nightmare road.

It looks like only the downfall of the present system will allow us to start back on a road to peace, prosperity, and progress.

Capitalism, Crony-Cap, and Confusion

I read various ‘leftists’ who decry the use of government power by private firms in order to benefit themselves and call that phenomenon an example of  “free market Capitalism” at work. How wrong can these people get? Worse, they often accuse libertarians of supporting this use of government power by large business for their own ends. So where are these libertarians who support the use of government force by large business to enrich themselves? I can’t find any such “libertarians”.

Is it a mark against the free market that business firms do try to use the force of government to benefit themselves? No, it is the natural incentive of the situation that leads to that use of government by large corporations. Libertarians argue that we should eliminate the source of the incentive. We argue that we should eliminate the state: or at the very least reduce the state to such a small and weak condition so that it can not be used to further any corporate ends.

Libertarians, especially market anarchists, claim that the option of using government force to advance the ends of business would not be available in a libertarian society as it is the state that makes possible all manner of plunder that is impossible without the state. The leftists mistake the present crony-capitalism (corporatism) for a laissez-faire free market. I suppose they do that on purpose since it would take an idiot to mistake coercion for liberty.

It is fair to point out that the alliance that exists between government and special interests is morally abhorrent and runs against the economic interests of the masses. It is fair to rail against the present system of corporatism. But since the present system runs completely counter to libertarianism and it could not exist in a libertarian society, it is totally unfair to blame libertarianism for the very thing we have always fought against!

The special interests invest in political campaigns as a cost of doing business. It is natural that they also expect a handsome return on their investments. It is also a fact that they believe there are rewards to those who invest money in politics or they would not do so. Corporations, cartels, unions, and the various industries get back pet legislation, subsidies, tax breaks, limitations on liability, preferential treatment, barriers to entry into their market, and on and on. And of course politicians take money to sell these favors and protections; it is human nature after all.

Rather than a “laissez-faire free market” we have a not-so-free-market that is stymied and is really not a free market at all. Instead, we have the state corporatism of Benito Mussolini who helped pioneer the concept in Italy in the 20s and 30s. We need to free the market to be laissez-faire. If we were to do so then the laissez-faire market would do what it does naturally. It would sort good companies from bad ones and reward the efficient while punishing the inefficient. Innovation would be rewarded and consumers would have authentic choices in the marketplace.

free_markets_not_crony_capitalism_poster-r67b60c013fb84a2a8da5619ca75858f6_e11_400

What the “leftists” don’t see, or pretend they don’t see, is that in effect crony capitalism is central planning. The central planning that the great von Mises showed in the 20s was vastly inferior is what some of our leftist critics call “free market capitalism”. What these leftist critics don’t seem to understand is that Capitalism involves nothing more than free contract and exchange, bounded by private-property rights. That is not the same as getting politicians and their goons involved in the economic lives of the citizens!

The planner is a potential dictator who wants to deprive all other people of the power to plan and act according to their own plans. He aims at one thing only: the exclusive absolute preeminence of his own plan. ~von Mises

Leftists seem to expect justice to come from government and its regulatory agencies. Hundreds of years of data showing that justice never comes from the force of government seems to be over the heads of our leftist friends.

The writings of the socialists are full of such utopian fancies. Whether they call themselves Marxian or non-Marxian socialists, technocrats, or simply planners, they are all eager to show how foolishly things are arranged in reality and how happily men could live if they were to invest the reformers with dictatorial powers. ~von Mises

I don’t know what it will take to make our leftist friends understand the difference between crony-cap and laissez-faire capitalism, but we need to find a way to show the honest ones the difference.

Spontaneous social order, mutual arising, and the Tâo of laissez-faire

I saw a discussion among several friends on twitter about the concept of “spontaneous social order” and I immediately thought of Taoism and the Tâo Te Ching. I thought of the Taoist idea of “mutual arising”.

Taoists see the our universe as being in a continuous state of flux. What we experience is a process where everything is always changing and nothing remains constant. There is a constant interplay of opposing forces that shape our reality, much like rock and water meet to shape the river bed over time. Taoism is the philosophy that gave us the concept of yin and yang and it is from this constant, cooperative competition that the unity and harmony of nature arises. Nature is self-sufficient and uncreated. We don’t need to postulate a conscious, controlling “god” to give orders to nature or to man. We also don’t need human ‘rulers’, bureaucracy, or a panel of “experts” to shape our society. We don’t need central planners to tell man what his best course is. This interplay of forces is often called “mutual arising”. I first became aware of this concept reading Alan Watts who may be one of the best sources of explanation on Taoism that you will find.

yinyang

The mutual arising of opposites implies many things. For one it means that chaos and order are two sides of the same coin. Order will arise from chaos and the opposite also happens. This Taoist concept is strikingly similar to the idea of a spontaneous order. We see from the Wikipedia entry:

Spontaneous order, also known as “self-organization“, is the spontaneous emergence of order out of seeming chaos. It is a process found in physical, biological, and social networks, as well as economics, though the term “self-organization” is more often used for physical and biological processes, while “spontaneous order” is typically used to describe the emergence of various kinds of social orders from a combination of self-interested individuals who are not intentionally trying to create order through planning. The evolution of life on Earth, language, crystal structure, the Internet and a free market economy have all been proposed as examples of systems which evolved through spontaneous order.[1] Naturalists often point to the inherent “watch-like” precision of uncultivated ecosystems and to the universe itself as ultimate examples of this phenomenon.[citation needed]

Spontaneous orders are to be distinguished from organizations. Spontaneous orders are distinguished by being scale-free networks, while organizations are hierarchical networks. Further, organizations can be and often are a part of spontaneous social orders, but the reverse is not true. Further, while organizations are created and controlled by humans, spontaneous orders are created, controlled, and controllable by no one.[citation needed]. In economy and the social studies, spontaneous order is defined as “the result of human actions, not of human design.”

Spontaneous order is also used as a synonym for any emergent behavior of which self-interested spontaneous order is just an instance.[citation needed]

According to Murray Rothbard, Zhuangzi (369 BCE – 286 BCE) was the first to work out the idea of spontaneous order. The philosopher rejected the authorianism of Confucianism, writing that there “has been such a thing as letting making alone; there has never been such a thing a governing mankind [with success].” He articulated an early form of spontaneous order, asserting that “good order results spontaneously when things are let alone”, a concept later “developed particularly by Proudhon in the nineteenth” century.[2]

The thinkers of the Scottish Enlightenment were the first to seriously develop and inquire into the idea of the market as a spontaneous order. The sociologist and historian Adam Ferguson described the phenomenon of spontaneous order in society as the “result of human action, but not the execution of any human design”.[3][4]

The Austrian School of Economics, led by Carl Menger, Ludwig von Mises and Friedrich Hayek, would later refine the concept and use it as a centerpiece in its social and economic thought.

I also agree  that the Taoists were the first (that we know) to advocate against central planing or rulers giving orders on how to live. Consider Lao Tzu writing in The Tâo Te Ching Chapter 57.

The Genuine Influence.
1. A state may be ruled by (measures of) correction; weapons of war may be used with crafty dexterity; (but) the kingdom is made one’s own (only) by freedom from action and purpose.

2. How do I know that it is so? By these facts:– In the kingdom the multiplication of prohibitive enactments increases the poverty of the people; the more implements to add to their profit that the people have, the greater disorder is there in the state and clan; the more acts of crafty dexterity that men possess, the more do strange contrivances appear; the more display there is of legislation, the more thieves and robbers there are.

3. Therefore a sage has said, ‘I will do nothing (of purpose), and the people will be transformed of themselves; I will be fond of keeping still, and the people will of themselves become correct. I will take no trouble about it, and the people will of themselves become rich; I will manifest no ambition, and the people will of themselves attain to the primitive simplicity.’

The sage is talking to a ruler and advising him that taking no action at all will lead to the greatest good for all; himself included. This is telling the ruler not to rule! By allowing the people to jointly arrive at “the way” by cooperation and trial and error we will see the best results.

Thousands of years before the thinkers of the Scottish Enlightenment and later the French economists of the 18h century developed the idea that the market is spontaneous order in action and that “laissez-faire” was the wisest path, the Taoists were saying that “The Tao” was the natural force that ordered everything in the universe and to oppose the Tao was folly.

Some define the phenomenon of spontaneous order in society as the “result of human action, but not the execution of any human design“. The Taoist idea of “mutual arising” is that there is no straight line cause and effect in the universe like the simple idea of Newton’s famous “billiard ball universe” in action. The Taoists would tell you that all of us, all of the animals, and everything else is part of one process. Every action is part of every other action — and so the sage can tell us that we experience the whole universe without leaving our dwelling place.

The idea of “mutual arising” is an ancient idea that is basically the same as, or at least very compatible with,  “spontaneous order”. And both of these concepts are compatible with modern physics. Some say that Taoism foreshadowed modern physics.

Lao Tzu sees only evil and woe coming from any action by the ruler. He sees government as man’s folly and he offers us advice that might have come from any modern market anarchist:

The more laws and restrictions there are,
The poorer people become.
The sharper men’s weapons,
The more trouble in the land.
The more ingenious and clever men are,
The more strange things happen.
The more rules and regulations,
The more thieves and robbers.

So we can conclude that the idea of a spontaneous order arising from mutual cooperation is not new at all, and it is at the very heart of Austrian Economics and their advocacy of laissez-faire. The central idea is that millions of people working together will come up with ideas far better than some committee of even the brightest of people. Trial and error will lead the “crowd” to outperform the panel of “experts” every time; and that is even on the rare occasions when the government panel is actually trying to help the masses.

Letting the people voluntarily order society is the path to our greatest fulfillment. Let us toss aside all beliefs that some planning board made up of “experts” will do anything but harm.

Do you like forced monopolies?

I can remember the days when one company had a monopoly in the United States to provide phone service to the nation. “Throughout most of the 20th century, AT&T held a monopoly on phone service in the United States through a network of companies called the Bell System. At this time, the company was nicknamed Ma Bell.” (Wikipedia)

Those of us who lived through those days recall the “party lines” and exorbitant fees to talk to someone “long distance”. The phones themselves remained the same for decades on end and service was everything a libertarian claims about the lack of service, price competition, and innovation inherent in monopolies. Thank the gods AT&T did not have an army back then!

olive-rotary

It is a violation of moral principles to give one individual or group the exclusive right to operate the commercial phone network as in doing so there must be force or threat of force employed against all the others who would like to compete in that area. Special privilege is so obviously unfair that even Kindergarten children know that one child should not be getting all the goodies from teacher in class. Every child in middle school knows that one student getting an answer sheet to use on the test from teacher while no one else has this advantage is morally wrong. Heck, even picking one child to “sharpen the pencils” all the time leads to questions of “what is so special about her”?

Look at it this way. What’s wrong with a monopoly on the manufacture and sales of automobiles? Suppose that my gang of ne’er-do-wells are the only ones that are legally allowed to manufacture and sell cars. It is obvious we are going to be rich no matter how bad we are at making cars. From a purely moral point of view, the question is: why us? What’s so special about my gang? We and no one else have the full force of the raw power of the government making everyone bow down to us and let only us make and sell cars. If you can’t see the evil in that arrangement you should probably not be reading this blog!

But aside from the moral aspect of monopolies, there is the pragmatic, consequentialist standpoint as well given that I have a monopoly granted to me by the raw force and brutality of government. The incentives inherent in the situation are completely in opposition to the welfare of everyone but the specially privileged monopoly holder — me and my gang of fat-cats. There is every incentive to make the product or provide the service as cheaply as possible while charging you as much as I chose to charge. There is no competition to force me to be competitive and so I will not take any real risks in innovating my product; after all, no one else can make and sell a better product since only I can sell it by law. Because I’ve got no competition, you have nowhere else to go for my product — say cars. You also probably shouldn’t expect the cars I make and sell to be of particularly high quality, but you’ll buy them rather than walk. The government monopoly in the old USSR made some of the worse cars in the history of car manufacturing for example. In addition to the likelihood that the my cars are going to be expensive and not very good, there’s also the fact that I have power over others since I can sell or not sell to an individual based on my biases. I might decide to never sell cars to Roman Catholics for example. To hell with them, I am still making tons of money guaranteed by my monopoly. Abuse of power seems to be a great temptation inherent in monopolies.

But even worse than the above, if I am the only one making and selling cars, how will I ever know if I am making the best cars that can be made even if I were to want to do the best job possible for humanity? There is no competition so there is no experimentation in the market. There is no real price competition and choice for the consumer — they can’t vote with their purchases on who is making better cars. Hence, progress suffers just like it did for decades in the telephone business under the AT&T monopoly.

So if you can agree with me that a forced monopoly is bad juju, why would you want a forced monopoly called the state?  Why have a monopoly in the provision of services of adjudicating disputes, and protecting rights, and making laws? We have the moral case against that we learned in Kindergarten: why them? But we have the pragmatic case that the incentives will lead to abuse of power, lack of progress, high costs, low quality, and so forth.

With a forced monopoly like government, we get war after war. Smoke a weed an go to jail for years: come out to a ruined life. We get stupid laws that seek to control every aspect of our lives down to what color we can paint our house. Want to fly to France? Beg permission. The non-productive sector given to us by government is sucking the vitality out of the economy and keeping millions unemployed or underemployed.

I have known “small government conservatives” that claim we need government. Why do we need any government? What does the government do other than enslave us?