Tuesday, July 31, 2012

Euro Salvation?

Awhile back, Martin Wolf in the Financial Times wrote that what Europe needs is a solution that is both politically feasible and economically workable. Phillip Bagus demurs by explaining why it might be best to simply let the Euro go.

Bagus concludes:
Intellectual honesty requires us to admit that there are important costs to exiting the euro, such as legal problems or the disentangling of the ECB. However, these costs can be mitigated by reforms or clever handling. Some of the alleged costs are actually benefits from the point of liberty, such as political costs or liberating capital flows. Indeed, other costs may be seen as an opportunity, such as a banking crisis that is used to reform the financial system and finally put it on a sound basis. In any case, these costs have to be compared with the enormous benefits of exiting the system, consisting in the possible implosion of the Eurosystem. Exiting the euro implies ending being part of an inflationary, self-destructing monetary system with growing welfare states, falling competitiveness, bailouts, subsidies, transfers, moral hazard, conflicts between nations, centralization, and in general a loss of liberty.

Monday, July 30, 2012

Fruitful Dominion

My article, "Fruitful Dominion: Genesis 1 and the Free Economy" has been published in the most recent issue of The Journal of Faith and the Academy. The electronic copy of this issue will not be available on-line for awhile, but you can subscribe to the print edition by clicking here. My paper is an edited version of the lecture I gave at the 2012 Faith and the Academy Conference hosted by Faulkner University. Below are page images of the journal cover and the first page of my article.

Sunday, July 29, 2012

The Ethical Problems of Government Debt

During my public lecture, "Looming Debt Disaster" I gave for the Institute for Principle Studies, I briefly touched on some of the ethical problems of our government debt. My discussion was predicated on embracing the Christian ethic of private property of which I have written in the past. This is what I said:
Holding the policy of deficit spending up to the light of the Christian ethic of property reveals that such fiscal irresponsibility is not an ethical means for achieving our desired ends. There are two serious ethical problems with our outrageous government debt. The first is that government spending per se involves coercively distributing wealth from those who produce it and transferring it to someone else. If I do this privately to my neighbor it is rightly called theft. If we do in collectively by majority vote, on the other hand, it is called the democratic process. There is no principle, however, that says Thou Shalt Not Steal, except by majority vote.
Another ethical problem with our government debt is that we are essentially stealing from our children and grandchildren. By amassing our mountains of debt, we are at the same time placing our children and our children’s children under economic obligation without their consent. We are placing them under a large tax burden. We reap the benefit, they bear the cost. This is simply not right.

Saturday, July 28, 2012

Foundations of Economics is Two Years Old!

Two weeks ago, this blog turned two years old. Since its inception it has been my intention to provide basic economic analysis to economic theory and policy. I intend that policy to be firmly rooted in the property foundations of economic analysis, taking account of the nature of man and the created order. For those who are interested, the ten all-time most popular blog posts are as follows:

10. Black Tuesday, Federal Reserve Edition

 9. Titanic Fact and Fiction

 8. Capital in Proverbs

 7. Responding to Economic Recession: Like Japan, Like the United States

 6. Businesses Cannot Simply Pass on Taxes to Consumers

 5. Herbener to Testify on Federal Reserve

 4. Wages Sticky Downward?

 3. The Lack of Coincidence of Wants

 2. Confusing GDP with the Economy

and the all-time most read post on Foundations of Economics is. . .. .

 1. The German Hyperinflation

Friday, July 27, 2012

Conservatives and the Economy

Grove City College's Center for Vision and Values has posted the lectures delivered by Jeffrey Herbener and myself under the title, "Conservatives and the Economy: Assessing the Critical Issues." In these lectures, delivered is April, we identify two economic issues that have historically tended to unite conservative economic thought: sound money and fiscal responsibility. Dr. Herbener discussed sound money, while I took on fiscal responsibility. Each of us respectively laid out the reasons we should embrace sound money and massive reductions in government expenditure and then outlined the radical reform necessary to get us there. You can watch both lectures by clicking here.

From this perspective, what we desire to be conserved is not any particular economic or financial condition, but the social institution private property. True private property rights are what we need to conserve if we desire any hope of a flourishing human civilization.

Thursday, July 26, 2012

Economic Goods Are Scarce, Arts Edition

Edwin Booth as Hamlet
Just a couple of days ago, I noted that a recent governor's controversial veto reminds us, among other things, that economic goods are scarce. Today an article comes along that reminds us that the existential fact of scarcity applies to all goods, including cultural goods, such as concerts, ballet, paintings, and plays.

Lyn Gardner in The Guardian suggests that, due to the relative abundance of Shakespeare performances,  Shakespeare productions in the UK should do without government funds for a period of two years. Her suggestion is as follows:
But it's hard to dispute the fact that the dominance of Shakespeare does crowd out new writing and other forms of theatre in Britain. So what to do? My suggestion is not that we should stop producing Shakespeare, but that we should have a brief – perhaps two-year – moratorium on funding his work. Theatres can produce Shakespeare if they want; but they can't spend their subsidy on it.
Now, as I've written in many venues, there are several reasons to oppose government subsidies to the arts as a matter of economic and ethical principle.

The point that most jumped to mind, however, after reading Gardner's article was that she understands the fundamental economic dilemma. Because of the scarcity of goods, if a theater produces Hamlet, it cannot at the same time produce something else, say The Pitmen Painters. Politicians and arts bureaucrats are foolish if they think that scarcity does not apply in the arts. Every dollar of arts subsidy a theater uses to produce a particular play means the production of another play is forgone. At a broader level, every dollar taken from taxpayers to fund the production of some work of art means the taxpayer must do without some economic good that they could use to satisfy another end.

Gardner's essay also reminds us how government arts policy affects arts culture through subsidies. Such subsidization is not aesthetically neutral. It lifts some artists and works up and pushes others down. 

Wednesday, July 25, 2012

Private Property Versus Monopoly Privilege on the Oregon Trail

What seems like a perennial debate amongst certain journalists and social scientists is over the use and meaning of the term capitalism. Some use it to describe a system that promotes the interest of capitalists above the rest of society while others, such as Ludvig von Mises, use it as a synonym for the free market. That debate is alive and well today as the Occupy Wall Street crowd is outraged at what they see is the essence of capitalism, but is certainly not anything close to a free market. A better term would be crony capitalism.

Crony capitalism is a term for a market economy hampered by special privileges given to some sellers and restrictions placed upon others. Other terms for such a system is economic fascism, corporatism, or conservative socialism. That there is such a terminological confusion is due to the ages old effort of rulers to control markets by providing monopolistic privileges to certain favored producers. Very often such protection is sought after by established sellers desiring to be relieved from competition by potential entrants.
"Oregon Trail" by Nina Mikhailenko

An example of such an effort as well as a bold response in defense of property rights is related by Ezra Meeker in his The Ox Cart Trail. I have already mentioned that Meeker’s account of his trip on the Oregon Trail provides several illustrations of important economic principles. One of which occurred as he and his party arrived at the Missouri River just across from what is now Plattsmouth, Nebraska to begin their trek to Oregon Territory.

As they arrived, they were met with a disheartening vision of a multitude of wagons waiting to cross the wide Missouri. The mass of wagons gave the appearance of a “flatiron of white.” It consisted of
a center train with other parallel trains extending back in the rear and gradually covering a wider space the farther back from the river one would go. Several hundred wagons were thus closely interlocked, completely blocking the approach to the landing by new arrivals, whether in companies or single. All round about were camps of all kinds, from those without covering of any kind to others with comfortable tents, nearly all seemingly intent on merrymaking, while here and there were small groups engaged in devotional services. We soon ascertained these camps contained the outfits in great part of the wantons in line in the great white flatiron, some of whom had been there for two weeks with no apparent probability of securing an early crossing (The Ox Team, pp. 28-29).
Meeker’s party found a scow mostly buried in a sand bar and within a day found its owner eleven miles downriver. The owner agreed to let them use the scow to get across if they dug it out themselves and returned it to the owner once they got across. After a full day of digging, the scow was rescued from the sand and was ready to go. The news that Meeker’s party had procured a scow themselves and was prepared to cross the river and was being “besieged with applications from detained emigrants id not sit well with the ferrymen who were ferrying pioneers across the river for a price.

As meeker tells the story, the ferrymen
Were foolish enough to undertake to prevent us from crossing ourselves. A write of replevin or some other process was issued, I never knew exactly what, directing the sheriff to take possession of the boat when landed and which he attempted to do. . . when that sheriff put in an appearance and we realized what it meant, there wasn’t a man in our party that did not run for his gun to the nearby camp, and it would seem needless to add we did not need to use them. As if by magic a hundred guns were in sight. The sheriff withdrew, and the crossing went peaceably on till all our wagons were safely landed (The Ox Team, p. 31). 
Here we have an established seller of ferry services seeking to protect himself not from commercial competition, but merely from people wanting to provide services to themselves and potentially to others for free. When Meeker’s right to property was threatened by the sheriff, it was successfully defended by the appearance of “a hundred guns.” I suspect that the owners of the guns were acting more from narrow self-interest than on principle. Nevertheless, here is a clear example from our history reminding us that the right to bear arms was enumerated in the Constitution not to allow people to go hunting, but so the citizenry has the ability to protect their life and property from an oppressive ruler.

Tuesday, July 24, 2012

Economic Goods Are Scarce

Not even governments can make goods appear out of thin air. Like it or not, economic goods are scarce because the demand for them exceeds their supply freely available from nature. Because goods are scarce, they must be allocated, allowing sum ends to be fulfilled and leaving others unfulfilled. Many states, facing fiscal challenges, are presently pressed to make difficult choices.

A good example is the state of South Carolina. Its governor Nikki Haley has just recently vetoed approximately $57 million of spending, because she says the state cannot afford it. Many have voiced skepticism about the motive of Haley, suspecting she is merely using potential budget problems as an excuse to gut education, arts, and healthcare programs she does not like anyway.

Whether or not Haley likes or dislikes the areas that will be receiving less money, (and there are a number of philosophical reasons why one may oppose government funded education, art, and healthcare) the fact remains that these sorts of decisions are necessary because economic goods are scarce. States only have a limited amount of resources and cannot fund every possible project that someone might think the government needs to undertake.

The state is not an economic Santa Claus. It produces nothing. It only gets its resources from taking from the citizenry. If it increases its take, there is less saving and productive investment over time. Capital is consumed and productivity and real output falls. At some point, there is noting left to take.

Monday, July 23, 2012

Stockman on Our Looming Debt Disaster

David Stockman provides what rightly has been called scary debt analysis in this interview by Casey Research.

I have become increasingly impressed with Stockman's take on our economic mess since I heard him a year and a half ago deliver the Henry Hazlitt Lecture at the Austrian Scholar's Conference. What makes Stockman's analysis particularly good is that, not only is he sound on how we got here, but he does not sugar coat our situation, nor give us false hope that the piper will not have to be paid.

As Stockman says, "You can't live beyond your means because it's pleasant if it's not sustainable." He understands that the source of real sustainable prosperity is work, savings and sound money, and knows the difference between real wealth and GDP. He also recognizes that fiscal austerity is necessary one way or another. We can either cut spending to get our fiscal house in order voluntarily or have it thrust upon us when the house of debt cards come crashing down.

Saturday, July 21, 2012

Hulsmann on Bailouts

Guido Hulsmann
If you would like a quick, concise, yet intellectually rich explanation of the nature and consequences of financial bailouts, the Ludwig von Mises Institute has a webinar for you. Next Wednesday July 25th from noon to 1:30pm eastern time, Guido Hulsmann will be presenting "Bailouts 101." He will be talking about the rationale of bailouts, recapitalization, artificial markets, fictional accounting, and currency reforms. I have set in on several lectures by Hulsmann and they are always worth it. To gain access to the webinar, you must register at the Ludwig von Mises Institute website. The cost is $5.

Fraud: The Cause of the Great Recession

A new documentary about the cause of the financial meltdown of 2008 and the resulting recession has been produced by amagifilms.The title of the film is Fraud. It correctly cites our fractional reserve banking system supported by central banking as the primary culprit.

"fraud. why the great recession" (official version) from amagifilms on Vimeo.

The producer's synopsis is as follows:
Free markets are not to be blamed for the Great Recession. On the contrary, its origins rest upon the deep government and central bank intervention in the economy. Through fraudulent mechanisms, this causes recurrent boom and bust cycles: bad policies create phases of irrational exuberance, which are then followed by economic recessions, a result that every citizen ends up suffering from.
The film features brilliant monetary scholars such as Jesus Huerta de Soto and Philipp Bagus. I watched it during my flight back from the government and economics seminar at which I lectured and this documentary is tremendous. It provides a clear, solid, and concise explanation of how our economic mess occurred.

Note Bene: It is a Spanish production with a lot of Spanish dialogue, so much of the film uses English subtitles, but do not let that scare you. This is an important document.

Friday, July 20, 2012

Bernanke Is Killing Savers

Financially that is. Interest rates hit another all time low this past Monday. Yield on the 10-year Treasury note reached a whopping 1.46%. The average interest rate on a 5-year CD was 1.09%. It is as the Fed passed out to all of its governors t-shirts that read, "PLEASE do not save and invest."

10 Year Treasury Rate Chart

Sadly, increases in savings and investment is precisely what an economy trying to recover from a bad recession needs more than ever. The malinvestment that culminated in the bust of 2008-09 resulted in massive capital consumption. What the economy needs is for our stock of productive capital to be rebuilt. This can only occur out of savings and investment. If the Fed is basically telling people not to save by keeping interest rates so low and by attempting to prop up unwise investments, we have should expect nothing other than anemic economic performance in the near future.

Thursday, July 19, 2012

Few Pay More in Health Care Law?

That's the claim by USA Today. The opening paragraph is very revealing of an all-too-common attitude amongst journalists. Authors Kelley Kennedy and Richard Wolf write
Though the law is projected to raise more than $800 billion in taxes, fees and penalties over a decade, 40% comes from about 3.5 million households with adjusted gross incomes above $200,000. Employers, insurers and health care providers are slated to fork over much of the rest.
It is as if 3.5 million households and the multitude of entrepreneurs who will be affected do not count. This smacks of a callous disregard for one's neighbor at best or crass class warfare at worst.

The authors do cite Orin Hatch as pointing out that the specific taxes will directly impinge on 10% of those below the poverty level and quote Dave Kamp stating that 12 of the 21 taxes in ObamaCare will hit the middle class.

Here are some things, however, to consider when pondering this article:

Since when is a person less then human if they receive income of more than $200,000 a year? If a person has reaped such an income through providing a productive service in voluntary exchange, why is it okay to take their money and give it to someone else, just because they have a relatively high income? Are they not our neighbor? Are we not called to love them as ourselves as well? Are we not called to do unto them as we would have them do unto us? If so, are we then masochists? Do we secretly wish that they would take some of our income from us and give it to their friends?

Additionally, the new health care law is going negatively affect a lot more people and make them pay a lot more than people understand. In recent testimony before the U.S. House Committee on Oversight and Government Reform, John C. Goldman, Research Fellow at the Independent Institute and President and Kellye Wright Fellow in Health Care at the National Center for Policy Analysis explained that
The Patient Protection and Affordable Care Act (ACA) will radically transform the U.S. health care system. Arguably the most radical piece of legislation ever passed by Congress, the law will affect everyone with private insurance, every senior on Medicare, everyone on Medicaid. The bill will create 159 new regulatory agencies. Its first 10-year cost is close to $1 trillion. It is intentionally designed to fundamentally alter the way medicine is practiced in this country.
Indeed, even Hatch and Kamp demonstrate a lack of understanding of economics. They miss is the full economic impact of such legislation.

All increases in taxes and regulation, no matter who they directly impinge upon, result in capital consumption by reducing the ability and incentive for the taxpayers to save and invest. Lower savings and investment puts us on a trajectory to capital consumption. With less capital per person, we are less productive, so real wages will decrease generally and our citizens will be relatively impoverished. All of us will pay higher prices for fewer goods. The truth is that, in terms of social wealth, all will pay more in the brave new health care world.

Wednesday, July 18, 2012

More Government Spending, Fewer Jobs

That is the conclusion by Michael Cox and Richard Alm in their essay, "Sorry, Keynes Was Wrong, More Spending Doesn't Boost Jobs" that appeared in Investors Business Daily. Their piece is mainly a discussion of the data pictured in this graph:

This is in accord with with a broad empirical study by James Gwartney, Randall Holcombe, and Robert Lawson, "The Scope of Government and the Wealth of Nations," The authors use data from several OECD countries and find that total government spending as a percentage of GDP was negatively related to GDP growth.

It stands to economic reason that government spending is negatively related to employment. Demand for labor is positively related to labor productivity which is the result of capital accumulation. Government spending causes capital consumption which reduces labor productivity and labor demand. Fewer people will be employed and the economy will be less productive.

Tuesday, July 17, 2012

The Market Division of Labor IS All of Us

A lot of hay is being made about President Obama's latest utterance to be made a negative sound bite by his political enemies. "If you’ve got a business. you didn’t build that." As if he is claiming that successful entrepreneur's did not build their business. 

Jake Tapper at ABC prints Obama's sentence in context, revealing the sentence in question is from the following paragraph:
If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business. you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.
It is pretty clear to me that the President was more making the claim that other people contributed to the success of the entrepreneur by producing goods needed for the entrepreneur to do whatever that person did. The "that" which was not built by the entrepreneur was roads and bridges, not his own business.

I suppose that his observation is true enough, but his overall sentiment is still objectionable.  The entire mood of the speech tilted toward collectivism. He said, "There are a lot of wealthy, successful Americans who agree with me, because they want to give something back." I have news for him, those entrepreneurs who are wealthy and successful ALREADY HAVE given something back. It is called the product or service they have provided to people who VOLUNTARILY traded their money in exchange. The idea that they now have to give something more back is maddening.

Additionally, the President said
The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires.

So we say to ourselves, ever since the founding of this country, you know what, there are some things we do better together. That’s how we funded the GI Bill. That’s how we created the middle class. That’s how we built the Golden Gate Bridge or the Hoover Dam. That’s how we invented the Internet. That’s how we sent a man to the moon. We rise or fall together as one nation and as one people, and that’s the reason I’m running for president – because I still believe in that idea. You’re not on your own, we’re in this together.”
Two things here require comment. He first recognizes the importance of the market division of labor, but then gets the entirely wrong lesson. He thinks that for projects in which we are assisted by other people, they must be government projects, such as building the Golden Gate Bridge. While it is true that we all depend on other people to provide the goods we use every day, this is part of the market, not government.

The best economists have always recognized that a market economy is not an atomistic economy populated by rugged self-sufficient hermits. As Mises said in Bureaucracy, "Under the division of labor, the structure of society rests on the shoulders of all men and women." As he explained in his monumental Socialism
The greater productivity of work under the division of labor is a unifying influence. It leads men to regard each other as comrades in a joint struggle for welfare, rather than as competitors in a struggle for existence. It makes friends out of enemies, peace out of war, society out of individuals.
It is precisely through the division of labor that people are brought together to do the very things we cannot do only as individuals. This, however, is the product of the market division of labor, not coercive state power.

The second problem I have with the Presidents remarks is that the GI Bill is responsible for creating the middle class. That simply is not true. There was a middle class long before the GI Bill. His broadcasting the idea that we need government programs to create a middle class should be enough  to disqualify him from seeking a second term.

Wednesday, July 11, 2012

More Consumer Debt a Good Thing?

So yesterday we had another example of how one's analytical framework drives one's perceptions of the economy and prospects for prosperity. Business Insider's Joe Weisenthal writes that "Sorry, But the Idea That We're In a Recession Is Nonsense."

Exhibit A in making his case is that there has been a substantial uptick in consumer credit:

To further bolster his claim, Weisenthal points out that personal consumption relative to wages has been increasing. There has been no serious effort for households to retrench their consumption spending since early 2008.

I do not dispute this data and understand why Weisenthal sees all of this as good news for the economy. He does so because of his generally Keynesian macroeconomic framework. For him the economy is GDP, which is driven by aggregate demand which is actualized in spending. Because approximately 70% of GDP is made up of consumer spending, it is perceived that consumer spending drives the economy forward to expansion and development.

Whether or not we are in recession, recovery, or economic twilight, I would not venture to guess. It seems to me that the numbers outlined above are not definitive. That the rate of consumer spending to wages and consumer credit is increasing could merely be evidence that people's incomes are not keeping up with their buying habits. It could be that households are buying more necessary staples with a credit card. That would not be a recipe for happy economic times ahead.

 What I do know is that sustainable prosperity is built neither upon consumer spending nor borrowing. Sustainable economic expansion is the result of increases in per capita capital, which requires saving and investment. It, therefore, requires a relative decrease in consumption compared to saving.

Tuesday, July 10, 2012

The false dichotomy of people versus profits

One of the great criticisms of the free market thrown up by Marxists is that it is a system of production for profit instead of production for use. Another falacy is that capitalism promotes profits at the expense of people. A student of mine, Nick Freiling, very ably disposes of this fallacy in his short article, "'People vs. Profits' is a False Dichotomy."

He gets right to the heart of the matter in the second paragraph in which he writes,
Profits simply cannot be separated from "people and jobs." Indeed, the highest profits come to those who best provide for the public, usually creating more jobs and satisfying more people. This is economics 101.
That is economics 101 he learned here at Grove City College. I encourage you to read the entire essay.

I would also add that because the profit and loss calculation is the guiding criteria for entrepreneurs, it is crucial to keep society free if we want to ensure that production is directed to satisfying the most urgent desires of society. Only free market prices are determined by the personal preferences all market participants. In such a free society, was are assured that those entrepreneurs who earn profits do so precisely because they satisfy their customers in the most efficient way.

Monday, July 9, 2012

Government and Economics Seminar

Next Monday and Tuesday I will be lecturing for the Institute for Principle Studies in their Government, Economics, and Academic Debate Seminar held in Modesto, California. The seminar is designed for Christian educators interested in improving their instruction in those areas. View the seminar schedule by clicking here. My lecture topics include "What Does the Bible Teach About Economics?," "The Importance of Economic Calculation," "Prosperity through Money Creation?," and "Prosperity through Spending Other People's Money?." I lectured at the same seminar last year and thoroughly enjoyed it. The seminar participants were thoughtful, fully engaged, and eager to learn, asking many challenging questions.

On the evening of Monday, July 17th, I will also be giving a public lecture in Modesto entitled, "Looming Debt Disaster: Causes, Consequences, and Solutions." The lecture begins at 7:00pm and will be held at the Modesto Centre Plaza. Admission to the public lecture is free of charge, but space is limited so you should register at the event page.

Friday, July 6, 2012

The Importance of Markets in the Development of the West

During our annual summer trip to visit our children’s grandparents, my wife, children and I attended a family reunion in the Sandhills of Nebraska. Afterward we did something I have wanted to
Chiney Rock, Western Nebraka
do for many years. We traveled farther west to see the most distinctive natural landmark on the old Oregon Trail— Chimney Rock. Upon viewing this magnificent geological formation, I was, among other things, provoked to investigate personal accounts of the landmark from Oregon Trail travelers. I discovered a fascinating work by Ezra Meeker, The Ox Team or the Old Oregon Trail 1852-1906. It was a book published in 1906 Meeker wrote to commemorate “Pioneers who fought the battle of peace and wrested Oregon from British rule.”

Meeker provides a firsthand record of his journey from Iowa to the West along the Oregon Trail in 1852. I found that the book contains several passages that illuminate several important economic principles. One of which is the importance of the
               Ezra Meeker (1830 - 1928)
market, that vast network of voluntary exchange, for the development of the division of labor and, hence, society.

Ezra Meeker was born and raised near Indianapolis, Indiana. Soon after he was married, he and his wife decided to move west to Eddyville, Iowa, with the intention of developing their own farm on their own land. They thought their first Iowa winter weather harsh and unpleasant. They also found that, although the soil rich for farming, there were no transportation networks, linking them to markets. Meeker writes,
The country was a wide open, rolling prairie, a beautiful country indeed, —but what about a market? No railroads, no wagon roads, no cities, no meeting-houses, no schools; the prospect looked drear. (The Ox Trail, p. 21)
Note that among other challenges, Meeker cited a lack of markets as a primary reason for moving on. Without access to markets, they simply could not make a living farming. It was this final evaluation of their situation which prompted Meeker and his bride, plus a new infant, to proceed west along theOregon Trail the following year.

Meeker's actions illustrate exactly what Ludwig von Mises meant when he referred to the division of labor as the “fundamental social phenomenon.” It is so, because the division of labor is the reason why communities form. People move to different locales and specialize in different vocations, because it is beneficial to do so. With no way to bring agricultural products to market, Ezra Meeker and others would merely be wasting precious resources attempting to farm at that time and place in Iowa. Anyone who rejects the importance of the division of labor and markets rooted in voluntary exchange, fail to understand the history of the development of our nation.

Wednesday, July 4, 2012

Declaration of Independence

Today, of course, is the day we celebrate the signing of the Declaration of Independence. Instead of providing extensive commentary on the work, I recommend merely reading the document itself. I encourage you to read past the philosophical apologetic for independence down to the specific grievances listed by the signers. How many of them are true of our state in this day in which we live?

An interesting take on the legacy of the Declaration is given by Calvin Coolidge in his "Speech on the Occasion of the One Hundred and Fiftieth Anniversary of the Declaration of Independence." Coolidge argues that the purpose of the Declaration and subsequent Constitution
. . .was to establish a free government, which must not be permitted to degenerate into the unrestrained authority of a mere majority or the unbridled weight of a mere influential few. They undertook the balance these interests against each other and provide the three separate independent branches, the executive, the legislative, and the judicial departments of the Government, with checks against each other in order that neither one might encroach upon the other. These are our guaranties of liberty. As a result of these methods enterprise has been duly protected from confiscation, the people have been free from oppression, and there has been an ever-broadening and deepening of the humanities of life.

Those who are truly inclined to investigate the veracity of Coolidge's claim should consult Murray Rothbard's four volume Conceived in Liberty.

The essence of liberty as defined by the founders is the right to property. All of our other cherished liberties--freedom of religion, freedom of the press, freedom to peaceably assemble, freedom of speech--all derive from our being secure in our person and property. Let us not forget this fundamental fact on this day. 

Monday, July 2, 2012

Reductions in State and Local Government Spending is a Good Thing!

Being published by the New York Fed, Liberty Street Economics, is ironically titled. The people there argue that reductions in spending by state and local governments are holding back the economy. They use the following chart to illustrate their point that state and local goverment spending has tanked, causing a draw on the economy.

Think again, I say. While it is true that, because government spending is a component of Gross Domestic Product, when states and municipalities spend less, GDP could decrease, in the long run, less government spending is a good thing, provided we wish to return to prosperity.

The government does not produce anything. Its income must be taxed from it citizens. As such, government spending is consumption. The more we consume as a society, the less we save and invest. With less investment comes lower per capita capital over time and less prosperity. Do not be led astray by GDP. The less government spending, the better.