Sunday, December 30, 2012

Restoring the Language of Natural Liberty

If you want to destroy the surrounding reality, including moral reality, destroy the language used to describe it first. Statists have been unparalleled masters in this area - they invented a whole language designed to whitewash vices and promote faux virtues. In this language, theft becomes "taxation", fencing of stolen goods becomes "redistribution", counterfeiting becomes "liquidity provision", etc.

One method of restoring reality thus destroyed is being adamant in calling spade a spade - stating clearly that one opposes stealing from the rich, debasing the currency via institutionalized counterfeiting, etc. However, this method, though commendable, has its limitations, since one of the subtler points of the statist propaganda is to accustom the populace to thinking of such bald assertions as "too black and white", "too morally charged", and "too principled", and thus of the solutions based on them as "too impractical", "politically unfeasible", etc.

Hence, I suggest that it might be useful for libertarians to develop and adopt another, complementary strategy, one based on inventing and utilizing what, for lack of a better term, might be called the language of counter-propaganda. Thus, in certain oratorically demanding contexts, instead of saying that one opposes stealing from the rich, one could say that one supports the elimination of the income tax in order to aid the preservation of justly acquired wealth, or, instead of saying that one opposes legalized counterfeiting, one could say that one opposes central banking as counterproductive to the goal of monetary soundness, etc.

This is not to suggest that, when asked by an honest inquirer to be plain, one should refrain from calling spade a spade, but it is to suggest that statists should not remain the only ones who can use euphemistic rhetoric to their promotional advantage.

Saturday, December 22, 2012

Laissez-Faire Is Institutionalized Anti-Fragility

Politics is institutionalized fragility - it rewards greed (rent-seeking, redistributive populism) and fear-mongering, thus creating a destructive positive feedback loop of prudential and moral decay (epitomized by the attitude that everyone is legally entitled to live at the expense of everyone else).

Voluntarism, and particularly laissez-faire capitalism, is institutionalized anti-fragility - it punishes those whose betrayal of temperance for greed and abandonment of courage for fear compromises their ability to satisfy effectively the needs and desires of their fellow human beings, thus creating a positive feedback loop of prudential and moral improvement (epitomized by the attitude that charity requires liberty and demands gratitude, while wealth requires sustained, other-oriented effort and deserves respect).

Sunday, December 16, 2012

A Short Note on Cooperation and Competition

Contrary to popular belief, people cooperate when their goals are different and compete when they are similar. Cooperation means that, in the context of working toward the accomplishment of a single, overarching goal, division of labor ensures that everyone can find his or her unique spot. Competition, on the other hand, occurs when two or more people feel suitable to occupy the same spot, and only meritocratic rivalry can objectively decide which of them is more justified in those feelings. Thus, the respective prevalence of cooperation and competition reflects the respective degrees of uniqueness and sameness, or diversity and similarity, within a given group of individuals acting to attain a given set of goals.

Friday, November 30, 2012

10 Differences Between the State and the Mafia

1. The state is the largest apparatus of violence, aggression, and coercion within a given territory. The mafia is composed of all the smaller ones.

2. The state is the most well-organized apparatus of violence, aggression, and coercion within a given territory. The mafias' inferior organization makes them less influential and their reach more restricted.

3. The state is a monopolistic apparatus of violence, aggression, and coercion, that is, the culmination of the process of eliminative competition between groups of stationary bandits that run protection racket schemes. Mafias are the losers in this competition, formally outlawed by the winner and relegated to the black market.

4. The state possesses a powerful apparatus of self-aggrandizing propaganda. The mafia does not, hence its bad reputation.

5. The state is the apparatus of violence, aggression, and coercion that possesses the largest clientele within a given territory. The clientele of the mafia is quite small in comparison.

6. The state is usually an open-access apparatus of violence, aggression, and coercion. The mafia typically has a much more closed and rigid structure.

7. Mafias, due to their limited influence and reach, do not actively seek to turn all the inhabitants of a given territory into their clients. States do.

8. Mafias, due to their limited influence and reach, do not actively seek to control and regularly expropriate all the inhabitants of a given territory. States do.

9. Mafias are usually pragmatic in their orientation - they employ violence, aggression, and coercion to obtain tangible goods and services. States, on the other hand, are more often than not motivated by ideology - they employ violence, aggression, and coercion out of pure lust for power.

10. The mafia uses physical intimidation. The state uses physical, intellectual, and moral intimidation. The mafia injures its victims. The state injures and insults its victims. Paraphrasing Lysander Spooner, the mafia, unlike the state, does not, in addition to robbing its victims, attempt to make them either its dupes or its slaves.

Sunday, October 28, 2012

10 Worthwhile Socio-Economic Predictions

"I am trying to imagine under what novel features despotism may appear in the world. In the first place, I see an innumerable multitude of men, alike and equal, constantly circling around in pursuit of the petty and banal pleasures with which they glut their souls. (...) Over this kind of men stands an immense, protective power which is alone responsible for securing their enjoyment and watching over their fate. That power is absolute, thoughtful of detail, orderly, provident, and gentle. It would resemble parental authority if, father-like, it tried to prepare its charges for a man’s life, but on the contrary, it only tries to keep them in perpetual childhood."
- Alexis de Tocqueville, "On New Despotism", 1837

"The (plundered) classes, according to the degree of enlightenment they have achieved, can propose two different ends to themselves when they (...) seek to attain their political rights: either they may wish to bring legal plunder to an end, or they may aim at getting their share of it. Woe to the nations in which the masses are dominated by this last thought when they, in their turn, seize the power to make the law! Until that time, legal plunder is exercised by the few against the many, as it is among nations in which the right to legislate is concentrated in a few hands. But now it becomes universal, and an effort is made to redress the balance by means of universal plunder. Instead of being abolished, social injustice is made general."
- Frederic Bastiat, "Selected Essays on Political Economy", 1848

"One may anticipate the nature of the future socialist society. There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use; in the majority of cases what will be manufactured will be unfinished goods and production goods. (...) In the ceaseless toil and moil of this process, however, the administration will be without any means of testing their bearings. (...) In place of the economy of the “anarchic” method of production, recourse will be had to the senseless output of an absurd apparatus. The wheels will turn, but will run to no effect."
- Ludwig von Mises, "Economic Calculation in the Socialist Commonwealth", 1920

"(Keynes) may only succeed in becoming the academic idol of our worst cranks and charlatans - not to mention the possibilities of the book (The General Theory) as the economic bible of the fascist movement."
- Henry C. Simons, review of "The General Theory", 22.07.1936

"Everything which might cause doubt about the wisdom of the government or create discontent will be kept from the people. The basis of unfavorable comparisons with elsewhere, the knowledge of possible alternatives to the course actually taken, information which might suggest failure on the part of the government to live up to its promises or to take advantage of opportunities to improve conditions - all will be suppressed."
- Friedrich von Hayek, "The Road to Serfdom", 1944

"The Sun editorial on Roosevelt this morning begins: "Franklin D. Roosevelt was a great man." (...) The argument, in brief, is that all his skullduggeries and imbecilities were wiped out when "he took an inert and profoundly isolationist people and brought them to support a necessary war on a scale never before imagined." In other words, his greatest fraud was his greatest glory, and his sufficient excuse for all his other frauds. It seems to me to be very likely that Roosevelt will take a high place in American popular history - maybe even alongside Washington and Lincoln. (...) He had every quality that morons esteem in their heros. It will be to the interest of all his heirs and assigns to whoop him up, and they will probably succeed in swamping his critics. "
- H. L. Mencken, "Franklin Delano Roosevelt: An Obituary", 13.04.1945

"If (democratically sanctioned) government property-rights violations take their course and grow extensive enough, the natural tendency of humanity to build an expanding stock of capital and durable consumer goods and to become increasingly more farsighted and provide for ever-more distant goals may not only come to a standstill, but may be reversed by a tendency toward decivilization: formerly provident providers will be turned into drunks or daydreamers, adults into children, civilized men into barbarians, and producers into criminals."
- Hans-Hermann Hoppe, "Democracy: The God That Failed", 2001

"A major economic downturn will decimate U.S. Federal Government finances, with exploding deficits and uncontrolled spending."
- Ron Paul, 24.04.2002

"Given the government's encouragement of lax lending practices, home prices could crash, bankruptcies would increase, and financial companies, including the government-sponsored mortgage companies, might require another taxpayer bailout."
- Mark Thornton, Mises Institute, 06.04.2004

"While the increase in taxes will cause new problems for the Greeks, other problems remain unaddressed: The huge public sector has not been substantially reduced. Wage rates remain uncompetitive as a result of strong labor unions. (...) The future of the euro is dark because there are such strong incentives for reckless fiscal behavior, not only for Greece but also for other countries."
- Philipp Bagus, author of "The Tragedy of the Euro", 11.02.2010

Friday, October 26, 2012

The Mental Inertia of Statist Quo Bias

The goal of propaganda is to shut down the minds of its victims. In this respect, statist propaganda has been an almost unbelievable success. It would be scarcely an exaggeration to suggest that 99% of the world population, including those who call themselves "political philosophers" or "social theorists", when confronted with a case for voluntarism, would respond with an endless stream of pro-statist-quo what-ifs, what-woulds, and who-woulds, epitomized by the immortal "without government, who would build the roads" slogan (Bryan Caplan listed some more of them here).

Notice that a voluntarist or a libertarian never responds with his or her own list of such hypotheticals. To ask "what if the government decides to set up a gulag and throw me there", "what would happen if the government decided to kill or maim thousands of civilians in some remote part of the world", or "who would protect me if the government decided to issue a warrantless order to assassinate me" would be ridiculous because these are not hypotheticals at all - this is the reality of statism.

In other words, in the context of analyzing the merits and demerits of statism the Nirvana fallacy is clearly a fallacy, but - for lack of a better term - there is no "dystopia fallacy" corresponding to it. Instead, there are dystopian facts - it would be difficult to think of a worst-case scenario that the state did not already make all too real.

In sum, this is how the situation looks like - while an honest statist would have to acknowledge that the system he supports can be likened to constant teetering on the brink of hell and occassionally falling over it, he will typically cling frantically to the belief that it is the best and only way to organize social affairs and that no logically and economically informed non-coercive alternative should replace it unless its implementation can immediately catapult us straight to heaven.

This is the power of the large-scale, institutional Stockholm Syndrome. And it is because of this power that large-scale preference changes in the direction of non-aggression, non-violence, voluntariness, and free enterprise are so comparatively rare. The only effective tool of countering its influence is to lay bare its ugly nature as often and as clearly as possible, which today, in the age of the Internet, is easier than ever before.

Sunday, October 14, 2012

Preference Change in Social Organization

Could the governments of the world reinstate slavery? Yes, they could. They possess sufficient coercive power at their disposal. But would they dare to do it? No, they would not. The prevalent social attitude toward slavery makes such an action uneconomic from the point of view of the calculus of power.

Could warlords and mafias destroy a stateless order and replace it with a statist one? Yes, they could. They might possess sufficient coercive power at their disposal. But would they dare to do it? Only if the prevalent social attitude toward statism made such an action profitable from the point of view of the calculus of power. And there is nothing inevitable as to what this attitude will be.

The pen is mightier than the sword. Ideas are stronger than violence, even that of the most organized kind. The stationary bandit is not a necessity and the defense entrepreneur is not an impossibility. To suggest otherwise is to claim that intellectual and moral progress in the area of social organization cannot happen, which, to say the least, is a historically and anthropologically dubious suggestion.

Saturday, September 22, 2012

An Argument that Statism is an Amoral Philosophy

Let us start from a rather uncontroversial assumption that there exist so-called thick moral terms, i.e., terms whose very use implies a definitionally necessary moral evaluation of their content. Think of terms such as generosity and charity. It is logically impossible for there to be evil generosity or wicked charity. Or think of terms such as theft, counterfeiting, and Ponzi scheming. It is logically impossible for there to be benevolent theft, praiseworthy counterfeiting, or laudable Ponzi scheming.

In other words, there exist certain terms whose descriptive content implies a logically necessary moral assessment. Of course, this by itself does not constitute an argument for moral objectivity, since we differ in our application of these terms to various instances of human action. This, however, is not relevant to my argument here.

Now, let us ask a statist - that is, a believer in the desirability of the state and its institutions, including the ones mentioned in the latter part of this sentence - what conditions would need to hold for him to be able to justifiably accuse the IRS of stealing the money of private individuals, the Fed of counterfeiting money, or the Social Security Administration of engaging in a Ponzi scheme.

It seems to me that the statist can offer two relevant answers to this question, both of which leave him in a very uncomfortable position. First, given that the descriptive content of the above morally negative terms appears to match quite well the nature of the activities performed by the above state institutions, and assuming that the statist wishes to avoid the conclusion that the institutions whose existence he finds morally desirable engage in inherently immoral activities, he might suggest that it is definitionally and logically impossible for the IRS to steal, for the Fed to counterfeit, and for the SSA to engage in Ponzi schemes. In other words, he might suggest that the very nature of these institutions logically precludes describing their activities in these thick moral terms.

However, since redefining the terms in question so as to make them morally positive or morally thin whenever they are applied to the institutions of the state and their activities would be a semantically arbitrary move, it logically follows that the statist believes that moral categories do not apply to our judgments regarding at least some of the fundamental institutions of the state and their activities. In other words, the statist is logically compelled to conclude that he finds their existence desirable for reasons that are amoral, that is, immune to considerations of morality.

Alternatively, he might suggest that the thick moral terms mentioned above - theft, counterfeiting, and Ponzi scheming - apply only to illegal activities, while the activities performed by the IRS, the Fed, and the SSA are legal. This, however, implies that the only relevant moral difference here is that the state issued a certain declaration (the declaration of legality) with respect to its institutions and their activities, while it did not issue the same declaration with respect to the selfsame activities of private individuals and private organizations. This, in turn, implies that declaring something as legal (by the state, since, presumably, it is a matter of definition that only the state can issue such declarations) means removing the object of declaration from the realm of moral judgment and thus immunizing it to considerations of morality. In sum, the logical conclusion of this train of thought is that legality is an amoral, or, worse still, an amoralizing concept.

Hence, regardless of which of the abovementioned two answers the statist decides to choose, it turns out that the justification of his choice has to be ultimately grounded in amoral reasons. In other words, it turns out that, contrary to some prominent anti-statist arguments, the philosophy of statism in its cognitively faultless form seems to be based not so much (or not exclusively) on hypocrisy or general immorality, but on amorality.

Wednesday, September 19, 2012

The Problem of Involuntary Human Authority

I have no problem with voluntary authority, such as that wielded by politically unconnected company bosses, presidents of free clubs and associations, heads of non-coercive religions, etc.

Likewise, I have no problem with involuntary divine authority - I find it perfectly reasonable to believe that rebelling against the authority of an all-powerful being on whom the existence of the Universe depends is, like rebelling against the "authority" of fundamental physical constants, logically futile.

What I do find very problematic is involuntary human authority, which, as far as I can tell, is the perfect vehicle for the most immoral, unscrupulous and grasping human instincts, and the source of the majority of our most serious social problems. Following de Molinari and his successors, I believe that a thorough rejection of the principle of involuntary human authority is a necessary condition, perhaps the necessary condition, for the advancement from barbarism to civilization.

Monday, September 17, 2012

A Short Logico-Conceptual Derivation of the Austrian Prescription Against Recession

Value destruction is the depletion of the sources of value. Value conservation is the replenishment of the sources of value. Value creation is value conservation plus the addition of new sources of value.

Income can be allocated along the following three margins: consumption expenditures, savings, and hoardings. These three margins correspond, respectively, to the following three uses: consumption, investment, and hedging against uncertainty.

Consumption is utility-increasing value depletion, as opposed to waste, which is utility-decreasing value depletion. Investment is value conservation (capital reaccumulation) or value creation (capital accumulation).

In the world of imperfect information, investment requires entrepreneurship (successful uncertainty bearing), which, in turn, requires the existence of generally reliable price signals (the preconditions of sound economic calculation) and capitalist regime certainty (reliable institutional protection of property rights and contracts).

An economic recession is a period marked by systemic, large-scale waste (capital consumption and malinvestments) caused by the preceding distortion of price signals, especially interest rates (signals that coordinate production over time, i.e., coordinate savings with investment).

To get out of a recession, malinvested and overconsumed capital has to be, respectively, reinvested and reaccumulated, which requires entrepreneurship and its preconditions, listed two paragraphs above.

Uneven inflation of the money supply in the world of imperfect information falsifies economic calculation, discourages saving (and thus investment), and distorts the intertemporal structure of production. Deficit spending weakens the system of reliable institutional protection of property rights and contracts and diminishes the value of hoardings, thus creating regime uncertainty.

Hence, inflation and deficit spending discourage investment and prevent entrepreneurship, consequently prolonging recessions, as well as encourage capital consumption and malinvestment, consequently deepening recessions.

Qua policy advisors, Austrian economists suggest that the things to do in a recession is to avoid inflation and eliminate deficit spending. Qua policy advisors, (New) Keynesian economists suggest that the things to do in a recession is to generate inflation and engage in deficit spending.

Thus, qua policy advisors, Austrian economists suggest getting out of recessions via value conservation (and eventual value creation), while (New) Keynesian economists suggest prolonging and deepening recessions via continued value depletion. QED.

Friday, September 14, 2012

The Late Roman Stage of Modern Western Civilization, Or the Tytler Cycle Revisited

You want economic growth? Print a lot of colored paper tickets or create a lot of virtual bookkeeping entries. You are in debt? Inflate it away (see above) or go into more debt. You lived beyond your means? Live even more beyond your means. You want to save for the bad days in the face of impending crisis? Spend everything on luxuries instead. You did a good job of serving the needs of others? Expect confiscation. You did a bad job of serving the needs of others? Expect bailout. You live by your own means? Expect calls for confiscation. You live at the expense of others? Expect calls for empowerment. You want peace and stability? Try to police the whole world. The world erupts in war and chaos because it doesn't want to be policed? Police it even more methodically. Your political meddlings distorted the world economy? Meddle in it even more fervently. And so it goes.

Yes, this is the common wisdom of modern Western civilization. And yes, it indicates as clearly as possible that the modern Western civilization is in its late Roman stage once again. And while it is not yet certain that it will share the fate of Rome, this scenario is now more probable than not.

Thursday, September 13, 2012

On Methodological Absolutism in Economics

What I have always regarded as the most arrogantly absurd (and absurdly arrogant) element of the usual positivist critique of Austrian methodology is calling the latter "dogmatic" and "absolutist" in its choice of research methods.

Just think of it - even the most intransigent Austrian apriorists do not claim that pure logic holds all the answers regarding the nature of the economic universe - what they say is that with respect to certain disciplines (e.g., economic theory) it is logic, while with respect to other disciplines (e.g., economic history) it is empirics, which, as far as I'm concerned, is a pretty humble and moderate view.

Positivists, on the other hand, are precisely the ones who claim that there is a single source of answers (empirics) to all meaningful economic questions, and that no "armchair theorizing" can effectively challenge this view. It does not seem hard to tell who is the dogmatic and the absolutist here.

Wednesday, September 12, 2012

The Tangled Issue of Praxeology and Thymology

Steven Horwitz wrote an essay in which he claims that ASE is not only empirical, but perhaps even more empirical than the neoclassical mainstream. I disagree with this assessment and in this post I would like to briefly explain why.

For me, the core paragraph of Horwitz's text is this: "When the economist goes to analyze the world, the core toolkit that comes only from reflection on action is a rather small set of basic propositions. Most of the interesting work in economics is institutionally contingent. For example, even if we recognize the importance of being able to engage in economic calculation, our ability to do so effectively depends upon the set of institutions in the economy under analysis."

Did Mises and the contemporary Misesians claim that "when the economist goes to analyze the world, the core toolkit that comes only from reflection on action is a rather small set of basic propositions"? No. For instance, the theorem of the impossibility of calculation under socialism and the Austrian Business Cycle Theory consist of very complex sets of propositions - and yet they are purely deductive and a priori. Whether these complex sets of propositions are applicable to any given present or historical set of instances of human action is an entirely different matter - a thymological, not a praxeological matter. But Horwitz suggests that one can advance beyond "a rather small set of basic (praxeological) propositions" only by studying the institutional contingencies of contemporary or historical economic systems. In other words, he implies that praxeology advances by means of thymological analysis, not that in order to conduct sound thymological analyses one needs to have a complete, complex praxeological structure worked out in advance. And it is the latter that is the Misesian position, while the former is, terminological differences aside, hardly distinguishable from the position of a standard neoclassical Popperian.

Yes, Horwitz is right in saying that "our ability to (engage in economic calculation) depends upon the set of institutions in the economy under analysis". But that is precisely what the purely aprioristic, praxeological theorem of the impossibility of economic calculation under socialism says! It says: only given the existence of certain institutions (money, private property in the means of production, and free exchange of property titles) can there be rational economic calculation. This is a purely aprioristic conditional statement, and it is hardly "basic" or "economically uninteresting". In fact, the astonishing predictive power of this theorem comes precisely from the fact that Mises formulated it before any serious thymological work on the Soviet economy could have been done. To sum up, praxeology depends on thymology (i.e., on the existence of the so-called "auxiliary assumptions", which are not institutionally contingent - e.g., it is not institutionally contingent that there exist as-of-yet unsatisfied wants, that goods are scarce, or that people differ from one another) but its level of complexity and completeness (not applicability or relevance) in no way depends on the amount of thymological data at our disposal, and it is the belief in such a dependence that Horwitz (mis)attributes to Mises in his text.

To clarify matters further, I created the following diagram, which depicts the relationship between praxeology and thymology in what I hope is a transparent and unambiguous manner:

Hopefully it will be of some use to scholars of Austrian Economics.

Friday, August 31, 2012

10 Signs That Things Are Moving in the Direction of Liberty

1. The Seastead Revolution Begins to Take Shape (July 30, 2012) - The Seasteading Institute recently held a conference in San Francisco bringing together entrepreneurs, engineers, lawyers, investors, and others whose collective effort will be necessary to turn theory into practice. The group is offering the Poseidon Award for the first genuine seastead and hopes to award the prize within three years.

2. Black Market Entrepreneurs Matter to the World Economy (December 16, 2011) - The globe’s gray and black markets have grown during the international recession, adding jobs, increasing sales, and improving the lives of hundreds of millions. Half the workers of the world are part of them. By 2020, that will be up to two-thirds.

3. Self-Reported Gun Ownership in U.S. Is Highest Since 1993 (October 26, 2011) - Forty-seven percent of American adults currently report that they have a gun in their home or elsewhere on their property. This is up from 41% a year ago and is the highest Gallup has recorded since 1993.

4. Record-Low 26% in U.S. Favor Handgun Ban (October 26, 2011) - A record-low 26% of Americans favor a legal ban on the possession of handguns in the United States other than by police and other authorized people. When Gallup first asked Americans this question in 1959, 60% favored banning handguns. But since 1975, the majority of Americans have opposed such a measure, with opposition around 70% in recent years.

5. Record-High 50% of Americans Favor Legalizing Marijuana Use (October 17, 2011) - When Gallup first asked about legalizing marijuana, in 1969, 12% of Americans favored it, while 84% were opposed. Support remained in the mid-20s in Gallup measures from the late 1970s to the mid-1990s, but has crept up since, passing 30% in 2000 and 40% in 2009 before reaching the 50% level in this year's Oct. 6-9 annual Crime survey.

6. Americans Express Historic Negativity Toward U.S. Government (September 26, 2011) - Americans' sense that the federal government poses an immediate threat to individuals' rights and freedoms is at a new high, 49%, since Gallup began asking the question using this wording in 2003.

7. Americans Choose Gold as the Best Long-Term Investment (August 25, 2011) - Thirty-four percent of Americans say gold is the best long-term investment. Real estate (19%) and stocks (17%) are distant second choices. The proliferation and basic devaluation of paper currencies has people talking about gold as a currency and pricing it accordingly.

8. Home Schooling Grows In Popularity In America (March 16, 2011) - The ranks of home-schooled students swelled to more than 2 million last year, by some research estimates, compared with about 850,000 home schooled a decade ago.

9. Distrust in U.S. Media Edges Up to Record High (September 29, 2010) - For the fourth straight year, the majority of Americans say they have little or no trust in the mass media to report the news fully, accurately, and fairly. The 57% who now say this is a record high by one percentage point. These findings also further confirm a separate Gallup poll that found little confidence in newspapers and television specifically.

10. Federal Reserve at the Bottom of Agency Ratings (July 27, 2009) - Federal Reserve Board is the worst reviewed of nine agencies and departments rated in the July 10-12 Gallup Poll.

Monday, August 27, 2012

An Economic Argument for Free Will

Since entrepreneurial uncertainty is neither deterministic risk nor probabilistic risk nor true randomness, and since entrepreneurial profit is neither the wage of a risk manager nor a windfall gain, human choices the successful anticipation of which is the source of entrepreneurial profit can be neither determined nor random. Which means that they are neither quantitatively predictable nor unpredictable, but qualitatively and imprecisely predictable, the ineradicable residuum of predictive fuzziness in this context being the influence of free will.

Sunday, August 19, 2012

Weirdly Uncommon Uncontroversial Descriptions

I find it quite interesting that googling phrases such as "institutionalized coercion", "coercive governmental monopoly", "fiat money monopoly", "monetary central planning", "malinvestments", "credit-induced boom", and "voluntary society" turns up almost exclusively pages related to Austrian economics and/or libertarianism, even though, as far as I can tell, these are purely positive, value-free descriptions that encapsulate the essence of phenomena such as state power, anarchism, central banking, and the business cycle, thus not implying any usual normative attitude to these issues that one might expect on the part of the members of certain philosophies and schools of thought.

Two rather uncharitable interpretations suggest themselves in this context - either non-Austrian economists and non-libertarian philosophers are not interested in analyzing the phenomena in question, or they feel that describing them in a straightforward, transparent manner might expose some of what is likely to be their commonly or even intrinsically unlikeable and objectionable features. Be that as it may, it is hard for me to believe it is just a coincidence.

Saturday, August 11, 2012

The Non-Problem of Rogue Defense Agencies

Even in today's universally statized world, prudent individuals continue to patronize private protection agencies, hire bodyguards, and otherwise increase their personal security by the use of market means. The reason for them doing this is obvious - they know all too well that they cannot rely on the "protection services" provided by coercive governmental monopolies, which are not constrained by the profit-and-loss test and thus need not care about the quality and cost-efficiency of their operations.

But if coercive governmental monopolies need not care about the quality and cost-efficiency of their operations, and thus cannot be expected to effectively intervene if a given individual's personal security is threatened, then it must be concluded that as regards the relationship between themselves and their clients, private protection agencies operate under the conditions of practical anarchy. Hence, as the critics of a private law society would have it, they should be continually aggressing against one another, as well as against their so-called clients, eventually destroying what started out as a purely voluntary industry.

However, the very fact that the market for private protection exists, and has existed since times immemorial, proves beyond any doubt that no such financially ruinous intra-industry conflicts take place. There is, after all, no reason why they should, since the existence of the market in question hinges on the fact that, unlike extra-market entities such as territorial monopolies of force, private protection agencies can survive only if they manage to maintain their professional reputation, and this they can do only if they consistently refrain from engaging in acts of initiatory aggression.

Hence, the coexistence of territorial monopolies of force and private protection agencies demonstrates that the supposed problem of rogue defense agencies under anarcho-capitalism does not look genuinely problematic when examined at least a bit more closely.

Monday, August 6, 2012

10 Reasons Why Austrian Economics Is Better Than Mainstream Economics

1. Austrian economists make it their priority to make sure that the theorems they formulate are derived from self-evident axioms and constructed according to the proper rules of logical deduction. These considerations are at best of secondary importance to their mainstream colleagues.

2. Austrian economists make it their priority to make sure that the assumptions they base their theorems on are thoroughly realistic, i.e., corresponding to the state of the world as it is. Mainstream economists, on the other hand, admit that their hypotheses are based on deliberately false assumptions.

3. Austrian economists make it their priority to make sure that the theorems they formulate elucidate exact causal connections between economic phenomena, rather than deliberately assuming away their existence or importance by falling back on the physics-inspired notion of mutual determination.

4. The predictive track record of Austrian economists is incomparably superior to that of their mainstream counterparts (see, e.g., here and here).

5. The theorems and conclusions of Austrian economics are perfectly comprehensible to every intelligent layman, which cannot be said about the mathematical puzzles of mainstream economics.

6. In terms of their views on the method and aims of economic theorizing, Austrian economists have a much better claim than their mainstream colleagues to being the heirs and successors of the classical economists, such as Smith, Hume, Say, and Bastiat.

7. Austrian economists never tire of emphasizing the strictly value-free character of their discipline. Thus, unlike their mainstream counterparts, they never presume that the existence of any non-voluntary extra-market institution is justified, and, a fortiori, never make any "public policy recommendations" based on such presumptions. On the contrary, they confine their scholarly research to investigating the logical origins and outcomes of various economic processes and phenomena as they are, not as they would like them to be.

8. Identifying the concept of demonstrated preference as the keystone of economic analysis allows Austrian economists to avoid the twin pitfalls of behaviorism and psychologism, which their mainstream colleagues cannot navigate in any principled and methodologically robust manner.

9. Austrian economists reject academic and professional hyperspecialization in their discipline, thus stressing the holistic, integrated nature of the science of economics. In the words of F. A. Hayek, "the physicist who is only a physicist can still be a first-class physicist and a most valuable member of society. But nobody can be a great economist who is only an economist - and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger".

10. Austrian economists cannot retreat into the safe haven of epistemological nihilism when the logic of their arguments turns out to be faulty. Mainstream economists, on the other hand, when the facts fail to correspond to their hypotheses, can always claim that "this time things are different", which is a straightforward implication of the fact that any given set of sufficiently complex empirical data is compatible with a number of mutually exclusive empirical (but not logical) interpretations.

Wednesday, August 1, 2012

Austrian Methodology: Neither Empiricist nor Anti-Empirical

My learned friend Eric wrote a sympathetic critique of the methodology of the Austrian School. Below is my attempt to address his points.

As Eric clearly understands the difference between establishing that a theory is logically true and establishing that it is empirically relevant, he should also understand that his critique does not apply to economic theory and its methodology as conceived by the Austrians. The Austrians never tire of stressing that economic theory is a tool to interpret the empirical reality and make it intelligible in terms of the categories of human action, not a replacement for the investigation of its empirical contingencies. This point is made forcefully and explicitly in, say, “Theory and History” and in “In Defense of Extreme Apriorism”.

Economic theory can provide a set of non-trivial, necessarily true statements regarding the logical structure of human action – nothing more and nothing less. It cannot and does not attempt to prove its relevance to any particular case rooted in the contingencies of the empirical world. The business of establishing such relevance belongs to other analytical tools, mental faculties, and areas of knowledge. An entrepreneur is in the business of making forward-looking judgments of relevance. A historian is in the business of making backward-looking judgments of relevance. But they both have to accept the logical (a priori) correctness of economic theory (or, for that matter, mathematical theory) if their judgments of relevance are not to be arbitrary leaps in the dark.

Having made the above general point, let me make a few further points relating to specific claims made by Eric in his two posts.

The fact that “we can certainly conceive of a world where humans are nothing more than mere animals, reacting on the basis of instinct alone” does not demonstrate that the action axiom is empirical. Eric is confusing two dimensions here – the metaphysical one (necessary vs contingent) and the epistemological one (a priori vs a posteriori). While he is right in saying that the applicability of the action axiom is not necessary (i.e., true in all possible worlds), he is wrong in suggesting that its truth is known a posteriori, unless he wants to define introspection as empirical in some broader sense which includes internal experiences (which is what Rothbard did). If we are to remain faithful to the Kantian/Misesian terminology, however, the action axiom must be thought of as a contingent a priori truth, similar to, say, the Cartesian cogito.

Also, the broad observational statements about the nature of economic agents and their condition in our world, such as the existence of scarcity, hetereogeneity of resources and skills, the existence of as yet unsatisfied preferences, etc., while certainly empirical in nature, are nonetheless not testable/falsifiable in the positivistic sense, since their truth is established by the mere perceptual contact with the empirical reality of our world, rather than by the experimental search for evidence for the previously formulated hypotheses (in fact, the formulation of any testable hypothesis presupposes the truth of these general observational statements). Hence, the fact that the Austrian economic theory relies on them to establish its relevance to empirical reality does not in any sense and in any degree commit it to the positivist programme of hypotheses testing.

Finally, towards the end of his second post Eric makes quite a strong, but rather unsubstantiated point that seems to be independent of his previous critical remarks. He says the following: “Simply because actors prefer what satisfies them more over what satisfies them less, does not mean that each unit of a good that they use will give them less satisfaction than the previous one. It is all the more outrageous to believe that such things as the time-preference theory of interest or Austrian business cycle theory follow logically from simply the principle of human action”. If what he says here is that the above implications and derivations need not hold in view of various potentially intervening thymological contingencies associated with the lack of preference constancy over time, the role of expectations coordination, etc., then he does not mount any logical argument against the Austrian economic theory and its methodology. If, on the other hand, his suggestion is that these implications and derivations need not hold even assuming the relevant thymological ceteris paribus conditions, then I think his claim is clearly wrong, but since it is not supported by any identifiable logical justification, it is difficult to determine what deductive mistake or misunderstanding led to it.

Action implies the preference for sooner over later (since the opposite preference would lead to permanent inaction), and the preference for sooner over later implies that sacrificing the consumption of a certain quantity of present goods can be meaningfully engaged in only in exchange for receiving a larger quantity of future goods (even if the latter are to be goods of a purely immaterial nature, such as the psychological satisfaction of offering one’s friend a gift of interest). Hence, the action axiom implies the time-preference theory of interest.

Action also implies the preference for higher ranked wants over lower ranked wants. Thus, the utilization of the second unit of a supply of equally serviceable means has to be associated with the satisfaction of a want that is ranked lower than the one for whose satisfaction the first unit of the supply in question was utilized. Given a sufficient degree of preference constancy over time, suggesting anything else would not make logical sense (it would imply either that satisfying lower ranked wants gives the agent as much utility as satisfying higher ranked wants, or, even more absurdly, that satisfying lower ranked wants gives the agent more utility than satisfying higher ranked wants). Hence, the action axiom implies the law of diminishing marginal utility.

The reason why the logic of the above chains of deduction does not convince Eric is nowhere to be found in his two posts.

[Reprinted from The Social Rationalist]

Monday, July 30, 2012

The Curious Case of Kirzner and Lachmann

Israel Kirzner and Ludwig Lachmann are two very prominent theorists associated with the modern Austrian school of economics. Both are very insightful, creative, and thought-provoking. Both have very distinct, clearly articulated views on the nature of the market process, which are fundamentally opposed to each other. Moreover, as far as I'm concerned, the view of each of them contains elements which are fundamentally opposed to each other as well.

Kirzner, for all his talk about the dynamic and change-oriented nature of the market process, effectively expunges from his analysis the most crucial element of entrepreneurial decision-making - namely, exercising judgment under conditions of uncertainty. Kirznerian entrepreneurs deal with ignorance (synchronic uncertainty), but not with diachronic uncertainty (the "unknown unknowns" of future market conditions), which is the source of both entrepreneurial profits and, equally importantly, entrepreneurial losses. Kirzner's theory of entrepreneurship cannot account for the latter and cannot demonstrate that they are outweighed by the former, and thus fails to establish a logically cogent proof of the existence of a market tendency towards equilibrium.

Lachmann, on the other hand, for all his talk about the heterogeneity, complementarity and multi-specificity of capital, as well as the temporal dimension of the capital structure of production, espouses the view that we live in a "kaleidic" world, where consumer preferences, the supply of consumer and producer goods of various orders, and technological possibilities constantly change, rendering the future essentially unpredictable, which I find incompatible with the possibility of bringing any capital good, let alone a full-fledged capital structure, into existence in the first place. This is because the production and utilization of capital goods presuppose their necessarily time-consuming assembly and successful deployment, which in turn presuppose a requisite, even if minimal, degree of preference stability and correctness of entrepreneurial foresight, neither of which can exist in a genuinely kaleidic world.

In sum, it is interesting to note that in an attempt to address a thoroughly realistic phenomenon of the market process, each of the abovementioned distinguished economic theorists created his own very insightful, but fundamentally unrealistic vision of economic reality, veering too far either in the direction of the neoclassical epistemological Panglossianism or in the direction of the historicist epistemological nihilism, while, perhaps unwittingly, abandoning the original Mengerian research paradigm, focused on, to quote Klein and Foss, "entrepreneurial action under uncertainty, investment, real prices, and the resulting profits and losses".

Monday, July 2, 2012

A Praxeological Proof of Political Opportunism?

According to the Ricardian Law of Association, specialization and division of labor increase productivity. From this it follows that any given field of professional activity will be dominated by specialists.

Franz Oppenheimer's distinction between the economic means and the political means, combined with the insights provided by the Ricardian Law of Association and the Austrian theory of entrepreneurship, suggests that whereas the economic means will be utilized most successfully by those capable of combining heterogeneous capital goods so as to produce the final goods that will harmonize with the uncertain future wants of the consuming public, the political means will be utilized most successfully by those capable of creating and wielding institutionalized violence, aggression, and coercion.

Now, let us assume for the sake of the argument that there is nothing inherently contradictory in the notion that one's liberty can be violated to one's own prudential or moral advantage, and, thus, that there is nothing inherently contradictory in the concept of a benevolent despot.

However, in view of all of the observations made in the previous paragraphs, the concept in question, even if logically coherent, at the same time seems logically constrained to denote an empty set. After all, just as someone who can operate profitably both on the gold market and on the silver market should be thought of as a better precious metals specialist than someone who can operate profitably only on the gold market, someone who can wield coercion both for the supposed good of his subjects and for his own private advantage is more specialized in using the political means than someone who can use them only for the former purpose.

In addition, even in our scenario of relaxed moral assumptions, achieving good results does not require initiatory violence - persuasion and charity are equally effective in this context, if not more so. In order to achieve opportunistic gains, however, a politician needs to resort to some form of initiatory violence, be it naked coercion or fraud. In other words, the political means are particularly well suited to advancing opportunistic, not benevolent behaviour.

In sum, in view of the praxeological nature of the political means and the praxeologically necessary consequences of the Ricardian Law of Association, for every would-be politician who sincerely believes that he is well suited for the role of a benevolent despot, there will be a far more effective politician concerned exclusively with his private gain, and the latter will always outcompete the former in the realm of power-seeking. Thus we get a purely logical proof of the conclusions of the Public Choice literature.

Friday, June 22, 2012

A Sociological Argument for the Validity of ABCT

The validity of any given theory is often thought to be dependent on: 1) its logical coherence, i.e., its derivation from self-evident axioms and its construction according to the proper rules of logical deduction, and 2) its correspondence with the facts of reality.

The Austrian Business Cycle Theory (hereafter ABCT) is well-renowned for the emphasis it attaches to logical precision of the arguments, axioms, and deductions it is built on, and its predictive track record is unparalleled as compared with the so-called "mainstream" theories of the same phenomenon (see here and here).

Hence, one would have thought that ABCT merits the closest examination and intellectual scrutiny in the standard academic forum of peer-reviewed journals. It is the case, however, that it receives practically no attention in the journals which are not themselves Austrian-oriented. The attention from those prominent "mainstream" academics that it did manage to generate manifested itself in the form of popular articles and blog entries (see here, here, here, and here), all of which contain a poorly researched, strawman version of the theory they aim to criticize (as evidenced here).

In view of the above, only two conclusions suggest themselves: either the abovementioned academics are poor scholars in the sense of lacking the requisite intellectual skills to understand and critically evaluate ABCT in a professional manner, or they are poor scholars in the sense of lacking the requisite intellectual integrity, i.e., they do not even try to understand the theory in question, or they do understand it, but choose to willfully mischaracterize it.

Now, if either of the above conclusions is correct, then, given the fact that the exponents of ABCT do devote a lot of space in their peer-reviewed journals (see, e.g., here, here, here, and here) to a thorough intellectual examination of the theories and arguments of their intellectual opponents (even thought the latters' respect for the precision of logical deduction and their predictive track record compare unfavourably to those of the ABCT theorists), it has to be assumed that the exponents of ABCT are better scholars (in both of the dimensions listed above) than their "mainstream" counterparts.

And since, by definition, better scholars produce better theories, it has to be concluded that the preceding considerations of the sociology of academia make it more likely that it is ABCT rather than any of its "mainstream" alternatives that provides the correct explanation and analysis of the phenomenon of business cycles.

Thursday, June 14, 2012

Szkoła Austriacka a matematyka w ekonomii

Jedną z najważniejszych przewag konkurencyjnych Austriackiej Szkoły Ekonomii jest to, że posiada ona solidne podstawy filozoficzne (wywodzące się z klasycznej tradycji dedukcyjnej, będącej esencją dociekań naukowych), a tylko posiadając te podstawy można uniknąć z jednej strony zabobonu scjentyzmu, a z drugiej strony zabobonu intuicjonizmu.

Na bazie tych podstaw ASE podaje solidne argumenty na temat tego, gdzie matematyka znajduje zastosowanie - np. w rachunkowości, historii gospodarczej (statystyce), ubezpieczeniach od zjawisk podlegających deterministycznej czy probabilistycznej regularności, itp. - a gdzie nie znajduje - np. w większości teorii ekonomii (choć i tam może pełnić pomocniczą funkcję ilustracyjną, tak jak np. w niedawnym artykule Hulsmanna o strukturze produkcji).

Teorie zbudowane przez ASE mają też oczywiście swoje empiryczne ilustracje (nie "konfirmacje"), tak jak ma je każda logicznie spójna teoria wychodząca od prawdziwych przesłanek. Guru główonurtowej matematycznej ekwilibrystyki, Samuelsonowi, do późnych lat 80-tych wychodziło z jego modeli, że Związek Sowiecki wyprzedza Amerykę (tak jak wcześniej podobnie wychodziło takim hołubionym w profesji praktykantom matematyki w ekonomii, jak Taylor, Lange czy Lerner), podczas gdy Mises 80 lat wcześniej udowodnił na bazie czysto werbalnej, logicznej dedukcji, że nie może istnieć nic takiego jak racjonalnie alokująca zasoby gospodarka centralnie sterowana, a jego pochodzące z tamtego czasu opisy tysięcy fabryk wytwarzających leżące potem odłogiem półprodukty brzmią niemal profetycznie.

Podobnie setki sowicie opłacanych ekonometryków z ich setkami pieczołowicie konstruowanych modeli podsuwały w 2005 roku Bernankemu raporty, z których wyczytywał on potem publicznie, że "fundamenty gospodarcze są silne" i "nie ma ryzyka recesji", podczas gdy Austriacy, korzystający z opracowanej ponad 90 lat wcześniej czysto dedukcyjnej i niematematycznej teorii cykli koniunkturalnych, wiedzieli, że są one nadzwyczaj słabe i że recesja jest nieunikniona.

Kompilacje stosownych cytatów można znaleźć tutaj i tutaj.

I wreszcie - o skuteczności przedsiębiorcy na rynku nie decyduje zaplecze matematyczne, tylko - jak to opisują Austriacy - nieformalizowalna i nawet niewerbalizowalna umiejętność przewidywania niepewnej przyszłości, intelektualna empatia umożliwiająca danej osobie rozumienie potrzeb konsumentów i ich wydajne, często innowacyjne zaspokajanie, wiedza tymologiczna, verstehen - coś, co posiadał Carnegie, Walton czy Jobs, a nie Gauss, Euler czy Pitagoras.

Podsumowując, nie widzę powodów, żeby nie przyjąć wersji, zgodnie z którą tzw. "ekonomiści matematyczni" to osoby, które wiedzą, że nie mają wystarczającej inteligencji numerycznej, żeby zostać matematykami czy astrofizykami, ani też wystarczającej inteligencji technicznej, żeby zostać przyrodnikami, a mimo to w ramach wrodzonej większości domniemanych "intelektualistów" pychy próbują epatować "śmiertelników" swoją matematyczną kabałą, choć logicznych argumentów na rzecz owocności takiego epatowania nie bardzo widać.

Wednesday, May 16, 2012

On Social Rights: or, a Fiction Serving a Fiction

The adherents of collectivized ethics claim that "social rights" trump individual rights. Hence, on pain of logical inconsistency, they have to admit that the "social system" is supposed to serve "society", not any particular individual. This conclusion, when read without committing the fallacy of conceptual realism, says that a fiction should serve another fiction. No wonder that the benefits of shaping interhuman relations along these lines are wholly fictitious as well.

Monday, May 14, 2012

The Structure of American Financial Statism

Almost all of the highest ranking regional US central bankers (i.e., political commissars in charge of central planning of interest rates and money supply) are at the same time chief executives of various commercial banks. In other words, the shape of the modern banking industry is that of macroeconomic communism combined with corporate favouritism - the very antithesis of laissez-faire capitalism. Thus, whoever claims that the recent financial crisis (or, for that matter, any financial crisis of the last 100 years) has anything even remotely to do with laissez-faire capitalism is either a perfect victim of statist propaganda or a cynical beneficiary of the status quo. Tertium non datur.

Tuesday, May 1, 2012

A Brief Comment on Ron Paul vs Paul Krugman

Here is a link to the discussion. My overall impression is that Ron Paul did very well, much better than his opponent (and here I'm talking just about style, not substance). While he could have talked about the capital structure, intertemporal coordination of production, and malinvestments, he talked instead about the destruction of private American savings and the Fed as an inexhaustible source of funds for political spending (especially welfare and warfare spending). Thus, he addressed genuine concerns of a lay audience while remaining intelligible to it. Krugman, on the other hand, produced nothing except for unsubstantiated statist platitudes.

As for my few bits of friendly criticism, if I were in Ron Paul's place and had his quickness of mind, I would not bring Friedman into the debate at all, but if I happened to mention him, I would not shirk from agreeing that he was indeed a "leftist" (or, to use a much more meaningful word, a statist) on monetary issues. I would use this as an opportunity to introduce von Mises as an example of a full-blooded monetary free-marketeer, and demonstrate that the pop-intellectual discourse is chock full of elementary semantic confusions.

I would also immediately counter any mention of "fiscal stimulus" with a few concise but pithy remarks concerning the fact that siphoning funds from the free market, i.e., that sector of social relations which is the sum total of mutually beneficial interpersonal transactions, guided by price signals and disciplined by the threat of incurring losses, and transferring them to the state apparatus and its clientele, i.e., that sector of social relations which is insulated from the profit and loss system and beneficial only to the transferees, can only lead to plunging the economy further into the quagmire of parasitic attitudes, calculational chaos, and prolonged investment uncertainty. Of course, if I were Ron Paul, I could actually make that concise and pithy.

Finally, I'm confident that Krugman will try to use this very short exchange of words with Dr. Paul as a pretext for not debating any other Austrian economist in the future (including especially Bob Murphy). For all his erudition and competence, I doubt that Ron Paul cares to know all the ins and outs of contemporary academic economic jargon, which makes Murphy, an academically trained "dismal scientist", an even more dangerous debate opponent for Krugman, capable of effectively preventing the latter from being able to hide behind the veil of sophistical econobabble. This, of course, is not to say that Ron Paul's performance in this debate was any less formidable. All in all, I believe that this brief exchange provided yet another illustration that the Austrians have the Keynesians on the run, and the fact that they seem to be getting more and more opportunities to demonstrate this is a hopeful sign.

Wednesday, April 25, 2012

Global Macroeconomic Communism is Here

We live under global macroeconomic communism. One of the most important market prices, the one responsible for the intertemporal coordination of production - that is, the interest rate - is not determined by the rate of social time preference (dependent on the totality of individual decisions of market participants regarding how much of their income to spend and how much to save), but by the edicts of the monetary central planning bureaus known as central banks. Likewise for the magnitude of money supply.

It cannot be overstressed that this type of communism is infinitely more insidious, and hence, in an important sense, more dangerous, than the crude type known from the Soviet Union and its satellites. The former assumed all the external appearances of a market economy - it is like a wolf in sheep's clothing or like a ripe, beautiful apple with a drop of deadly poison inside, whereas the latter looked like a plain wolf or like a rotten apple all along.

Hence, playing on people's envy and ignorance, its commissars (the central bankers and their cronies) can easily blame global economic distortions, caused by their manipulations of interest rates and the money supply, on "deregulation", "capitalism", "greed", or any other hackneyed bogeyman in the world, thus receiving even more political power from the hands of the befuddled masses and triggering a vicious circle of ever wider politicalization and socialization of the economy.

Thus, always be ready to educate those around you about the reality behind the veil and the ways to make the veil fall.

Tuesday, March 13, 2012

A Short Note on the Illusion of Progress

Humankind continues to be as superstitious as it has always been. Religiously inspired superstition gave way to scientifically inspired superstition. One irrational doctrine - uncritical fideism - gave way to another irrational doctrine - technocratic scientism. The belief in the divine right of kings was replaced by the belief in the legitimate paternalism of bureaucratic "experts".

In fact, things got worse on this front - the modern superstition is even more irrational than the old one. One can treat seriously the argument that you owe obedience to the supreme being who endowed you with free will and reason, since you literally owe that being your status as a free agent. By the same token, it is possible to treat seriously the claim that you owe obedience to the direct representatives of such a being. But how can one treat seriously the claim that some human beings owe their status of free agents, and thus obedience, to other human beings, none of which enjoys any special divine imprimatur?

In any event, the common denominator of old and new superstitions is clear - it is statism, the belief in the salutary influence of centralized violence, aggression and coercion. If humankind is ever to grow into intellectual and moral maturity, it has to disabuse itself of this belief first and foremost.

Monday, March 12, 2012

The State Cannot Guarantee Anything

Contrary to what even some libertarian theorists seem to believe, there is no tradeoff between liberty and security, or between liberty and "welfare". Contrary to a premise usually taken for granted, the state cannot "guarantee" anything. In fact, it is in a much worse position to guarantee anything than a charitable institution or a business enterprise is. This is simply because the latter two have a reliable source of income, where by "reliable" I mean a source based on consensual support, enthusiasm and respect for the services they offer. In other words, as long as they continue to provide their patrons with the services of a sufficient quality, they can expect their income to remain steady or even grow.

The monopolistic apparatus of violence, aggression and coercion, on the other hand, cannot boast of having any such reliable source. Its situation is ever precarious in this respect - it is ever threatened by the possibility of its milking cows "voting with their feet", moving into the grey market, or ceasing entrepreneurial activity altogether. At the same time, it keeps growing the number of welfare dependants - those who decided to bet their lives on the belief that the state possesses a magical cornucopia capable of supporting them from womb to tomb.

In sum, unlike that of a charitable institution or a business enterprise, the state's relationship with its source of income is not based on mutual respect, appreciation and gratitude, but on resentment, constant threats of violence and the prospect of ever-growing parasitism. This, of course, leads to ever less resources being at its disposal and ever more entitlement claims being made on them. Far from being able to guarantee anything, in the long run such an entity is bound to be dead, to quote a most profoundly dead peddler of the cornucopian story.

Let us never ever believe that with sufficient determination and coercive power, one can eliminate the constraints of scarcity. That way lies the upside-down world of sophistical destruction.

Wednesday, February 22, 2012

The Great Fiction of Fiat Money Cornucopia

In this day and age of easy and equal access to a practically infinite supply of independent information, a serious economic crisis can potentially have intellectually beneficial consequences. It can make people start questioning the "mainstream consensus" on, say, the nature of central banks, ex nihilio credit expansions and fiat money systems. In the best-case scenario, it can lead to the cleansing of a backlog of logically incoherent technocratic experiments with the economy and their replacement with well-tried, commonsensical principles of the monetary free market (notice that this last term is by no means a tautology).

However, what should make one at best cautiously optimistic about the prospects of the above scenario taking place is the fact--most forcefully and succinctly described by Frederic Bastiat--that statism of every kind draws its strength from clientelizing its victims, which always assumes the form of pitting them and their claims against one another. Union leaders, government bond holders, welfare recipients and politically connected bank oligarchs abhor the vision of sovereign debt defaults, so they can be relied on with regard to supporting debt monetization schemes and the resultant unprecedentedly vast inflationary redistribution of fiat monies' purchasing power. Rather than endorsing the commonsensical solution mentioned earlier, which would involve short-term pain for themselves and long-term gain for everyone (except the technocratic coercion wielders), they prefer short-term gain for themselves and long-term pain for everyone. What will be the ultimate nature of this pain--a relatively quick hyperinflationary meltdown or decades of protracted recession interspersed with regularly occurring partial debt defaults of public and private institutions--remains to be seen.

Some say the former would be more desirable insofar as it would vastly speed up the intellectual turnaround necessary to counter the root causes of the current economic woes--i.e., the acceptance of the logically incoherent, inherently unsustainable system of monetary socialism. But then again, did, say, the Germans really learn their Weimar lesson? After all, we should know all too well what the only really infinite thing in this world is.

I myself would (should I already say “will”?) probably look at the unfolding of either of those scenarios with more hope than fear and more relief than gloom. The world of public finance and economic policymaking is already saturated to the brim with irremediable distortions based on decades of magical thinking, of what would be regarded by the 19th Century mainstream of the dismal science profession as “anti-economics.” There can be no more maintaining that economic development is driven by value destruction in the form of spending, consumption and massive indebtedness, rather than by value creation in the form of saving, investment and non-political entrepreneurship. There can be no more claiming that an efficient, sustainable and morally acceptable way to revive a moribund stock market or pay back sovereign debt consists in printing large quantities of colored paper tickets or creating large numbers of virtual bookkeeping entries. There can be no more obstinate chanting that water can run uphill, two plus two can equal twenty-two, and coercive busybodyism can light the way towards unceasing prosperity.

The presently ongoing spectacular unraveling of the institutional edifice grounded in dreams of monetary dictators should be welcomed as a breath of intellectual fresh air, but also as an incentive to intensify spreading the message of commonsense economics in general and sound money in particular. It has never been easier to popularize the logical science of human action (both due to modern technological possibilities and the manifest failure of all the existing alternatives) and it has never been more necessary to make it popularly known. Thus, let us not rest on our laurels in the complacency of “vindicated prophets,” but utilize this great opportunity for mass economic education to the fullest extent possible.

In concluding, let me reflect once again on the central insight of Frederic Bastiat – I believe that a somewhat underappreciated point is that it does not just describe the institutional conditions of a society-wide tragedy of the commons. More importantly, it describes the process whereby institutional coercion makes nominally private property vulnerable to such a tragedy. And there are certainly more and less pernicious forms of such coercion, the level of their respective harmfulness often corresponding to the level of their relative inconspicuousness. Hence, in the present context, Bastiat's most famous assertion needs to be expanded: It is not just the state in general, but fiat money in particular that is "the great fiction through which everybody endeavors to live at the expense of everybody else." Fiction in the most literal and insidious way imaginable.

[Reprinted from]

Saturday, February 18, 2012

Perfection as an (Endless) Discovery Procedure

The most common error made by the critics of theodicy, especially those of a secular millenialist bent: thinking of perfection (or "perfect happiness") as the state of total satisfaction, and thus total inaction, total elimination of purposes and exercises of one's will. "Perfect competition" means no competition. Here, analogously, "perfect humanity" means the obliteration of humanity, the transformation of purposive individuals into blissful vegetables.

Genuine competition is an endless process of prediction, discovery, and adaptation. Likewise, genuine perfection is an endless process of perfecting oneself and one's surroundings - constant dealing with problems, insufficiencies, vices, pains, and catastrophes. It is about endless becoming, not about unchanging being. Otherwise it turns into its own parody.

Thursday, February 16, 2012

Some Quotes on Equality and Egalitarianism

"The principle of equality does not destroy the imagination, but lowers its flight to the level of the earth."
- Alexis de Tocqueville

"The worst form of inequality is to try to make unequal things equal."
- Aristotle

"Since nature does not endow all men with equal beauty or equal intelligence, and the faculty of volition leads men to make different choices, the egalitarians propose to abolish the “unfairness” of nature and of volition, and to establish universal equality in fact - in defiance of facts. (...) It is not equality before the law that they seek, but inequality: the establishment of an inverted social pyramid, with a new aristocracy on top — the aristocracy of non-value."
- Ayn Rand

"There is all the difference in the world between treating people equally and attempting to make them equal. While the first is the condition of a free society, the second means, as De Tocqueville described it, a new form of servitude."
- Friedrich von Hayek

"A claim for equality of material position can be met only by a government with totalitarian powers."
- Friedrich von Hayek

"While under precapitalistic conditions superior men were the masters on whom the masses of the inferior had to attend, under capitalism the more gifted and more able have no means to profit from their superiority other than to serve to the best of their abilities the wishes of the majority of the less gifted."
- Ludwig von Mises

"An intellectual inferiority of the masses would manifest itself most evidently in their aiming at the abolition of the system in which they themselves are supreme and are served by the elite of the most talented men."
- Ludwig von Mises

"A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both."
- Milton Friedman

"Human life is not some sort of race or game in which each person should start from an identical mark. It is an attempt by each man to be as happy as possible. And each person could not begin from the same point, for the world has not just come into being; it is diverse and infinitely varied in its parts. The mere fact that one individual is necessarily born in a different place from someone else immediately insures that his inherited opportunity cannot be the same as his neighbor’s."
- Murray Rothbard

"The diversity of mankind is a basic postulate of our knowledge of human beings. But if mankind is diverse and individuated, then how can anyone propose equality as an ideal? (...) If each individual is unique, how else can he be made 'equal' to others than by destroying most of what is human in him and reducing human society to the mindless uniformity of the ant heap?"
- Murray Rothbard

Tuesday, February 14, 2012

Are Human Desires Unlimited or Unsatisfiable?

It is often asserted that "human desires are unlimited", and that this alone makes any concept of persistent economic equilibrium purely hypothetical and imaginary. But is this an accurate picture of human psychology? It would seem to suggest that at any given moment each of us entertains a set of clearly specifiable desires, such as the desire for apples or the desire for iPads, which, upon being satisfied, give way to a new set of this kind, and so on ad infinitum.

It seems to me that it would be more accurate to say that each of us permanently entertains a limited and largely unchanging number of vaguely specifiable desires associated with particular, oftentimes overlapping sensations and values of material, intellectual, moral, aesthetic, or interpersonal nature (power, love, belonging, gratitude, knowledge, the comfort of living space, culinary pleasure, visual pleasure, etc.), the point being that none of them can ever be really satisfied. Thus, as I see it, it is not the case that as the civilization progresses, more and more of our desires are being satisfied, only to give way to new ones, but that our essentially unchanging desires are being satisfied more and more effectively.

This observation, incidentally, appears to me to provide yet another avenue for making a cogent analytical distinction between Hayek's "knowledge problem" and Mises' "calculation problem".

If the "knowledge problem" is to be applicable to genuine concerns of economic theory, it needs to be restricted to what is logically (even if not practically) knowable. Hence, as I see it, it is applicable to the putative central planner's knowledge concerning the supply of consumer goods, producer goods of various orders, and the available technological possibilities (since this kind of knowledge constitutes a finite set of data), but not to his knowledge concerning consumer desires (since, as I argued above, these can be satisfied in a literally infinite number of ways, thus being infinitely translatable into desires for specific consumer goods, and the infinite is necessarily unknowable to any finite mind).

This, in turn, implies that if in a given economy only one will acts with respect to the disposal of producer goods, then, even if the finite mind behind it knows everything that is logically knowable to it, it is still bound to lack any intersubjective benchmark for assessing the extent to which its decisions satisfy the desires of the consuming public as compared with the extent to which they could be satisfied by the decisions of all those who would be eager to acquire the available factors of production and use them in an entrepreneurial manner were it not for the central planner's prohibition.

In other words, the calculation of profits and losses in the free enterprise system allows us to determine how closely we approach a literally infinite horizon. In view of the above, and given that any sufficiently advanced ability is indistinguishable from magic, I guess the reports of the magic of the market have not been greatly exaggerated.

Sunday, February 12, 2012

State and Corporations - A Perfect Marriage

Corporations need the state, because only the state can, through its coercive interferences in the economy, provide them with grants, subsidies, monopoly privileges, and political contracts, by virtue of which they retain their privileged economic position and their abnormal size.

The state needs corporations, because it can use their existence and their unnatural influence as a permanent excuse for expanding its power and legitimizing such expansion in the eyes of the voting masses who fall for anti-capitalist propaganda (not to mention various gifts that politicians and bureaucrats receive from their grateful corporate allies).

In effect, the more the state grows, the more do the corporations, and vice versa, and so on until the moment when the political-corporate complex bankrupts itself by finally killing the goose that lays its golden eggs - i.e., the last remnants of the free enterprise system.

Unless the masses see things for what they are and reject voluntary servitude.

Saturday, February 11, 2012

10 Reasons Why Voluntary is Good and Coercive is Bad

1. Competitive incentives, which drive down prices and increase quality, can flourish only where property rights are respected and political barriers to entry are non-existent.

2. Ditto for the culture of low time preference, which encourages saving necessary to undertake and carry through sustainable capital investments, which increase the marginal productivity of labor.

3. Ditto for the existence of the market price system, which allows for comparing the profits and losses of engaging in any given business activity, thus enabling the rational allocation of resources from the point of view of consumer sovereignty.

4. Ditto for the existence of a horizontally integrated entrepreneurial system composed of a multitude of independent decision-making units, which allows for very quick and efficient transmission of information relating to specific circumstances of time and place.

5. Every voluntary transaction is necessarily a positive-sum game (both parties gain), while every coercive transaction is at best a zero-sum game (the coerced loses what the coercer gains).

6. It is not just the case that, unlike peaceful agents, coercive monopolies can flourish without producing any goods desired by the consuming public. In fact, they often flourish in proportion to the amount of "bads" they produce, since these provide them with endless justifications for ever further expropriations and intrusions.

7. Every act of coercion involves an implicit recognition on the part of the coercer that he enjoys the same right to free action that he denies to the coerced, thus generating a performative contradiction.

8. Only voluntary actions have moral worth, since every act of coercion reduces the coerced to a tool or a means. Thus, for instance, coercive redistribution of resources is completely bereft of charitable qualities.

9. Voluntary giving creates a culture of benevolence and gratitude. Coercive taking creates a culture of parasitism and resentment.

10. Coercivism is predicated on the threat of involuntary pain, which is an intrinsically undesirable sensation.

Sunday, February 5, 2012

Is Liberty the Only Value That Matters?

“Liberty isn’t the only value” he said, while pointing his gun at my head. - geoif

My response to the question "is liberty the only value that matters for libertarians?" would be the following: no, but it is clearly the most important one, by which I mean that it requires unqualified respect and constitutes a necessary precondition for the realization of any other value.

There can be no justice without liberty, since justice is equality before the (natural) law, and allowing anyone to enjoy his natural rights while violating those of others is the paradigm of unequal treatment. There can be no charity without liberty, since charity involves voluntarily giving away one's own goods, not forcibly extracting them from others and taking a commission for it. There can be no gratitude without liberty, since the feeling of coercive entitlement to someone else's wealth is the very opposite of gratitude. And so on for other values.

Every good deed requires voluntary intention and respect for the voluntary intentions of others. Every act of coercion destroys the moral worth of one's intentions by trampling over the intentions of others, by their instrumental and exploitative treatment, which necessarily constitutes the dehumanization of their owners, the essential features of human beings being free will, purposiveness and self-ownership.

Putting things this way, libertarianism seems to me not only not to exclude values other than liberty, but also - in contrast to every coercive doctrine - to give them the proper respect they deserve - that is, not treat them as excuses for one's envy, lust of power or any other vice in virtue's clothing.

Saturday, February 4, 2012

Price Signals - Signalling What and Why?

I must confess that I fail to grasp the import of Hayek's oft-repeated point about "prices communicating information". Hayek says that thanks to the existence of "price signals", a consumer or an entrepreneur need not enquire as to whether the demand for a given good increased or its supply decreased - he simply knows that a rise in its price means that it has to be economized. But why should prices be particularly effective in communicating this kind of information?

Imagine that instead of prices, market participants were to rely on short bits of verbal communication such as: "supply down, demand the same" or "supply the same, demand up". Would such a system work as effectively as the one we are familiar with? No, but not because the relevant information regarding "the specific circumstances of time and place" would not be communicated sufficiently smoothly, but because the form in which it would be communicated would not allow for performing cost-benefit calculations. The usefulness of prices does not stem from the fact that they communicate information (since everything communicates information), but from the fact that they embody consumer choices and entrepreneurial anticipations expressed in the form of intersubjective, numerical exchange ratios.

Sometimes Hayek is more precise and talks about prices communicating "decentralized information". But from the above example it clearly follows that the benefits of decentralization could be utilized in a system without prices as well, even though in their absence those "knowledge benefits" would not translate into economic efficiency. There is no question that quick and reliable transmission of information that results from decentralization is one of the great strengths of the free market economy, but it is logically independent of its other great strength - its reliance on the price system.

Still, it has to be noted that one is of no use without the other - from the catallactic point of view, decentralized information not expressible in terms of prices is as worthless as "prices" issued by a centralized, monopolistic agency.

Many of the points touched upon above were of course made in the dehomogenization debate, but I am not sure whether it specifically addressed the concept of "price signals".

Tuesday, January 31, 2012

Respecting the Rich, Then and Now

I noted some time ago that the correct interpretation of a certain well-known passage from the Bible seems to me to be not that it is particularly difficult for the rich to enter the kingdom of God, but that it is difficult even for the rich. Hence the astonished: "Who then can be saved?" This appears to imply that the rich were held in high esteem among the disciples (also in a spiritual sense), and at no point does Jesus oppose this view.

Here is another historical remark on the general perception of the wealthy, this time more unambiguous in its conclusions:

"It is sufficient for the present purpose to observe in general, that power and riches commonly cause respect, poverty and meanness contempt, though particular views and incidents may sometimes raise the passions of envy and of pity."
- David Hume, "An Enquiry Concerning the Principles of Morals"

I would risk saying that a more accurate claim would be: "It is sufficient for the present purpose to observe in general, that power and riches commonly cause envy, poverty and meanness pity, though particular views and incidents may sometimes raise the passions of respect and of contempt." Was Hume mistaken in his observation, or is it possible that it is only since the mid to late 19th century that the world has been infected with the Marxist virus of unqualified, envious hatred towards the prosperous and successful? Or, on a hopeful note, perhaps reality is not quite as bleak as I see it in this regard?

Sunday, January 29, 2012

Contract is Slavery, Ignorance is Strength

It will probably never cease to amaze me that people of all kinds of political persuasions so eagerly and so easily buy into the practice of describing the voluntary, contractual society as "atomistic", "individualistic", "egocentric" or "selfish", while at the same time describing the society based on the divisive principle of coercive wealth transfers and the parasitic principle of making successful entrepreneurs into expendable milk cows as "cohesive", "brotherly", "compassionate" and "caring".

If there is a perfect example of how unabashed propaganda, unreflective repetition, wishful ignorance or subconscious self-deceit can usher into existence and keep in circulation even the most flagrant Orwellianisms, then I suppose it has to be it.

Wednesday, January 25, 2012

The Mundane Idea of Individual Liberty

If "ideological thinking" is to be defined as concerned with grand, comprehensive sociopolitical visions, which aim at assigning everyone a role in the all-encompassing "social organism", then libertarianism, with its basic, almost self-evident precepts, known to most of us since our sandbox days - keep your mitts to yourself, don't punch others, don't grab other people's stuff, live and let live - appears to be as non-ideological as any such precepts can be.

And, if "ideological thinking" is to defined as largely based on utopian fantasizing, then it seems to me that libertarianism qualifies as the voice of the most mundane and platitudinous common sense, consistent with our most ordinary notions of interpersonal decency. Incidentally, the same applies on the intellectual level to the school of positive economic theorizing that most libertarians subscribe to.

Sunday, January 22, 2012

A Very Short Q&A on Money, Banking and the Great Recession

Q: Why do states and their clients in the banking sector demand control of the money supply?

A: Because it allows them to:
1. Engage in the inflationary redistribution (taxation without legislation) of the purchasing power of money in their own direction.
2. Monetize (inflate away) their debts.
3. Create credit out of thin air and be paid interest on nothing.
4. Push taxpayers into higher income tax brackets by increasing their nominal (but not real) income.

Q: What are the side effects of initiating and sustaining the above processes?

A: 1. Falsification of economic calculation (inability to compare profits and losses of engaging in any given business activity).
2. Discouragement from saving (and thereby from healthy investment, savings being the source of sustainable business credit).
3. Continual erosion of real incomes.
4. Distortions in the capital structure (malinvestments) leading to boom-bust cycles.

Q: Do the above explanations account for the emergence of the current "Great Recession"?

A: Yes.

Q: What should be done in order to get out of it as quickly as possible?

A: 1. The free enterprise profit-and-loss system should be allowed to bankrupt the insolvent banks and restructure their debts by auctioning off their assets and/or turning them into managed mutual funds.
2. Ditto for the insolvent governments.
3. No new money should be printed and/or created in the form of virtual bookkeeping entries (in order not to sustain the processes described in the answers to the first two questions).
4. Debts and deficits should be decreased.
5. No "government investments" should be undertaken, since these are necessarily at best zero-sum games, unconstrained by the proft-and-loss strictures, and would further drain the vital forces of the already weakened private, wealth-generating entrepreneurship.
6. Prices and wages should be allowed to fall to pre-boom levels (or even lower) in order to reflect the post-boom scarcities of goods, re-enable sound economic calculation to occur and allow the labor force misallocated during the boom period to be re-absorbed into the labor market.
7. Saving should be encouraged in order to allow efficient, but politically unconnected entrepreneurs to access the credit needed to reallocate the malinvested capital to the uses consistent with consumer preferences (especially time preferences).

Q: What should be done in order not to allow such recessions to happen again?

1. Legal tender laws should be repealed.
2. Central banks should be abolished.
3. Taxes on commodities trading should be eliminated so that commodities might regain their position as sound monies.
4. Competitive currency issuance should be allowed.
5. Governmental bailouts should be prohibited.

Q: Have the above solutions been tried and found effective?

A: Yes, they were followed during the most economically prosperous periods of human history. The spectacular economic downturns of the 20th and early 21st century, including the Great Depression, the stagflation of the 1970s, the Dot-com Bubble, and the current Great Recession, are the result of moving away from them over the last 100 years.

The Organic Order of the Web

It is encouraging to see how widespread and univocal the protests against the so-called "anti-piracy agreements" are. It is uplifting to see how everyone seems to realize that the creative power, the spontaneous beauty and the unparalleled efficiency of the Internet consists precisely in the fact that it approximates a pure free market community more than anything else. We all know this, we have all experienced this, and that is why we realize what it would mean to lose it.

Perhaps most importantly, we realize not only that we do not need any "Internet police" or any "Internet regulatory office", but also that any attempts to expand the competences of the would-be organizations of this sort are immediately going to be countered by the spontaneous efforts of cyber vigilantes (the so-called "hackers"), thereby creating a huge positive externality for the global community of Internet users (with nobody calling for its "internalization").

The hopeful bottom line of all this is the following - if the Internet continues to exist in its present, largely libertarian form for the foreseeable future, while playing an ever more prominent role in our everyday lives, then at some point it might dawn on its users at large that when it comes to the preconditions for their smooth, effective and socially beneficial operation, there are no essential differences between the virtual reality and the "real" reality. And then the nov-violent protests we are witnessing nowadays might successfully spread into more tangible realms.

Wednesday, January 18, 2012

Bastiatian Thought Experiment No. 3

Imagine a world whose inhabitants generally, if not always consciously, believe that the whole of morality boils down to a single precept - size matters - from which it follows that an act of robbery committed by a few becomes an act of social virtue when committed by many, that an act of counterfeiting performed by an individual becomes an act of financial prudence when performed by an "institution", and that an act of murder committed by a person becomes an act of heroism when committed by "society". Now ask yourself a question: how would such a world look like and how would it differ from our world?

Pogadanka o kryzysach i przedsiębiorczości

Moja pogadanka na temat zależności między kryzysami gospodarczymi a zjawiskiem przedsiębiorczości, przedstawiona 5 stycznia na spotkaniu wrocławskiego Klubu Austriackiej Szkoły Ekonomii. Zachęcam do pozostawania na bieżąco z działalnością tego i innych klubów ASE.