The Malthusian Trap :: Ludwig von Mises Institute

I suspect that Malthusian population increases may occur in welfare (socialistic, redistributive) societies with no population control and no social stigma attached to bearing a large number of children; however, the left-statist solutions (coerced birth control/abortion, implemented most completely by communist China or subsidized birth control/abortion as sponsored by the US government) or right-statist solutions (Brazilian death squads) are repugnant patches on a system deficient in natural monetary incentives to having a number of children commensurate with one's ability to provide for them.

In a libertarian society, population control arises naturally from pricing signals. The number of children that a couple chooses to have is influenced by the personal cost to them, which depends somewhat on the scarcity of the resources from which those products are produced. Libertarianism encourages resource conservation in the same manner.

As population increases relative to scarce resources for which no alternative exists, one expects that the cost of the scarce critical resource increases, resulting in more parents choosing to have fewer children.

Trust God, Not Man by Charley Reese

Christians and other religious people have a perfect right to advocate their moral positions in the public arena. The idea that one can have a purely secular morality disconnected from religious beliefs is nonsense.

Not true. I am not religious, but I deeply oppose aggression, torture, hypocrisy, and obfuscation. The religious George Bush apparently endorses these behaviors. Both secular morality and religous morality (as opposed to simply professed morality) haver their foundations in personal values. It is possible that this arises from one's treatment and upbringing during one's formative years.

All morality has its origins in religion of some kind, and laws are reflections of morality. There is no purely practical reason why it is wrong to steal and to kill, yet virtually all societies recognize that those activities are wrong. Judaism, Christianity, Buddhism, Islam and other religions condemn them, and religions preceded the modern state.

This is an unproven assumption. That every societies tend to discourage these behaviors within their groups is necessary for the survival of the society. In other words, certain behaviors are naturally socially-selected.

Nazism and communism should stand as warnings to those who think you can build a rational society devoid of religious beliefs. Millions of people were murdered under those systems, and why was that? Because without religion, one can make a perfectly logical and reasoned argument for murder. Why should society spend the money to maintain the lives of the hopelessly insane or retarded? Why shouldn't the government round up and execute people it considers a threat? Does not the greater good trump the fate of individuals?

Have secular regimes really killed more individuals than religious regimes? This is quite dubious considering the crusades, inquistions, and witch hunts.

If indeed there is no God, then human life is just an accidental phenomenon and no more valuable than that of a mosquito. As we saw in Nazi Germany and the Soviet Union, societies without God create rivers of blood. In a crazy way, humans will always be under a god – if not the God of the universe, then the state will become God. Personally, I prefer the one in the sky to the one in the uniform.

All life is naturally valuable to those who possess it. The lives of others are valuable to the extent that we have naturally-occurring and socially-encouraged empathy.

Western civilization was built on the foundation of Christianity. That's a fact, not an opinion. A lot of sinning notwithstanding, the laws and institutions of the West were derived from Christianity. It is no accident or whim that Europe was long known as Christendom. It is no accident that George Washington said a man who was an enemy of religion was also an enemy of the republic.

The founders were greatly influenced by the enlightenment, which was a completely independent influence from religion. This country has always had a strong secular tradition from Benjamin Franklin to Mark Twain.

Unfortunately, the West is losing its Christian moorings. Europe today is far more secular than the United States. The Europeans could not even bring themselves to acknowledge Christianity in their new constitution.

What Christian mooring have we had? Where is religion mentioned in our constitution other than to limit its influence?

In the United States, the push is on to lock Christianity up in its church buildings. Keep it out of politics. Keep it out of the public arena. Well, this militant secularism is one way to commit national suicide. Washington's comment was connected to the fact that it was impossible for a free republic to exist with immoral people. Cut people loose from the moral moorings of religion, and the state will have no choice but to step in and control them. Remember, it's always a choice between the God in heaven or the God who commands the army and the police.

Define heaven. Define God.

One of the favorite canards of the secular folks is to blame wars on religion, but the truth is that the all-time champion murderers have always been atheists. Nobody in human history murdered more people than Stalin, Hitler and Pol Pot. The 20th century was the bloodiest in human history, and not one of its wars was about religion.

The fact that communism, which advocated violent revolution and happened to be atheistic, was widespread in this century casts an unjustified pall over atheism; however, it seems likely that the advocacy of violent revolution is a more likely reason for violence than atheism.

One piece of sophistry employed by the secularists is the claim that "you have no right to impose your morality on other people." That's bull. Every law in every law book in the land is an imposition of morality on other people. The only question is whose morality is going to be imposed. What the secularists are really up to is imposing their morality on Christians and other people of faith.

You just contradicted your claim that atheists can have no morality because all morality comes from religion. How do you impose your morality if you have none?

I really believe the future of America depends on whether we experience a revival of the spirit. If we don't, if the secular trend continues, then politics won't save us. In fact, politics devoid of God will doom us.

Liberals hate it when I say this, but the Third Reich was secular liberalism carried to its logical conclusion. That's plain enough if you study the Third Reich and compare it with the positions advocated by today's secular liberals. It is always a fatal error to put one's trust in man instead of in God.

So what? I have seen the gamut of secular beliefs: from liberalism to libertarianism to conservatism. It seems as though a lack of belief in a divine creator is compatible with the gamut of political thought.

Why Legitimacy In Iraq Matters

Legitimacy is a matter of degree. It seems that Bush's venture in Afghanistan will be much more sucessful than that in Iraq because

1. In Afghanistan we overthrew a regime (Taliban) that was protecting an organization (Al Qaeda) that attacked us. In Iraq we overthrew a regime that was neither threatening us nor capable of attacking us.


2. Although Karzai was picked by the administration. He does seem to be genuinely concerned about the future of Afghanistan. His position does not seem to be a reward for supplying false information to the U.S. or working as a covert operative.

Open Borders Equals Tribal Warfare by Bob Wallace

"Leftists refuse to believe mankind has an animal nature that most people cannot
truly overcome, and they also believe people have complete free will, which they
do not."

Most leftists I know are quite scientifically literate. They are well aware that human nature (like that of all living creatures) is to propagate one's genotype.

"If we had complete free will, then any socio-political-economic system would
work, because people could make themselves into whatever they please. But we
can't, because we don't have that kind of power over ourselves. We never will."

I assume work means here that the system is sustainable. Also, it only follows that any socio-political-economic system would be sustainable if the state could mold people into whatever they want, not if people themselves could mold themselves into whatever they want. History shows that communism only works for months or very small populations. Managed (socialist) economies work for decades between wars, and pure anarcho-capitalism may or may not work, but it certainly seems more workable than managed economies because it admits the fallability and self-interest of the managers and has the most incentives for citizens to be knowledgable, responsible, and productive.

"People, although they are a lot more than animals, do share certain traits with them. We are social beings who group ourselves into family and tribes, just the way all social animals forms packs. Those libertarians who think we are merely individual atoms disconnected from everyone else are showing a profound lack of understanding of human nature. Perhaps, they are showing a complete lack of understanding of it, which is probably the main characteristic of the Left."

True, but I do not think this is the distinction between left libertarians and right libertarians. Right libertarians seem to be enamored with war and do not seem to apply libertarian justice to other cultures even when those cultures do not threaten us. Left libertarians require that groups have the same responsiblity and culpability as individuals.

"These days, most tribes have grouped themselves into huge units known as nations. There is no way around it. If people weren't like that, then they wouldn't do it."

Yes, people do like to create an "other" that they can vilify and ridicule. This is how we define our social selves and acquire a social identity. However, as the existence of sports teams show, this group selfishness and hubris does not have to get to the point of violence, nor should such dark characteristics, which are usually built on exaggerations of differences, be rewarded.

"Since we form ourselves into tribes (nations), any one nation is going to view with great suspicion when large amounts of the members of another nation moves onto the first nation's land. This is something that anyone of the Right understands."

This is only a problem in a statist society; otherwise, foreign vistors can only access travel easements or private land that they either purchase or are invited to enter.

"The Left, including left-libertarians, do not understand this, because they unconsciously believe everyone has complete free [sic, maleable] will. They believe that all tribes can share the same land and get along, because they naïvely think everyone can change themselves on the inside (in the snap of a finger!) and get along with everyone else."

Perhaps, the national "governing authority" (I am a miniarchist) could post a sign regarding property law, access routes, and proper behavior in public areas. Nothing else is required. The various laws would be enforced by the various enforcers detailed in the contracting agreements.

"Toss into a huge salad every religion and ethnic group, and the open-borders crowd truly believes hundreds of millions – if not billions – of people will respect everyone else as an individual and not judge them as members of their tribe. The open-borders crowd, including left-libertarians, believes in multi-culturalism."

Libertarianism is completely compatible with coexisting cultures. Cultures define themsleves in terms of the cuisine/diet, dress, holidays, behavioral strictures, etc. You are implying that all of these qualities should be controlled by a governing authority. Now that truly contradicts any possibility of limited goverment.

"Unfortunately, multi-culturalism is the wrong name for what it really is – multi-tribalism. And tribes, when they are large enough and trying to share the same land, fight. Anyone who does not believe this, just look around the world. Every war there is, is one tribe against another, one religion against another, one ethnic group against another."

War is the quintessential violation of property rights (including the right to life). If one group consists of a sufficiently large number of libertarians then their enforcing authorities should be able to defend their signatories against aggression.

"If we were truly individuals, and nothing else, we would not need families, fathers, mothers, and friends. We would have no desire to gather together at theaters, stadiums, clubs. We would be as independent as cats."

Even cats need fathers and mothers and, sometimes, responsible owners.

"It is the Left that has always believed human nature either doesn't exist or is infinitely plastic. It is for that reason they have consistently tried to social-engineer people into being what they cannot be. The open-borders crowd, including left-libertarians, are trying to social-engineer people being what they want them to be. Under the veneer of their "libertarianism," do they do not a lot in common with leftist totalitarians? Don't they in fact hate their society, and wish to see it destroyed?"

People can be bred (socially selected) into anything over a period of generations. Just look at a domesticated dog for proof.

"Let's do a thought experiment. Imagine there were no borders whatsoever in the world? What would happen?"

Let me see.... no border guards, more prosperity (from increased trade), less fighting, more tolerance and understanding of other cultures. I suppose you though the Berlin wall was a good idea.

"In the fantasies inhabiting the left-libertarian mind, people would freely move around to where the jobs are, and everyone would get along almost perfectly."

True enough. Those who do not "get along" would be able to isolate themselves along cultural lines, not based on militarily established borders.

"In the real world, however, one tribe would attempt to impose its will on another, and murder and expel the members of it. That's why open borders equals tribal warfare. That old saying, "Good fences make good neighbors," is true."

Your doomsday scenario is similar to that of those argue about the huge crime wave that will result from legalizing firearms, or trading freely. It is actually exactly the opposite: Closed borders create cultural distinctions and mischaracterizations that lead to warfare. The contracted enforcers of the peace would most likely be able to deal with those who are not committed to anarcho-capitalism.

"There is another aspect to human nature to which I have given a great deal of thought for the last few years: hubris. All tribes have, almost without exception, considered themselves to the Chosen of God; almost all have called themselves "The People" or "The Humans." This means anyone outside the tribe is non-people and non-human."

True, but you know logically that it cannot be that every tribe is superior to every other. Thus rational humans do not behave in the petty way. Shouldn't society be based on truth, not socially-acceptable myth?

"Hubris is part of our limited, imperfect nature. It's why humility – which is founded on a self-awareness of our imperfections – has always been considered a virtue."

True, but closed borders reward hubris and ignorance of foreigners. Open borders punish hubris and those who would tell us that we are the chosen people.

"What answer does the left-libertarian open-borders crowd have to the problem of fighting tribes, with each considering themselves the Chosen? They have no answer, other than that the free market will make everyone get along. They wish to destroy the nations of the world, even if they don't know it."

Nations come and go. Obviously, no state of peace can exist between people who do not recognize the rights of each other, unless the two groups are separated or one of the two groups enslaves the other. The reality is that many countries *citizens* are respectful of the rights of the others and yet the countries themselves do not have sufficiently good relations to consider dissolving their borders. Would Canadians of Mexicans start trampling our rights? This seems unlikely in a libertarian society, but it is possible in a democracy unbridled by constitutional limitations or principled citizenry. The logical course of action is for the citizens of all countries with sufficient respect for each other to lobby for their borders to be eliminated.

"The ultimate problem of the open-borders crowd is the hubris of which I just wrote. Anyone who thinks they can destroy nation, state, and neighborhood, and replace it with their vague understanding of the free market, is showing the arrogance and ignorance that has almost exclusively been the province of the Left."

We have various regional identifiers: country, state, county, city, neighborhood, family. But how much does anyone really identify with, say, their county or neighborhood? Do we not identify more with those associations which we voluntarily join than those we have thrust upon us? Would one identify oneself more a, say, South Side Duluth Minnesotan or a Right-Libertarian Buddhist Mac-Lover?

Who would have thought that one could have open borders between states each a "tribe" with millions of people. Why if it is possible to have open borders between, say, California and Oregon is it inconceivable that one could have open borders between Canada and the United States or between Mexico and the United States?

"In the case of the open-borders crowd they believe the free market – which they misunderstand – will bring [about] this Utopia. We only need to destroy all the nations of the world. And exactly how will this destruction bring peace? "

Nominal nations may still exist, but with open borders, people will have greater
understanding of other cultures. This may not guarantee peace, but it will
certainly encourage it.

DECLARATION OF COMMON LAW

DEFINITIONS

This declaration of common law is believed to approximate the ideal bill of rights to ensure the maximum happiness for the maximum number of individuals in a society. Individual happiness is determined by the freedom to pursue those goals that the individual believes will make him happy without infringing on the pursuit of others to maximize their happiness. The possession and protection of
property is crucial to the pursuit of happiness because without property there is no incentive to improve resources and great incentive to exploit the resources. This declaration is
a supercontract in that it applies even to individuals who do not subscribe to its tenets and therefore may compete with other declarations of common law.
The author expects individuals to subscribe to this by virtue of its sustainability and inclusiveness, as well as
the happiness and wealth that it gives to its subscribers.

1. individual: any rational being capable of entering into a
   valid contract.
2. aggression: acquiring or damaging another individual's property without a (explicit or implied) valid contract
3. coercion: the threat of aggression or aggression itself
4. signatory: signer of a contract
5. enforcing authority: the party specified in a contract that will resolve any conflict according to the punishments set out by the contract
6. (valid) contract: an agreement between two or more individuals by which property is exchanged with
1. consent of all signatories, including the enforcing authority
2. stipulation of plausible self interest of all signatories, including the enforcing authority
3. stipulation of the punishment of signatories for not honoring the contract
4. stipulates no coercion against any non-signatory
5. signed without coercion (the contract itself will generally specify aggressions against all signatories)
6. truthful representation of the identities of all participants and facts either expressed or implied by the contract
7. documentation of contract as required by the enforcing authority
8. documentation of identity and consent (insignia of all individuals involved in the contract including that of the enforcing authority) of the signatories as required by the enforcing
   authority
7. (valid) association: any collection of individuals that creates a binding document with
1. 100% consent of the members
2. does not prevent any of its members from leaving the group
3. restricts the contract to the property of individuals that agree to the contract
8. scarce resource: any resource that is not in unlimited supply or for whom ownership by one individual precludes ownership by another
9. authority: a third party that all parties governed by the contract agree to have enforce a contract
10. owner: one who is named in a contract as having control over a property
11. property: a scarce resource that was obtained by valid acquisition
12. arbitrator: an individual or association endowed by all participants in a contract with the power to
    resolve a dispute between themselves
13. just compensation: a value of property equal to the costs of damages (including prosecution costs) resulting from the aggression of others as determined by an arbitrator
14. retaliation: aggression resulting from aggression designed to deter future aggression
15. escalation: obtaining or destroying a value of property in excess of seized or damaged property
16. violence: violence is a subset of aggression in which harm is done to another's body
17. conflict: an incident in which any number of individuals accuse other individuals of initiating aggression
18. peace: a state where all conflicts have been resolved and valid, non-conflicting contracts bind all individuals to each other
19. enforcing the peace: All individuals have an interest in not letting an aggressor profit from deliberate aggression because he may become emboldened to aggress against others. All aggressive actions will be judged by their ability to reduce further aggression without the aggressor profiting, once the victims have been compensated as much as possible. (The society may decide to either kill or isolate a violent aggressor.)

Axioms

1. Freedom
1. All non-aggressive behavior by or between any individual or association of individuals is allowed unless restricted by valid contracts.
2. Justice
1. Aggression between any individuals or association of individuals is allowed
   only if
   
   
   
   1. specified by a valid contract or
   
   
   2. as necessary to defend property from aggression.
   
   
   
   
3. Property Rights
1. property restriction: Resources that are not scarce are owned equally by every individual.
2. acquisition: Individuals may acquire property only by
1. birth: An individual's existence entitles that individual to exclusive ownership of the individuals' body and actions.
2. first use: Property that is unowned becomes owned by a living individual that first physically acquires or makes use of it.
3. valid contract: Exchange of ownership of property may occur only via prior valid contracts.
4. inheritance: Property of the deceased is no longer owned by the deceased, but passes to those according to the will of the deceased (to do otherwise would infringe on the right of the giver) if an explicit will does not exist, an implicit will is assumed to exist that passes the value of one's property to one's descendants in equal proportions.
3. imminent threat axiom: Any individual may act immediately to deter an imminent threat to one's property without dispute resolution. The dispute resolution process will be initiated after the threat ceases to be imminent.
4. Property Owner Responsibility
1. responsibility: All individuals are personally responsible for any damage to the property of others that results from their property, bodies, and/or actions.
2. anti-establishment: No individual shall submit to an authority that the individual did not personally authorize by contract.
5. Dispute Resolution
1. conflict resolution: any conflict between signatories should first be resolved by
1. just compensation
2. contracting authority,
3. an arbitrator,
4. jury trial by arguing one's case before third parties interested in and capable of enforcing the peace
2. de-escalation: Should an individual initiate an act of aggression without a valid contract and the resolution have already passed beyond the contracting authority and arbitration stages, then any response to that aggression in excess of compensation shall be judged by the self-appointed enforcers of the peace by its serving to reduce the incentives for further aggression.
6. Associations
1. voluntary association: Associations may be formed by valid contract.
2. society: No association is allowed a right or privilege not granted to an individual.

Corollaries

1. non-aggression: exchange of ownership of property may occur only via prior valid contracts.
2. non-legislation
   of morality: It is unwise to impose one's belief systems on another
   because this will necessarily reduce the universality and acceptance of
   these axioms. Most beliefs that are commonly held result from genetic
   "morality" such as the prohibitions against incest, orgies
   (disease transmission), taking psychoactive drugs, and eating rotten or
   diseased food. The prevalence of such practices will necessarily be
   low without moral legislation; otherwise, such individuals will not be able
   to compete on the market. Libertarianism minimizes the amount of aggression
   by eliminating majoritarianism, i.e., the belief that any law goes as
   long as the majority of individuals approve of it. Majoritarianism frequently
   conflicts with all of the other principles and makes morality irrelevant
   because morality requires that you have the freedom to act in an
   immoral manner.
3. no-excuse: Religious beliefs or mental health do not excuse adherence to these axioms.
4. property ownership axiom: All individuals are owners of all of their legal
   property to the extent specified by the valid contracts by which
   their property was obtained.
5. compensation
   axiom: An individual may obtain just compensation from an
   aggressor with or without the consent of the aggressor
6. copy restriction: copies of an original are the property of the copier
7. information
   freedom: Information is not a scarce resource and therefore is
   owned by all that obtain the information. One may charge a fee for the collection, organization, or
   dissemination of information.
8. non-aggression: right to engage in any non-aggressive behavior (derived from freedom axiom)
9. identity ownership: All individuals are exclusive owners of their identities (persons), misrepresentation of identity in a contract voids the contract and damages may be assessed by the enforcing authority of the contract.
10. thought ownership: All individuals are exclusive owners of their thoughts (Follows from being owners of their brains and their actions (thought = action of the brain)
11. life ownership: All individuals are exclusive owners of their lives (Follows from being owners of their bodies and their actions (life = action of the body)
12. individual responsibility: Individuals are responsible for their actions (Action Ownership + Responsibility)
13. right to truth: the exchange axiom implies that any contract formed on false pretenses is invalid
14. no eminent domain: The compensated aggression axiom means that sellers must initiate sales. Eminent domain is forbidden. This also means that polluters can only pollute if allowed to by all of the victims.
15. right to defense: all individuals have a right to take any measures necessary to protect themselves
    either individually or collectively as long as they do not violate the rights of others in doing so.
16. generational choice: No generation shall create an authority over subsequent generations. The authority must be recognized by the individuals of the subsequent generation because of the value of recognizing their authority. An authority's jurisdiction is limited to the contracts that they authorize.
17. consensual association rights: associations of individuals may be endowed with all of the rights of individuals,
18. right to discrimination: any voluntary association may discriminate on any basis
19. associations will possess no rights that our not granted to individuals
20. Preemptive defense is forbidden.
21. Punitive damages shall not be awarded.
22. Right to agree to an arbitrator.
23. Third parties may require unique identification of its members.
24. All individuals are exclusive owners of their speech.
25. All individuals are exclusive owners of their actions.
26. Coercively limiting speech is aggression; however, an arbitrator may assess damages resulting from false speech.
27. Free speech is a corollary of free exchange between individuals.
28. right to know: supercedes any other right to nonaggression, no damages may be assessed. No liability should be attached to the expression of ideas.
29. Escalation of aggression is aggression. De-escalation is not aggression.

Involuntary Associations (Government)

Whether involuntary associations should exist is debatable, but if they do exist they possess additional restrictions as compared to voluntary associations:

1. Involuntary associations should discriminate only on the basis of
   performance and should have no barriers to entry, advancement, or exit.


2. Free mobility, all public employee positions must have open hiring and
   firing policies.


3. Forced association, public employees can choose coworkers only dependent
   on bureaucratic criteria.


4. All government operations must be transparent.


5. There must be checks on government power.


6. The branches of government must be independent.


7. No government officials shall receive respect not accorded to individuals.


8. No laws shall refer to specific groups.


9. All information collected by government must be made freely available.

The war in Iraq was a breach of contract given by the Congress to the president because the facts were misrepresented.

To whom does property of the deceased go when there is no estate or will? Property is divided among children, when they exist, or sold, and the profits divided equally among the next surviving generation.

In fact, there are no human rights that are separable from property rights. The human right of free speech is simply the property right to hire an assembly hall from the owners, or to own one oneself; the human right of a free press is the property right to buy materials and then print leaflets or books and to sell them to those who are willing to buy. There is no extra "right of free speech" or free press beyond the property rights we can enumerate in any given case. And furthermore, discovering and identifying the property rights involved will resolve any apparent conflicts of rights that may crop up.

The current Federal Government is not legitimate because its acquired powers have exceeded what was given to it in its charter (initiating contract). The institution should be dissolved.

We Are All Socialists Now

Prenazi Germans faced a lovely choice between Communists and Nazis. The communists were left socialists and the nazis were national socialists. It is exactly analogous to the current choices for the United States presidency:

democrats = left socialists
neocons = national socialists

In the end, whether the socialists nationalize the economy via environmental laws, "monopoly" busting, mandatory social insurance, and labor regulations or via restrictions on lawsuits (attacks of property rights), anti-terrorism licenses, morality laws, sub-market interest rates, and aggressive theocratic wars makes little difference to the wealth and freedom of Americans. It also makes little difference whether these programs are paid for by taxation, tariffs, or inflation. These socialists' programs result in distortions of the economy and more money flushed down the toilet of government bureaucracy. Furthermore, both parties want to reinstate the draft to maintain the debilitating American empire.

When I was a progressive, I viewed libertarians as selfish and unsympathetic to the plight of the poor and religious fundametalists as primitivistic, scientifically-illiterate, self righteous, authoritarian nut cases. (OK, so I was wrong about libertarians, and I have even met some reasonable fundamentalists.)

I have always feared the Christian Right forming a militant, messianic theocracy. (And, sure enough, it did happen with George W.) Studying the ethics of property and contract, libertarianism opened my eyes to the reality that those socialistic redistributionary schemes were both unethical theft and dangerous ways of empowering a centralized government, which is now the biggest threat to our freedom, security, and prosperity.

Jumapili's Web Apparitions

Excellent!

A Thoroughly Modern Monetary System

 

A monetary system
may use banks, gold storage  vaults, coins, magnetically-stripped plastic cards,
smart cards, or bills, but these are
only various means to an end: a convenient, reliable, transparent
and secure way of accounting what all of
the participants of the system owe or are owed to all of the other participants
of the system. Note that barter has none of these desirable attributes.  This credit-debit information can be either communal or
maintained by a "trusted" third party. In a modern system,
it is usually combined with other information such as uniquely identifying
the participants and of rating their integrity and ability to repay and security
codes.

Indirect Exchange

There are many ways of getting things from someone from
whom we have nothing to give that he directly values; however, only a few these
ways are both ethical and universalizable: 

1. 
   

   IOU: personal  debit document dependent on your good faith
   and ability to repay



2. 
   

   contractual IOU: legally-binding personal debit
   document (personal check, debit card) 



3. 
   

   3rd-party IOU: a gift
   certificate that is honored by the issuing authority. This is of moderate value
   because they may not be selling an item of interest.)



4. 
   

   pooled IOU that
   can be used with millions of other vendors (This is of the highest value because
   someone is bound to have an object of interest.) Rather than thinking of a fiat
   currency as a legally-backed government creation. The most productive conception
   of it is as 3rd-party pooled IOU, where everyone agrees to honor it because they
   are honoring the work of participants in the system, knowing that they have an
   interest in maintaining the system because they are a participate in the system. This ensures that others will honor the currency when it is
   their turn to be buyers. 

The only legal backing that a established fiat currency
requires is contractual backing. A good currency system will minimize the amount
of enforcement necessary. An established fiat currency is so robust that the
only method of destroying it is to produce too much of it too fast (price hyperinflation). While
government may establish laws favoring "their" currency (the New York
Bank monopoly currency), these laws are not the primary reason for the success
of these currencies. Rather, it is their near universal acceptance for payment
that gives these currencies life. No law requires anyone to give anyone else anything for
their fiat currency. Yet, people do it gladly as members of an economic
system.  Legal tender laws are unenforceable because no one can
claim that you refused to sell because of the currency and not because you the
price was unacceptable or that you simply did not want to sell. Furthermore, legal tender laws only apply to debts, but a debt does not exist until a
contract is made. Suppose a contract stated that one would owe 50 cuid at the
end of the month if one agreed to the service. If one refuses, $ 1000 for the
service one would have to know the exchange rate between cuid and dollars to
determine whether the collector was refusing the dollars as tender for debts.
Perhaps a cuid does not have a definable exchange rate with a dollar. 
Furthermore, legal tender laws do not prohibit one from not accepting bills even if
one accepts an electronic transfer of  virtual dollars. 

Debit System

Debt Notes 

If one generates debt notes, then they must reside
with the seller because the buyer would have no incentive not to destroy them.
Anyone could grab as many debt notes as they want, but sellers would want to
make sure only that the buyer has direct assets for which they can legally force
the debtor to redeem their notes at any time. Note the similarity to a gold
based system, but with the benefit that the assets do not have to be held in
escrow, they can be used until claimed. This disadvantage is that there is no
third party guaranteeing that the debtor has sufficient assets to cover his
debts.

Debt notes could be generated by any number of debt
note authorities; however, the debt note authorities must pool their information
(just as credit agencies do) because a debtor could have debts from several
different authorities, meaning that the apparent value of one's assets from the
directly valued objects one possess may have virtual liens on them. This would
mean that one could extract debt notes equivalent to many times the value of
one's property. Another option is to create a debt note monopoly, so that no
debts are honored except those from a single entity; however, this would entail
the same moral hazards that arise any time a debt monopoly exists.  Debt
notes must positively identify the debtor. (With credit cards this is done by
signing a piece of paper. A credit card is simply a positive identifier for an
issuing. The debt note is the merchant copy of the signed credit card receipt.)
Everyone wants to hold debt notes with other's names, but do not like having
those held by others. 

Debt may be held by a third party. The debit card industry
uses this system. (Amex, ...) One does not have to worry about multiple liens
against one's property or information sharing. The issuing bank of a debit card
is always the same as the saver's bank. The transaction is not authorized unless
the funds exist. The funds may be denominated in either a fiat currency or in a
precious commodity  (eGold, ePlatinum, etc).

Another alternative is to generate credit notes (such
as dollars). Credit notes will be passed from the buyer to the seller. All
entities have an interest in holding credit notes as long as they are honored by
sellers. Credit notes do not have to mention the creditor. Credit notes can be
generated by multiple authorities with each one promising to honor his
particular credit notes. In the past this was done by independent bank deposit
notes. Credit notes that only specify to give the bearer of the note a
particular quantity of a directly valued object (gold, for example) encourage
theft. Credit notes that only give credit to a positively identified bearer (travelers
checks) discourage theft, but do require a processing fee.  

It is also feasible to have a mixed system debt and credit
notes. In this case, every time a debt note is created a corresponding credit
note is created. To have the nicest symmetry, the seller should keep the debt
note; however, he has no incentive to do so. The debt note would be kept by a
third party credit agency. The credit note would circulate until it
reached the original debtor who could give it to the credit agency who would
eliminate both. 

Let us define a currency in terms of the modern service that it would provide
in a world without a state-sponsored currency, rather than in historical terms.
Historically, currencies started as commodities in and of themselves (gold and
silver coins with an authority figure guaranteeing their weight). This created
the temptation (moral hazard) of the authority figure cheating on the weight.
Since the authority (monarch, Caesar, etc) had a monopoly on the currency, this
was too much of a temptation. Moral hazard exists in a market economy, but
when someone cashes out his integrity, the market can realign itself. 

During the banking era money was essentially a tradable
deposit slip consisting of contracts to receive a specific quantity of a
commodity: gold, silver, etc from specific banks in exchange for them keeping
the gold safe. When people started making claims on their contracts less often,
there was a temptation on the banks to loan out the money, even though that was
a breach of implied contract. The banks justified this be claiming that they
could get the money back if the depositor ever claimed it. As an added incentive
to depositors, they would give a small percentage of interest. 

Of course the claim of recoverability of funds could no longer be
guaranteed because those being loaned the funds may run off without paying back
the banks or may be unable to repay the loan because of a miscalculation or
unavoidable loss. If the depositors should recall their deposits (savings), then
the bank may go bankrupt. In addition, banks had the temptation of writing
contracts that were supposedly backed by gold, but were not fully backed by deposits. (Today this is a
routine practice, banks are only required by the Federal Reserve to have 10%
reserves.) The lower the reserves that a bank held, the more easily it could go
bankrupt if depositors ever asked for their directly valued commodity
back.  Now the banking system is so corrupt that the Fed will just print up
the money that is required and give it to the
banks, devaluing the currency that was supposed to be convertible to a specific
quantity of whatever commodity was initially deposited (usually gold). (The Fed
only requires 10% reserves.)

This history has led many Austrian economists to say that we must backtrack
and require 100% reserves and convertibility to gold. Requiring 100% reserves is
no more than requiring honesty. Requiring convertibility to gold is only a requirement
based on the original contract that explicitly or implicitly stated that one
would be able to obtain a specific weight in gold upon demand whenever the bank
was open. Of course, a bank can store any valued commodity and this should be
redeemable at any time.

As banks consolidated and trust in the remaining banks grew, people realized
that it was more convenient to trade bank deposit slips than even denominated
gold. A purely contractual currency had been born, (backed by
frequently-misplaced faith in large private banks) which was not
the original intent of banking: a safe deposit for one's
precious commodity. In time the banks consolidated to the point that a
consortium of banks sought a single monopolized currency. Indeed modern currencies are so useful that the only way
that they are destroyed is by their excessive overproduction, which necessarily
leads to hyperinflation. 

A modern currency does not require legally forcing people to accept it;
however, a monetary system does require legal enforcement of its
contract. In
any private monetary scheme, the contract should be made explicit. The federal
government commands 40% of the economy that if it were to refuse dollars as
payment and favor some other currency, the dollar would cease to exist as a
viable currency. A
contract that says if I do x dollars of value-added service for people w,z,f,
then you will do a composite value of service for other individuals with whom I
will trade indirectly.  Anti-counterfeiting measures are a part of this
legal contract. The artificially lowered interest rate is a breach of the social
contract implicit in money. When the breach of the social contract is
sufficiently egregious, the currency will cease to be viable. 

Features of a Good Currency

		Direct Commodity Exchange	Banked- Commodity-backed Notes	Scam Notes	IOU	Credit Cards	Debit Cards	Transparent Crecit
Examples		Gold Coins	Gold-backed Notes	Dollars	Personal Check	Visa	ATM/eGold	(quid)
Convenience	Portability	4	5	50	6			9
	Durability
	Universality
	Stability
Security	Verifiability
	Counterfeit Protection
	Transparency
	Accountability
	Exchangeability
	Integrity
	Identity Protection
	Brokerage
	Legal Protection
Cost

Moral hazards: 

A true debit system has commodity assets banked at a central location. A
modern "debit" system simply has dollars (credit notes that say that
you have done so ) banked at a location. Credit systems have the following
issues: 

1. not accounting for depreciation of assets, 


2. multiple lines of credit backed by the same set of assets (appraisal does
   not help)

Debit systems have the following issues:

1. The commodity bank will sell off communal assets (Current dollar system)


2. System of claims may never get cleared. 


3. The commodity bank incurs costs related to storing, accounting and
   protecting the communal commodity. 

The transparent monetary system reduces moral hazard by
distributing massive amounts of account information among the participants in
the monetary system. By being voluntary,  everyone can see
everyone else's debits and assets and assess their ability to repay.

Everything to the right of direct gold coins, consists of promissory notes.
One does work for nothing until one sells them off. It is at that point that the
promissory contract is closed.  If a monetary system has integrity, the
particpants in the system will voluntarily labor in exchange for promissory notes.  TETS Transparent Electronic
Transaction System is a proposed improvement over other currency systems. Like
ATM and Credit Cards monetary units would be electronic; however, it would have
the following innovations that would leverage the ability to handle large
quantities of information:

1. All currency units would be enumerated (just as all dollar bills are
   enumerated). 


2. All participants are enumerated when they join the currency system.
   Biometric and contact information is collected and made public to all
   participants, including other brokerage firms. A default credit rating is
   assigned and a user password created.


3. Participation may also require buying a minimum number of cuids
   from a central issuing authority or the bank. The bank sets
   the currently accepted exchange rate, records and publishes a foreign
   exchange transaction. As far as the ETS is concerned the cuids are
   created de novo. This constitutes an expansion of the ETS
   economy. 


4. A participant agrees to honor all cuids.


5. The ETS would promise never to sell, loan, or invest the deposited assets
   and would not issue interest in cuids. The central authority's mission would
   be to stabilize the value of the cuid by not issuing any that are unbacked. 
   Deposited assets may include durable goods. Cuids may also be issued against
   assets that the participant agrees to have seized, if one's account balance
   should fall below a certain level.  The cuid bank does not own
   deposited assets, assets are supposed to be held in escrow. 


6. A participant who leaves the system must receive a fiat currency of the
   same type that was deposited at the exchange rates at which the funds were
   deposited in exchange for CUIDs that he possesses minus a pre-agreed
   upon transaction fee. (Because brokerage firms are forbidden from investing,
   it would not be feasible to give the funds at the current exchange
   rates.)  Any brokerage firm that is unable or unwilling to refund the
   amount deposited will have its assets seized and the brokers will be jailed
   and barred from continuing as brokers. (Real monetary deflation (as opposed
   to price deflation) in a fiat currency would destroy the ETS, but that has
   never happened. )


7. A brokerage firm is chosen that validates the transaction and that is
   obligated to act as an arbitrator should there be a dispute.


8. A transaction consists of the following:
   
   
   
   1. The buyer and seller agree to a transaction and a brokerage firm
      (eVisa, eMoney, ...)
   
   
   2. The buyer and seller IDs and quantity of the transaction are
      transmitted to the broker.
   
   
   3. The broker inspects both public available files and, if he accepts the
      transaction, proposes a (small) transaction fee.
   
   
   4. If the participants accept the fee, the broker must record and publish
      the following information:
      
      
      
      1. A unique transaction identifier assigned by the broker (that might
         roll over at, say, 1 trillion transactions),
      
      
      2. the buyer and seller IDs (either of which may be institutions),
      
      
      3. a list of the currency units that are transferred:
         
         (broker ID-transaction ID), BuyerID, SellerID,
         CUID#1,CUID#2,CUID#3,..... 109834-70983, 098787634-129384985,
         895-123-498-943,
         895-093-840-102,895-120-394,895-123-948,987-130-989-858,....
      
      
      
      
   
   
   5. Once a brokerage firm asserts that a transaction has taken place, the
      currency units enumerated are deleted from the memory card of the buyer
      and added to that of the seller.  This information must also be
      made publicly available. Brokerage information is updated immediately on
      the computer systems of the brokerage firms and is updated periodically
      on everyone's information devices. This helps to prevent theft and one
      can also trace the flow of any give currency unit.
   
   
   
   


9. Transaction disputes are settled by brokers. If necessary, independent
   arbitrators. Finally, by public courts.

(The "buyer" is the buyer of a commodity and a seller of
currency units.)

• Portability: The unit of currency or information should be easily
  moved around.


• Durability: The information of the participants should not be
  easily lost.


• Verifiability: all transactions are enumerated and trackable by all
  participants


• Accountability: One's monetary assets and those of all other
  participants of the system should be known as well as why they have those
  assets, not just the total. Each individual assets should be Every exchange
  of assets should be known.  This prevents theft. Nonmonetary assets
  cannot be known exactly because value is created de novo.


• Transparency: All users of the system should have easy access to
  where the currency is and who produces it. In the cuid system this is done
  by publishing and dissemination of information files to stored info cards.


• Universality: The currency system should be accepted by as many
  people as possible.


• Exchangeability: The ability to convert the currency into other
  currencies with minimal transaction costs. No legal restrictions or barriers
  should be placed on its conversion.


• Integrity: The integrity (credit) of each of the participants
  should be rated if and only if this is important for establishing intention
  to pay. These credit ratings should be available at no cost. 


• Incorruptibility
  
  
  
  • Security
    
    
    
    • Counterfeit Protection: ideally the currency should not rely on
      the integrity of a monopoly authority. If bills are issued, these
      should be difficult to forge.
    
    
    • Brokerage: consumer, seller protection transaction Brokers should
      not be biased to either the buyer or seller.
    
    
    • Identity Protection: Either biometric or security code based
      identification as the proper owner of an account.
    
    
    
    
  
  
  • Legal Protection: Those who do try to corrupt information
    such as the amount of currency owned, transactions that did not occur or
    were not mutually satisfactory, or one's credit ratings should be
    punished appropriately. All legal protection can come under the
    miniarchist rubric of contract violation.
  
  
  • Stability: The currency should not depreciate as a result of
    government counterfeiting money. This makes savings more difficult.
  
  
  
  


• Cost: The total cost of the currency system should be as low as
  possible while maximizing the other features.

Why would someone want to use the cuid system instead of trading in dollars?

Because of all of its great transaction features. It would also allow
competition for trust. Not trust in a monopoly authority.

What is to prevent the cuid bank from lowering the value of the cuid to
expand the cuid economy at the expense of those participating in the cuid
economy?

cuid price = e * d

The cuid value of an object is the product of an exchange and a dollar price.
Imagine the exchange rate e = 1 and the interconvertibility with dollars does
not involve any exchange penalty. In that case, users of the cuid economy would
not even realize that they are using a different currency. Users of the system
would conceive of the system simply as another payment scheme with added
security and convenience features. People would be satisfied to trade their
dollars for cuid, resulting in an expansion of the cuid economy. 

How would the currency be decoupled from the dollar?

If the currency is supposed to be non-inflationary, at some point it would
have to decouple from inflationary fiat currencies, such as the dollar. The
central issuing authority 

Unlike the FED, if the central authority is irresponsible in its production
of cuids, participants will balk and other currencies will be used. Cuids should
only be issued for deposited cash or verifiable declared assets.  The
system acts as a shelter from government inflation (just like an interest
bearing long-term account at a bank). The system also offers transaction
services. 

The cuid economy could expand slowly because participants would have all of
the other benefits conferred by the system. Fast expansion of the cuid economy
by the bank placing a very low value on the cuid would be unfair to cuid
participants who respond slowly to cuid monetary policy. The participants could,
however, leave the economy.

One can think of the cuid system as a currency that is coupled to the dollar,
but only according to some formula that seeks to boost the cuid. Like any other
currency there would be a natural exchange rate dependent upon the previous
exchange rate and whatever expectation there is that the currency issuer
(central bank) will be responsible and not over-issue the currency. Central
banks know that by printing up a lot of bills they debase the currency making it
attractive for people to buy an item with newly created currency; however,
exchangers try to anticipate the eagerness of the central banks to do this and
therefore lower the exchange rate of the inflating currency. 

The Progressive Peacenik Myth

I am in almost total agreement with this article. The distinction between liberals and neocons is apt: "Left is indeed willing to use military force after all, just so long as no discernible American interest is at stake." This might be OK, if the record of liberal wars (Vietnam, Korea, Somalia, ...) were not so apalling.

The article points out that the neocons can cleverly use the leftist (Wilsonian) position as a fall back: "We did it for democracy, freedom, and the children." How closing down dissenting publications and replacing one vicious pawn of the US within another brings democracy and freedom and how killing the children supports them requires some twisted logic. Obviously, there is a non-intervenionist (peace-loving) left, just as there is a non-intervenionist conservative tradition.

It is interesting that the majority of Americans now oppose the Iraq war (and would have always opposed the war had they not been lied to about the threat that Iraq posed), but the mainstream of both political parties continue to support the intervention.

Possible silver lining: Will Edwards make some tepid criticism of this latest foreign-policy fiasco?

Hussman Funds - Why the Federal Reserve is Irrelevant

The Federal Reserve is irrelevant. We don't just mean ineffective, though that is certainly likely to be true here. Rather, because of a change in the application of reserve requirements over the past decade, Fed actions have virtually zero impact on lending activity in the U.S. banking system.

Who controls the reserve requirements? The Fed. Yes, this is the primary mechanism of growing the money supply. I would hardly say that the power to dictate reserve requirements is "irrelevant".

The main job of the Federal Reserve is to determine the mix of government liabilities held by the public. When the Fed "eases monetary policy" or "cuts interest rates", it accomplishes this as follows. The Fed goes into the open market, buys a bunch of Treasury securities from banks (who have drawers full of them), and pays for them by creating new bank reserves.

The "public" does not hold government liabilities. Only misguided investors who have been told that they are "safe" (as in a safe way to lose money by having it appreciate slower than inflation) and banks (which are a part of the Fed) hold government securities. In days of yore, the banks would have held something of intrinsic value to more people, gold.

Pull a dollar bill out of your wallet. Look at the very top line on the front. It says "Federal Reserve Note." That dollar bill is essentially a liability of the Federal Reserve. The Fed also has a corresponding asset - the Treasury securities it buys.

Treasury securities are far from universally viewed as "assets". Indeed, in a free market would any rational person purchase an asset from an entity with massive debts and no credible plan of repaying the debts. If the banks were not part of the federal government - federal reserve -banking complex, why would they not purchase a mix of other assets?

When the Fed "cuts interest rates", what it is really doing is replacing one government liability held by the public - Treasury securities - with another government liability: currency and bank reserves (monetary base). That's all the Fed does. It determines the mix - but not the total amount – of government liabilities held by the public. Since the operations of the Fed are executed by buying or selling securities on the open market, the group at the Fed responsible for these decisions is called the Federal Open Market Committee, or FOMC.

Virtually all of us use dollars (for their virtues as a medium of exchange and store of value (albeit somewhat depreciating)), few of us are interested in investing in federal government. Thanks to the Fed we have no choice.

Banks are required to hold reserves as a percentage of all checking accounts outstanding. These reserves prevent overdrafts, and provide for day-to-day withdrawals of currency and the like. On any given day, some banks will have a reserve shortfall, while others will have excess reserves. These excess bank reserves are lent back and forth between banks on an overnight basis, at an interest rate known as the Federal Funds Rate.

Yes, the Federal Funds Rate is free market rate.

Essentially, the Fed lowers the Federal Funds rate by purchasing Treasuries from banks and increasing the "monetary base" - bank reserves plus currency in circulation. The only thing that the Fed can control with certainty is the monetary base.

That is a lot! The print up money (federal reserve notes) out of thin air to "buy" worthless Treasuries. This is just a subsidy to the Federal Government because no rational person would buy Treasuries that were not bolstered by the Federal Reserve.

Alternately, it can try to control the Federal Funds rate (and passively adjust the monetary base by whatever amount is required to keep Fed Funds on target).

Who makes the "target"? The Federal Reserve Board!

However, the Fed cannot control the Federal Funds rate with certainty. For example, if inflationary pressures were high and interest rates were moving up, the Fed could not predictably lower the Fed Funds rate by easing monetary policy.

Why not?? As evidenced by Japan's FR, interest rates can be driven to zero.

Not surprisingly, central banks always target money growth, not interest rates, when inflation is high. That's why Volcker targeted money supply, while Greenspan targets interest rates. But ultimately, the only thing that the Fed can directly control is the monetary base.

The two are related.

The "money multiplier" loses its magic.

Alright. So when the Fed is easing, it increases the monetary base by purchasing Treasuries on the open market. When the Fed is tightening, it reduces the monetary base by selling Treasuries on the open market. Now that we're clear on what the Fed does, let's take a look at why it is irrelevant.

Activist monetary policy is based on the assumption that there is a predictable relationship between bank reserves and bank lending. The operative notion of easy money is that the Fed creates new bank reserves, and banks lend them out. These loans get spent, and the proceeds get deposited at other banks as new checking accounts. Whatever is not required to be held as reserves is then lent out again, and through the magic of the "money multiplier", loans and bank deposits go up by many times the initial injection of reserves.

That's the theory. But a change came in the 1970s with the emergence of money market funds, which require no reserve requirements. Then in the early 1990s, reserve requirements were dropped to zero on savings deposits, CDs, and Eurocurrency deposits. At present, reserve requirements apply only to "transactions deposits" - essentially checking accounts. The vast majority of funding sources used by banks to create loans have nothing - nothing - to do with bank reserves.

These days, commercial and industrial loans are financed by issuing large denomination CDs. Money market deposits are largely used to lend to corporations who issue short term commercial paper. Consumer loans are also made using savings deposits which are not subject to reserve requirements. These loans can bunched into securities and sold to somebody else, taking them off of the bank's books.

Once again, the Fed is responsible for reserve requirements. There is no reason why they could not require 100% reserve requirements for all deposits.

The point is simple. Commercial, industrial and consumer loans no longer have any link to bank reserves. Since 1995, the volume of such loans has exploded, while bank reserves have actually declined . Look at the one monetary aggregate that the Fed can directly control - the monetary base. Every bit of increase since January 1994 is accounted for by currency in circulation, not bank reserves.

Over the past year, the Fed has eased very aggressively, buying about $32 billion in Treasuries, with a corresponding $32 billion increase in the monetary base. Now look closer. Total bank reserves actually declined by $1 billion while currency in circulation has increased by $33 billion.

So they should tighten reserve requirements.

Alan Greenspan isn't the "Maestro". He's Oz - working behind the curtains, leaning into the microphone, pressing buttons that blow smoke and fire, but not really having much power at all. Scarecrow already has a brain. For the past several years, commercial and industrial loans and consumer credit exploded quite simply because rabidly eager borrowers were able to find rabidly eager lenders.

Greenspan is more like the a bumbling giant. You make a good point that reserve requirements are much more important than money supply; however, the FRB controls both! Due to these controls Greenspan has complete control of the banks to lend money.

And now, both forms of credit (as well as commercial paper issuance) are declining because borrowers are saturated with debt and lenders are increasingly skittish of credit risk.

This is unsurprising because the FRB is threatening to increase interest rates.

The Fed certainly played an important psychological role in recent years, and certainly has a role to play during bank runs and other crises where the demand for monetary base soars. But the rest of the time, open market operations are almost completely sterile.

So the 20% annual increase in housing prices is "sterile"?

In recent years, the irrelevance of open market operations has also been argued (for slightly different reasons) by academic economists renown for their work in the theory of “rational expectations”, including Thomas Sargent and John Muth.

Inflation follows unproductive government spending.

One might respond that even if the Fed doesn't affect credit, surely changes in the monetary base affect inflation. But if you look at the statistical evidence, the relationship between monetary growth and inflation is very weak.

Monetary growth = inflation. Your research must be based on a thoroughly debunked CPI.

Instead, our research indicates that inflation is primarily the result of growth in unproductive forms of government spending (basically entitlements and other expenditures that fail to stimulate the supply side). The evidence both from the U.S. and other countries clearly demonstrates this relationship.

All forms of government spending are unproductive relative to business spending in competitive markets. Growth in government spending which does not cost citizens as overt taxation results in hidden taxation in terms of inflation.

As Milton Friedman has noted, the burden of government is not measured by how much it taxes, but by how much it spends . The impact is particularly severe when growth in entitlements is high and growth in productivity is low. This is why inflation exploded after the late 60's, and why it came down after the early 1980's. This is why the Germans suffered hyperinflation after World War I when its government decided to keep paying workers who had gone on strike.

True enough.

Always and everywhere, rapid inflation is produced by excessive creation of government liabilities without a corresponding increase in the amount of goods produced by the economy. The Fed doesn't control this.

No, the fed does not control the amount of government liabilities offered for sale, but they do not have to buy those liabilities, which bolsters the federal government by making federal securities appear to be attractive investments. In other words, they do not have to create inflation by monetizing the debt.

Except for the Federal Funds rate, the Fed does not determine short-term interest rates. Most of the time, it simply follows them. Statistically, the Federal Funds rate consistently lags market interest rates such as Treasury bill yields. Indeed, changes in market rates have far more predictive power to forecast the Federal Funds rate than vice versa.

Ahh, but does it lag Greenspans hints of the direction that interest rates will go? Furthermore, why should Greenspan bother to track rates that he does not control?

So don't place too much faith in the Federal Reserve. Again, in a banking panic, where the demand for the monetary base soars, the Fed is essential . But here and now, the Fed is, and probably will be, hopelessly ineffective.

It is not that I have faith in the Federal Reserve. It is that I correctly recognize that the FED has almost complete control over interest rates.

In his recent testimony to Congress, Alan Greenspan described his job as difficult. In our view, he might as well have quoted Prime Minister Giovanni Giolitti. When asked in the early 1900's whether it was difficult to govern Italy, Giolitti replied, “Not at all, but it's useless.”

I wish that were true.

Morality is Subjective

 
True morality (as opposed to authority-coerced "morality"), like economic values or taste, must be subjective (or must have subjective premises).  Because if it is not subjective, one cannot truly believe it. Instead one's expressed morality is no more than lip service. One believes assertions, when one either senses it directly, or has a model of how the world works in which that assertion is a part. (A trivial model would be a mental universe in which the messenger of the assertion would not have a motive to lie about the assertion.) Moral premises, on the other hand, are not based on sensory input, but are  extrapolated from innate disinclinations, culture, etc.

Stalin may have done what he did because he was sadistic, nihilistic, fatalistic, idealistic, power hungry, or many of other reasons. That someone finds what he did wrong, is a conclusion based on the individual's indisputable ethical premises, which may or may not involve an assessment of the mental state of Stalin when he ordered millions to their death.  To be able to convince you that something is wrong, I must know your premises (such as, "Humans have an ethical obligation to refrain from behaviors which inflict suffering upon other sentient beings." or "Guide your life by compassion."  (buddhism) or  "If it feels good, do it."(hedonistic) or "Treat others as you would have them treat you."(Christian) or "Maximize the social good." (socialistic, Dr. Spock) "Don't coerce others." (libertarian)), but I cannot argue with your premises because they are subjective. To put forth an argument that resonates with me; however, you would need to know or presume my premises.

Just as there is no objective economic value of a particular thing (only objective selling prices), there is no objective morality (only objective expressed laws and customs (analogous to selling prices)).  If you have no moral first principals (premises) or at least an innate set of vague disinclinations from which to posit moral premises, then any moral argument is pointless. 
 

Surprise! War is Hell

The horror of war has always made good and wise men seek to avoid war at all costs. Whether the Iraqi prisoners were "tortured" or not does not matter.

OK. This is the stupidest thing I have ever heard. That people are tortured does not matter???!!!! Well, I suppose it will not matter if we torture you neocon scum! Does it also not matter that 90% of the incarcerated were innocent??

War is the RAF dropping incendiary bombs night after summer night on Hamburg while the American Eighth Air Force dropped explosive bombs day after summer day, until the second largest city in Germany becomes a vast molten firestorm filled with immolated babies and grandmothers.

Perhaps I should state the obvious since you are obviously an idiot: War is bad and should be avoided. Do not take as given that our fighting WWII was good or necessary. If we stayed out and Germany won, the world would be much the same, but we would not have sacrificed any American lives and would have better moral authority in the world. Stalin's power would have been checked by Germany.

War is the systematic sinking of all sinking in the archipelago Empire of Japan, until the millions of innocent Japanese doomed to starvation and the horrific living suns of Hiroshima and Nagasaki are tortures, but relatively merciful tortures, of countless children and other non-combatants.

Most critcal-thinking individuals have concluded that it was a moral outrage that we dropped atomic bombs on Japan, especially given that the war was essentially over by that time. Nuclear weapons are not exactly precision-guided weapons.

But war is not war simply because nations choose to fight or governments choose to fight.

What??? War can only occur when both sides choose to fight. It takes two to tango and two to fight. As if Bush did not choose to fight Iraq, which posed no real threat to the US.

War is the infliction of pain upon those whose pain will ultimately bring a surrender.

Who are we trying to get to surrender by torturing innocent Iraqis?

The idea of war as a legal concept is pure fiction. War is violence inflicted upon enemies or those treasured by enemies. This violence is not kind.

There are provoked, unkind, and de-escalating responses and then there are cruel, unprovoked, and escalating acts of violence. These are not subtle distinctions.

Coventry, Dresden and Tokyo were filled with children tortured to death from miles above. Was this unspeakable torture of innocents, per se, any better than the butchery of Japanese soldiers in Nanking in 1938 or the Red Army cramming millions of Polish Christians into cattle cars in 1939 and 1940 or the Schultzstaffel gassing Jewish mothers and children in death camps?

No.

Well, yes, it was better. Americans tried to use "pinpoint" bombing, which meant smart weapons.

Nuclear weapons are not pinpoint weapons and the conventional weapons used in WWII were horribly inaccurate.

The British had also tried that early in the Second World War, but abandoned that when it proved woefully ineffectively and prohibitively costly. The Japanese merchant ships sunk by American submarines had oil and raw materials essential for war as their priority cargo. If they had only carried food, American military power would have been redirected to other targets.

But there is a deeper difference that the reluctance of democracies to use terror and the eagerness of totalitarians to use terror than just the intention behind the means.

You have not demonstrated this at all. British treatment of Germans after the war was vicious.

It mattered not only to Brits, but to Frenchmen and to Dutchmen and to Czechs whether Britain or Germany prevailed in the Second World War.

Obviously, they were on our side.

There was a strategic morality to the democratic allies in the Second World War and in the Cold War. Indeed, not only was it better for Belgians and Danes that the Allies win, but it was better to the children and grandchildren of those horribly burned victims in Hamburg, Dresden and Berlin that their side lose and the other side win.

So that they could be slaughtered by the Russians.

So it matters to the Iraqi people that America prevail in Iraq, because America will create a better land for the Iraqi people than they have been able to create for themselves.

Is that why Iraqi makes comments such as "Saddam was bad, but life under the American occupation is worse."

Those relatives of the humiliated prisoners mistreated by Americans are better off if the Americans win than if Americans lose.

So that they can have the priviledge of being assaulted by American soldiers.

Acknowledging that fact, of course, is the great torture of all peoples who hold their own destiny in their hands and yet have failed to turn opportunity into hope.

Let's not give them what they want (freedom). Let's give them what we know is good for them. This hurts us more than it hurts you.

The torture that is violence and the violence that is war also has another moral dimension.

It is great fun to conflate: Torture is violence. Violence is War. War is a lesson. Lessons are acts of love.

Wars are not waged by men who know that they will unquestionably lose not only their life but the cause for which they are willing to die and to kill. Perhaps we should think less of Iraq today, less even of Operation Iraqi Freedom, less of Operation Desert Storm, and more of Operation Enduring Freedom - the liberation of Afghanistan from the Taliban.

Yes, let us not think of these previous fiascos.

America did not begin a war with Afghanistan.

Oh really, what would you call it? A "dance"?

The Taliban had been waging a war for years against the essentially helpless women and children of Afghanistan.

Funny, history says that the Taliban rose to power because of their defense of women against local warlords.

The incredible technological superiority of American power, combined with the exceptional training of American fighting forces, meant that the Taliban, who had with some good reason assumed that their landlocked stronghold in some of the wildest and most inaccessible terrain on the planet made them safe.

Seems they are doing just fine, especially Bin Laden. I suspect they will make a comeback after the Americans go away.

They guessed wrongly. America could have liberated Afghanistan with huge armies of troops rooting out Taliban and suspected sympathizers with savage fighting.

America, instead, used absolutely overwhelming and precise firepower with no regard to any political flak from any corner.

Without "political flak" we undoubtedly would have committed worse attrocities.

The torturing of the Taliban, the Nazis of Central Asia, ended quickly and with few casualties.

So you call 3000+ civilian casualties "few".

The money America spent on gold plated weaponry and an elite volunteer military cost us huge treasure, but the crime of the Clinton Presidency was not spending much, much, much, much, much more on weapons and training and bribery of foreign agents.

Do you just make up your "facts" as convenient; our weapons spending is at an all time high.

The pathetic excuse of spending money on "food programs" in a nation filled with fat, poor people; the lame argument that children and parents glued to inane television programs need more money for "public education" to learn; the nanny notion that better health care is needed for adults who take destructive drugs and indulge in dangerous pleasures - all this fraudulent "compassion" meant only more torture and fear to the women and children of Afghanistan.

You're right. I don't need my money. The goverment will make much better use of it by torturing innocent Iraqis, so that we can have more terrorists in the Arab world.

These torture victims, of course, could not vote for Clinton or Gore.

And they sure as hell would not vote for Bush.

That is what really matters to those who yelp today about the mistreatment of Iraqis who until recently had meted out incomparably more sadistic torments upon the women, children and other innocents of Iraq.

I repeat the Red Cross concluded that 90% were innocent. Picked up for yelling at a neighbor or because they were in the wrong place at the wrong time.

War is Hell - what a surprise!

So you support us torturing foreigners even though it has no strategic purpose? By the same token, Saddam could just say that he was in a civil war.

- and war is not a formal, legal or political process, but it is rather the infliction of violence and of tortures by one group on others. The way to minimize this is for those who hate war to be vastly strongly than those who love war.

The way to minimize this is to fire and prosecute Rumsfeld, suspend the budget of our war-waging machine, and punish the soldiers who perpetrate this.

This the sort of genuine government "investment" - the investment of oceans of tax dollars to prevent the torture, the destruction and the danger to freedom which war produces.

Let me see: The production of torture, destruction, and suspension of freedom is needed to end torture, destruction and promote freedom. Following your logic, the more that our military tortures and sodomizes, the more money that we should give them.

But preventing the Hell of War, with all its attendant tortures on all the innocent and guilty touched by war, requires those men who hate war to so arm, so train, and to so unite themselves that no evildoers consider, except in their grisly dreams, anything violent at all against the rest of the human race.

Black is white. Up is down. War is peace.

If we want to end war, mayhem, torture and destruction, then make certain that those who wish the human race torment, slavery and fear correctly perceive themselves as overwhelmingly weaker than those who wish peace, freedom and hope. There is no greater "investment" we can make. Any politician who pretends otherwise also believes the odious myth that Nazi Germany, one of the best educated, healthiest, wealthiest and most confident nations in history, would not have committed its unimaginable savageries if the Germans had only been a little more learned, a little more physically fit, a little more prosperous or had a bit more self-esteem.

Excuse me!! Germany was desperately poor and had constant class warfare when the Nazis took over. If they had been more learned about economics, they would not have embraced either nationalism or socialism.

Any politician who pretends that the good having overwhelmingly greater physical power and moral will than the evil is the only sure guard against war, genocide and torture is himself an unwitting Nazi and an unknowing Chekist.

Black is white. Up is down. War is peace. Peace lovers are Nazis.

The author may be right about one thing. On net, democracies may be less cruel than totalitarian regimes, but I will only believe it if we do the right thing and eject the current administration, prosecute the war criminals in the current administration, and slash our war machine budget.

Don't fear those rate increases

Knut Wicksell dialed in late last night to tell me not to panic over the imminent change in Federal Reserve rate-hiking policies signaled by Alan Greenspan's congressional testimony last week.

Wicksell was the brilliant Swedish classical economic philosopher who understood money and central banks as well as anyone in the profession. He died in 1926, but I am grateful for his communions across time and space.

Wicksell's monetary model is a simple one. When the central bank's policy rate is placed above the economy's so-called natural rate, then money is tight. When the rate is set below the economy's potential to grow and invest, then money is easy.

Define "tight" and "easy". Any time the money supply grows, the feds rate is above that of the "natural rate". This follows from the definition of "natural rate", i.e., the rate that one person or bank will lend real money to another, not money counterfeited from the Fed. The money market rate is a good measure of the "natural rate of interest".

Confirming this, commodity prices will rise or fall depending on central bank policy. Over the past year, the rise in commodity prices and the fall in the dollar have been signaling that excess money from the Fed has created a mild inflationary potential. That Alan Greenspan has apparently decided to remove some of this liquidity excess is a prudent decision. Expecting Fed restraint, gold plunged and the dollar surged in recent days, signs that virulent inflation is not in the cards.

We can easily tell the so-called natural rate today by observing the yield of the inflation-protected Treasury bond, which trades daily in the open market. The yield is currently just under 2 percent. Now, the central bank policy rate is the 1 percent federal funds rate.

This is low because of Asian buying of treasury bonds to bolster exports, but it approximately agrees with the money market rate.

Therefore, Greenspan & Co. can adjust their policy from one of substantial ease to something close to neutral with just three or four quarter-point rate increases in the remaining months of the year. They could begin at the open-market meeting next Tuesday.

It could well be that the economy's natural rate, which reflects the longer-run productivity of both workers and investments, might rise above 2 percent. In that case, a neutral Fed policy in pursuit of domestic price stability would have to take short interest rates higher. Traders in the widely followed Eurodollar futures curve have priced in a 3 percent fed funds rate by the end of next year.

But Wicksell urged caution about predictions for 2005. Lower tax rates on investment will make scarce capital much more plentiful than in the past. This, in turn, could hold real rates lower than might otherwise be the case.

Schumpeter created an economic growth model that relies on rapid technological advances. These technological outbursts drive economic prosperity to unimaginably higher levels.

Undoubtedly, Schumpeter will tell me that unprecedented new capital formation — unlocked by the significant decline in high marginal tax rates on investment put in place a year ago — will generate more technological advances, higher productivity, big gains in profits and wages, and ever-greater economic growth.

All this growth will absorb excess money and hold back inflationary pressures. Growth is inherently counterinflationary. Indeed, rapid advances in biotech, nanotech and wireless-communication networking equipment are poised to unleash phenomenal economic opportunities.

True, natural deflation checks monetary inflation, but deflation is great for savers and wage earners. Savers should not be continually be robbed by the Fed. A likely rise in petroleum prices would cause natural inflation, which would reinforce the absurd amounts of monetary inflation.

So put your interest-rate panic to rest. Disregard the Cassandras and the pessimists. They've always been wrong for this great country. Good times are coming. That's what free economic opportunity brings.

He can't be serious! Depleted commodity inflation (petroleum, natural gas), government debt induced inflation and housing inflation may well outstrip productivity, and technological deflation in all but electronics, and sensors. We have been setup for a recession and that is exactly what we will get.