Friday, February 25, 2011

Richard Maybury: More Thoughts on The Ugly

I have been giving continuing thought on this idea of investing in defense stocks and Maybury's advocacy of same. I would quote something from Rothbard, as it captures well an aspect of my objection:

"This [the availability and use of modern weapons of war as opposed to guns or bows and arrows] is why the old cliché no longer holds that it is not the arms but the will to use them that is significant in judging matters of war and peace. For it is precisely the characteristic of modern weapons that they cannot be used selectively, cannot be used in a libertarian manner.”

The defense contractors of which Maybury speaks do not make handguns. They certainly do not craft feathers for bows. They manufacture weapons whose destructive power cannot be pinpointed accurately to the proper and intended target. We have become inured to the term “collateral damage.” Collateral damage: the killing of innocents and non-combatants.

The weapons Maybury advocates that others invest in, the use of which he tries so sheepishly to defend in the previously linked comments, kill far more innocents than they kill of the guilty. These are not weapons the use of which are morally neutral – just depending on the intent and goodness of the person pulling the trigger, if you will. These weapons, as a regular and expected outcome of their use, as an inherent feature based on the designed capability, kill innocent people.

It is immoral to voluntarily choose to profit from the trafficking in such goods.

Thursday, February 24, 2011

The Myth of National Defense: The History

The first chapter of the book is entitled: The Problem of Security: Historicity of the State and "European Realism", by Bassani and Lottieri.

"[The State] forbids private murder, but itself organizes murder on a colossal scale. It punishes private theft, but itself lays unscrupulous hands on anything it wants, whether the property of citizen or alien."

Albert J. Nock, 1928

The authors contend that one of the greatest mistakes of many libertarians is to follow a simplistic scheme of power, that is to call "State" every form of political aggregation and to believe in the perennial nature of this human artifact. In other words, if the state is nothing more than political power, and if this entity has been with us forever, then isn't libertarianism just another form of utopia?

Perhaps this should be further considered. A central axiom of libertarianism is the idea that the same morality applies to every person - as I like to put it, the same action cannot be legal or illegal, right or wrong, moral or immoral depending on the employer of the actor. For the libertarian, the fundamental concern isn't politics as politics, but the idea of a monopoly of violence, or a monopoly on "legitimate" use of force.

This is the one characteristic that has truly set the "state" above its predecessors - the ruling class is legitimized to act by any means necessary, while the people at large are bound by a set of laws created by the rulers (in addition to being bound by common morality). These ideas have been developed by several writes in the 16th century, the most famous being Machiavelli, but also to include Botero, who was the first to argue that men may legitimately act in ways that would be considered crimes if done for the safety of the state.

To repeat, the state was not always so. To quote Pierson: "For most of its history, humanity got by (whether more happily or not) without a State....Once we have recognized that there were societies before the State, we may also want to consider he possibility that there could be societies after the State."

Certainly, the medieval period is one such period where a political and juridical order existed in Europe prior to the rise of the modern State. (I have commented elsewhere about the region labeled Zomia, in Southeast Asia as another such stateless zone.) The word feudalism is often used to identify this time in history. It is a word full of emotion. Unfortunately it is a word covering the ignorance about a time before the modern state came into being. I will admit I have much to learn about this period in history.

The self-governing regions of northern Italy and central Europe certainly qualify, in the authors’ view, as a different way of providing peace and security. In such places and during this time, merchants and citizens formed their own statutes regarding passage, immigration, and exchange. This seems rather appropriate - who would care more about the people coming to trade and / or live amongst them than the already established residents of the region?

For several centuries, customs, traditions, and traditional Roman laws worked together to assure a juridical order. Law was a way to resolve conflicts, and was usually a private matter, resolved within well defined rules. Feuds broke out often, but were relatively minor affairs, with the families involved asked to quickly restore the public peace. Basically, community norms "handled" the situation.

With the advent of the concept of “State”, this history had to be purged and the creation of a history to include the concept of state began almost immediately, for example especially in the second half of sixteenth century France. The historians went to work.

I have touched on this idea before: why is there a history of the state, and little or no history of "no state"? To ask the question should answer it. The state, the provider of education, the writer of history, surely would not want to expose the subjects to the idea that there was life before the state. Likely within a few generations the transformation was complete.

Hereafter, the State and sovereignty went hand in hand. Sovereign authority became the absolute power of the State. Not temporary, not delegated, not answerable. The sovereign need not be gifted, only that he has the absolute power to decide.

There is no liberal neutralization of this concept of monopoly authority. A constitution will not hold it in check. In the situation where law is controlled by a monopolist institution, force dictates law. This is tyranny. What authority would grant otherwise? In whose hands could such power be trusted? Would the desired good-natured citizen even want such power? Certainly, those who desire such power are always the last ones who should have access to such power.

That the State provides useful functions does not imply that only the state can provide these functions, say Rothbard. He adds that the libertarian insists on applying the same moral law to everyone, no one is above this law. When the behavior is otherwise, it cannot be distinguished from a professional criminal class.

History provides alternatives. Other systems of organizing society are available. The free market is identified as one of the best tools to unite humanity and connect individuals. The free market requires that relationships are built, and that these relationships are built based on trust. Such a cohesive cannot be achieved in a system where the view is to plunder or be plundered, or as Rothbard put it "...a meaningless plunder of all by all..."

Society under the State is not civilized. To the extent there is a State is directly correlated to the incivility of society. There is nothing civilized about a monopoly of the use of force. There is nothing civilized about actions allowed to some while disallowed to others. Yet, these are the features of the State. That many call this “civilization” says much about the degree to which humanity has been purged from our being.

The Myth of National Defense: Introduction

Yes, another book. This is a compilation of essays on the theory and history of security production, edited by H.H. Hoppe.

One of the more difficult questions to address for the advocate of anarchy is that of national security or national defense. This book appears to be right on topic. My thought is to give some commentary and expand n some of the ideas presented in this work.

In the introduction, Hoppe identifies two of the most widely accepted propositions among political economists and political philosophers:

1) Every monopoly is bad from the viewpoint of consumers, monopoly here meaning exclusive privilege granted to a single producer of a good or service.

2) The production of security must be undertaken by and is the primary function of government.

The two propositions are obviously incompatible. In this, the orthodox view is to take exception to the first proposition. This book will attempt to address that it is the second proposition that should be challenged.

Empirical evidence supports the unorthodox. The 20th century should be proof enough of the horrors unleashed when security is provided by the monopoly state. Certainly, many states are, in fact, aggressors and not defenders.

The orthodox then claim that these disasters are due to the types of governments involved - the absence of democratic government being the culprit. This, however, fails to answer many counter-examples: the American war between the states, for example.

Mises suggests that, in order for a government to fulfill its primary function as a provider of security it must satisfy two conditions: it must be democratically organized, and it must permit unlimited secession in principle.

Where government is a compulsory territorial monopolist of protection and jurisdiction equipped with the power to tax without unanimous consent, any notion of limiting its power and safeguarding life, liberty, and property must be deemed illusory.

Experience certainly bears this out.

Free Banking, Part One

From Human Action, Chapter 17, Section 12

"But now, we assume further, one bank alone embarks upon an additional issue of fiduciary media while the other banks do not follow suit. The clients of the expanding bank - whether its old clients or new ones acquired on account of the expansion - receive additional credits, they expand their business activities, they appear on the market with an additional demand for goods and services, they bid up prices….In order to settle the payments due to non-clients, the clients must first exchange the money-substitutes issued by their own - viz., the expanding bank-against money. The expanding bank must redeem its banknotes and pay out its deposits….The instant approaches in which the bank will - after the exhaustion of its money reserve - no longer be in a position to redeem the money substitutes still current. In order to avoid insolvency it must as soon as possible return to a policy of strengthening its money reserve. It must abandon its expansionist methods."

Mises makes a powerful statement here. Leave banks free to compete. Accept that one or more banks might issue excess credit. Understand that, as market participants recognize this they will demand instant redemption. This will force the issuing bank to either reduce the excess or quickly go out of business before doing much damage.

Mises does not make any statement advocating the outlaw of fractional reserve banking, at least not in this section. He is quite clear that it is the market that will best regulate expanding banks, and that clients of the expanding bank and especially clients of its more conservative competitors will be vigilant regarding the bank's risky practices.

This is just as one would expect an advocate of free markets to consider the situation. Mises does not condemn fractional reserve banking to the point of utilizing government force to control it. Elsewhere in this section he describes how government intervention inherently results in complacency on the part of market participants, what today we refer to as moral hazard.

"But even if the 100 per cent reserve plan were to be adopted on the basis of the unadulterated gold standard, it would not entirely remove the drawbacks inherent in every kind of government interference with banking. What is needed to prevent any further credit expansion is to place the banking business under the general rules of commercial and civil laws compelling every individual and firm to fulfill all obligations in full compliance with the terms of the contract."

Here, Mises is quite clear that even a 100% reserve standard, if backed by the government, does not remove the risks of government interference in banking. Treat banks as you treat every other business, under general laws, and the market will regulate the banking industry in a much more effective manner than would the government.

"But, some people may ask, what about a cartel of the commercial banks? Could not the banks collude for the sake of a boundless expansion of their issuance of fiduciary media? The objection is preposterous. As long as the public is not, by government interference, deprived of the right of withdrawing its deposits, no bank can risk its own good will by collusion with banks whose good will is not so high as its own."

Mises is clear that a banks good name is everything - there is no such thing as a cushion of reserves that will protect the bank once its good name is questioned. In this light, he rightly states that a bank wouldn't voluntary join hands with banks other than those of unquestioned integrity. It takes years to develop goodwill, and minutes to destroy it. Without a good reputation, a bank in a free-market environment would not last long in the market - a significant barrier to purposely risky behavior.

Ludwig von Mises and Free Banking

I have read almost none of von Mises directly, yet there is no single economist that has captured my thinking more than he has. I believe this is so because Austrian economics fits very naturally into my views of how man interacts with man. Nothing captures this better than the idea of Human Action. Humans act. These two words capture so much wisdom in so many ways...I could write many pages about this, perhaps another time.

Mises discusses the idea of Free Banking in Human Action, chapter 17, section 12. I can say this is the first section of any of his work that I have read directly. Make of that what you will.

My intention is to write a series of articles on subjects and themes from this section, in four main groupings:

1) Competitive, Free-Market Banking - Mises holds that competitive free banking (no government intervention or support) is the only way to regulate banking. He allows for the possibility of artificial credit expansion, and is quite certain that the market will quickly force a correction whenever this practice is implemented by one or more banks.

2) Being "Fooled" Into Taking and Holding Dubious Banknotes - Mises describes the reasons he does not believe this will be of concern.

3) Credit Expansion / Real Bills - Mises describes the inflationary nature of Bills of Exchange

4) Gresham's Law - Mises rightly describes Gresham's Law, with good money driving out bad if all money trades freely.

Mises covers much ground in one small section. I will attempt to capture the key points and properly expand on these.

The Art of NOT Being Governed: State-Accessible Product

"A premodern ruler in mainland Southeast Asia would have been less interested in what today would be called gross domestic product (GDP) of his kingdom than what we might call its "state-accessible product" (SAP!)....Given a choice between patterns of subsistence that are relatively unfavorable to the cultivator but which yield a greater return in manpower or grain to the state and those patterns that benefit the cultivator but deprive the state, the ruler will choose the former every time. The ruler, then, maximizes the state-accessible product, if necessary, at the expense of the overall wealth of the realm and his subjects."

In Southeast Asia, the preferred method of creating a legible field of appropriation was often rice. It was uniform product with a uniform growing season. Easy to count, easy to value, easy to tax. Make the people dependant on it for diet, by eliminating many other choices, and the result is that to sustain life one must work in a manner fully exposed to the state. The sedentary grain growing made it easy to develop the tax role, as the population was fixed to a location.

“Though shifting-cultivation agriculture might provide a higher return to the cultivator’s labor, this was a form of wealth that was inaccessible to the state.”

There were many crops besides rice that were grown in the region. Many continued to be grown in the hills after the development of the state in the valleys. However, these were not uniform, could not be easily valued, were not tied to a uniform growing season, and therefore very difficult to appropriate by the state (or other predators for that matter). Often they were root crops, growing and maturing underground and out of sight. Such patterns allowed for easy movement by the cultivator; no fixed address, if you will.

Things have not changed much, over the centuries and over the miles. A subtle form might be in the form of the currency. Society is coerced into a very singular uniform product, that being the currency of the state. Taxes are required to be paid in it, therefore everyone must earn or otherwise acquire it. The valuation is easy.

There are, of course, other forms. People often complain about the struggles of a small business. All of the regulations, ordinances, requirements, etc. these may be possible for a large company to absorb, but not so easy for the small businessman. What is the result? More people move to large business for their employ. These are much easier to regulate – a few large players as opposed to an infinite number of small players. The penalties of not complying with requirements such as a W-2 form or a 1099 are great. Withholding and submitting payroll taxes? It is impossible to imagine a large corporation taking such a risk purposefully.

However, small business? They are already on a shoestring. Not that I suggest they are less ethical, but it is easier to miss a requirement, more of a struggle for cash flow, more possibilities for cash transactions that later get missed in the accounting in a small firm.

Bigger and uniform is better. Easier to count, easier to control, and easier to measure. Most important of all, easier to appropriate. Times haven't changed much.

Wednesday, February 23, 2011

The Myth of Retirement Savings

“The myth underlying these attacks (including Simpson's misogynist bovine metaphor) is that most old people don't need their entitlements — that they are affluent pickpockets fleecing younger Americans. – LA Times”

Actually, the myth underlying the attacks is that the money is there, waiting to be paid to retires. By “money”, I don’t mean the check that is in the mail, or a social security trust fund. Instead, meaning that true purchasing power of goods equivalent to the amount (falsely believed to be) saved. The myth is that the goods will exist at the time I need them when I retire.

That “money” was spent the moment it was taken from the paycheck. The money that will be returned will look the same, function the same, but won’t be the same.

It is the same for the stock market and housing – two other retirement myths, cousins of the social security myth. There is only value in these upon retirement if there is productive capacity willing to trade some of that capacity for your retirement. The same is true for cash savings and gold – both worthless unless there is enough productive capacity willing to work in exchange for your leisure.

In the end, there must be enough productive willing to support the non-productive. When the system is voluntary, the system maintains some balance: both through the true worth of savings (true savings are the root of investment which is the root of productivity, thus allowing savers to retire based on their contribution to enhanced productivity…hence modifying and increasing the previously possible non-productive to productive ratio), and through extended families, as DB rightly points out. When the system is coerced, too many are falsely led into an impossible belief: others (the government, the stock market, financial planners, etc.) will be better stewards of your future (and care for you more) than you and your extended family.

DB: “Central banks and modern stock markets are the two halves of an efficient, middle-class money-extraction mechanism.”

Certainly true, as to stock markets for an additional reason: volume. A small cut off of the top of every trade. It doesn’t matter what the market does as long as people keep the faith and trade. Like the single-zero or double-zero on the roulette wheel (depending on where you play), this small cut ensures the house always wins.

Sunday, February 20, 2011

Jay Taylor at The Daily Bell

Altogether, a very good interview and I thank DB for bringing Mr. Taylor to my attention. Also, I thank DB for the after-thoughts. This idea of measuring money is terribly complex, and that is reason enough to admit that “money” cannot be controlled or centrally planned. Kind of like having some central committee trying to figure out the “right” amount of oxygen. How silly would THAT be? (Oh wait, they were actually trying to DO that, too.)

Anyway, some thoughts on the interview:

JT: Basically what you have is a statist propaganda machine through the schools and universities, which are state owned and controlled.

Some argue (and I tend to agree) that this is THE root of all the problems, even more so than the FED, for example.

JT: I think the reserve system lasts for the moment, or as long as the United States military can finance itself.

This is the relationship that matters. The dollar reserve system lasts as long as US military hegemony lasts which lasts as long as the dollar reserve system is in place.

JT: There are embedded cultural expectations for freedom that have given rise to the Tea Party and to people like Congressman Ron Paul.

This is why it seems to me if there is any hope anywhere for some “re-birth” of freedom, it will be in the US. There is a culture that (naively) believes they are free today. One day (when all the promises are broken) the scales will be removed from the eyes, and then (hopefully) the people will demand what they believed they had all along.

JT: [regarding inflation] …when will people finally decide and have enough confidence to stop sitting on their savings or start spending it in the United States?

It isn’t a question of people sitting on their savings. It is solely a question of the excess reserves held by the banks.

JT: But longer term, there is no question the dollar will disappear.

If he believes this, he should stop talking about deflation. By definition, with deflation, the dollar isn’t disappearing. It is getting stronger.

JT: The answer [to the depression] eventually came in the form of World War II.

No, it came with the end of WWII. WWII only masked the unemployment, by “employing” millions in military servitude, along with price controls to hide the destruction in the economy.

JT: So, whether you are on the inflation side or whether you lean on the deflation side, as I do, the one answer is go to money that does not lose its value: gold.

If you believe deflation (a stronger purchasing power of the dollar) why would you buy gold? Hold the dollar: the relative gains of the dollar to everything else will come to you tax free, with no risk of confiscation or any other type of loss or theft.

JT: You need to have small denominations for small purchases. You are going to need this to go to the store to buy bread when the financial system breaks down, and I think it will.

If the system collapses to this extent, the worst thing for your safety will be to walk around town as one of the few with a commodity (gold or silver) available to trade. Plus, if supplies are so dear, shopkeepers won’t easily give up good consumable goods for items that cannot provide food, shelter, or safety. Anyway, the thugs would already have stolen all the goods from the store anyway.

Saturday, February 19, 2011

The Art of NOT Being Governed: Zones of Refuge

" There is strong evidence that Zomia is not simply a region of resistance to valley states, but a region of refuge as well....Far from being "left behind" by the progress of civilization in the valleys, they have, over long periods of time, chosen to place themselves out of the reach of the state."

This touches on the idea that the standard narrative of progress is one where barbarians are slowly and systemically brought into civilization via the natural growth of the state. As if it is unfortunate that some have not yet been brought under the protective umbrella (control) of the state.

Instead, it seems that many purposely and by intent chose to remain outside of or to otherwise avoid the state. "...the history of hill peoples is best understood as a history not of archaic remnants but of "runaways" from state-making processes in the lowlands."

As mentioned previously, this is not only true for Zomia, but in many other regions and for many other people around the world. "The Cossacks...were, at the outset, nothing more and nothing less than runaway serfs from all over European Russia." " The history of the Roma and Sinti (Gypsies) in late-seventeenth-century Europe provides a further striking example."

Instead of being the outcasts, in fact these groups and others chose to "cast-out", if you will, the state. These people are not the unfortunate remnants of others who chose to voluntarily move into the state-controlled lowlands and "civilization". They are the ones who purposely chose to stay out, or who had otherwise escaped from the lowland states.

Richard Maybury: The Ugly

5) His suggestion for defense stocks is indefensible. That he decries the connection of patriotism being hooked to war, yet makes this investment recommendation, is disconcerting. Others have made this point quite well.

He advocates investing in defense stocks. Given the use of the weapons produced by these companies – for offense, not defense – this is a most immoral position. He explains his views further here:

Quotes to follow are from the above-linked article:

"Some of you have objected to me recommending stocks in these "merchants of death." You say that, given the US government's aggressive behavior abroad, investing in weapons companies is unethical... The weapons industry sells its products all over the world. In my home I have weapons, and these are used only for self-defense and target shooting. The police and sheriff in your home town have self-defense weapons, and I am sure most readers of this newsletter do, too."

We are not talking about handguns and rifles. The issue is much bigger, and of course Maybury knows this. The day F-16s, cruise missiles, M-1 tanks, and nuclear powered submarines and aircraft carriers are available for purchase by the common man I might have a different opinion.

"Innocent people deserve the best protection they can get."

Maybury seems to agree with me...but I am guessing not.

"The ethics, or lack of them, are not in the weapons, they are in the minds of the people who pull the triggers. Weapons are neutral."

If this was so, everyone would be allowed to purchase these weapons. These weapons are used by people whose minds we know. The minds are aggressive and offensive. They are not defensive. The minds are expansionist, as opposed to non-interventionist. These weapons are bought and paid for with stolen money solely for the purpose of intruding in places around the world, outside of any reasonable definition of "national defense."

We require criminal background checks for the purpose of buying a simple handgun. Yet, Maybury advocates the morality of placing a nuclear aircraft carrier group - a weapon system more capable than the military capability of all but a small handful nations - into the hands of those whose background we know all too well. This isn't a neighborhood watch group, or a shopkeeper in a small market.

"I wish there were totally uncorrupt investments, but I do not know of any."

In many ways, I can agree with this statement. However, is it not possible to consider this on a scale? Is the wanton death and destruction of countless innocent lives on the same level as selling beer and wine to a willing buyer, even when the buyer might be an alcoholic? There is no larger crime than ending innocent life. This fact cannot be overcome with the idea that none are pure, so everything is fair game.

"I am often asked, is it ethical to invest in General Dynamics or other companies that make war goods?

" No. But it is one of the less unethical investments we can make. The whole financial system is grossly corrupt.

"One of the most evil things I can do is put my money in a bank, mutual fund, pension or insurance. All such organizations buy US Treasury bonds. This means they loan my money to the government. The government pays them interest, which they pass along to me.

"The $6.4 trillion of US Treasury bonds have become international interest-bearing money. Nearly every organization of any type in America, and many abroad, keep their cash in these bonds.

"So, by putting my money into a bank or almost any other financial institution, I am loaning it to the government, giving politicians the means to do whatever it is they do. With no limitations."

Yes. And of ALL the things politicians do with this money, the most immoral and corrupt is associated with the death and destruction of innocent lives via the weapons system they procure. I do not agree with government spending at any level, but I would gladly trade the immorality of wars as currently practiced for welfare or other transfer payments. Both are theft, only one results in murder.

And again, we know the background check. We know the track record and intent. It isn't the Swiss Army we are discussing here. Maybury cannot be this naive.

Richard Maybury: The Bad

Now, for the bad:

6) He specifically points to America being a special place between 1945 and 2001. Others would refer to this as the height of Dreamtime. I certainly do.

This comment of his is somewhat unnerving. I will start of by suggesting that if there ever was a time that America was a special place, it was during the time that the Articles of Confederation were in effect. Except if you were black (and I do not say this lightly).

How could the time 1945 to 2001 be viewed as special? It was during this time that America led the way for one-world government schemes: The UN, IMF, and World Bank were all conceived under America's stewardship. America fought almost continuously in wars near and far. Korea, Vietnam, the Middle East, Yugoslavia, Iraq, and Afghanistan are only a few of the big ones.

Income tax was fully introduced 30 years before this special time, as was the Federal Reserve. States were taught a vicious lesson in disagreeing with the central government 80 years before this special time, thereby eliminating the single best check and balance on the central state.

Income tax withholding was recently introduced. The gold standard was voided in 1971, ushering in US and global inflation in a massive scale rarely if ever before possible. Deficits skyrocketed once this last discipline was removed from the system.

Any remaining sense of balance brought on by the family and community was greatly harmed, if not destroyed, during this time. Divorce, abortion, births to unwed mothers all previously looked at as undesirable, now became accepted and even normal behavior.

How this period can be called special is beyond me. It might have been special in a secluded, surreal, "Father Knows Best" kind of way, but otherwise I am at a loss as to how this is so in the real world.

Friday, February 18, 2011

Richard Maybury: The Good

First, for the good. I will use as an outline my initial comments on this interview:

1) As mentioned before, ethics is the key. As Maybury suggests "Thou shalt not steal." Private property must be inviolate from government taking just as much as from private.

Once it is deemed appropriate that private property can be taken against the rightful owner's will, where can the line be drawn. By what moral or logical argument can one say "this far, but no more"? I can only conclude that private property must remain so, else there is no such thing.

At what of the stealing? This starts at the top...and the bottom. The theft begins when people use government to take from others. That there is a middleman sanitizes nothing. When such actions are considered normal, no Constitution, no legal system can protect the individual. This immoral action must be recognized as such, and brought to an end.

2) I appreciate his comments about the previous role of competing currencies in Europe. Also, I agree that we will see a break-up in Europe and elsewhere into much smaller political and social units. We will not get one-world government. The turmoil we are now enduring will ensure this.

Competing currencies, especially within a given jurisdiction, may be the easiest way to get through this mess of the world economy. It is the one hope for a relatively smooth transition away from the dollar in the US and worldwide, and away from the Euro in Europe.

As to the breakup into smaller units, this has been happening already and will continue to be so. The Soviet Union broke up into a dozen or more smaller parts. Yugoslavia broke up into a half-dozen or so. Czechoslovakia broke up into two.

As to one-world government, it seems that there is nothing to replace the global warming / carbon credit tax scheme that was to help usher this along. The economic system collapsed in 2008, and the global warming scam that was supposed to replace it collapsed shortly thereafter. In any case, even this would not have succeeded, or not for long.

3) He also suggests eventually we will insist on and utilize a commodity backed currency. This is certainly so, it must happen if civilization is to survive.

The game of worldwide fiat has gone in far longer than many imagined possible - since 1971. For economy to thrive, money must be trusted as a store of wealth and currency must retain some anchor of value. This has been avoided with terrible consequence, as seen by the tremendous imbalances built-up throughout the world. Savings is the key to investment. Investment is the key to productivity. Productivity is the key to life as we have come to know it. Absent a sound money, none of this is possible. Civilization cannot survive, and the destruction will be widespread and not necessarily limited to the common folks.

4) His point on real estate seems to be it is better than the dollar. This may be true, and certainly will be to the extent we are headed to a crack-up boom.

I have struggled with this myself. It is easy to make an argument that real estate has room to fall further. But what if the dollar falls faster? The best suggestion I have heard is that if one finds a property that cash flows well, buy it and don't wait. No one is perfect, or even much above-average when it comes to timing, at least not on a consistent basis.

Saturday, February 12, 2011

Ellen Brown invests in Gold and Silver

This was rather a surprise for me. See Ms. Brown's comment at:

Her comment is time stamped: Posted by Ellen Brown on 2/7/2011 1:16:12 PM

This is rather surprising: an advocate of funny money recognizes the value of gold and silver over and above the value of funny money. On the surface, one can say that her investments should not reflect on her economic views (and vice versa), but this is a silly assertion.

Richard Maybury: The Good, the Bad, and the Ugly

I have contemplated writing this series since last week, when I read the interview of Mr. Maybury by Anthony Wile of The Daily Bell. I have decided to jump in with both feet.

The original interview can be found here:

My comments as posted in the thread follow:

Posted by Bionic Mosquito on 2/6/2011 1:18:44 AM

This is truly a wonderful interview. I am certain to have further thoughts after reading it again later.

"I don't see any long-term solution for America or any of the rest of the world until they start accepting the fact that government has to be ethical, just like individuals."

This captures it in a nutshell. There is no point to look to the Constitution, the Tea Party, or any other possibility until this idea is embraced. Many hold theft in their hearts, and find it acceptable to utilize theft through government agents as a means to an end...or cannot see the immorality of government agents acting in manners that would not be accepted by mere civilians.

I made the following comment a week or two ago here, it seems equally appropriate now (slightly modified):


1) Inviolate property rights,

2) Recognition that coercion is not a proper means to order society, and

3) No one, regardless of employer (e.g. government employee), is subject to laws different than the rest,

The Constitution is of little comfort as a document, although certainly better than others of which I am aware (especially when taken with The Declaration of Independence).

After further reviewing the interview in detail, I posted a second comment:

Posted by Bionic Mosquito on 2/6/2011 11:37:47 AM

I offer further thoughts, and thank many DB feedbackers for bringing some of these to the forefront:

1) As mentioned before, ethics is the key. As Maybury suggests "Thou shalt not steal." Private property must be inviolate from government taking just as much as from private.

2) I appreciate his comments about the previous role of competing currencies in Europe. Also, I agree that we will see a break-up in Europe and elsewhere into much smaller political and social units. We will not get one-world government. The turmoil we are now enduring will ensure this.

3) He also suggests eventually we will insist on and utilize a commodity backed currency. This is certainly so, it must happen if civilization is to survive.

4) His point on real estate seems to be it is better than the dollar. This may be true, and certainly will be to the extent we are headed to a crack-up boom.

5) His suggestion for defense stocks is indefensible. That he decries the connection of patriotism being hooked to war, yet makes this investment recommendation, is disconcerting. Others have made this point quite well.

6) He specifically points to America being a special place between 1945 and 2001. Others would refer to this as the height of Dreamtime. I certainly do.

Now, why do I describe this interview as “The Good, the Bad, and the Ugly”?

The Good: Overall, Mr. Maybury speaks quite well for the role of ethics if a just society is to be preserved. Also he is quite clear about his views of fiat money.

The Bad: He views that America was a really special place in the period obetween1945 to 9/11. This view seems far-fetched, as it more appropriately seemed to be the time of maximum dreamtime.

The Ugly: He advocates investing in defense stocks. Given the use of the weapons produced by these companies – for offense, not defense – this is a most immoral position. He explains his views further here:

I will, over the next week or so, write three further columns on this, one each for good, bad, and ugly.

Saturday, February 5, 2011

The Art of NOT Being Governed: Creating Subjects

“Avoiding the state was, until the past few centuries, a real option. A thousand years ago most people lived outside state structures, under loose-knot empires or in situations of fragmented society.”

What changed? Why did more fall under the heel of the state? What tools were used to make this happen?

Again, referring to earlier comments about lack of roads, trains, etc., the hills were difficult for the state to access efficiently. These tools were incorporated, but not essential in areas where transportation was relatively easy – flatlands, river access, even over oceans for a sea-faring people.

The fundamental tool to which the author points is sedentary agriculture: grain farming. In the region of the world he is studying, this means rice. He views this as the foundation of the state’s power.

What are the characteristics the author identifies that makes this so? Some examples:

1) The location is fixed, making it easy for the state to find both the people and the assets.
2) The crop is uniform, making it easy for the state to assign value.
3) Absent disease or other famine causing events, grain farming is expansionary – the excess is turned into ever larger families and thus populations under control.

This as opposed to what is otherwise a more hunter-gatherer lifestyle:

1) The location varies. Follow the buffalo, if you will.
2) The crop often grows underground, out of the eyesight of the state. It can be left underground – depending on the crop – for months or years, stored neatly out of sight.
3) The crop is diverse. Various forms of regional fruits, nuts, and vegetables are grown. This adds difficulty to assigning value, or assessing tax.
4) Population grows more naturally and consistently with the surrounding environment. Fewer people to “control.”

What does this mean today? In the modern West, only a very small fraction of the population farm for a living. However, the control mechanisms are the same.

The population is quite fixed. We have homes or apartments with physical locations. These locations are registered with a local agent of the state. We are assigned various forms of personally identifying codes: Social Security numbers, driver’s license numbers, and passports. Our financial transactions can be tracked in complete detail.

Our crop is uniform: a standardized accounting unit (locally approved legal tender), easy to count and measure. We are greatly discouraged by penalty of tax or prison from using non-sanctioned tender.

I see something here in the relationship of government and big business as well. Laws, regulations, agreements, etc., are passed by the state. Inherently, whatever these are they favor large business over small or family run business. It takes resources to comply with edicts. It takes resources to influence the form of those edicts. In both cases, large business has an advantage over small business.

At the same time, it is the large business that is easier to track. Payroll records, tax withholding, transactions in forms other than cash, monitoring of activities by regulators, and other activities: these are all much easier the fewer and larger the number of employers. There is more certainty that the large entity will comply.

Without making any social commentary about Wal-Mart, consider this from the view of the state: is it more likely that Wal-Mart will comply with all declarations of the state than will every one of the millions of small shopkeepers that Wal-Mart replaced? I believe it is safe to say that amongst the many small shopkeepers prior to Wal-Mart, there were countless unreported cash transactions, less than full compliance with labor laws, no hope of benefits and training that are possible under Wal-Mart, etc.

The point is anchor the people to the land. Make the people and their assets easily identifiable. Make the accounting uniform. All of these allow for counting and tracking, statistics for the planners. With this, control is possible. The times have changed. The exact tools are different. However, the philosophy behind the mechanisms is quite the same.

Franco-German Hustle?

These events are quite interesting to watch...and live through?

Czechoslovakia could not keep two (or more) tribes together. Yugoslavia could not keep a half dozen (or more) together. The Soviet Union could not keep a dozen (or more) together.

I believe it was very much in the interest of the PE that these artificial conglomerations stayed intact, if for no other reason than the continued ability to keep the people on both sides of the wall in a state of fear. Yet, these states crumbled.

Little Belgium cannot keep two tribes together, yet we are to believe that all of Europe will hold big happy family?

Scholars much brighter than I am have concluded that the time of the nation-state as we know it is at an end, and society will form in smaller, more naturally-formed groups. The history of the last 50 years seems to prove this general direction. The laws of economics make the breakup of the current system certain, and no "law" or new "currency" can change this fact. The journey, obviously, might be a bit turbulent.

Fractional Reserve Lending, etc.

In reply to a comment at:

@Ingo Bischoff

I find several aspects of your post confusing.

“You must understand that the Federal Reserve cannot just willy-nilly create "Federal Reserve Notes" out of thin air…The New York Federal Reserve started to violate these provisions in Section 14 of the FRA by monetizing Treasury debt in the 1920s.”

I am not an expert in the Federal Reserve Act. I will take your word on what it allows. However, given that individuals at the New York Fed “violated” these provisions without personal or institutional consequence, I would say they certainly CAN create FRNs willy-nilly out of thin air.

“(The claim that fractional reserve lending creates additional currency is bogus. A little bit of math applied to the claim blows it out of the water.)”

I am quite aware you have in mind precise definitions of currency and money, so perhaps my confusion here is definitional. On 60 Minutes, when Ben Bernanke was asked about the Fed printing money (which I believe in your definition, really refers to currency), he honestly replied no. The Treasury prints the money. However, he was being quite precise as well.

Of course, the technically honest reply wasn’t the honest reply. Ben knew this.

So, in this same light, I can understand the fractional reserve lending does not create additional currency units: neither the banks nor the Fed have a printing press.

However, fractional reserve lending does produce additional units of digits that can compete for and purchase materials, goods, labor, and assets. These digits are currency units in my definition. Perhaps not in yours. Thus my confusion.

I can understand your statement in the “Ben Bernanke” literal sense. However, I do not understand it in the real world sense. I also understand why you believe it, as you defend Real Bills from the same charge. Real Bills also enable fractional reserve lending in exactly the same manner, and for Real Bills you also appear to claim it does not create additional currency (or in my terms, digital or paper purchasing units), as you are quite insistent Real Bills are not inflationary. As you know, I disagree in the case of Real Bills, just as I disagree with you as regards fractional reserve lending. The root of your belief is the same in both, and it is helpful to me (and perhaps others) that you have stated the equivalency of the two so clearly.

“After 2008, FRNs were created with two different kinds of quality, those which represented taxpayer productivity and those which represented private debt. The problem is that you cannot distinguish between them.”

The distinction is unimportant. That digits are created out of thin air is the key. The Fed buys securities with digits it created just as easily as the digits I am creating in typing these words. The difference is, my digits don’t trade in the market for billions (or trillions) of “dollars”. That the securities come with different risk profiles is important around the edges, but the crux of the crime is in the creation of digits from nothing.

“The FED is now running out of defaulted mortgages and defaulted credit card debt to monetize. The only solution left is to print "money" out of "thin air" with which to pay the interest and debt payments due.”

The Fed need not run out of things to purchase. There is no limit on what they can buy. Can they not buy municipal bonds? There is no shortage of these in want of buyers. To say nothing of a couple trillion dollars of treasuries annually. Why not corporate bonds?

All of the Feds purchases, of any security of any quality are made by printing “money” out of “thin air”. No one at the Fed is producing product by which they can earn real money in the marketplace. It is ALL funny money. What is purchased is less important that the fact that digits from nothing are created to purchase the assets.

Friday, February 4, 2011

Destroy the Dollar?

I sometimes wonder about the men behind the mask. What of Bernanke? Does he really want to go down in history as the only head of a central bank of an industrialized country (if memory serves me) to fall into hyper-inflation absent the devastation of war or similar catastrophe. Would he want his name remembered this way? What about the board of governors, or the dozens of high level working stiffs?

Ben may be a true believer in central banking, but I doubt he is stupid. At minimum, he certainly knows enough to know he is playing with fire. How can he not? Even the "acceptable" (by mainstream) monetarists would agree that the risks in this current policy are great.

Is he willing to destroy his name forever in exchange for this seat of power? Has he agreed to take the risk because of promised wealth at the end of the rainbow? Or at the risk of personal harm if he doesn't go along? Does he really want to usher in a global currency, which would diminish his (or the institution's power) completely?

Did he really daydream as a child: "I will one day oversee the destruction of the US Dollar, once the most successful currency instrument in modern history"?

He looks too nervous for one who purposely wants to destroy. I don't think he has a psychological desire to be remembered in this way ... No answers, just wondering.

The Art of NOT Being Governed: Uncivilized?

It seems to be the standard commentary that people of the hills, of lands not yet subsumed to the state, are uncivilized. The state brings order. The state brings civilization. The natural progression is for people, once ungoverned, to move into a condition of being governed by the state.

The author views this differently:

"I argue that hill peoples are best understood as runaways, fugitive, maroon communities who have, over the course of two millennia, been fleeing the oppression of state making projects in the valleys – slavery, conscription, taxes, corveé labor, epidemics, and warfare. Most of the areas in which they reside may be aptly called shatter zones or zones of refuge.”

The relationship of civilization and state are rather interesting. Let’s consider two alternative environments:

1) Most, if not all relationships are voluntary. Family lives and works together, with multiple generations caring for and helping each other. Neighbors work with neighbors to build a better community. Protection is provided in a mutually agreed manner amongst people within a common geographic region. No one is afforded power of coercion over others in a significant (and certainly not unlimited) manner. Any form of “laws” (likely in the form of custom) is applicable to all, with adjudication carried out either amongst the involved parties or by a mutually respected third party. Property is private, and this expectation is absolute, or virtually so.

2) One or a small handful of the members of the community are granted special privilege. This privilege allows the few to lord over the rest. For example, to collect tribute for various means: protection, subsidy for retirement, etc. Laws that are applicable to the common man are not applicable to the lords – those with privilege are granted immunity from judgment in such cases. Judgment on the common man is passed by the same group that establishes the laws, with little or no regard for the desires or benefits of the victim. Property either belongs to the privileged directly, or can be claimed by the privileged whenever desired.

Which society could be described as civilized? Which society describes the relationship of the state to the subjugated? Is the answer to these two questions the same, or is it different?

The extent of “state”, I would suggest, is a reflection of the lack of civilization in society. It is civilized to live voluntarily with our neighbors. It is uncivilized to tax (steal from) our neighbors for our own benefit. In polite society, this would be called theft or slavery. It is no less so when carried out by a man with a badge.

Zomia was a region where statelessness was real. It was possible for those who did not want to live under control of the state to escape to a land where voluntary relationships were the norm. While certainly there was trade between those in Zomia and those under state rule – in fact some would travel from one to the other depending on personal circumstance – when looked at in the light as portrayed above in my two examples, is it a wonder that many would choose option one? Is it at least cause for pause that we are taught to believe option two is the civilized society?

We are not taught to understand that statelessness was a choice for many who purposely chose to avoid the grasp of the state. We are taught that the advance of civilization and the advance of the state were one and the same event. In fact, the state was often and largely populated by slaves – victims of capture from war, for example.

We are taught that the barbarians were…barbarians, that the gypsies were…gypsies. In fact, for these groups and others, this was most certainly a conscious desire – after all, the closest state certainly would not have turned away people willing to become subjects. The only reason residents of Zomia were not incorporated into the false “civilization” of the state was because they chose not to be.

Thursday, February 3, 2011

Intrinsic Value?

Posted by Bionic Mosquito on 2/3/2011 10:37:58 AM

"Fiat money sinks towards its intrinsic value which is zero..."

I am not sure it is appropriate to refer to any asset as having as intrinsic value. Value is subjective. There is no proper or intrinsic value for anything, only a value at which a good will trade. This value will always be subjective, based on the views held by those participating in the market. This value can change regularly, and certainly does. This is true for fiat money, just as it is for gold.

If items had a true intrinsic value, trade would inherently be a win-lose proposition, only occurring because the loser was too dumb to know better. However, in (honest) trade, both parties are winners: a win-win. I value the candy bar; the store keeper values my dollar. We both feel better off after the trade.

Same for gold. The seller of gold for currency certainly finds more value in the currency than the buyer of gold does. Value is subjective, not intrinsic.

Posted by Bionic Mosquito on 2/3/2011 1:50:14 PM


"Good luck doing anything with your "!!???intrinsically valuable???!!" pieces of paper!!!!!"

Your ignorance comes shining through in your ranting. I just got done saying nothing has intrinsic value, and you offer me good luck with my ""!!???intrinsically valuable???!!" pieces of paper!!!!!"

You ignore my point. Value is subjective. There is no such thing as intrinsic value.

That you or I might favor gold or Lady Gaga memorabilia has nothing to do with it. The fact that some people WOULD choose Lady Gaga over gold to travel through time with only proves the point. Different people value the same thing differently. Different people might prefer one item over another. The same person might value the same thing differently over time.

But you try an experiment. Go out in the desert for two years. You will see no other human being, and have no chance for rescue. You can take either a water truck or a London good bar of gold.

Which do you choose? Do you do so intrinsically or subjectively?

Wonders of Pricing

Profit and loss is the most effective feedback mechanism ever designed for those concerned with efficient use of resources. A pricing system free of government distortion is the most effective communication system devised by man, and is necessary for an effective feedback loop of profit and loss. This pricing system is language neutral, understood by all around the world.

State intervention distorts these systems. The state purposely acts to hinder communication that ensures the efficient use of resources. It distorts the systems that allow man to interact freely with fellow men everywhere around the world.

This interference divides man from man, whereas prices freely arrived at, and the subsequent profit and loss system, are designed to unite man.

Dividing man from man helps to generate the conflict that the state then uses as a tool to further aggrandize itself.

Tuesday, February 1, 2011

Gresham's Law

My comments to an article at The Daily Bell evolved into a discussion about Gresham's Law. See the original editorial here:

Posted by Bionic Mosquito on 2/1/2011 11:19:06 AM

"Before going any further I would like to establish my credentials."

Please, just let your statements and arguments establish your credentials. The world is full of people bragging about their credentials.

"The only thing that needs to be done is to declare the legal tender protection of irredeemable dollar unconstitutional."

Yes, this will suffice. It will never happen, but it will suffice. Don't look to the Constitution as salvation.

"It was clear that the Treasury staff was sabotaging the wishes of President Bush."

This is politically naive. Is it fathomable that Bush, the most insider of insider Presidents, really desired for gold to back the dollar again? Why would anyone believe this? Impossible.

@David Robertson,

You are misinterpreting Gresham's Law, as most do. I quote from Wikipedia: Gresham's law is commonly stated: "Bad money drives out good", but is more accurately stated: "Bad money drives out good if their exchange rate is set by law."

Posted by Bionic Mosquito on 2/1/2011 2:18:48 PM

@David Robertson

It is impossible to read the article you cite and not come to the conclusion I point out in my first post. I do not understand how you are interpreting it.

Selgin is quite clear: where legal tender does not force a preference of one coin over the other, good coins are preferred. Where legal tender requires fixed exchange rates or other favored treatment, the bad coin wins. You have offered evidence to further demonstrate my point. I thank you.

I will suggest in a fully free market, both good and bad coins could circulate, each at a value the market deems appropriate. There will always be a market clearing price for every freely traded asset.

Your "simple observation" is not applicable in this world of legal tender laws. Selgin's paper fully supports the proper interpretation of Gresham's law, as I stated above.

Posted by Bionic Mosquito on 2/1/2011 5:39:31 PM

@David Robertson

"We simply disagree on the results of the application and that is good."

No, we disagree on the definition and interpretation of Gresham's law.

"You and the Daily Bell staff may use your gold and silver coins and keep your FRNs and I will use my FRNs and keep my gold and silver coins."

This comment further demonstrates that you do not understand Gresham's law, or my point.

"We both agree I assume that we view FRNs as inferior. This is the bad money that Gresham avers would drive out the good (gold and silver)."

Try a thought experiment. Pretend you are the seller of goods and not the buyer (yes, it takes two to make a trade). Why would you, the seller of wheat or steel, accept FRNs or other "paper" in exchange for good assets? A market is not just whatever the buyer dictates. The seller must also agree.

Now, in small steps, let's move ahead. Back to you being a buyer. Go find a seller of wheat who will trade it for paper, when there is a market trading wheat for gold. What if there isn't such a seller? You may "want" to pay with paper, but no seller of wheat is willing to accept it. Good money thus drives out bad.

Posted by Bionic Mosquito on 2/1/2011 5:59:10 PM

@David Robertson

I will add: good money may not fully drive out bad money.

Imagine 100% gold backed money, 100% silver backed money, 20% gold backed money, and money backed by the full faith and credit of a taxing authority.

Each will find its level as derived by the market, and would always regularly adjust to each other as market participants dictate. Each type of "money" will find a relative value to each other. The market will determine the worth of each "money" in the market, and each "money" will find a value to settle where it will function for trade.

Every commodity and currency market is a good example of this today. Even the market in gold demonstrates that there are those willing to sell gold at a given price in FRNs. Else, how could you buy gold for FRNs?

That you demonstrate a preference has nothing to do with the correct interpretation of Gresham's law.