Matt Taibbi Gets Closer

Matt suspects a conspiracy in the financial markets. 

Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game.

Welcome to the real world, Matt.

He bases this on a couple of scandals that have recently come to light:

…the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.

He believes this opens up the possibility that everything is rigged:

If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it.

Even interest rates!  And the value of money!!! Say it ain’t so.  Who or what is powerful enough to rig interest rates – the price for time and risk of the commodity that is one side of every single transaction in a division-of-labor economy - and rig the price of the money itself?

Matt thinks there is something new here:

These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation's GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing.

The banks are only now beginning to realize this?  Come on, Matt – the world didn’t begin on the day of your awakening.  Those high up in banking have known this for centuries.  Those on the outside have, for the most part, remained blind…until recently… thanks to the internet and a certain (now former) congressman from Texas. 

The banks have been colluding in the US with government permission for one hundred years – I think they realized the possibilities of collusion well before they had an official sanction to collude.

He finds fault in the justice system:

Two of America's top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it's dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to "collateral consequences" in the economy.

…this all-star squad of white-shoe lawyers came before Buchwald and made the mother of all audacious arguments…. the banks could not possibly be guilty of anti- competitive collusion because nobody ever said that the creation of Libor was competitive.

Not one comment pointing to the Federal Reserve or central banking.  I guess I welcomed Matt to the real world a bit prematurely.

The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it.

In fact, the problem is so enormous that even Matt does not see it.  He thinks the corruption and collusion has its roots in the too-big-to-fail banks, without asking anything about what or who is behind the too-big-to-fail banks.

The reason the problem has not received the attention it deserves is because the politicians and much of the mainstream media is in on the scam – knowingly or unknowingly. 

How many people support the end of central planning in money and credit?  How many support market-derived banking? 

Conversely, how many call for better regulation or better regulators?  How many call for justice from people employed by the same people who enable the system in the first place?

Matt, you are inching closer.  Perhaps one day soon the scales will be fully lifted from your eyes.  The market could never support corruption on this magnitude.  Keep looking, with honest intent, and you will find the answer.

Here’s a hint:

End the Fed.

Germanic Roots

Having reviewed the fall of Rome, Latouche next turns to the earliest beginning of medieval society and economy in his book “The Birth of Western Economy.”  He describes several aspects of this period of transition.

The Migrations

He begins with the earliest migrations:

The Roman Empire recognized two great Germanic families: the Western Germans who for long centuries had been settled in continental Europe, and the Northern and Eastern Germans who had emerged in more recent times from Scandinavia.

There were mentions of immigration into the Roman Empire by Germanic people as early as the late first / early second century. 

…the Germans then gradually and by progressive stages penetrated into the Empire along the entire length of the limes in ever-increasing numbers….

Eventually, the numbers were significant enough that treaties were negotiated with Rome, recognizing the various tribes as “federates.”

…most of the barbarians who penetrated into the Western Empire came not as conquerors, but exactly as in our own day…to look for work.

The conquest was not so much a military one; Rome fell as much due to the apathy of the productive caused by the economic policies of the state as it did from anything else.  What did the barbarians conquer?  They came to an undeveloped land.  The forest was their enemy; the bogs were their subjects:

He had to wrest from virgin forest, from moorland and sometimes from bog, the land on which he settled, and the task of bringing Central Europe into cultivation was a slow and unremitting process of land clearance which went on until late into the Middle Ages.

Private Property

These migrants apparently did not make the same mistake as did the Pilgrims of New England.  Counter to the views of some – and built on a faulty reading of historical (but not more contemporary) sources – the cleared land was not held in community ownership, but in private ownership. 

The historian Fustel de Coulanges set out to demolish this edifice built on sand….the Franks and other Germanic peoples from very ancient times practiced individual ownership, and that the alodis frequently referred to in barbarian laws is the equivalent of the Latin hereditas, and is none other than the hereditary estate.

There was some land common to the community, primarily forest land.  This demonstrates a rather sophisticated view of private property – that of homestead.  The cleared land was viewed as private property; the land in an unimproved state was not.  This concept of individual ownership was captured, for instance, in the Salic Law:

What a study of the Salic Law does bring out…is the strong preference of the Franks for individual ownership….  One single word, which has had an extraordinary history, symbolizes the sacrosanctity of hereditary property – it is the word ‘alleu’ [freehold] (alodis).  In the very beginning this word stood for the ancestral home and its appendages.  Subsequently it was extended to include the arable lands.

This freehold of property was an important feature throughout the Middle Ages, first coming up against resistance in England in the time of William the Conqueror in the eleventh century, when he claimed all land as his own, with the nobles as his tenants.

Back to the Future

I have written in the past about the hidden history of the Middle Ages, first regarding law and kingship, and most recently about the societal relationships – far more liberal that what preceded or followed this period.

I am now reading a book about the economy during this time period, “The Birth of Western Economy,” by Robert Latouche, first published in French in 1956.

I intend to cover this book in more than one post, as I have done with other books in the past.  In this post, I will introduce the author’s general themes, and offer some detail regarding his descriptions of the fall of Rome – details that offer eerie similarities to what we see in the west today (yes, I know, this is a tired theme.  For me, I have never spent time in this area.  I will do so here.)

Latouche is not necessarily favorable toward free markets – being supportive of state coinage, efficient taxation, and price controls.  I believe it is appropriate to recognize this throughout my review of his work in order to place his interpretations in context, while at the same time remaining focused on his more factually-based descriptions of the period. 

Introduction

Latouche describes his purpose in this work:

…to trace the gradual development of economic life in Western Europe during the period ending with the eleventh century…. It is harder to know where to begin than where to end.  We shall choose that point of time which saw the break-up of the Mediterranean economy, known also by a more general term – the economy of the ancient world.

He describes some of the myths, or “idols” as he labels these, which must be confronted: the false labeling of the medieval economy as a “natural economy, in contrast with the “money economy” that is suggested to have both preceded and followed this Middle Age; the false notion of a “closed economy,”  fully self-sufficient within a single domain; the reality of small landowners side-by-side with the great landowners; and the continuation of city life after the fall of Rome through the entire period under study in this work.

Before he gets to the Middle Ages, he spends time on Rome’s fall.

The State Control that Marked the End of Rome

Latouche describes the last centuries of Roman rule: an economy that showed signs of deterioration as early as the late second century A.D., and, via state intervention, the attempts in the third and fourth century to halt and reverse the deterioration.  In his descriptions, I find much that is too familiar in our own time.

The Elder Pliny was no doubt being rather absurd when he expressed that generals no longer cultivated the land…. Wistfully they looked back to those far-off days, which seemed like a golden age, when the State of Rome, confined within the narrow bounds of Latium, was inhabited by small landowners who were at the same time ploughmen and soldiers.

Could this not describe America, both literally and figuratively?  In the literal sense, a “narrow bound” along the eastern seaboard, populated by men “who were at the same time ploughmen and soldiers”?  Figuratively, America has certainly moved significantly toward a land populated by a growing proportion of people who consume without first producing.

The Romans were not content with asking their conquered peoples to feed them, a demand which in itself was already causing uneasiness, but even more serious in its consequences was the fact that conquest brought them undreamed of wealth, which they looked upon as inexhaustible.

It is interesting to consider the conquests of the U.S. – certainly in the last century, it has not been a conquest for direct control of land, but a conquest for controlling the subject population – control brought on by the implementation of institutions favorable to regulated democracy, beginning with a central bank.  Such wealth does seem inexhaustible in our day as well – the status of the dollar has allowed for Americans to consume in abundance, in exchange for pieces of paper painted with the pictures of dead presidents.

The skillful exploitation of these riches…won for the West two centuries of prosperity symbolized in two words: pax romana; but a prosperity so suddenly achieved was by its very nature too artificial to stand up to hard knocks.

No comment necessary, I believe.

Life in Rome during the first century was undoubtedly attractive; there was bustle and movement, endless argument and discussion, entertainment in plenty, and even a certain amount of work.  But the population of this Babel…which drew in the produce of the whole world like an octopus, was being fed at the expense of the ‘Public Assistance” by free distributions of every kind.

When I first contemplated comment on this chapter of the book, I considered using passages such as the ones cited here in a manner portraying these as if they were written about the West, and particularly the US, today – only at the end revealing the statements as applying to Rome.  Had I done so, would you have nodded your head while reading these lines?

Liberal Society Hidden in the Dark Ages

I have previously written about the political and legal framework of the Middle Ages, for me an eye-opening view into a decentralized society, where law was based on custom and agreements bound by oath; where the king was not superior to the law, but servant to it – with standing no higher than the lords; where each lord had veto power.

In this post, I will look at various aspects of social life in the Middle Ages.  These include arts and letters, serfdom, women in society, religious tolerance, and finally, some additional aspects of the role of the king.  For this, I will use excerpts from a wonderful book by Régine Pernoud, entitled “Those Terrible Middle Ages: Debunking the Myths.”  The book was originally written in French, published in 1977.

Régine Pernoud (17 June 1909 in Château-Chinon, Nièvre - 22 April 1998 in Paris) was a historian and medievalist. She received an award from the Académie française. She is known for writing extensively about Joan of Arc.

The book is an easy read; Pernoud does not exhaust the reader with significant details and footnotes.  This is not to suggest that there is no depth – her target audience is not the academic community.  She writes here with a view toward busting the prevailing myths about the Middle Ages – myths that circulate in both professional and lay circles.  I find in this work a good amount that confirms my earlier reading in this time period, as well as new insights that are presented credibly.

Pernoud has written this book in a tongue-in-cheek manner – the each chapter title is in the form of a myth regarding the Middle Ages, for example: “Clumsy and Awkward,” “Crude and Ignorant,” and “Women without Souls.”  In the course of each chapter, she describes and then debunks each of these myths.

Through my earlier work on the subject of the Middle Ages, I gained an appreciation of the development of a decentralized society, with decentralized law and political power.  Pernoud, in this book, adds color to my view: the result of decentralization, as one should expect, was a flowering of liberal attitudes towards many subjects – in most ways more liberal than the Rome that preceded it, and the Renaissance that followed it.

I begin with a comment from the forward, written by Cornelius Michael Buckley:

The Middle Ages – those one thousand years of Western history between 500 and 1500 A.D. – witnessed the abolition of slavery, the liberation of women, checks and balances on absolutism, artistic achievements of medieval cathedrals, inventions of the book, the musical scale, and the mechanical clock.  Why is it then that the very term Middle Ages is equated, even in the minds of so-called educated people, with such ideas as feudal servitude, cultural darkness, massacres, famines, and plagues?

Pernoud attributes such ignorance in part to classicism, which became predominant in the sixteenth century…. The revival of Roman law brought about legal standardization in the interest of centralized nation states.  The Roman notion of the jus utendi et abutendi, the unrestricted rights of property, put an end to the legal rights enjoyed by medieval serfs and feudal lords.  The result was the reintroduction of slavery, the subjection of women, the exploitation of the worker, and the rise of the absolutist state.

Several of these points raised by Buckley I had not previously considered.  I will touch on only one now, as it is a notion that runs counter to my free-market and property-rights views.

JUS ABUTENDI. The right to abuse. By this phrase is understood the right to abuse property, or having full dominion over property.

Jus utendi fruendi et abutendi (d. civ.): Facoltà del proprietario di usare la cosa in modo pieno ed esclusivo (art. 832 c.c.), il che implica anche la possibilità di decidere se e come usarla, di trasformarla e, al limite, di distruggerla.

Roughly translated, courtesy of Google:

Right of the owner to use it in a full and exclusive manner (art. 832 cc), which also implies the ability to decide whether and how to use it, transform it and, ultimately, to destroy it.

This topic will be explored further, however it seems medieval law regarding property placed limits on the use of the property – the property owner did not have the right to destroy his property.  The property-rights purist in me asks, why not?

It seems, the lack of the ability to destroy tied the lord to the land to the same extent as the serf was tied to the land – in other words, there was something about this concept (which at the moment I don’t fully grasp, and may never fully grasp) that leveled the playing field between lord and serf – both were tied to the land, albeit at quite different levels.

In any case, Pernoud’s book raises the curtain on this and many additional topics.  Throughout this post, I include many links (primarily to Wikipedia entries).  There are many characters introduced by Pernoud; I personally found it helpful to gain additional background for context and I thought it appropriate to include these links for this purpose.

Middle Ages: Fallacies and Myth

Pernoud begins by describing some of the countless false and mythical ideas she encounters regarding the Middle Ages:

I had recently been put in charge of the museum of French history in the National Archives when a letter was sent to me requesting: “Could you tell me the exact date of the treaty that officially put an end to the Middle Ages?...In what city were the plenipotentiaries gathered who prepared this treaty?”

A Market Solution for IP?

patm

I take from your reply that you are sincere in this dialogue – this was my belief until I saw some actions that seemed to indicate otherwise.  Thank you for clarifying.

Before I attempt to answer your question, allow me to offer some background.  For me personally, this question of IP as property is somewhat interesting from a theoretical standpoint, but not a terribly important concept to spend energy on.  Again, I say for me.  Obviously, for some people, it is tremendously important.

Second, when it seems to me that the market will provide a reasonably good policing and regulation system, I do not concern myself with understanding the purity of the theory behind an alternative.  One significant example of this is fractional reserve banking.  Both Mises and Rothbard have offered that the market will regulate this practice just fine.  I agree.  So why get so hung up about 100% reserves, or if it is fraud or not?

For me, the same thing applies to IP.  There is no doubt that in a libertarian society, “inventors” will attempt to control something like the formula for Coke, or “authors” the words in a book, via agreements of some sort.  How will you stop them – by attempting to demonstrate via a tremendously complex logical construct designed to prove to them that they cannot?  What if they disagree with your theory and attempt to control it anyway?

So what happens next?  I don’t know.  In a free-market for enforcement, I suspect at minimum there will not even be an attempt to protect most of the frivolous IP stuff (whistling a tune, copying a written passage on the internet), as – without the state aid- it will be too expensive to attempt to do so.  But the formula for Coke?  Surely, when billions of dollars are at stake, the attempt will be made.  I will offer, below, my thoughts on how the market might sort this out.

Now to your question:

How you can say an idea is property that is the result of applying one's brain to the physical world...when knowledge guides action, and therefore the idea must exist prior to any sort of action in the physical world?

Too complicated, and would require too much time for me to deal with (given my view that a market solution will work just fine), whatever the answer.  Call that a cop-out or a failure on my part – my feelings won’t be hurt.  For me, the answer is simple: I created the formula for Coke.  It is mine.  I have authority over control, use, and disposition of the formula.  It is no different than if I built a chair – I built it.  It is mine.  I have authority over control, use and disposition of the chair.

You will reply that if someone else produces a bottle of Coke, it does nothing to stop me from doing the same.  But I say it isn’t the bottle of Coke that I own (or merely the right / ability to produce one), it is the formula.  Ownership (control, use, and disposition) of the formula is indivisible, just as ownership of the chair is.

I concede that your logic might be more elegant than mine.  It is unimportant to me that this might be so.  I return to the beauty of the market in resolving such issues.  I am certain that in a libertarian world, Coke would attempt to protect its formula.  After that, I say let market forces figure out the result.

I find it interesting that you continue to skip over my pointing out the non-rivalrous nature of the Coca-Cola formula...

I believe I addressed this above, I only include your statement here for completeness.  If not, I guess that means I have skipped over it again.

…and how your concept of having a property right in it, allows you to come into my home and dictate what I can or cannot do with my own ingredients.

You can do what you want with your ingredients, to include stumbling upon my formula.  If you copy it via obtaining it from an avenue that traces back to me or someone I have contracted with, however, I guess we will have a disagreement. 

How might this be resolved in a libertarian world?  I assume that a libertarian world would see rival insurance companies and all of the stuff of libertarian conflict-resolution dreams.  I suspect insurance companies that develop a skill at defending intellectual property will win market share from customers willing to pay the price.  I, for my blog, won’t be a customer at the price demanded.  But I suspect Coke would.

For the possibility to earn countless millions in fees, insurance companies might actually develop a good argument on Coke’s behalf – better than anything Wenzel might come up with and certainly better than anything I have written to date.  You will certainly be free to file a pro-bono argument for the other side.  You will be free to explain your position to your heart’s desire – scarcity, non-rivalrous, etc.  All of it.  In the end, someone will make a judgment.  To the extent the market appreciates this particular judge's decisions, he will gain market share. 

This brings me to Hoppe – whatever your interpretation of his statement at The Daily Bell, the following seems clear: while he obviously sees the theoretical case regarding IP in the same way Kinsella does, he also obviously leaves room for the market to sort it out.  When considering the entire statement, can you truly conclude otherwise?

I have no doubt that my answer is not intellectually satisfying for you.  You won’t get better from me on this subject – there is little point for you to continue to try; call me a lost cause, if you like.  I find more satisfaction in thinking and writing about other issues related to NAP, Austrian economics, and decentralized societal structures.  This is where I prefer to spend my limited intellectual capital.

Settlement

This post is the result of a dialogue at The Daily Bell.  It was prompted by an editorial written by Hugo Salinas Price, entitled “Of Bubbles and Bitcoins.”  The pertinent comment in the editorial, and my feedback to it, as follows:

HSP: In the exchange of any given merchandise for gold (or silver), neither of the parties to the interchange ends up owing the other party. There has been "settlement."

BM: There is settlement when one individual trades a coconut for a dollar bill. Neither owes the other anything more.

I did not intend to write a post about this, but the subsequent dialogue influenced my thinking. 

I guess I am confused about the term “settlement.”  Please bear with me….

I give you a coconut in exchange for your giving me an apple.  We agree that neither of us owes the other anything more.  This certainly seems like a settled trade to me.

Now, I give you a coconut in exchange for your giving me a gram of gold.  We agree that neither of us owes the other anything more.  This also certainly seems like a settled trade to me.

Let’s try another.  I give you a coconut in exchange for your giving me a plain white sheet of paper.  We agree that neither of us owes the other anything more.  Is there something about this trade that remains in the not-settled arena?  It seems to me this trade is also settled.

I will now take one more step: I give you a coconut in exchange for your giving me a piece of paper with a pretty painting on it – perhaps a lovely seascape.  We agree that neither of us owes the other anything more.  Not settled?  No, I think still settled.

Last step.  I give you a coconut in exchange for your giving me a piece of paper with a picture of a dead politician on the front and a picture of some monument to the state on the back.   We agree that neither of us owes the other anything more. 

It is argued, at least by HSP and a few feed-backers at DB, that this trade is not settled.  But why not?  Neither party owes the other anything more.

The closest answer comes from mava:

When you sell a coconut for a dollar, you receive no settlement, because the dollar is only a promise, not a good in itself.

But somehow, it is suggested that gold is different in this regard.  Why?  Is not gold only a “promise” in the sense that the term is used in this sentence?  After all, there is no guarantee regarding the future value or desirability of my gold.  Am I not dependent on someone accepting the gold in the future for something I desire?

But wait (I hear it coming), gold is a good – it is a commodity, useful for purposes other than money.  Yes, I understand this.  But what is a piece of paper with a painting on it, other than a commodity, useful for purposes other than money?  Is the argument that a painting of a seascape fits this definition, but a painting of a dead politician does not?  I hope not.

When you sell a coconut for gold, you have settled the transaction, because you have already received something in exchange, that does not depend on whether your buyer has funds (bounced checks), or, whether the system is in good standing (such as is a big question with the dollar and the bitcoin), or whether your bank happens to be on a particula island (Cyprus).

Each of these apparent problems is equally an issue with gold: a bounced check – equally a problem if you accept a certificate for gold as opposed to the coin; system in good standing – what does this even mean?  A system is functioning or it isn’t – the fiat system is functioning today as the primary means of trade for (my guess) 99% of global transactions.  This isn’t enough?; bad bank – what about a bad vault?

But I greatly deviate from my original point.  When I make a trade of something for something, there is settlement.  That I choose to accept a piece of paper with a picture of a dead politician on the front and a picture of some monument to the state on the back is my own problem, isn’t it? 

The person who gave me that piece of paper owes me nothing more.  What more is there to settle?  Any good I accept that is not for consumption purposes comes with the same risk – that someone will want it when I am ready to consume at some point in the future.

To avoid more strawmen – yes, I believe gold stands the test of time better than pieces of papers with a dead politician’s picture on it.  But this doesn’t change the fact of settlement when that paper is used in trade. 

What is good for the micro is good for the macro.  Only macro-economic-policy-planning-economists believe otherwise.