Comments (226)

• surferdude

  I want some of that whatever your smoking! Talk about your basic denial of reality and rose colored outlooks. Only one itsy bitsy problem bro. It ain't working out like that in the real world. That's what gets you econ doofs all the time REALITY!

  Published: April 26, 2006 8:41 AM

• Roger M

  Surferdude,
  Maybe your reality is too small. Take a look at Europe, especially France, where unions rule. Workers are far poorer than in the US, and getting poorer. That's reality!

  Published: April 26, 2006 9:08 AM

• M E Hoffer

  Left/Right Labor/Mgmt, to me, it's nonsense.
  the following post from a different thread illuminates : "If we were going to do a show that was based on Elvis impersonators, then obviously it wouldn't make sense to have unauthorised Elvis impersonators," Robert Sillerman said.

  Well, duh! You *obviously* can't have a business without getting the federal government to outlaw all competition, now, can you?

  Posted by: L.R. at April 25, 2006 02:52 PM

  The second part is the money quote. The current state of the Big Three owes itself, from top to bottom, to the Federal Government and its varying grants of supra-market dispensation.

  Published: April 26, 2006 9:30 AM

• Steve

  This may all be true in a free market, but what we have today is not the free market. We have state capitalist rules that benefit the capitalist class at the expense of the labor class. The labor class is only trying to play within these unfair rules which only serve to opress it.
  
  I support Rothbards true free market conception of being able to homestead these welfare-warfare state corporations by the labor class.

  Published: April 26, 2006 9:42 AM

• Albatroz

  Reading this article is like reading "Alice in Wonderland"... It's fun but it's not real...

  Prof. Reisman seems to forget that a fall in real wages will very probably lead to a fall in demand, because labour costs are only a part of overall costs, and therefore wages will drop more steeply than prices. Only in the unlikely event of unemployement falling more than real wages could we avoid such a drop in aggregate demand. How will the economy grow if demand falls? The more likely outcome will be for a drop in demand to cause an increase in unemployement, with a negative multiplying effect on the economy

  Then Prof. Reisman also seems to forget that workers in America and in Europe are suffering from overseas competition. Chinese and Indian wages are so much lower than American or European ones that firms will tend to move overseas, unless they succeed in forcing local workers to accept Chinese wages. In either case the end result will also be a drop in aggregate demand.

  Preserving workers' purchasing power is essential, but that is becoming incresingly difficult as a result of globalization. Industrialized countries must therefore restrict free trade to themselves (USA, European Union and Japan), until labour costs and environment protection laws are similar everywhere. The relative rise in prices that will result from a protectionist attitude will be more than compensated by the preservation of workers' purchasing power. Of course this would mean that multinational firms would no longer be able to produce in low cost countries for export elsewhere, but I guess we could all live with that...

  Published: April 26, 2006 9:56 AM

• Nick Bradley

  Albtroz,
  

  
  You're missing the entire point of Reisman's paper.
  

  
  Reisman is advocating a fall in monetary wages, not REAL wages. Reisman is merely making the case that a fall in monetary wages would be more than made up in increased productivity in the economy, thereby increasing the real purchasing power of the worker.
  

  
  Think of a theoretical enviornment wherein the money supply is maintained at exactly zero (of course this is impossible; it either shrinks or grows, even in a 100% Gold Monetary system). If the Money supply stays constant at zero, worker's monetary wages would not raise with time. However, the price of goods would be continually falling due to increased productivity and his real wages would be increasing.
  

  Published: April 26, 2006 11:00 AM

• Christopher Meisenzahl

  Well said, thanks again George.

  Published: April 26, 2006 11:05 AM

• Albatroz

  Nick Bradley,

  The author wrote:

  "The fall in wage rates needed to eliminate unemployment serves to increase production at the same time that it reduces the costs of production. It thus serves to bring down prices. It also eliminates the burden of supporting the unemployed. As a result, it is almost certain that it soon results in a rise in real take-home wages"

  This is unsound reasoning. If wage rates fall, who will buy the increased production? Secondly, production costs are more than just labour costs, therefore the fall in prices will be less than the fall in wage rates. How will this result in a rise in real take-home wages?

  Then, you failed to take into account my comment concerning the effect of Chinese and Indian labour competition.

  Published: April 26, 2006 11:18 AM

• Nick Bradley

  M. E. Hoffer,
  

  
  I completely agree with your assessment of how federal regulation has concentrated market share in small numbers of firms in virtually every industry:
  

  
  -- A subsidized transportation network has favored regional firms over local firms, and national firms over regional firms.
  

  
  -- The tax-deductibility of corporate debt has led to 1000s of mergers and acquisitions between firms that would not have taken place in the absence of the tax-deductibility of corporate debt. There is over a quarter of a trillion dollars in corporate debt in US firms today! This has caused excessive concentration (i.e. more concentration than would exist in a free market)in most industries.
  

  
  -- The Dominance of Naval Power has subsidized imports over domestic producers.
  

  
  -- Regulatory efforts have created "cartels of standards" that have favored existing firms and have erected barriers of entry to newcomers.
  

  
  Governments tend to follow such mercantilist policies because Big Business is usually a better friend of Big Government than the entrepeneur is. Big Business, not the dynamic entrepeneur, has the resources to make a political career financially lucrative. Why would politicians sell out their cash cow?
  

  
  Anti-big business legislation to date has not been designed to reduce government favortism of Big Business, but merely to punish those firms who don't "play ball" or to favor labor unions, an alternative source of political income.
  

  
  In my opinion, a simply act of eliminating corporate taxes will work wonders to introduce competition into many industries.
  

  
  -- Nick Bradley

  Published: April 26, 2006 11:19 AM

• Nick Bradley

  Albatroz,

  It is completely sound. As wage rates fall, the cost of goods falls as well. As a result, purchasing power stays the same (or improves), keeping demand the same (or increasing it).

  I understand your point about labor factors of production as a percentage of production. Capital factors of production have roots in labor costs as well, so capital costs will fall (but it may take longer). The only hiccup I could see is in industries with high percentages of land factors of production. However, I may be wrong on this one. Can anybody here illustratet how land costs would fall if labor costs fell?

  -- Nick Bradley

  Published: April 26, 2006 11:27 AM

• Nick Bradley

  Steve,

  I'm not sure I agree with the Left-Rothbardian notion of homesteading welfare corporations. I've never been a big fan of anarcho-syndicalism myself.

  However, if you're stating that under a free market these firms would go belly up and would be bought out by the private savings of workers, then I agree. But I wouldn't go as far as saying the "labor class" would buy them out. More likley of a scenario is entrepeneurs picking the bones of these dead dinosaurs and expanding their own small firms.

  -- Nick Bradley

  Published: April 26, 2006 11:35 AM

• Bob

  Pro. Reisman,
  Thanks for the article. In my view, you are the greatest economist alive today, and your book, "Capitalism: A Treatise on Economics" is perhaps the best integrated defense of capitalism I have ever read.

  Please keep posting your excellent articles.

  Published: April 26, 2006 11:50 AM

• Glen

  The only question remaining here:
  Is a friend the ones who say they are motivated by your best interest (unions, law-makers, etc.) but act counter to it or the one who admits his/her motive to be his/her interest (the entrepenuer) but whose actions are in your interest?

  Published: April 26, 2006 11:51 AM

• M E Hoffer

  "Can anybody here illustrate how land costs would fall if labor costs fell?"

  Does looking at Youngstown, OH give us an accurate window into the potential answer to this Q ?

  A picture of RE prices before and after the cratering of the Steel industry could be a decent substitute analysis.

  Or, labor costs transmute to labor income, no?
  Lower income, lower the "affordability" of Land.
  Fewer Demand players, at the margin, lowers prices( of any commodity ) Yes?
  

  Published: April 26, 2006 12:11 PM

• Nick Bradley

  ME Hoffer,

  That makes sense.

  Published: April 26, 2006 12:27 PM

• cynical

  Surferdude needs to QUIT smoking ASAP. Please, no one give him any more anything.

  Published: April 26, 2006 1:38 PM

• tz

  An error in the beginning is an error indeed.

  I do not consider "big labor" the friend of laborers, but the tenor of the original articles was that big labor was a major if not the singular cause of GM's (and by extension other companies') problems. Someone who has a cut with an open artery squirting out blood, and a leech, ought not to blame the leech for his dropping blood pressure, although the leech is not helping.

  The greater is the respect for the property rights and economic freedom of businessmen and capitalists, the greater is the degree of saving in the economic system

  I do not see how one follows from the other. Savings comes from time-preference and would depend on a lot of subjective factors, but I cannot make any case that rights (other than the contract on the savings account be honored) matters.

  Right now we have a lot of consumers taking on debt, and they typically did so to buy houses and cars in the past.

  So after the emmient domain decisions, the savings rate would change dramatically? When businessmen make bad decisions (which is separate from their freedom to do so), the savings rate goes up?

  Yes, there are times when employers treat their employees disrespectfully, indeed, may even treat them as essentially valueless. But what causes such conditions is an excess of the supply of labor available over the quantity of labor demanded. In such conditions an employer need not fear the loss of an employee because he can be immediately replaced from the ranks of the unemployed, and the employee will be ready to accept abuse out of fear that he will not be able to find another job.

  If only everyone could work for robo-boss. I've found entrepeneurs especially are often emotional in ways that make employees miserable, and they will fire key employees over imagined trivia even though they are almost irreplacable. Sometimes the company folds, sometimes it recovers. An example is the occaional hollywood star v.s. director that annoys everyone but can't be replaced.

  Mises warned against homo-econoimus - having an "economic man" who had a measurable or derivable set of values that could be used for economic computation.

  The whole thing becomes a fallacy when you realize that without a job in such a place you starve, not just declare bankruptcy. That there are frictional costs - even if an employer might want to fire someone, it will take time and effort to find a replacement, and it will take time and effort for the employee to find a new job.

  (Many) People prefer secure jobs. Most employers are emotional, that is to say irrational human beings. Power corrupts, even economic power, and major employers of unskilled labor have economic power. Laborers are also emotional/irrational.

  The analysis sounds reasonable only if you assume that labor is another commodity like peppers or steel. I know of no one who has worked for any length of time who would begin to think of their labor v.s. wages in terms of a supply-demand curve including an economist working for an economics firm.

  "Labor" is making rational calculations, but not rational economic calculations. The calculatons are political, emotional, and/or moral. People often seek not merely to be made whole when wronged (even if it is only the perception of being wronged). An unrepentent criminal who restores with surplus is still considered worse than one who is penitent but can't restore.

  I'm not sure what Mises meant when he coined the term praxeology, but it certainly was not to reduce all behavior to rational economics, and in his On Human Action certainly went beyond economics.

  My challenge is that to increase "respect for ... the economic freedom of businessmen and capitalists", but it would help if many of them didn't act like arrogant diletantes, and in hard times boosted their bonuses while telling the workers that if they don't have bread let them eat cake. In the era of stock options, many actually loot their companies - the economic incentives are to do exactly that - make the next quarter, cash-out, and retire leaving the business emaciated since you have no long term interest after retirement.

  It is hard to get past this noise. Your article considers laborers and goes on to treat them as essentially valueless. If I know you either hate me, or don't care one whit if I'm alive, dead, or maybe dying of cancer tomorrow, it is hard for me to worry about anything you say - you don't care about me, just about some calculations and curves.

  You might be perfectly correct (and I will agree that you ARE actually correct in your arguments). Minimum wages and the current union policies DO actual harm. But let me summarize your argument:

  The great and brave capitalists are sweating away at production while the irrelevant or evil workers aren't content with their wages and do things which might benefit a few but ultimately damage the entire system.

  I've commented on the difficulty of making a libertarian society work in a population of 99% socialists.

  I don't think anything will ever work when it is assumed that most people are stoic philosophers that are less emotional than the fictional Mr. Spock from star-trek. I would have trouble enumerating a dozen saints from the canon who wouldn't feel insulted either directly or by proxy at such an article.

  One of the things the market sometimes does is provide goods at arms lengths. I might hate the farmer if I met him, or talked at any length, but usually I give money and he gives me fruit and we don't worry about anything else.

  GM and the UAW have a hate-hate relationship. That is antecedent to any economic exchange that takes place. If I hate you and want to damage you, that might override my economic interest, and it does work both ways. In several management books, they point out where some GM plants have no trouble with the UAW - one was when a woman psychologist became plant manager and actually greeted and shook hands with all the workers. That never happened before. She wasn't some horrible monster. Nor did she see the workers as horrible but necessary monsters.

  Medicine has similar trouble in that they tend to treat patients like pieces of meat. They don't get cooperation and wonder why they get sued and why juries aren't sympathetic.

  You can treat economics in isolation all you want, but if you simply remember that economic value is subjective - and that emotion can come between the buyer and seller and affect the transaction - a lot of the calculations become much more complicated.

  I used a provocative title for this post - but consider - are you thinking about my words reasonably, or looking for flaws, or thinking about returning something for the provocation?

  Nor was the original article a plea for the UAW to stop it's self-destruction which might have opened up things for a discussion.
  

  Published: April 26, 2006 2:34 PM

• Tom Schofield

  Professor Reisman's cogent arguements would be more palatable to a general audience were it not for the managerial class. The public can't help but equate "business" and "corporations" with CEO's who manage to draw down more salary in a single year than the average man can earn in several working lifetimes. Egregiously over-paid managers masquerading as capitalists give the system a bad name.

  GM executives and the UAW ignored the challenge from Japan and Germany for years while they continued to award themselves fat bonuses and lucrative contracts. "A pox on both their houses".

  Published: April 26, 2006 7:41 PM

• Tom Schofield

  Professor Reisman's cogent arguements would be more palatable to a general audience were it not for the managerial class. The public can't help but equate "business" and "corporations" with CEO's who manage to draw down more salary in a single year than the average man can earn in several working lifetimes. Egregiously over-paid managers masquerading as capitalists give the system a bad name.

  GM executives and the UAW ignored the challenge from Japan and Germany for years while they awarded themselves fat bonuses and lucrative contracts. "A pox on both their houses".

  Published: April 26, 2006 7:41 PM

• M E Hoffer

  "and in his On Human Action certainly went beyond economics."
  Homeboy was certainly within the confines of the field of Economics, what he transcended was the mathematical calculation of arbitrary Prices, the province of Finance and, dear I say, Econometrics.

  Published: April 26, 2006 8:28 PM

• M E Hoffer

  Tom, re: the following: "Egregiously over-paid managers masquerading as capitalists give the system a bad name." Tres True! Though, isn't CEO/Mgmt renumeration the responsibilty of the Owners/Shareholders?

  And, in that light, it has long puzzled me that the von Mises Institute hasn't sponsored a mutual fund for its acolytes. The portfolio could represent the best working examples of the Corporations that come closest to the application
  of von Mises insights, or used as a more fully functioning cudgel brought to bear on those Corpos most desparately asking for it.
  On the [fixed income] side, the Austrian theory of Money&Credit could provide insight for the oscillation between long/short Bonds. etc...

  Published: April 26, 2006 8:42 PM

• sully

  The GM, Ford, and UAW problems are not about high wages and current benefits. If that was what it was all about, then the automobile manufacturers in the South would be struggling also. These operations are mostly UAW and have a similiar contracts.

  The real issues are related to the retiree pension plans and the gross number of retirees per active worker. The heritage costs associated with long term contract concessions are bankrupting the mid-western oragnizations. In another era, the Big 3 agreed to overly generous retiree health and pension benefits. Then, as fate woud have it, the darn actuarial tables conspired against the heritage companies as the retirees refused to croak on schedule. Who knew.

  The turn in oil prices has also made the Detroit product mix obsolete. Just two years ago, the demand for less fuel efficient SUV's was insatiable and Detroit looked like geniuses. Now they look like dopes.

  There are some good things in the good Professors point of view. Unfortunately, I can't help but feel that most of it is unsubstantiated drivel. But thank God for the middle class labor movement who, after the second world war, insisted on and built, with their income taxes and earnings from family level incomes, the finest and most liberal institutions of higher education the world has ever known. Right, Professor?

  Thank you for your point of view

  Published: April 26, 2006 11:33 PM

• TokyoTom

  Professor Reisman, you do all of us and the evangelism of your point of view little service by ignoring our comments as to real world flaws in the capitalist system - as it is manifested in the case of GM, Ford and Chrysler - and labelling us as ""liberals," "moderates," socialists, communists, syndicalists, "mutualists" and others." Your summary that we "believe that businessmen and capitalists are the enemy, and labor unions and labor legislation, the friend, of wage earners" is unhelpful, unfair, and unsupported by our prior comments.

  I know you consider me as "an environmentalist who hides under the name of Tokyo Tom", but I consider myself to be a right-leaning libertarian. What do you consider yourself? I think it's clear that you take rather doctrinaire positions and are quick to classify others, in order to easily dispense with their views. Do you not appreciate the irony that someone with doctrinaire leftist or anarchistic views might turn around your conclusion and say back to you the following?

  "I say to the right, take the risk of giving up the fallacies you presently regard as knowledge, in order to gain the satisfaction of having actual knowledge. Stop supporting the enemies of economic progress and the harm they do to wage earners and give your support to the actual friends of economic progress and of wage earners. The transformation of you rightist intellectuals into advocates of capitalism would actually help greatly to change the direction of the world and, if it is the overcoming of poverty that you want, move it in the direction in which you say you want it to go."

  Here's hoping for a more balanced and nuanced understanding of one's audience.
  

  Published: April 27, 2006 12:43 AM

• cynical

  To Sully and others:

  You bash Professor Reisman for somehow misrepresenting the "real world". Yet, he is criticizing the "real world". Think about that for a minute.

  Published: April 27, 2006 1:21 AM

• Keith Preston

  Once again, Reisman, true to form, falls into the error of pretending that the present system is a genuine free market, or something approximating it, when it is nothing of the sort. Few, if any, of the large scale industrial sectors of the modern state-capitalist economies operate independently of state interventionism. Allegedly "private" firms who are dependent upon the state for their operation or survival are no more "private" than public schools, social services, military bases or prisons. Instead, they are just another bureau of the government, just as feudal land barons in the Third World or pre-industrial societies constitute a state-protected ruling class.

  When considering models of privatization, we need to consider not only important questions about the nature of true free markets and private property, but also the need to avoid the creation of a new ruling class in the process of dismantling the state. The former Soviet Union and the nations of Eastern Europe are excellent examples of what can happen when the privatization process is approached carelessly or without full consideration of the role of state intervention in the creation of the prior system.

  We need a model for privatization that is compatible with the full decentralization of political and economic power. Simply auctioning off state assets at blue light special prices to state-connected plutocrats is not good enough. Simply allowing firms that go broke when state assistance is eliminated to be bought up by a whole new class of plutocrats is not good enough. Rothbard and Hess had it right when they called for homesteading of state and state-corporate assets and operations by workers, consumers, squatters, etc. This was the model Hoppe suggested for Eastern Europe as well. Kevin Carson outlines the best approach to privatization in this piece: http://www.mutualist.org/id45.html

  Published: April 27, 2006 4:15 AM

• mark

  Yet again, an other look at economics from an ivory tower with a myopic view. The focus being macro economics in a aggregate prespective.

  The reality ,however, is that workers inside the gate are better off in the short and long term. For those outside the gate that's another matter.

  Published: April 27, 2006 6:08 AM

• banker

  Employment is a private negotiation between "worker" and group of other people who form employer. As such, what is the purpose of involving a third party, who has to be paid, in this negotiation. Laws just get in the way of this transaction, as well.

  And who, exactly, is the "labor class"? Employers are usually employees of someone else. Plus, most businesses are small business with only a few people.

  Last point is, why make a big deal about foreign competition? There are only so many things foreigners can compete on from 8,000 miles away? Try to be more imaginative or spend some time on craigslist to see some actual job postings.

  Published: April 27, 2006 7:31 AM

• Francisco Torres

  TZ wrote:
  I do not see how one follows from the other [private property rights and savings]. Savings comes from time-preference and would depend on a lot of subjective factors, but I cannot make any case that rights (other than the contract on the savings account be honored) matters.

  It depends on private property rights, tz. Without them, there is no incentive to save if somebody is going to take the savings anyway. The RATE of savings depends on time preference, but the act of SAVING depends on private property rights.

  Published: April 27, 2006 1:36 PM

• Paul Marks

  Austrian school people are often attacked for being "too abstract" and "not empirical" because we believe that economics is a matter of reasoning (not number crunching).

  But (as this is just a thread not a formal work) let me play the empirical game.

  The United States had the highest wages and the most developed industry in the world long before unions were important - and when government (compared to other countries) was tiny in the United States.

  Why was this? "Natural Resources" - oh, then why did Russia (which had far greater natural resources)not have higher wages and more developed industry than the United States (whether we are talking about Imperial Russia or Soviet Russia).

  As for cutting wages cutting demand and, therefore, not restoring employment.

  Well how come this is what happened in every slump (slumps caused by credit expansion by the way - the "expansion of monetary demand2 by credit expansion is the CAUSE of the boom-bust cycle not its CURE) from 1819 to 1921?

  "It can not happen" - accept it did, again and again.

  And after the wage cuts restored employment output and wages then went up.

  One can not preserve wages rates when industry is weak - only when industry is restored and prospering can wages rise.

  To try and preserve real wage rates in the belief that this will preserve "demand" and, therefore, resore prosperity is to put the cart before the horse.

  And it is exactly what President Hoover tried in 1929 - a policy that did not have great success (to put it mildly).

  So it seems that I can be a "modern" "empirical" economist. Will the statists on the thread now give up their statism? I rather doubt it.

  As for competing with China and India whilst having wages that are much higher than theirs.

  Well wages depend on productivity.

  How to increase American productivity?

  Get rid of the vast taxes and government spending and get rid of the vast web of government regulations (including the ones protecting unions - but not only those regulations). No more "entitlement programs" and no regulations - just the old law of contract and the real (not the "modern")law of tort.

  "No, No we can not toss away our sacred Welfare State".

  Well then you will not be able to "compete with China" - and putting taxes and regulations on imports will not save American workers.

  Published: April 27, 2006 1:43 PM

• Francisco Torres

  but it would help if many of them didn't act like arrogant diletantes,

  I do not think it would help - take Milton Hershey. Some of his workers became unionized despite this man's most philantropic efforts. Besides, what if some managers act like arrogant diletantes? That does not ipso facto invalidate property rights or the right to free association. The particular manager's attitude towards people is a non issue. The fallacy is called poisoning the well.

  Published: April 27, 2006 1:47 PM

• Albatroz

  "Well wages depend on productivity"

  True... and false...

  Productivity gains are usually split between labour and capital, according to their respective negotiating power. So, in a sense, wages depend on productivity. But productivity gains may also be passed on to the consumers, by means of lower prices. If Chinese and Indian labourers become as productive as theis American and European conterparts, but are historically paid lower wages, there is no reason to expect their wages to reach anytime soon our wage level. They may get increases in wages, which will satisfy them and give them an incemptive to work hard, and still earn less than Americans and Europeans. Their productivity gains will be passed on to consumers and their products will therefore be cheaper and will successfully compete with ours. Some people may naively think that the problem would be solved with a lowering of wages in America and Europe, forgetting the extreme rigidity of wages. And if successful in that attempt, we would soon see a drop in aggregate demand and an economical crisis. Lowering American and European labourers' standards of living to Chinese levels does not seem an acceptable alternative. Neither from an economical nor from a social point of view. The only viable alternative is protectionism, until wages are as high in China and India as in America and Europe. America, Europe and Japan, together, represent 1 billion consumers, so that protectionism would not stiffle competition within our common economic zone. I believe it is time to drop the libertarian fundamentalist approach to economics, and start thinking...

  Published: April 28, 2006 5:13 AM

• Francisco Torres

  
  Albatroz,

  You could not put it more perfectly wrong. You forget the concept of comparative advantage. If the Chinese and Hindu people can make things more cheaply, then Chinese an Hindu will make those things for which they are more productive (productivity being the result of production vs cost). Those goods for which Europeans and Americans are more productive will be manufactured in Europe and America.

  The Chinese and Hindu wages will increase in function of how many jobs are available and how many people are available to fill them - labor as an exchange good is not different than tomatoes and both respond to supply and demand in the same way. This means REAL wages, not the monetary wages. Do not forget that if their increased productivity translates into cheaper prices, the net effect will be an increase in the purchasing power of their wages.

  Protectionism is not a solution, precisely because of comparative advantage. Protectionism means that some goods will have to be manufactured locally at a higher cost that if it could be imported. Take for example palstic bins, that cost around 4 bucks at Walmart - how much costlier would they become if made in the US at the current local wage levels? It would be absurd - it also ties up scant and precious resources that could be better employed to manufacture something else, like iPods.

  Published: April 28, 2006 2:02 PM

• Paul Marks

  Some people here seem to be saying that if there are taxes and regulations (and, of course, a government fiat money system) then companies like Ford and G.M. are the same as government departments.

  Errr no.

  They are still private companies, they still have shareholders (although the powers of these shareholders are limited by such things as the Williams Act of 1967, and who owns the shares is distorted by the fact that individuals shareholders pay captial gains tax and inheritance tax).

  Also for all the talk of "subsidies" companies still get the vast bulk of their money from customers.

  Also what is all this talk of "fedual land barons" (or whatever).

  Are we talking about the English legal doctrine (since William the Bastard) that formal "ownership" lies with the Monarch and everything else is a form of "tenure"? By the way there are not many families who can trace their land ownership back to the land grants of William I. (two familes if my memory serves - neither of which own very much, as for the Queen's family the Crown Estates are under government control, although the Prince of Wales has substantial estates in Cornwall and Devon that date back to the time of Edward III).

  Or are we talking about serfdom (which died out in England after the Black Death of the 14th century)?

  Or are people just tossing words about in the hope of sounding insulting?

  Sorry, but the United States is not Cuba - there is an important difference in the size and scope of government.

  Nor are all "mixed economies" the same.

  I am writing this from Britian, a mixed economy that is more statist than the United States (believe me it is). But only a few miles away in the Irish Sea (I am writing from the North West of England) is the Isle of Man - a mixed economy that is (in terms of the level of taxation and governement spending - and in some ways in regulations) less statist that the United States.

  Saying that if a place is not totally free market it might as well be socialist, or that if a company is not operating in a free market there is no point in defending it, is just silly.

  Published: April 28, 2006 2:33 PM

• Albatroz

  Francisco Torres,

  Comparative advantage is a model and a theory. People and countries are not bound to follow that model. If Chinese and Indian firms can produce most things cheaper than we do, it is likely that they will try to produce as many of those things as possible and sell them to us.

  Chinese wages will stay low because there are 800 million Chinese in rural areas waiting to take better paid industrial jobs. If you are waiting for scarcity of labour to push Chinese wages up, you will have to wait a loooooong time...

  "Protectionism means that some goods will have to be manufactured locally at a higher cost"

  Perfectly correct. But it will be worth it.

  Published: April 28, 2006 3:45 PM

• Roy W. Wright

  If it's so "worth it" to you, buy those goods and tell others what a great idea it is. But drop the threats inherent in legislating your opinion.

  Published: April 28, 2006 4:29 PM

• Albatroz

  Threats? I was under the impression that I had been using reason in my argumentation. Economics are a lot more than a bunch of slogans hastily learned by heart. We are facing very difficult times, and it is unwise to keep repeating the very same formulas that landed us in our present predicament. We invented globalization in order to exploit the less developed countries of the world, and we never realized that globalization would be used by China and India to destroy us. Hopefully we will have learned something from our mistakes.

  Published: April 28, 2006 7:13 PM

• Francisco Torres

  Comparative advantage is a model and a theory. People and countries are not bound to follow that model.

  I beg to differ. You do NOT make your own clothes, do you? SOMEBODY else makes you car, do not they?

  Comparative advantage is a fact, like gravity or evolution or the speed of light. PEOPLE do follow this "model" because it is a result of human action. However, you might be right that some countries do not follow that "model", but that has more to do with politics than with economics. Being that as it may, the statement that comparative advantage is a model BECAUSE countries do not follow it is a logical fallacy.

  If Chinese and Indian firms can produce most things cheaper than we do, it is likely that they will try to produce as many of those things as possible and sell them to us.

  And, that would be a BAD thing... right?

  Buying cheaper stuff means that you will have more residual income to buy OTHER stuff you could not afford before - even American made or European made stuff.

  Chinese wages will stay low because there are 800 million Chinese in rural areas waiting to take better paid industrial jobs.

  Hmmm, the "limited jobs" fallacy. Albatroz, think a little bit: if more people become employed, there will be more demand for goods and more OPPORTUNITY for entrepreneurs to invest in more production facilities, which will translate into MORE jobs and MORE opportunity. The free market is a self-feeding, organic system. Only statists do not see this out of simple faith or expediency.

  But it will be worth it {protectionism]

  Worth it for whom?

  Published: April 28, 2006 7:37 PM

• Francisco Torres

  We invented globalization in order to exploit the less developed countries of the world,

  Albatroz, nobody invented globalization. NOT ONE is that clever. Globalization is the result of the MYRIADS of exchanges between people of different parts of the globe.

  Published: April 28, 2006 7:49 PM

• Albatroz

  Globalization has been imposed, sometimes under threat, upon all of us. Now free trade, like anything else, has costs and benefits. If benefits are higher than costs, fine. If costs become higher than benefits it would not be very smart to pursue it unrestrictedly. Economics is a practical science, not a religion. Catholics say that the use of preservatives is always wrong. Other people say that even if the use of preservatives raises certain moral questions, the threat of AIDS and other sexually transmissable diseases makes it essential to use preservatives... Let's say that protectionism is my preservative...

  Published: April 29, 2006 4:43 AM

• Francisco Torres

  Globalization has been imposed, sometimes under threat, upon all of us.

  Now you are being paranoid.

  Now free trade, like anything else, has costs and benefits. If benefits are higher than costs, fine. If costs become higher than benefits it would not be very smart to pursue it unrestrictedly.

  It is clear you do not understand economics. Trade exists because two parties find benefit in it. If costs really outweigh the benefits, people would simply NOT trade - it is that simple.

  I believe that what you are implying is free trade costing more than benefiting a third party (another seller), due to competition. If that is the case, then for consistency's sake you should advocate for the abolition of all competition - that is protectionism non plus ultra.

  If a seller does not find benefit in you dealing with another seller, that is not enough justification for coercively imposing some trade restriction between you and the second seller. The first seller must compete by offering you a better deal. It is the same with global trade: if sellers want to compete, they must offer a better deal. But again, be consistent: advocate for a total abolition of competition, and for having only ONE burger joint, ONE clothes store, ONE car dealership, one...

  Published: April 29, 2006 11:16 AM

• Albatroz

  You seem to think that (short term) consumer satisfaction is the only criteria to decide what is economically desirable. But if consumer satisfaction means having to import most things you consume, you may wonder how consumers will get the revenue to buy those desired goods. Unless a country is able to balance imports with exports, in the long run things will get pretty messy. Free trade is desirable when both parties have goods and services the other wishes to acquire, and this trade is balanced (in terms of value) or very close to it. Americans may think that their paper dollars will always be welcome, and that therefore you can live forever with unbalanced trade. But if ever your partners start asking for payement in other currencies - and oil is a commodity which may soon be traded in euros, not dollars - you will find out that there ain't such a thing as a free lunch... If trade cannot be balanced by becoming more competitive - and wage reduction is NOT a way to become more competitive, not when your competitors are called China and India -, than you will have to balance it by means of trade restrictions. I aggree with you that such a solution is a lot less than desirable, and that you should strive to go back to free trade as soon as possible. But you cannot afford it until you are able to balance your trade accounts. If you think otherwise you are in for a lot of economical pain...

  Can you immagine what would be the economical consequences of American workers having to accept Chinese level wages for American firms to be competitive? If Americans purchasing power was slashed to half - and I am being generous - of what it is now, how many firms would go bankrupt, for lack of customers? How many people would lose their jobs? In the end the American economy would survive, but you might lose 20 or 30% of your GDP in the process, and your standard of living would go back to where it was decades ago. All for the sake of a dogma...

  Published: April 29, 2006 3:24 PM

• quincunx

  Albatroz,

  Balance of trade is not all that important. It is always balanced by financial inflows/outflows. You may not know this, but the only time the US had a surplus export was the 1930's. Hardly a prosperous time.

  "you will find out that there ain't such a thing as a free lunch.."

  That's the basic Austrian mantra. Everyone here knows that.

  "Americans may think that their paper dollars will always be welcome, and that therefore you can live forever with unbalanced trade."

  Well what we have now is foreigners funding our government debt. This is not exactly a free market situation. Nor is it really trade. The solution is to reduce government spending. Not impose protectionism.

  "Can you immagine what would be the economical consequences of American workers having to accept Chinese level wages for American firms to be competitive? If Americans purchasing power was slashed to half - and I am being generous - of what it is now, how many firms would go bankrupt, for lack of customers?"

  You seem not to have learned the difference between nominal and real wages. I'd be perfectly happy to make $1/hour if nearly everything I buy is 20 times as cheap.

  Purchasing power does not decline - it can only increase as a result of more people in a free economy, not hampered by the multiple protectionist methods that exist.
  

  Published: April 29, 2006 4:20 PM

• Albatroz

  Have you ever been buttonholed by a Seventh Day Adventist trying to convince you of his faith's superiority?... Well, that's how I feel about this discussion... When economics becomes a matter of faith, there isn't much one can say... If I were to believe in your faith, Chinese people would have the same standard of living of Americans: they earn a lot less, but things are a lot cheaper too... For some undefined reason, I just don't think that is the case...

  Published: April 29, 2006 7:36 PM

• M E Hoffer

  Alba:

  Sorry for not weighing in, earlier, but, I think, you're closer(alot) to being accurate than many that choose to argue the orthodoxy of "free trade".

  Economic Free Trade goes well beyond mere price arbitrage and well examines many of the items you give rise to.

  Many of those that "argue" contra to your points are simply(again, and again, and again) using Finance to sever the thinking head of Economics.

  The idea that a slave state has a "comparitive advantage", by deign of low labor costs, is retrograde in the extreme. Trade with such an outfit only invites, over time, those conditions, as well as the goods, to the Importing country.

  I'd be sure-shucked if that wasn't the outcome.

  Published: April 29, 2006 8:30 PM

• Francisco Torres

  But if consumer satisfaction means having to import most things you consume, you may wonder how consumers will get the revenue to buy those desired goods. Unless a country is able to balance imports with exports, in the long run things will get pretty messy.

  Like I suspected: you do not understand economics. The supposed trade inbalance is just a mirage: I have a trade inbalance with Sears - I buy more from them than what they buy from me. However, I always find a way to have enough revenue to continue buying stuff from Sears whilst they do not require to purchase anything from me.

  There is no need to balance imports with exports, Albatroz, since what is being traded is value, not revenue. This means that there is no loss if people in a country imports from other countries, since both parties (the customer and the seller) obtain what they wanted. If the seller wants the dollars in exchange for their goods, it is because they value the green bills more than the goods. The customer values more the goods than the dollars.

  Free trade is desirable when both parties have goods and services the other wishes to acquire, and this trade is balanced (in terms of value) or very close to it.

  If that were true, then you should trade with your landscaper only whatever you make, for a new lanscaping job. One good for another. If you make software, then the landscaping job should be the same value as the software you are offering him.

  In the market, people should only trade the fruits of their labour for whatever the store is offering - say, if I make chairs, I should bring chairs to the store, lest I involve myself in unfair trade.

  If you find this absurd, then I can assure you it is equally absurd to expect countries to trade equal value on goods, for the simple reason that countries do not trade, Albatroz: a "country" is a mental construct, it is not real. Only PEOPLE trade, and if two "countries" happen to trade, it is because people in each region trade with each other.

  Americans may think that their paper dollars will always be welcome, and that therefore you can live forever with unbalanced trade.

  Well, let us say that traders will not want the dollars anymore - why should that worry you? If traders do not accept dollars, you will have a de facto trade restriction, meaning you will have what you wanted. So what is your argument?

  If trade cannot be balanced by becoming more competitive - and wage reduction is NOT a way to become more competitive, not when your competitors are called China and India -, than you will have to balance it by means of trade restrictions.

  Well, I cannot compete with Sears if I tried to sell dishwashers - however, that does not bother me. You seem to think trade is a game where there are loosers and winners, but that is not the case, Albatroz - you do not NEED to be competitive to trade. You need to be competitive in order to garner the consumer's affection, but a seller can always find something to exchange.

  And, again, countries do not trade - only PEOPLE trade. If you wanted to be consistent, you should trade only with those sellers you can compete with on equal terms... For example, if you wanted to buy tomatoes, you should buy tomatoes only from those sellers that are equally competitive WITH YOU in raising tomatoes.

  Can you immagine what would be the economical consequences of American workers having to accept Chinese level wages for American firms to be competitive?

  Can you imagine the morality of making consumers pay more for goods just so American workers can keep their "higher" wage levels?

  The high wage mirage is a remnant of Keynesianism. What is important is purchasing power, not the wage level. Swedes have VERY high wage earning levels, however the actual purchasing power they enjoy is MUCH less than the Americans'.

  If Americans purchasing power was slashed to half - and I am being generous - of what it is now, how many firms would go bankrupt, for lack of customers? How many people would lose their jobs?

  Actually, the reality is that the lower wages of Chinese and Hindu labourers allow American companies to outsource all those activities that are too unproductive for Americans, allowing them to hire MORE Americans for more productive duties. This is happening right now in the US - in 12 years, the net number of jobs has increased, not decreased.
  

  Published: April 29, 2006 10:25 PM

• Francisco Torres

  M E Hoffer wrote:
  Many of those that "argue" contra to your points are simply(again, and again, and again) using Finance to sever the thinking head of Economics.

  Actually, M E Hoffer, Albatroz is thinking in ACCOUNTING terms when thinking about the trade "inbalance", so your quarrel should be with HIM, not the Austrians.

  
  The idea that a slave state has a "comparitive advantage", by deign of low labor costs, is retrograde in the extreme.

  A "slave" state? Can you explain exactly what is a slave state?

  
  Trade with such an outfit only invites, over time, those conditions, as well as the goods, to the Importing country.

  Really? Can you explain the mechanism?

  If trade actually made people POORER, then you should not trade, AT ALL, lest you become poorer. Stop buying food at the store, lest you end up in skid row. Stop getting your lawn landscaped, lest you end in penury.

  Published: April 29, 2006 10:34 PM

• Francisco Torres

  
  One last thing...
  If Americans purchasing power was slashed to half - and I am being generous - of what it is now, how many firms would go bankrupt, for lack of customers?

  Again, you are thinking of the monetary level of wages. The purchasing power of a wage is not diminished by cheaper goods - the contrary is the truth. If you are really THAT concerned about the purchase power of wages, your quarrel should be with the Fed Reserve Board, for printing money without restriction, and not trade. If anything, trade has managed to SLOW the detrimental effects of inflation, but inflation (and the loss of purchasing power) is in function of the money supply and not the number of cheaper goods in a market.

  Published: April 29, 2006 10:38 PM

• quincunx

  "Well, that's how I feel about this discussion... When economics becomes a matter of faith, there isn't much one can say.."

  Just tell us that you don't think economics is a science, or that it is useful in explaining anything, and the discussion will be over.

  If you think that economics is based on "faith" then your position doesn't stand either - since you are arguing in economic terms too. If on the other hand you can honestly concede that you don't really understand economics, then there is a chance for you yet.

  Published: April 29, 2006 11:28 PM

• M E Hoffer

  To cunx y Francisco:

  I suggest that you are taking ol' Alba "out of context" to construct Strawmen that give you some kind of enjoyment in knocking down. Why you two think that is about some juvenile display of one-upsmanship is beyond me.
  Take a page from Plato's instructor, to gain further clarity, ask Questions.

  Published: April 30, 2006 12:35 AM

• M E Hoffer

  Francisco,

  Riddle me this : If trade is between People and not States: Why are there such things as NAFTA, or, even better, the WTO? (A printed copy of either's enabling legislation consumes enough paper to qualify another half dozen Spotted Owls for Section 8 subsidies.)

  If trade really is among People and not States, are you telling me that Deng was the first Chinese to desire trade with the West since 1949?

  If trade really is among People and not States, are you going to testify on my behalf after I get busted for sending a container of Sun Workstations to friends of mine in Persia?

  And, quoting, Alba: "If Americans purchasing power was slashed to half - and I am being generous - of what it is now, how many firms would go bankrupt, for lack of customers?"

  Francisco: "Again, you are thinking of the monetary level of wages."

  I think it's obvious, because he "said" as much, that he was examining: "American's Purchasing Power"...not, as you subsequently posit: "the monetary level of wages."

  Also, again quoting, M E : "Trade with such an outfit only invites, over time, those conditions, as well as the goods, to the Importing country."

  Francisco: "Really? Can you explain the mechanism?"

  I'm interested in understanding whether my supposition is non-obvious to others extant.
  To me, it seems tautological. If others are interested in further disquisition on the idea, I'd be more than happy to enjoin the requests.

  
  

  
  

  Published: April 30, 2006 1:27 AM

• Albatroz

  My "Austrian" opponents chose to pick and choose only those parts of my arguments that seemed to them more easily contradictable, forgetting that my arguments should be seen as a whole. It is as if I chose to read only one in every ten pages of a book and then claimed to have understood it and to be able to criticize it.

  Trade might be seen as a personal (as opposed to country) phenomenon if we had only one currency worldwide and one government and one monetary authority. But that's not the case. Then, the split of the world in different economical units - mainly countries - besides having historical and cultural reasons, is a means to counter the tendency of wealth to accumulate in certain regions, based on resource endowement. The ideal that should be pursued is not producing the largest number of goods at the lowest possible cost, but to enable most people to have a decent standard of living. Free trade may contribute to the former, but it will certainly not guarantee the latter. Do "Austrians" think that free trade is more important than a decent living for everyone? Are the means superior to the ends? You may insist on the belief that free trade will end up by guaranteeing a decent standard of living for all, but we know that's not what happens. Free trade drains some regions - countries - from their wealth, channeling it to the more efficient regions. In your special kind of "morality" this may be just and desirable, but many people around the world would rather not be victims of your social darwinism.

  I am also puzzled by some of your arguments relating purchasing power. You seem to think that money is something people have, while it is something people must earn. No matter how cheap goods are, I can only buy them if I have money. And I will only have money if I have a source of income, namely work. And I will only have work if there are firms in my region expanding their activity. And there will be expanding firms only if they are competitive. If firms are not competitive trade will grind to a halt, because people will end up by not having money to purchase the goods. Is that alright with you? Protectionism would allow for those people to have work, to have money and to be able to buy the goods they need. Even if the price is somewhat higher than it would be with free trade. The only precaution we should take is ensuring that the protected area is large enough to guarantee competition. That's why I propose a free trade area including, and limited to, Europe, the US and Japan. Of course you still would have, in such a large free trade area, the tendency for wealth to accumulate in certain regions, but that would happen to a lesser degree. And the overall prosperity would enable the implementation of the necessary social security safeguards. As we see for instance in Scandinavia.

  Published: April 30, 2006 5:54 AM

• Keith Preston

  Paul Marks,

  What anti-corporatist libertarians like myself argue is that the present state-capitalist system is not a free enterprise system but one whose principal institutions are creations of the state. How is this done? Let's try corporate welfare, subsidies, loans, bailouts, guarantees, protectionist trade legistlation, state-issued monopoly privileges, a myriad of licensing requirements designed to stifle competition, limited liability laws, corporate personhood laws, restrictions on organized labor activity (strikes, boycotts, compulsory arbitration, etc), government contracts and purchases of goods, zoning laws, eminent domain, transportation subsidies, state land monopolies and land grants to favored interests at below market rates, military intervention to protect foreign investments, central banking systems created by the state, price controls, tariffs, regulatory privilege, ignoring corporate crime, discriminatory taxation, bankruptcy laws, NAFTA, WTO, FTAA, CAFTA, the entire Bretton-Woods system.

  The cummulative effect of all of these interventions is to centralize control of the economic systems of modern states into the hands of a state created/protected corporatist elite. This is why I compare the corporate classes to the state-protected feudal classes of past societies or the Third World. Corporate feudatories dominate most of the industrial sectors of the modern countries.

  This is not to say that markets do not exist at all. Markets exist in traditional feudal or overtly fascist states as well. Very few economies are organized on a completely "command" basis. And of course it matters whether a country is run like Switzerland or like North Korea. But this does not change the fact that modern state-capitalist economies are institutionally organized on the basis of state intervention, not lassez-faire.

  The points that Albatroz and M. E. Hoffer are making about so-called "free trade" on this thread are correct. Free trade exists when bean farmers in Mexico exchange their crops with wheat farmers in Kansas. That's not how actually existing "free trade" works. We're talking about nationally or regionally organized corporatist-mercantilist states or blocks of states establishing cartelization treaties among themselves, allowing corporatists is some countries to take advantage of quasi-slave labor in other countries in exchange for favoritism in trade policy. Economic nationalists like Buchanan and Nader are correct to oppose this, though I don't always agree with their solutions.

  http://mutualist.blogspot.com/2006/03/free-trade-vs-free-trade.html

  Published: April 30, 2006 9:21 AM

• Francisco Torres

  M E Hoffer:
  
  Riddle me this : If trade is between People and not States: Why are there such things as NAFTA, or, even better, the WTO?

  The question is amusing. It is not like "trade" appeared in this Universe just because there is NAFTA and the WTO. The reason these exist is to give politicians more power. That is it.

  
  If trade really is among People and not States, are you telling me that Deng was the first Chinese to desire trade with the West since 1949?

  No, those that wanted trade with the States WENT to the States - which is why there are so many Chinese immigrants. Again, you are confusing matters: what politicians do as a matter of expediency is one thing, and another is people's desire to trade goods.

  
  If trade really is among People and not States, are you going to testify on my behalf after I get busted for sending a container of Sun Workstations to friends of mine in Persia?

  Hoffer, be serious. Many State governments forbade the marriage between people of different races. Are you going to argue that marriage is done between States as well? What politicians do as a matter of expediency is one thing - trade is another. One affects the other, but is not a component of it, meaning you do not need States and governments to trade, just like you do not need a State to marry whomever you wish.

  
  I think it's obvious, because he "said" as much, that he was examining: "American's Purchasing Power"...not, as you subsequently posit: "the monetary level of wages."

  No, he wasn't, otherwise he would caught his own contradictions. He thinks that competing with others lowers your purchasing power, but that is not correct - it lowers your wage earnings, meaning the monetary value. But that if offset with gains by the availability of cheaper goods, meaning the purchasing power remains the same or even increases, all other things remaining equal.

  
  I'm interested in understanding whether my supposition is non-obvious to others extant.
  To me, it seems tautological.

  It is not self-explanatory. Please do not avoid the issue whenever expediency dictates.
  

  Published: April 30, 2006 12:19 PM

• Francisco Torres

  My "Austrian" opponents chose to pick and choose only those parts of my arguments that seemed to them more easily contradictable, forgetting that my arguments should be seen as a whole.

  This is called "playing the victim". Albatroz, I have not cherry-picked your arguments, I have merely not included all the verbiage.

  Trade might be seen as a personal (as opposed to country) phenomenon if we had only one currency worldwide and one government and one monetary authority.

  The reason is a personal matter is because only people decide to trade, not "countries". There is no need to have one currency, Albatroz, since trade is a mutual agreement: If a person is willing to accept my pesos, and another is willing to accept my dollars, I can trade with either one. If a person is not willing to accept my pesos, on the other hand, it would not matter much there is a government or not: I wil not be able to trade with that person. Again, it is not like "trade" suddenly appeared in this Universe once a single currency and coin was available.

  The ideal that should be pursued is not producing the largest number of goods at the lowest possible cost, but to enable most people to have a decent standard of living. Free trade may contribute to the former, but it will certainly not guarantee the latter.

  It is clear you do not see the contradiction here, Albatroz. A "decent" standard of living is in function of how many goods you can obtain. If there is an abundance of goods, then it follows you can obtain them easier. If, on the other hand, goods are scarce, you will have difficulty obtaining them. And for goods to be in abundance, they must be produced in as much quantity as possible. This means that you CANNOT have a decent standard of living if there are fewer goods rather than many goods. There lies the contradiction in your statements.

  Do "Austrians" think that free trade is more important than a decent living for everyone?

  This is a loaded question. Please rephrase it.

  You may insist on the belief that free trade will end up by guaranteeing a decent standard of living for all, but we know that's not what happens. Free trade drains some regions - countries - from their wealth, channeling it to the more efficient regions.

  Albatroz, free trade means exchange - meaning people on BOTH sides become wealthier as goods are exchanged. Please explain the mechanism you are thinking.

  In your special kind of "morality" this may be just and desirable, but many people around the world would rather not be victims of your social darwinism.

  The insinuation that Austrians would condone immorality is uncalled for, Albatroz - Austrians advocate freedom, not social darwinism (an unfortunate term, since "social darwinism" has nothing to do with Darwin or Wallace)

  I am also puzzled by some of your arguments relating purchasing power. You seem to think that money is something people have, while it is something people must earn. No matter how cheap goods are, I can only buy them if I have money. And I will only have money if I have a source of income, namely work. And I will only have work if there are firms in my region expanding their activity. And there will be expanding firms only if they are competitive. If firms are not competitive trade will grind to a halt, because people will end up by not having money to purchase the goods. Is that alright with you?

  No, it is not, since it is totally wrong. I suggest you read Gene Callahan's Economics for Real People, downloadable here:

  http://mises.org/books/econforrealpeople.pdf

  Read how money comes by and how companies compete - it is totally different of what you think. Otherwise, you are wasting everybody's time.

  Published: April 30, 2006 1:43 PM

• Francisco Torres

  The points that Albatroz and M. E. Hoffer are making about so-called "free trade" on this thread are correct. Free trade exists when bean farmers in Mexico exchange their crops with wheat farmers in Kansas. That's not how actually existing "free trade" works. We're talking about nationally or regionally organized corporatist-mercantilist states or blocks of states establishing cartelization treaties among themselves, allowing corporatists is some countries to take advantage of quasi-slave labor in other countries in exchange for favoritism in trade policy. Economic nationalists like Buchanan and Nader are correct to oppose this, though I don't always agree with their solutions.

  Keith, I suggest you read their arguments again. They are not arguing against free trade BECAUSE we have corporativism and merchantilistic policies. They argue against free trade per se.

  Published: April 30, 2006 1:52 PM

• Albatroz

  "No, it is not, since it is totally wrong."

  I would much rather have you telling me why my reasoning is wrong than you telling me to read some book... There are also plenty of books you could read to further your education, but I am not asking you to read them...

  "people on BOTH sides become wealthier as goods are exchanged"

  Trade is not a way of getting wealthier, it is a way to satisfy one's needs. Trade may allow people who can afford it to satisfy more needs with the same income. But the key word is "afford". Free trade does not guarantee that people wishing to acquire certain goods will have the means to do so. You are again thinking money grows on trees. Actually free trade, if unbalanced, will result on some people stopping having the means necessary for trade, because their employers will have gone out of business and they will no longer have a sufficient income.

  "A "decent" standard of living is in function of how many goods you can obtain. If there is an abundance of goods, then it follows you can obtain them easier"

  To obtain those goods it is not enough that they are available. It is necessary that you have the money to buy them. Many countries around the world have an abundance of goods for sale and, at the same time, millions of their people are living in slums. Once more, you ignore the income problem. Obviously you belong to a social class which doesn't know what it means to have too little money. You can therefore focus your attention exclusively on the abundance and the price of goods on sale. In case you didn't notice, 80% of the world population have a very different problem...

  Published: April 30, 2006 3:22 PM

• Francisco Torres

  I would much rather have you telling me why my reasoning is wrong than you telling me to read some book...

  Because it would require a long explanation and you can find it better by actually reading an economics book for a change. But, I will try to keep it short:

  No matter how cheap goods are, I can only buy them if I have money. And I will only have money if I have a source of income, namely work. And I will only have work if there are firms in my region expanding their activity. And there will be expanding firms only if they are competitive. If firms are not competitive trade will grind to a halt, because people will end up by not having money to purchase the goods. Is that alright with you?

  First of all, it is not like ALL companies will stop being competitive - again, you are ignoring the concept of Comparative Advantage. There are MANY goods that cannot be manufactured very far from the market, either due to spoilage or logistics.

  Second, it is pointless to limit the scope to countries, since companies compete whether they are in different countries or different counties. For your argument to be logically consistent, you would have to advocate for curtailing free trade between counties as well. You cannot say that your argument is valid only for countries and not for anything else, because there is no real difference between a country and a county: both are simply territories. if free trade between countries affect companies negatively, the same should be true for trade between States and Counties, otherwise your argument becomes inconsistent and fallacious.

  Companies and firms expand because they are allowed revenue - if they are well managed and the consumer responds to their products. If consumer choice does not favour the company, it will lose revenue and possibly go bankrupt. This happens whether the government restricts trade or not, since you cannot coerce people into buying from a certain company - except, of course, in communist countries. The effect of free trade on a mismanaged company is certainly more evident, but preventing trade only delays the inevitable, and constitutes a form of consumer subsidy to the inefficient and slothful.

  The idea that companies suffer because of free trade is actually not supported by evidence: the 1930s saw the most protectivist of policies ever placed in American History, yet the country was not becoming wealthier - quite the opposite. Free trade actually HELPS companies because they have access to cheaper capital goods and raw materials, which allow them to offer not onoy better prices, but also better wages.

  Protectionism would allow for those people to have work, to have money and to be able to buy the goods they need.

  Actually, this is not true. Again, look at what happened during the Great Depression: goods were very hard to obtain. The reason is that under Protectionism, more capital investment has to be allocated to more expensive capital goods (see what happened when Bush Jr. imposed trade restrictions on the importation of cheaper steel). If more resources have to be allocated to compensate for trade restrictions, the amount left for labor investment is reduced. So protectionism is really a great recipe for UNemployment, not employment.

  
  Even if the price is somewhat higher than it would be with free trade.

  Again, you are talking about consumers subsidizing mismanaged or non competitive companies. Just how ethical is that?

  
  The only precaution we should take is ensuring that the protected area is large enough to guarantee competition. That's why I propose a free trade area including, and limited to, Europe, the US and Japan.

  Uh, no - you cannot have your cake and eat it, too. Either free trade is BAD, or it is NOT. Why a free trade zone between those countries? What if, let us say, Japan becomes more efficient and more productive? Would you then back-pedal and restrict them as well?

  And the overall prosperity would enable the implementation of the necessary social security safeguards. As we see for instance in Scandinavia.

  Albatroz, are you against trade because it makes people poorer, or are you against trade because it makes the implementation of those "social safeguards" more difficult?

  To obtain those goods it is not enough that they are available. It is necessary that you have the money to buy them. Many countries around the world have an abundance of goods for sale and, at the same time, millions of their people are living in slums.

  Like which, for instance? Because I do not think you know what you are talking about. I live in a country where there are 50 million poor people, and it is not because there is an abundance of goods - quite the contrary. There are trade restrictions galore which make many goods quite unaccessible, heavy government interference and lack of property rights.

  Published: April 30, 2006 4:01 PM

• Francisco Torres

  
  Albatroz,

  Money (Revenue) comes as a result of a successful exchange of goods. If you are a window cleaner, and your customers find your work acceptable, they will trade dollar bills for your window cleaning efforts. Any person that can offer a good (either a product or a service) that others find valuable, will receive something in change. This in effect is what drives an economy.

  So saying that if company A, B and C cannot compete then there will be not money, is misunderstanding the process of wealth creation - it is not like people working for companies A, B, and C become morons after they belly-up: they simply do something else just as productive or even MORE productive.

  You fall under the classic fallacy of the "limited number of jobs". Jobs will always be plentiful, as long as people needs are not met. This means there will be always revenue to be made.

  Trade is not a way of getting wealthier, it is a way to satisfy one's needs. Trade may allow people who can afford it to satisfy more needs with the same income. But the key word is "afford".

  Interesting, above you mentioned that goods under protectionism would be more expensive - how could that translate to being more affordable, is a mistery to me.

  
  Free trade does not guarantee that people wishing to acquire certain goods will have the means to do so. You are again thinking money grows on trees. Actually free trade, if unbalanced, will result on some people stopping having the means necessary for trade, because their employers will have gone out of business and they will no longer have a sufficient income.

  Point by point:
  No, I do not think money grows on trees nor have I even insinuated such. Like I explained above, companies DO go bankrupt even with restricted trade, since a company's revenue is in function of consumer satisfaction and costs, and not how much is trade "balanced" or "unbalanced". Your fear of companies going bankrupt and everybody finding themselves without money is without foundation, for a person can create revenue just by trading imported goods.

  And, like I said above: as long as people's needs are not met (and never will), there will be always opportunity to create wealth and revenue.

  Many companies go under each year; however, people do not end up being unemployed in ever increasing numbers - trade allows other companies to expand their markets and hire more people. Trade restrictions only burden companies with heavier costs.

  Published: April 30, 2006 4:35 PM

• Albatroz

  "First of all, it is not like ALL companies will stop being competitive - again, you are ignoring the concept of Comparative Advantage. There are MANY goods that cannot be manufactured very far from the market, either due to spoilage or logistics."

  It is not necessary for ALL companies to stop being competitive. If a large number of them go bust the economy will enter a depression. Comparative advantage? What is Mali's comparative advantage? Or East Timor's? Or Haiti's? Or Egypt's? Or Tanzania's? Or Paraguay's?...

  "Second, it is pointless to limit the scope to countries, since companies compete whether they are in different countries or different counties"

  Within the same country there are transfer mechanisms that compensate for the loss of revenue in less competitive regions. That's what national solidarity is all about. Presumably you are a Latin American and you do not see much solidarity in South America, but we have been assisting less competitive regions in Europe for quite some time, and it certainly contributed for less inequality and less poverty.

  "Companies and firms expand because they are allowed revenue - if they are well managed and the consumer responds to their products"

  To survive a firm needs a market. If a foreign firm, located in a country where wages are low, safety on the job nonexistent, environment concerns also nonexistent, starts competing in the local firm's market, then it will be possible for that foreign firm to force the local company into bankruptcy, even if it was well managed taking into account local market practices and legislation. Success for the foreign firm may simply be the result of non-compliance with pollution regulations and safety and health on the job legislation. Do you propose that offensive behaviour be rewarded?

  "Why a free trade zone between those countries? What if, let us say, Japan becomes more efficient and more productive?"

  I believe countries with comparable levels of development, with comparable work and environment laws, can trade freely among themselves without the risk of one completely dominating the markets. I object to countries with near slave labour, with a total disrespect for the environment, to be allowed to compete with those countries where compliance with health and safety regulations and with environment laws, increases the local firms production costs.

  "I live in a country where there are 50 million poor people..."

  I lived for quite a while in Brazil and my experience is quite different from yours. Shops were well stocked with all sorts of goods, and millions lived in "favelas", unable to afford any of those goods.

  Published: April 30, 2006 4:48 PM

• Keith Preston

  Well, whatever the trade polices M.E. Hoffer and Albatroz may personally prefer, the points they are making about the present system of international mercantilism are sound. I would agree that simply replacing international mercantilism with a more nationalist version of the same a la Buchanan is a bad idea. That's at best a band-aid approach. Instead, it would be better to simply end all support by the US of international organizations that create these cartels in the first place. The US should withdraw from and offer no support to NAFTA, WTO, World Bank, IMF, the Bretton-Woods system, etc. This should be combined with an internal economic policy of decentralizing the domestic economy through elimination of those statist provisions that I referred to in my previous post that have the effect of centralizing control over the economy. The purpose of this centralization is to restrict competition which in turn reduces the number of new businesses which then has the effect of reducing the bargaining power of workers by reducing the number of employers they have to choose from. Authentic free enterprise would drastically expand the number of new entrepreneurs, increasing workers'options, making self-employment more feasible, reducing workers' dependency on single employers, greatly expanding workers' bargaining power and reducing overall consumer debt. Workers and small entrepreneurs would then have much more control over their work life. More businesses and industries would proliferate organized on the basis of worker ownership/self-management or labor/management partnerships ("codetermination") and even ordinary wage laborers would have more options and higher standing. Additionally, an end to subsidies to corporate oligopolies (for R&D or shipping, for example) would have the effect of decentralizing production towards more localized production for more localized use. This would in turn reduce dependency on imports and make many of the problems caused by present day "free trade" to become irrelevant. Increased economic self-sufficiency and self-management in the domestic realm would render the effects of abusive labor practices of foreign regimes on US workers negligible.

  Published: April 30, 2006 5:53 PM

• M E Hoffer

  Francisco,

  You conclude : "They argue against free trade per se." For myself, this is inaccurate. I certainly was giving credence to many of the points that ol' Alba was delineating. To distill: "Trade, and its effects, go deeper than mere price arbitrage, and into concomitant societal perturbations."

  Past that, it seems to me that our 'troz is calling for superceding enjoinders from an all-seeing font. I am not a believer that Free Markets, once upset by State intervention, can be put right by further of the same. For myself : Trade Rules!~ We just don't need trade rules!

  Mr. Preston's reply, above, to Paul Marks, well catalogues, and accurately so, the Nature of the set-up that has been set-up.

  That We, writ large, care to conduct ourselves as but Sovereigns interfacing a Free Market leaves us no better off than the blind man perambulating sans Cane. How one can posit that the price signals, emanating from this State-crafted schema masquerading as an unfettered Free Market, can come to us squelch-free is, to me, the proverbial dome-scratcher. If, the aforesaid, is approaching accuracy, then there must be, the not readily seen, effects that come along with the Goods traded on the basis of Financial price signals alone.

  For me, We live in a marketplace of Goods and Ideas where elections are held, not biennially nor quadrennially or in secret, but everyday and in full view. Our ballots are but Dollars, and the way we choose to spend or invest them informs Our today and shapes the path of Our morrow's trod. This task, as hard as it is would be in the Freest of Markets, is made exponentially more difficult given the Queering effect, on the price signal, of yet more self-masturbatory intervention by the State.

  That you choose, continually, to argue, as if, the Free Market, entombed in your books, breathes the life-giving Air of Our temporal realm, gives rise, in my mind, that you are disassociative in your application of the Economics(Austrian) that you so discordantly profess your adherence to.

  In the spirit of another recent thread: Check your premises. And, while your at it, check yourself ( and your own, many, logical fallacies that you are so quick to point out in others )

  I am wondering why the essence of collegiality is seemingly lost on you...

  
  

  Published: April 30, 2006 6:52 PM

• Sione

  Albatroz

  Think on this. You are supporting the notion that as I am a producer of goods and services I have a right to a market. Where does that lead? It leads directly to that which you oppose. Watch what occurs when it is applied. It means I have the right to keep you from undertaking any commerce with the customers I identify as mine (as in "own"). That is, you do not have a right to market in my sector (whatever I may arbitrarily define that to be) or to my "customers" (a group I arbitrarily determine by region, race, wealth, politics, religion or whatever). So how do I protect my right?

  Here are a few of my options. First I ensure the damage or destruction of your business interests. This I do by getting my mates in power to force you to pay tributes of one sort or another should you attempt to continue to do business in competition with mine. I need my rights protected mate! Next we can ban or confiscate or even attack and destroy your business interests and assets throughout my region of interest. Going up another stage I can have some of my people deal with you on your home market. A couple of goodies are to start some fake stories about you (for example child molestation, drug dealing, various problem behaviours and addictions, international smuggling of child slaves, money laundering, you know all that S. American stuff youse guys are into) and to hurt people close to you while making it look like your fault (political scandal, mistresses, cheating on your friends in business, your supplier's daughter has an "accident", your staff have misfortunes of one sort or another etc.). Get some of that in the international media (surprisingly easy to do) and your business is in trouble big time. This still leaves me such enforcement activities as "mysterious fires." Ultimately if I really want to enforce my right to market I can encourage my mates to see whether it would be possible to get sanctions of one sort or another operating against the country where you live. Ultimately we could have a limited war and do some bomb work on you and yours (deliberate collateral damage). Shame about your business mate. That'll learn you.

  You can't really complain about any of this as, in effect, you've already conceded that I have a right to market. It just happens that I want quite a lot of market and I'm prepared to protect my right ruthlessly! So are my buddies who are ready to help me and who stand to get assistances of one sort or another from me.

  Where have we seen this before?

  Sione

  Published: April 30, 2006 9:17 PM

• Albatroz

  My, My!... Some people have a wild immagination...

  All I am saying is that long term economical survival can only exist when, for any economical unit - a person, a firm, a county or a country -, production and consumption are balanced, although short term unbalances are allowed. Unbalances must be solved by means of debt, and persistent debt leads to bankruptcy. If economical units can achieve balance with free trade, fine. If free trade leads to persistent unbalances you must either increase your production or decrease your consumption, or you must resort to self-production. On a country level self-production may equal protectionism. It is illusory to think that persistent debt has no consequences. Only the US can maintain such an illusion, as long as their paper dollars are widely accepted. To pay for their trade unbalance the US prints dollars. That is, they trade goods for funny money. Sooner or later the chickens will come home to roost... The decision of some countries to quote oil in euros may be the beginning of the great American economical disaster. Only Alice in Wonderland economists will believe in the innocence of ever growing debt. Like they believed, in 1929, in ever growing stockmarket... The bubble will burst, whatever "Austrians" may say...

  Published: May 1, 2006 5:38 AM

• Peter

  Albatroz: you might do well to learn just a little bit about what you're talking about, before talking about it. In particular, this: "The bubble will burst, whatever "Austrians" may say..." is hilarious, given that the Austrians (scare quotes or not) have been the main voices saying exactly that for decades!!

  Published: May 1, 2006 6:25 AM

• Albatroz

  Peter,

  The bubble I am refering to, is that which originates in unrestricted free trade and ever growing foreign debt... Is that what "Austrians" are claiming too?...

  Published: May 1, 2006 7:17 AM

• Paul Edwards

  Allbatroz,

  You are correct, that is not what the Austrians claim. A bubble is caused only by the fraudulent practice of bank credit expansion, not from "unrestricted free trade".

  The Austrians claim that bubbles can only exist where there is fractional reserve banking. Therefore, since such a form of banking would be treated as fraudulent and therefore prohibited in a free market, bubbles are therefore impossible in a free market.

  Published: May 1, 2006 9:45 AM

• Roger M

  Dear Albatroz,
  You're view of international trade certainly has the weight of the majority of economists behind it, but it's also the same as the old mercantilist view that Adam Smith tried to damage. The US is a largely self-sufficient plantation, like a medieval village. Our wealth comes from producing for ourselves. Trade only helps us purchase things more cheaply than we can make them for ourselves and as a result makes us wealthier. If we produced nothing that the rest of the world wanted, it wouldn't matter. What matters is that we continue to improve our productivity at home and move toward freer markets. We shouldn't care what other countries do. If poor countries could adopt a similar attitude, they would discover their wealth piling up, too.

  Published: May 1, 2006 10:38 AM

• Albatroz

  Dear Roger,

  "If we produced nothing that the rest of the world wanted, it wouldn't matter"

  Only as long as the rest of the world accepts dollars in payement for their goods. But be assured that this privileged situation cannot last. People want dollars to buy American goods, to invest in the US or to pay for commodities quoted in dollars - like oil. If the use for dollars decreases than Americans will find out that they must export in order to afford to import. If the "Austrian" view of free trade is based solely on the abnormal American situation, then it is high time they should start reviewing their believes...

  Published: May 1, 2006 11:51 AM

• Albatroz

  "The US is a largely self-sufficient plantation, like a medieval village. Our wealth comes from producing for ourselves"

  In 2005 foreign trade represented 21.4% of GDP. Much less than most industrialized countries but enough for the US not to be considered nearly self-sufficient.

  Published: May 1, 2006 11:57 AM

• Roger M

  Why would foreigners get tired of US dollars? That would happen only if the companies they invest in, or the US gov, loses the ability to repay. In that case, interest rates would rise enough to cover the additional risk and attract foreigners to the currency again. That's the way the market normally works.

  No, the US isn't totally self-sufficient, but the model of a largely self-sufficient village that imports what others can produce more cheaply is the best model. We don't make a living from international trade. We make our living from what we produce at home. Trade just makes us wealthier than we would be without it. It's very much like me shopping at Wal-Mart. I don't need to balance my trade with Wal-Mart because I have nothing they want. Or to simply the matter, let's look at just the oil producing countries. If we never sold them a thing, we would still be better off buying their oil than trying to produce all of our own. They could then use their dollars to invest in the US. But we need not sell them any merchandise to continue getting rich; that doesn't have anything to do with trade and everything to do with productivity.

  Published: May 1, 2006 12:29 PM

• Francisco Torres

  
  It is not necessary for ALL companies to stop being competitive. If a large number of them go bust the economy will enter a depression.

  Ok, I am game - Like, HOW MANY?

  
  Comparative advantage? What is Mali's comparative advantage? Or East Timor's? Or Haiti's? Or Egypt's? Or Tanzania's? Or Paraguay's?...
  

  I have no idea, nor do I care - that decision is made by investors and entrepreneurs.

  Within the same country there are transfer mechanisms that compensate for the loss of revenue in less competitive regions.

  Which transfer mechanisms?

  
  That's what national solidarity is all about.

  I think you are describing a socialist economy.

  
  Presumably you are a Latin American and you do not see much solidarity in South America, but we have been assisting less competitive regions in Europe for quite some time, and it certainly contributed for less inequality and less poverty.

  I understand. I might have guessed - you are trying to justify the socialist system that permeates in Europe. Only problem is that such system does not stem from solidarity but from heavy taxation and heavy regulation. As for less inequality, you're right: Europeans are equally poorer compared to US Americans. And yes, I am from Mexico, a Latin American country.

  
  To survive a firm needs a market. If a foreign firm, located in a country where wages are low, safety on the job nonexistent, environment concerns also nonexistent, starts competing in the local firm's market, then it will be possible for that foreign firm to force the local company into bankruptcy, even if it was well managed taking into account local market practices and legislation. Success for the foreign firm may simply be the result of non-compliance with pollution regulations and safety and health on the job legislation. Do you propose that offensive behaviour be rewarded?

  Let me put it this way: If you do not want to reward that "offensive" behaviour, don't buy from them. That is your choice. However, I have the nagging feeling you would prefer governments to legislate your beliefs upon everybody else.

  
  I believe countries with comparable levels of development, with comparable work and environment laws, can trade freely among themselves without the risk of one completely dominating the markets.

  Dominating what markets? Would you be concerned if the French dominate the wine market, for example? What if they do, but the Germany dominates the car market? How about the matress market, or the bar stool market? The problem with your thinking, Albatroz, is that it is very limited and centered.

  
  I object to countries with near slave labour, with a total disrespect for the environment, to be allowed to compete with those countries where compliance with health and safety regulations and with environment laws, increases the local firms production costs.

  If you object so much, do not buy from them.

  
  I lived for quite a while in Brazil and my experience is quite different from yours. Shops were well stocked with all sorts of goods, and millions lived in "favelas", unable to afford any of those goods.

  And you are going to tell me that free trade made them unaffordable? And how do you know they cannot afford those goods - did you do a survey?

  Published: May 1, 2006 12:34 PM

• M E Hoffer

  Roger,

  "It's very much like me shopping at Wal-Mart. I don't need to balance my trade with Wal-Mart because I have nothing they want. "

  Is that accurate? Do you not "balance" your trade with WMT w/ U$D ? To that end, that's why they're in business, no? To collect U$D for Goods, in excess of their costs, Yes?

  Published: May 1, 2006 1:08 PM

• Albatroz

  Roger,

  "Why would foreigners get tired of US dollars?"

  It's not a question of getting tired of US dollars. It's more a question of not needing so many of them. If business opportunities decrease in the US - namely because it would be cheaper to produce in China and export to the US -, and if some commodities start being quoted in euros, for instance, then demand for dollars will sharply decrease, and firms may start requesting payement in other currencies. You might then have to pay increasingly more dollars for the same amount of euros, yen or yuan, and your standard of living would drop. Some things you might start producing again in the US, instead of importing them, but how would you solve the energy problem? If oil becomes a lot more expensive in dollars - but not in euros or yen - how will that affect your economy and your competitiveness? The US economy has been subsidized from abroad for a long time, but that may be about to end.

  Published: May 1, 2006 1:29 PM

• Kevin Carson

  Paul Marks seems to have trouble understanding Keith Preston's argument. The point is not that corporations are part of the state because the state controls them, but rather the reverse.

  Brad Spangler explained it in an excellent blog post ("Nominally Private Interests That Are Part of the State") some time ago. Libertarians often, and rightly, compare the state to a holdup man with a gun. But, Brad said, if the man with the gun is accompanied by a bagman who pockets part of the take, it's wrong to say that only the man with the gun is the robber. When giant corporations dominate the political coalition that controls the state, and they are heavily subsidized and privileged from competition by state policy, it's more accurate to say that they are part of the state (in the sense that they act through it, as part of the ruling class that controls the state).

  Big business is the dominant component of the state in the same sense that the landed classes were under the Old Regime.

  See also Roderick Long, "Toward a Libertarian Theory of Class," Social Philosophy & Policy 15:2 (1998).

  And BTW: I'd be interested in knowing exactly which "mutualists" support labor legislation. I see Reisman has added "mutualists" to his litany of heresies (a step up from confusing the individualist anarchists with "Marxists," I guess); but if he misunderstands the rest of the items in his series as badly as he does the mutualist position, it doesn't speak well for him.

  Published: May 1, 2006 1:41 PM

• Albatroz

  Francisco,

  I'm afraid you are a bit insensitive to other peoples misery. Free trade is good for the rich, the highly competitive, the knowledgeable. But it is a lot less kind to the poor, the less competitive, the less qualified. Look at your own country and to Venezuela. Both have oil, but Venezuela - less obsessed with free trade - is doing a lot more for the poor than Mexico, more inclined to follow the US free trade approach. I'm sure that the rich get richer in Mexico, while the poor get less poor in Venezuela. You will forgive me, but I am a lot more sympathetic to the Venezuela model than to the Mexico one...

  Published: May 1, 2006 1:43 PM

• Roger M

  ME Hoffer, You're right, the goods are balanced with dollars. I made a concession to the popular view that only goods matter.

  Albatroz, If investment opportunties in the US decrease, and if % on US Gov debt falls too low, so that foreigners want fewer $, all they have to do is quit selling to the US. It's that simple! No one is forcing foreigners to sell to us. If they quit, the $FX would fall, making imports more expensive until they reached the level that made foreign sellers happya again. If the US one day finds that foreigners no longer want to lend to us, say because they already have too many $, all we have to do is raise interest rates high enough and they'll come back. What's so mysterious about that?

  Arabs aren't going to switch to pricing oil in Euros because that currency has an uncertain future. The Italians are talking about pulling out. But for the sake of argument, let's say they all did. It wouldn't affect much. I have regressed the price of oil on the $ foreign exchange rate ($FX) and found no correlation. The primary demand for dollars comes from foreigners wanting to invest in the US. The price of oil wouldn't change that. Should the dollar's value fall relative to the Euro, oil would cost us that much more, but it would be cheaper if the Euro fell against the dollar. So what?

  Published: May 1, 2006 1:50 PM

• Albatroz

  Roger,

  I'm glad to see you are an optimist. By the way, if the dollar rate of exchange falls, imports will become more expensive to Americans, but foreign suppliers will not get any more money for their goods, so no reason for them to get happy again. And raising interest rates might attract foreign money again - but not necessarily foreign investment -, but wouldn't it make servicing your debt more expensive? Is that irrelevant? And I don't know wether the Euro has an uncertain future. I know that rates of interest are higher in the US than in Europe, but the exchange rate between euros and dollars has hardly moved. Maybe your optimism is not all that well-founded...

  Published: May 1, 2006 3:53 PM

• Roger M

  Albatroz,
  Actually, if the value of the $FX falls, foreigners will get more $ for the same goods, but will seller fewer goods to the US because they will be more expensive in $. Yes, raising the % would raise the debt service, but it would also slow business expansion because fewer businesses would borrow. The economy will slow and imports will fall.

  As for the relationship of interest rates and the $FX, I haven't found one. I know Austrians don't do statistics, so don't tell anyone that I regularly use regression to analyze the relationships of variables. There ain't one tween % and $FX. Foreing direct investment (FDI) has the only significant relationship. FDI is where foreigners buy or start businesses in the US with a long term commitment. The US attracts the largest amount of FDI behind China. % have little to do with it; the main attraction is the freedom, dynamism, and growth of our economy, i.e., foreigners can get filthy rich here.

  Published: May 1, 2006 4:27 PM

• Roger M

  Albatroz,
  As I wrote earlier, you have the vast majority of economists on your side in this issue of foreign trade. They’re all predicting a major explosion. It is a little scary to be in such a small minority, but then Austrians have always been there. Besides, I haven’t noticed that the majority have a corner on truth on any issue. The majority neo-Classical/Keynesians have destroyed respect for the field of economics among the American people because they have been so consistently wrong and produced policies that led to such disasters as the hyper-inflation with unemployment of the 1970’s. Today, economic theory has no respect and no input into policy. Gradually, mainstream economists are adopting more Austrian principles. Some day, we may be able to restore the field to some respectability.

  Mainstream economists are fixated on the accounting formulas in the national accounts. But Bastiat pointed out the fallacies of those accounts over a century ago when he showed that if France would load all its boats with merchandize, sail them out to sea and sink them, France would record a trade surplus in the accounts. You need to decide if you’re going to side with the majority/mainstream/neo-Classical/Keynesians and their balance of payments accounts, or with the Austrians.
  

  Published: May 1, 2006 4:44 PM

• Albatroz

  I am not one for a lot of number crunching myself, so probably I might find some solace with the Austrians... But then, I can't accept dogmas in economics. In the course of the years I have found out that in economics anything, but absolutely anything, can happen. Of course some things are more probable than others, but I would never dare to write a bible on economics. My strongest belief is that giving everybody a decent standard of living is more important than maximizing efficiency, and that it is worthwhile to sacrifice some growth to ensure social justice for all. I am also strongly critical of capitalism and strongly in favour of freedom. I am atracted by mutualism but reject colectivism. Mainly I am anti-dogmatic, and that's why some of the Austrians rub me the wrong way...

  Published: May 1, 2006 5:35 PM

• Brett Celinski

  "I am not one for a lot of number crunching myself, so probably I might find some solace with the Austrians... But then, I can't accept dogmas in economics."

  Why isn't a definite presence of a coercive state not dogmatic? The schools of thought of government seem to me the most dogmatic and permanent of all, long establishing (wrongly) that their experts know what is best for 'all', total knowledge of everything, etc.

  I think Austrian economists are the least dogmatic in terms of politics. They may very well be the most apolitical of all schools of thought.

  Published: May 1, 2006 7:45 PM

• Brett Celinski

  What I was trying to say above was, why is the presence of a coercive state not dogmatic? Sorry for the double negative

  Published: May 1, 2006 7:47 PM

• Sione Vatu

  Albatros (an appropriate tag line)

  Businesses come and businesses go. The truth of the matter is that no-one has a right to market. You can expend whatever efforts you like and you can consume whatever resources you own in order to produce goods and services. That's fine, but you can't force anyone to purchase them from you. It does not matter whether you are extremely wealthy or as poor as a churchmouse, you have no right to market.

  Now your trouble appears to be that you (who knows far better than all the tens of millions of individuals within the market- fancy that) are supporting the notion that trade between people should be controlled by third party authority. That is, a party exclusive to the actual transacting of the trade itself should have the right to apply powers to force particular trading behaviours. You do this by claiming there is a higher good, "standard of living." Then you decide that in the name of this greater good, "standard of living", trade between individuals must be subordinated and hence controlled, restricted, "normalised" etc. It's a matter of arbitrary application of power how this is to be done, but having adopted the collectivist premise you are in no position to resist its application. Previously I disclosed one set of examples of it in practice. Too bad you didn't get it as those are the sorts of behaviour that occur once you allow third party control over trade- third party as in government authority.

  What you'll find is that attempting to control trade eventually leads to all sorts of dislocations and destruction of wealth, property, life, etc. Such behaviour is based on violence and threat. It is the path away from civilisation.

  Should you be serious about people enjoying a higher standard of living then there are two approaches open to you.

  1/. You can assist people less well off than yourself. Examples include, charity, educational activities, trade, investment, assisting with voluntary development projects, lending out funds, lending tools and equipment, etc.

  OR

  2/. Leave them alone. Do not proscribe them from acting in their own interests or living their own lives. Do not lobby for taxes, duties, regulations, restrictions on association, restrictions on capital, restrictions on trade etc. Stop penalising other people. Leave them to perfect their own lives. God knows you need the time to perfect your own!

  It is a foolishness to believe that a man's standard of living can be improved by penalising him or by stealing away his precious freedoms.

  Sione

  Published: May 1, 2006 7:48 PM

• Francisco Torres

  I'm afraid you are a bit insensitive to other peoples misery.

  An appeal to emotion, Albatroz? That is a logical fallacy.

  
  Free trade is good for the rich, the highly competitive, the knowledgeable.

  Absurd. The rich can pretty much obtain goods in a protected environment. Free trade actually delivers much cheaper goods to the poor. Be consistent, Albatroz: if free trade made people poorer, then the populations of North Korea and Cuba would be extremely wealthy.

  
  But it is a lot less kind to the poor, the less competitive, the less qualified.

  Do not give such assertions without explaining why, Albatroz.

  
  Look at your own country and to Venezuela. Both have oil, but Venezuela - less obsessed with free trade - is doing a lot more for the poor than Mexico

  Know what you are talking about FIRST, Albatroz: Chavez has managed to INCREASE the number of poor in Venezuela, by his own government's admission (The information came from their own bureau of statistics on their website before taking it off). Mexico, for a change, is slowly lowering the number of poor.

  
  , more inclined to follow the US free trade approach.

  Actually, the free trade with the US made it possible for more people to afford home appliances, clothes and television sets, Albatroz. Those things were EXTREMELY expensive in Mexico during the days of protectionism, from 1965 to 1989. My family had to smuggle in a refrigerator from the US in 1984, paying a bribe to the customs officer, because a new refrigerator was very expensive. After I got married (in 2001) I simply went to the store and bought one CASH, in Mexico. The item was actually made IN Mexico, but with parts made in Korea, Hong Kong and China.

  
  I'm sure that the rich get richer in Mexico, while the poor get less poor in Venezuela.

  Ahhh, nope. The rich get richer in Mexico, the poor get to increase in numbers in Venezuela, Albatroz. I work in a Mexican company that has hired a lot of people from Venezuela - running away fro, his Bolivarian "bliss", and they know Chavez is lining his pockets while people's purchasing power diminishes.

  
  You will forgive me, but I am a lot more sympathetic to the Venezuela model than to the Mexico one...

  I am not sympathetic to either one, but Venezuela sure attracts more fools than Mexico.

  Published: May 1, 2006 8:55 PM

• Peter

  Hey, how about we take up a collection to send Albatroz to Venezuela? :)

  Published: May 1, 2006 9:29 PM

• Albatroz

  Why is Chavez popular with the Venezuelan people? Ignorance? Schadefreude? Or could it be that poorer Venezuelans have now better access to education, health care, jobs, land, essential foodstuffs, than they ever had before? Are they so stupid that they not see that they are getting poorer, or are they finally seeing someone who uses some of Venezuela's wealth for their benefit?

  Published: May 2, 2006 2:41 AM

• Albatroz

  Sione,

  "Leave them alone"

  Leaving the poor alone has led to a lot of misery in the third world, but also in the US. You cannot take people with little education, poorly fed, in poor health, without access to credit, and tell them: "Compete!" They will end up being exploited by the richer, better educated, better related people, who get all the opportunities. You don't throw a lamb among the wolves and tell it to fight and to survive. Free trade will never turn a lamb into a wolf, nor an unqualified person into a prosperous businessman. Freedom alone will not create equal chances.

  Published: May 2, 2006 2:50 AM

• Fred Mann

  "Why is Chavez popular with the Venezuelan people? Ignorance? Schadefreude? Or could it be that poorer Venezuelans have now better access to education, health care, jobs, land, essential foodstuffs, than they ever had before? Are they so stupid that they not see that they are getting poorer, or are they finally seeing someone who uses some of Venezuela's wealth for their benefit?"

  People loved Roosevelt too, even though he confiscated their gold, ruined the banking system (further ruined it, that is), squandered the people's money on an A-bomb which necessarily targets innocent civilians by its very design and still haunts us today (eg the Iran "problem"), trampled the constitution, claimed dictatorial power (literally said "I will act" if Congress does not do what he wants), ... on and on.
  So, yes, IF the Venezuelans love Chavez, it is because they are ignorant of the costs of their "free" health care, food, education, etc.

  Published: May 2, 2006 3:29 AM

• averros

  Albatroz -- you're seriously confused and totally ignorant about the poverty and its causes.
  

  
  It is not leaving the poor alone made them to be that poor - it is the "help" of those who destroy the capital which makes people poor. The worst instances of the "help" you advocate have led to mass starvations and terror; the least "help" of that kind was precisely in the countries where poor are much better off than anywhere else.
  

  
  Read how poor in America are actually doing:
  

  
  http://www.heritage.org/Research/Welfare/bg1713.cfm
  

  
  Now compare that with any socialist hell-hole like the Soviet Union was. In which the lifestyle of American poor was accessible only to elite.
  

  
  Don't be an ignorant dumbass.

  Published: May 2, 2006 3:31 AM

• Sione Vatu

  Albatroz

  You speak for yourself whe you retreat into a failure's point of view like that. Your fear is for yourself...

  As someone from a remote, far off Pacific Island with negligible industry, few mineral assets, tiny population and no military power to speak of, even I KNOW you are wrong. I've seen and experienced what occurs when you leave people to themselves. Do not interfere. We do not want you. Our people are gradually getting wealthier and better educated in the ways of the World. You'd do well to emulate what millions of others are doing.

  Sione

  Published: May 2, 2006 4:46 AM

• Albatroz

  Sione,

  One thing is letting people alone in your island-state, or in the middle of Amazonia, where people have a long experience in survival. Another thing is letting them alone in the middle of New York, where there are few coconut trees, few bananas growing in the wild, and not much fishing or hunting in Central Park. Actually I strongly share your hope that your country and your people are left alone, hopefully without too many economical theories, Austrian or otherwise...

  Published: May 2, 2006 7:42 AM

• Albatroz

  Averros,

  Thank you for your kind words, worthy of the scholar you certainly are. Actually I was thinking more along the lines of Scandinavia, and not so much of the Soviet Union. But, obviously, to you Scandinavia is a hell-hole as bad as the Soviet Union. As to the poor in the US I still remember a short visit I made to the Bronx, a couple of years ago, and I couldn't help thinking how the stinking Swedes would be jealous if they could see those huge amounts of creative garbage all over the place, those beautiful decaying buildings, and specially the rats!... A unique ecosystem that must be preserved at all costs...

  Published: May 2, 2006 7:51 AM

• Albatroz

  Fred,

  Venezuelans would be really pissed if they knew someone was comparing Chavez to that stinking capitalist, F. D. Roosevelt...

  "IF the Venezuelans love Chavez, it is because they are ignorant of the costs of their "free" health care, food, education, etc."

  Would you care to outline what those costs are? And whether poor Venezuelans lived better before Chavez?...

  And, btw, would you be so kind as to tell me in which countries poverty was eliminated by means of your enlightened theories?...

  Published: May 2, 2006 7:57 AM

• Yancey Ward

  From Albatroz: My strongest belief is that giving everybody a decent standard of living..

  Ah, now we come to the heart of it, the socialist's dogma. The age old belief that the path out of poverty is having things given to you. Well, Albatroz, you are free to give all you like to the poor, even to the point of becoming poor yourself. Have you done so?

  Published: May 2, 2006 8:31 AM

• Albatroz

  Yancey,

  People live in communities, which means that all share in the work towards the common good, and all share in the wealth created by the community. In principle they should share in the benefits according to their contributions, but everyone must be entitled to that minimum necessary for a decent living. Which means that the most successful must contribute with part of their wealth to ensure that minimum for all. This is not a matter of charity, is a matter of justice. Since the richer people would rather not share any part of their wealth, the state must intervene to guarantee that sharing. The only thing that may be discussed is what share of the common wealth should be shared with the underprivileged. If this is socialism, than I am a socialist. But it could simply be seen as a matter of ethical behaviour. Those not willing to accept these views must be saying that starvation, ignorance and illness are the just payement of the less competitive in our community. A not very atractive type of society, if I may say so...

  Published: May 2, 2006 8:59 AM

• Yancey Ward

  Like I said, the old socialist's dogma. You are free to give all of your income to the poor that you do not need to live a basic life on. Have you done so?

  Published: May 2, 2006 9:20 AM

• Roger M

  Albatroz,
  It's a huge mistake to equate the government before Chavez in Venezuela with capitalism. I've read a lot of stories about how Latin countries are turning their backs on capitalism and returning to socialism. But the truth is that not a single country in Latin America has tried capitalism, especially not Venezuela. They made some cosmetic changes during the '80's, but that's all. The proper classification for Latin economies is traditional corruption, not socialist nor capitalist. Capitalism respects everyone's property, especially that of the poor, and strives to build governmental institutions lacking in corruption to protect property. In Latin America, as in most of Asia and Africa, wealthy people bribe government officials and judges so that they can steal all they want. The only choice Venezuelans have is between Chave'z corruption and corruption at the hands of the rich. The result will be the same either way; the poor suffer. Eventually, the rich will find ways to ingratiate themselves to Chavez and begin stealing again.

  Published: May 2, 2006 10:07 AM

• Roy W. Wright

  You guys keep arguing economic theory with Albatroz, but you're overlooking what he's made clear at several points in the thread: he has no ethical problems with theft. What kind of argument could possibly sway that kind of mentality?

  Published: May 2, 2006 10:23 AM

• Albatroz

  Capitalism, at least in the way Austrians see it, does not exist anywhere. Socialism, in its ideal form, neither. Countries must choose between corrupt capitalism and corrupt socialism, which is very unfortunate. However, once in a while, someone or something comes up that allows for an improvement in the living conditions of those who most need it. Hugo Chavez has been able to use a share of his country's enormous wealth to enable the poorer people in Venezuela to have access to education, to health care, to cheaper foodstuffs. This is obviously an enormous improvement on the previous situation, so that we can only praise his efforts. "Austrians", with their never applied theories, scorn Chavez's policies. Americans, only interested in guaranteeing a regular oil supply, would like to get rid of him. But the fact is that with Chavez Venezuelans have seen their lot immensely improved. In an imperfect world, Chavez was a good thing to happen. Especially as all alternatives would be a lot worse yhan he is.

  And I would like to repeat my challenge to all of you:

  "Would anyone be so kind as to tell me in which countries poverty was eliminated by means of your (Austrian) enlightened theories?..."

  Published: May 2, 2006 10:32 AM

• Yancey Ward

  Albatroz,

  If Chavez were really serious about improving the lot of people in Venezuela, then why hasn't he taken the state oil company, divided it into shares and given true, equal ownership in it to every citizen of Venezuela?

  Published: May 2, 2006 10:41 AM

• Albatroz

  Roy,

  "...he has no ethical problems with theft..."

  Have you ever thought about how land - the original source of all wealth - turned out to become some people's private property? The planet existed before Man ever appeared. Land, as a resource, must therefore exist for the benefit of all. But then appeared some people who laid claim to parts of the planet because they were the first people to lay a foot on those parts, or because they had better weapons. From a natural law point of view, the planet is common property, so that no one had the right to use parts of it for his exclusive benefit. Even putting unused land to some productive use does not give any rights, except that of recovering the investment made increased by a risk premium. But it does not entitle the user to sell it or to leave it in heritage. And before you start calling me a communist, go and read what John Stuart Mill wrote on this subject.

  So, theft is what capitalists have been doing for a long time, and the landed gentry before them. Theft is what Americans did to American Indians. Imposing the sharing of some wealth so that no one is left without means of survival, is not theft. Is simply justice.

  Published: May 2, 2006 10:52 AM

• Albatroz

  Yancey,

  As long as Chavez uses the oil wealth to improve the Venezuelans lot, it would seem more efficient for the state to own and run the oil company. With 25 million shareholders it might be difficult to run the company, and no advantage would come to the Venezuelans. Specially as that distribution of shares would have to go together with an impossibility of trading them. Otherwise soon the Americans would own most of it...

  Published: May 2, 2006 10:58 AM

• Francisco Torres

  Why is Chavez popular with the Venezuelan people? Ignorance? Schadefreude?

  Who SAID Chavez is very popular in Venezuela? He is not. If you rely on his own government's statistics to say that, then you are beyond hope.

  
  Or could it be that poorer Venezuelans have now better access to education, health care, jobs, land, essential foodstuffs, than they ever had before?

  Where did you get that idea? Are you talking about the SAME Venezuela that borders Colombia, or another Venezuela?

  
  Are they so stupid that they not see that they are getting poorer, or are they finally seeing someone who uses some of Venezuela's wealth for their benefit?

  They are neither, Albatroz. Chavez is a de facto dictator - it does not matter if the Venezuelan people are stupid or not.

  Published: May 2, 2006 11:02 AM

• Yancey Ward

  Why would it be difficult? The shareholders could agree to vote every year to determine the dividend level and to decide who runs the company. Doing this would increase efficiency since it would allow every individual to satisfy his/her own needs with the proceeds rather than having Chavez decide what to spend the money on.

  And they can't sell their shares? With every comment you make, you more clearly outline your true desire for dictatorship. People like you are just thugs, pure and simple.

  Published: May 2, 2006 11:05 AM

• Roger M

  Albatroz,
  You’re right. The poor in Venezuela are better off under Chavez than under the previous thieves, but only for the short run. Chavez has chosen to imitate Castro and join Cubans as some of the poorest people in the world.

  What countries have grown rich using Austrian principles? First, it’s important to know that Austrians didn’t originate their principles. As Rothbard and others show, Austrians rediscovered the economic thought of Late Scholastics, especially those of Salamanca, Spain in the 16th century. The Dutch Republic first implemented those principles and became the wealthiest, most powerful nation in Europe. England and America followed the Dutch. Since WWII, Japan, South Korea, Taiwan, Singapore, Hong Kong and now China have followed the same principles to some degree.

  The great thing about real capitalism/Austrian/Scholastic economics is that you don’t have to buy the whole package to get a lot of benefit. China is a perfect example. It still doesn’t have the rule of law, and corruption is awful, but the switch to limited property rights and limited markets has performed miracles for the country.
  

  Published: May 2, 2006 11:29 AM

• mikey

  Good observation, Roger M. All governments are kleptocracies, China and Russia have finally cottoned on to the fact that there is a lot more to steal if they grant their people some economic freedom.Here in the West our intrepid leaders are
  going in the opposite direction.

  Published: May 2, 2006 12:34 PM

• Fred Mann

  Albatroz,
  Does your redistributionist system apply to the whole world or just to communities?
  If it just applies to communities, how do you justify the huge wealth gaps between various communities. i.e. - how would the Socialist USA justify being so much wealthier than Ethiopia, whose citizens are FAR below the "poverty line" in the USA? Certainly it is easy to distrubute wealth worldwide these days.
  Anyway, I'll await your answer before going any further, as there are several possible responses.
  Also, I can't help but notice you did not answer Yancey's challenge:
  "You are free to give all of your income to the poor that you do not need to live a basic life on. Have you done so?"
  Well, have you?
  

  Published: May 2, 2006 3:04 PM

• Albatroz

  "Who SAID Chavez is very popular in Venezuela?"

  Various elections have said it. Chavez has won all of them, with independent observers stating those elections were fair and free. Enjoying near 70% support - according to polls - must mean something.

  "Where did you get that idea?"

  Can you prove that poor Venezuelans do not have now better access to education, health care and cheap food?

  "The shareholders could agree to vote every year "

  25 million shareholders voting in a shareholders meeting?... Can you really believe that possible?

  "And they can't sell their shares?"

  If they could they would no longer be shareholders and the national oil company would soon stop being national. Therefore it is much better for the state to control the oil in the name of all Venezuelans. So far that state ownership has had no negative consequences for the Venezuelans. In fact they share in the oil wealth, something that never happened before.

  "Since WWII, Japan, South Korea, Taiwan, Singapore, Hong Kong and now China have followed the same principles to some degree"

  You mention here some of the most protectionist countries in the world, which have developed under the state's protection. For most of them freedom of trade was only freedom to export, not to import.

  "The poor in Venezuela are better off under Chavez than under the previous thieves, but only for the short run"

  Why do you say that? What do you know that I don't know, and which justifies that prediction?

  "Does your redistributionist system apply to the whole world or just to communities?"

  Redistribution should work worldwide, but we lack a planetary authority to do it. But if, for instance, all African countries decide that industrialized countries can only go on selling in Africa if they start producing in Africa, you soon would see some wealth distribution on a planetary scale.

  "You are free to give all of your income to the poor that you do not need to live a basic life on. Have you done so?"

  That would be a meaningless gesture. I pay taxes and am willing to go on paying them. All that is necessary is for governments to use that tax money to assist those in need.

  Published: May 2, 2006 3:33 PM

• Yancey Ward

  A meaningless gesture? It would be confirmation of your concern for those in poverty- in other words really practicing what you preach. However, rather than do that, you wish to retain a portion of your income by trying to steal some of mine and giving it away. If people are entitled to a level of living for which they have not worked or planned for, then they are entitled to any of your income that is above that level, and since you have not volunteered to give it away, then I must conclude you really are not serious about giving the less fortunate a decent living, but more concerned about forcing others to do the giving.

  Published: May 2, 2006 3:55 PM

• Roger M

  Albatroz,
  "The poor in Venezuela are better off under Chavez than under the previous thieves, but only for the short run." Why do you say that? What do you know that I don't know, and which justifies that prediction?

  My prediction is based on Cuba's current economy. It's one of the poorest places in the world.

  Yes, Japan, South Korea, Taiwan, Singapore, Hong Kong and China have been, and are very protectionist. But here's something to think about that's very controversial: Trade follows economic development; it doesn't cause it. Counting me, there may be two economists in the world who believe this, but I'm convinced of it. Trade may help, but it's far from being important. The keys to economic development are private property rights and reasonably honest institutions to protect them, especially the rights of the poor.

  If you'll recall, Latin America tried protectionist policies in the 1960's and '70's under the economy policies promoted then as import substitution. They were a disaster. The US is protectionist, too, but it hurts our growth, not helps it.

  Once a country gets its economy growing via property rights and institutions, it will naturally trade.

  Have you noticed how desperately poor most oil-rich countries are? That's because the state owns the oil and people spend all of their energy and money on getting a piece of it from the government. If Venezuela would sell it's oil industry to private companies, it could use that income to do a lot for the poor, for example, help them buy land to farm or start businesses with low interest loans. Then it wouldn't pay to bribe state officials for a piece of the oil revenue. Everyone would concentrate on growing their own businesses via productivity increases.

  Published: May 2, 2006 4:06 PM

• Francisco Torres

  Various elections have said it. Chavez has won all of them, with independent observers stating those elections were fair and free. Enjoying near 70% support - according to polls - must mean something.

  Do, it does not. Read Victor Hugo's letter to Napoleon III, where he states that truths cannot be changed by elections:

  Now, get seven million five hundred thousand votes to declare that two and two make five, that the straight line is the longest road, that the whole is less than its part; get it declared by eight millions, by ten millions, by a hundred millions of votes, you will not have advanced a step. Well, then, now you are going to be surprised. There are axioms in probity, in honesty, in justice, as there are axioms in geometry; and the truths of morality are no more at the mercy of a vote than are the truths of algebra. The notion of good and evil cannot be resolved by universal suffrage. It is not given to a ballot to make the false become the true and the unjust the just. The human conscience cannot be put to the vote. ...

  So, NO, Albatroz... election results amount to naught when it comes to truths.

  
  Can you prove that poor Venezuelans do not have now better access to education, health care and cheap food?

  Ahnn, no: HE WHO ASSERTS, MUST PROVE. You made the assetion, Albatroz. It is not up to me to prove a negative; the burden of proof rests on the shoulders of those who make extraordinary claims. And an extraordinary claim it is, indeed, to say that Venezuelans are living in pure bliss.

  Published: May 2, 2006 4:14 PM

• Fred Mann

  Albatroz writes:
  "Redistribution should work worldwide, but we lack a planetary authority to do it."

  Well, at least you reached the logical conclusion. "Fair" redistribution requires world government.
  It would take more space than is available on the internet to describe the problems with world government, but here are just a fraction of the bullet points:
  Extraordinary power concentrated in a few hands, massive bureaucracy and waste, nowhere to run if the government becomes tyrannical (remember the govt. MUST have an "enforcemnt" wing -- i.e. an army), the impossiblility of being represented (the world govt. would be "representing" 6 billion people), and hence the impossibility of checking the government's growth, the maximization of the Laffer Curve (in favor of the government, of course), on and on and on and on ...
  I'm SURE you haven't thought all of that through.
  Now what can we say about redistribution?
  Well, the rich among us are either extremely motivated and productive, or they are theives (like high government officials who always seem to make much more than the average citizen -- i.e. US Senators make over $1000 per day of work/grandstanding -- but I'm sure that's just a historical anomoly, right?). Now, if we are going to redistribute the wealth of the theives, I'm all for it. But I'm sure that's not what you're talking about. You love the government so much that you'd like to create a World Government. No, you'd like to stick it to the productive rich. Well, if you do that, you can guarantee that production will be hindered for two reasons (at least).
  One, you remove incentive to earn beyond a certain amount, as the excess will be taxed away. If you don't like that, then you just don't like human nature. But not liking nature does not change it.
  Secondly, by definition, you are removing funds from effective and valued production into consumption. The net effect is a decrease in savings and/or capital goods. Savings and a general increase in available goods IS wealth. More goods available = cheaper goods and a higher standard of living ... i.e. a reduction in poverty.
  So, the effect of redistribution is to give the favored group a TEMPORARY BENEFIT AT THE EXPENSE OF A BETTER FUTURE!! As time goes by, the difference between the wealth that DOES exist and the higher levels of wealth that WOULD exist continues to grow. Goods that are not produced are goods that cannot be consumed.
  Your redistributionist system is the ideal recipe for slow growth/stagnation/everlasting-poverty (at best), AND tyranny (in the form of World Government). In this scenario, we ALL lose ... rich and poor alike.
  The end.

  Published: May 2, 2006 9:54 PM

• Albatroz

  Fred,

  No, I do not defend a world government. The fact that I recognize that traditional distribution would require such a body doesn't mean I am in its favour. It means also that an alternative means must be found to achieve a fairer distribution of wealth. Personally I think that regional associations of nation-states, with similar levels of development and common interests, should impose on richer countries the obligation of producing locally for local sale. Multinationals wishing to sell in Africa, or Asia or Latin America, should set up local producing facilities. Otherwise they would be banned from selling locally. This would stimulate industrialization and economical growth, as well as a form of wealth distribution. The worst form of tiranny and discrimination practiced by developed countries is making it virtually impossible for local firms to appear to satisfy local demand. Only large countries, such as China, India and Brazil have somehow escaped this form of neo-colonialism. I have already stated that I am in favour of sacrificing efficiency - up to a point - in order to achieve a better balanced distribution of wealth. This regional import substitution process is, in my view, an example of such an acceptable sacrifice.

  Published: May 3, 2006 1:33 AM

• Fred Mann

  Albatroz writes:
  "I have already stated that I am in favour of sacrificing efficiency - up to a point - in order to achieve a better balanced distribution of wealth. "

  Well then what do you have to say about my position on redistribution in general? i.e. (from above post):

  Now what can we say about redistribution?
  Well, the rich among us are either extremely motivated and productive, or they are theives (like high government officials who always seem to make much more than the average citizen -- i.e. US Senators make over $1000 per day of work/grandstanding -- but I'm sure that's just a historical anomoly, right?). Now, if we are going to redistribute the wealth of the theives, I'm all for it. But I'm sure that's not what you're talking about. You love the government so much that you'd like to create a World Government. No, you'd like to stick it to the productive rich. Well, if you do that, you can guarantee that production will be hindered for two reasons (at least).
  One, you remove incentive to earn beyond a certain amount, as the excess will be taxed away. If you don't like that, then you just don't like human nature. But not liking nature does not change it.
  Secondly, by definition, you are removing funds from effective and valued production into consumption. The net effect is a decrease in savings and/or capital goods. Savings and a general increase in available goods IS wealth. More goods available = cheaper goods and a higher standard of living ... i.e. a reduction in poverty.
  So, the effect of redistribution is to give the favored group a TEMPORARY BENEFIT AT THE EXPENSE OF A BETTER FUTURE!! As time goes by, the difference between the wealth that DOES exist and the higher levels of wealth that WOULD exist continues to grow. Goods that are not produced are goods that cannot be consumed.
  Your redistributionist system is the ideal recipe for slow growth/stagnation/everlasting-poverty (at best).In this scenario, we ALL lose ... rich and poor alike.

  I couldn't have said it better myself.
  Anyway, can you refute this?

  
  

  Published: May 3, 2006 9:49 PM

• Albatroz

  Any redistribution effort will have negative consequences on what growth is concerned. The question is whether it is better - from the society point of view - to maximize growth that will benefit disproportionately the richer, or to sacrifice some of that growth in order to enable most people to enjoy a decent standard of living. As far as I see it, we shouldn't take the point of view of the more aggressive, more competitive members of society, as the standards for all. Those competitive members of society need as much freedom as possible, as much space as possible to function, to create, to produce, to increase their wealth. I can understand that. But because they are so competitive and successful, they will tend to concentrate a disproportionate amount of wealth and power, which will tend also to limit other people's freedom and access to wealth. A freer society, from a purely economical point of view, will also be a more unequal - and even unjust - society. Maximizing the good of a few is not equal to maximizing the good of all. It is up to the state to try and create a more balanced society, by channeling some of the richer's wealth towards the promotion of the common good. You seem to think that this would be achieved by giving free rein to the more capable. I, being suspicious of human nature, tend to think that free rein would not be used for the common good but for self-enrichment.

  Published: May 4, 2006 3:15 AM

• Peter

  Albatroz: if you had a choice between the following two alternatives, which would you prefer:

  1) every poor person gets $1000, and every rich person gets $500,000.

  2) every person, rich or poor, gets $5.00

  Which is "better - from the society point of view"?

  Published: May 4, 2006 4:52 AM

• Albatroz

  I do not think that the rich should get anything beyond what they are capable of getting for themselves - except public goods, like security, justice, etc. The state only has to care for those who are not sufficiently capable of caring for their basic needs by themselves.

  Published: May 4, 2006 9:06 AM

• Roger M

  Albatroz,
  I think you should know that Austrians don't oppose redistribution of wealth by private individuals; just that done by government. If individuals want to give of their own wealth to the poor, that's very commendable. The real argument is over whether or not the government has the right to play Robin Hood and take from the rich to give to the poor. Not being a hard-boiled libertarian, I think the gov has that right, but it should be limited.

  That said, the focus in economics should not be on redistribution, because it's not the most important problem and it betrays a false concept of wealth, what I call pokernomics. In poker, the winner takes all and he gets it from the losers. Applied to economics, it says that no one can gain wealth except by the loss of another. This view of wealth has dominated thinking on economics at least since the ancient Greeks, as is still the most popular view. But as history has shown, wealth is created through increased productivity at the expense of no one and to the benefit of all. Productivity, then, is the important issue, not redistribution. How do you improve productivity so as to improve the lives of all at the expense of none? Many nations have found the answer, and the principles are generalized under the discipline of Austrian economics.

  Published: May 4, 2006 9:19 AM

• Roger M

  P.S. Albatroz, If you really want to understand the causes of inequality in the US, check out this book: ON THE GAP BETWEEN THE RICH AND THE POOR by Young Back Choi, available at http://www.aier.org/publicationlist.html. It's the best I have ever read on the subject.

  Published: May 4, 2006 9:23 AM

• Vince Daliessio

  Albatroz sez;

  "I do not think that the rich should get anything beyond what they are capable of getting for themselves - except public goods, like security, justice, etc. The state only has to care for those who are not sufficiently capable of caring for their basic needs by themselves."

  The devil is in the details, Albatroz - what do you mean by "basic needs"? What do you mean by "public goods"? I submit that the only people in America unable to meet their "basic needs" are the infirm and the insane - the rest are perfectly able to meet their own basic needs if they have to.

  As for the rich, why do you want them to get a free ride on the rest of us for 'security' or 'justice'? Shouldn't they pay their full share for those things themselves?

  Published: May 4, 2006 9:27 AM

• Albatroz

  Roger,

  "Productivity, then, is the important issue, not redistribution."

  I might agree, if productivity gains benefited everyone, although not equally. The point is that we may be coming close to the end of economical growth. Resources, as every economist knows, are scarce, and not only from a theoretical point of view. Some people claim that existing resources would already be insufficient for everybody to have a consuming pattern similar to that existing in Europe and in the US. That being so, for the poorer to have a real increase in standards of living, the better off would have to sacrifice something. Most demographers accept that the world population will inevitably grow to close to 10 billion people, from the present 6.3 billion, so that this is a real problem. We must start getting used to the fact that sharing is going to be essential, and that if it is not done willingly it will end up by being imposed. This doesn't mean that gains of productivity will not be feasible, but they may become a lot harder to achieve.

  Published: May 4, 2006 12:24 PM

• Roger M

  Albatroz,
  Someone has been predicting the end of natural resources for the past century. I'm old enough to remember the end of oil in the 1970's. Those predictions usually sprout when prices climb. Then, high prices spur the search for more and within a few years we have another glut.

  But let's assume that oil has peaked and we'll find no more new sources anytime in the future. Should we ration the current supply and fix prices at low enough levels that the poor can afford it? Experience teaches that the poor would create a black market and sell their rations to the wealthy at free market prices. Why not just let the market work and subsidize the poor? It would produce the same effect.

  Besides, if the price of oil, and hence gasoline, climb high enough, hydrogen and ethanol will become excellent substitutes, neither of which is limited.

  I admire your concern for the poor, especially those in third world countries. My first field of study was religion and my concern for the poor led me to study economics. My favorite class was called "Third World Economic Development." I read everything I could get my hands on. But I noticed a disconnect between neo-Classical econ and development econ, especially the works of Peter Bauer. Development econ, the new institutional school, and Austrian econ all have a lot in common, and I think you'll find they have the answer to poverty, and it's not redistribution.

  Here's a question: Why does Tanzania hold the world's record for aid, but remain one of the world's poorest countries?

  Published: May 4, 2006 12:51 PM

• George Gaskell

  Why does Tanzania hold the world's record for aid, but remain one of the world's poorest countries?

  Because it holds the world's record for aid.

  Every dollar in aid is one more reason for the recipients not to modify their economic behavior.

  Their failure to modify their economic behavior (or, more precisely, the failure of the thugs who run the country to modify their behavior) is what keeps them in long-term poverty.

  Continuing to give so-called "aid" under these circumstances is monstrous. I generally don't believe in the concept of a "crime against humanity" (how is that different from an ordinary crime?), but if such a thing existed, that would be it.

  Published: May 4, 2006 2:01 PM

• Fred Mann

  Albatroz,
  If you don't mind, I'd like to set aside the doomsday scenario you outlined for now and focus on the effects of redistribution.
  You say, "... because they [rich entrepeneurs] are so competitive and successful, they will tend to concentrate a disproportionate amount of wealth and power, which will tend also to limit other people's freedom and access to wealth."
  I don't think this is correct. You are viewing the market as a zero-sum game. It is most definitely NOT a zero-sum game. If an entrepeneur earns $50 million (an "unacceptable" amount by your reckoning), he has NOT taken $50 million from "the people". He has provided $50 million worth of goods or services to "the people". The $50 million still exists, but in addition, we have a new stock of wealth in the form of goods and/or services provided by the entrepeneur.
  In the free market, the entrepeneur is only successful insofar as he provides goods or services deemed valuable by the people. He has no "power" over them in the way that a state does. Also, the free market naturally organizes production and rewards entrepeneurs who meet the peoples' greatest needs. In an underdeveloped country where starvation is prevalent, the entrepeneur who makes smaller iPods will NOT be more successful than the entrepeneur who figures out a way to provide food at a lower cost.
  Finally, as I have tried to make clear above, " ... the net effect of redistribution is to give the favored group a TEMPORARY BENEFIT AT THE EXPENSE OF A BETTER FUTURE!! As time goes by, the difference between the wealth that DOES exist and the higher levels of wealth that WOULD exist continues to grow."
  Therefore redistribution actually HARMS EVERYONE (including the poor) in the long run!!!
  If you have the time, I think you should read Rothbard's paper on egalitarianism (.pdf) : http://mises.org/journals/rae/pdf/rae8_2_3.pdf .

  Published: May 4, 2006 3:35 PM

• Albatroz

  Let's not forget that the planet Earth is limited. If the primary system is closed, we cannot expect a sub-system - the economical system - to be an open system. Sooner or later we will be pushing against the wall. And it could be a lot sooner than most people think. The idea that there can be unlimited growth is a bit naive, at best.

  Published: May 4, 2006 3:49 PM

• Albatroz

  Now about development aid:

  Industrialized countries contribute, on average, 0.42% of GNI to development. The US contributes with 0.17% of GNI. Not exactly a staggering amount... As to Tanzania, it was only the 12th biggest receptor of aid, in absolute terms. As a percentage of GNI, only in Africa there were 15 countries that received more aid than Tanzania. It would seem that some people don't get their facts right, so how can we argue with them?... The least we are entitled to expect from people on a serious blog like this is that they do not lie about facts, and that they make a serious attempt at being honest about their arguments. What the figures I give here (from OECD sources) show is that rich countries practically ignore poorer countries, and that the amounts of aid given are absolutely ridiculous.

  Published: May 4, 2006 4:13 PM

• George Gaskell

  Sooner or later we will be pushing against the wall.

  So, are we to understand that anti-free-market governmental policies are designed to save humanity from this supposedly inevitable limit the human race will eventually be placing on planet earth?

  That all of these socialist restrictions are designed and implemented for the purpose of hampering economic growth and development?

  That the collectivists among us are so wise and far-seeing that they have foreseen our doom, can actually predict the exhaustion of the limited capacity of the Earth, and they are only trying to save us from ourselves?

  That's ... nuts, frankly.

  In any event, is this an admission that socialist governments do, in fact, hamper economic growth and development? I mean, if that's their purpose, then that's their intended effect, right?

  That would be significant because, a certain segment of the pro-collectivists contend that free markets are inherently self-destructive and only "planned" or "managed" economies can continue to grow.

  Which is it? Is the free market a self-destructive failure, or is it too successful for the Earth to bear?

  Published: May 4, 2006 4:17 PM

• Albatroz

  Does George Gaskell believe then that there can be unlimited economic growth?... Can he explain how that miracle will be achieved, seeing that the planet's resources are finite?... If it has something to do with ET's or UFO's I would rather not know...

  Published: May 4, 2006 4:43 PM

• George Gaskell

  I asked you first:

  Are socialist policies designed and implemented for the purpose of hampering economic growth and development? For the moment, let's set aside the notion that they may attempt to do so as a gesture of grace, to magnanimously save us from hitting this "wall" you mentioned. Do they hinder growth or not?

  The flip side of this question, as I mentioned, is: Is a free market economy a self-destructive failure, or is it too successful for the Earth to bear?

  Published: May 4, 2006 4:52 PM

• Roger M

  Albatroz,
  I wasn't lying about aid to Tanzania. I got it from a reliable source that in the 60 years since WWII, Tanzania holds the record for total aid. I didn't make that up. I'll try to find the source for you. Meanwhile, are you looking at just recent figures? Try adding up all of the aid for the past 60 years.

  You write: The idea that there can be unlimited growth is a bit naive, at best. You base this on the idea that the earth is a closed system. Technically it's not; we get an infusion of energy from the sun. But even if it were a closed system, that doesn't limit economic growth. As you know, agriculture and manufacturing have become very small portions of the economies of rich nations. Most economic growth take place in services. In turn, rich countries use far fewer natural resources per capita each year because we use them more efficiently. So no, I'll not concede that unlimited growth is naive because economic growth does not depend on the availability of natural resources, but on the imagination and freedom of the planet's people.

  Published: May 4, 2006 6:12 PM

• Fred Mann

  Albatroz,
  It really looks like you are shifting gears in order to avoid the logical conclusion that redistribution HARMS the poor in the long run (as I attempted to outline above).
  Even if you believe the world is about to end, that does not change the facts about the necessary effects of redistribution!
  As Mises noted in Human Action, it can be useful to imagine an "evenly rotating economy" in order to elucidate principles. The same can be said about Robinson-Crusoe-type scenarios frequently employed by economists. So even if you believe that the end is near and that the world I'm talking about won't exist in a few years, you can still address the question!!!
  

  Published: May 5, 2006 1:03 AM

• George Reisman

  The entire earth is made of solidly packed "natural resources,"—i.e., chemical elements—from the upper limits of its atmosphere to its core, 4,000 miles straight down. The key question is what fraction of this enormity provided by nature is economically useable and accessible by man? The answer to that question depends on the state of scientific and technological knowledge and the quantity and quality of capital equipment. It is clearly enlargeable as the state of science and technology and the supply of capital equipment improve. Up to now, we have just been scratching the surface (the deepest gas wells go down only about 10 miles) and the part of the surface we've been scratching has been only the roughly 30 percent of the earth's surface constituted by land, and by no means anything close to all of that.

  Indeed, strictly speaking, nature's contribution to natural resources is all of the matter and energy in the entire universe, with the question being what fraction of that can man gain sufficient knowledge of and power over to serve his needs and wants. Understood this way, the potential supply of economically useable, accessible natural resources truly approaches infinity.

  For elaboration and development of the implications of these points, please see pp. 63-76 and 90-91 of my book Capitalism: A Treatise on Economics, online in pdf format at www.capitalism.net and mises.org.

  Published: May 5, 2006 11:11 AM

• Albatroz

  Presumably - and very quickly, too - the energy spent exploiting those "near infinite" resources would be of such magnitude that it would be umpratical and uneconomical to do so. Beyond certain limits (which, I agree, can be expanded up to a point) those "resources" no longer are resources because they cannot be used. I do not think that Prof. Reisman was successful in doing away with my objection.

  Published: May 5, 2006 11:23 AM

• Yancey Ward

  What objection, Albatroz. Even if you are correct, so what? If you are correct, then humanity will die out regardless of what action we take, either free markets or static living- the resources run out anyway.

  Published: May 5, 2006 11:31 AM

• Francisco Torres

  Does George Gaskell believe then that there can be unlimited economic growth?

  There can be unlimited economic growth. Economic growth is a measure of how many goods are produced, but these do not have to be physical goods.

  
  ... Can he explain how that miracle will be achieved, seeing that the planet's resources are finite?

  Well, HOW finite? Can you tell? Because if you are objecting, the logical conclusion is because you know how finite are the resources.

  
  ... If it has something to do with ET's or UFO's I would rather not know...

  It has to do with the issue that you are thinking in terms of the same goods as they are created NOW, later than goods invented or created LATER. Before, computers used 18,000 vacuum tubes and weighed 40 tons. Now you have the same computing power in a cheap $5.00 calculator. The amount of resources spent on one outweighs the resources used for millions for the other. This means you can ration resources in the most eficient way, but it cannot be done OUTSIDE a price system.

  Published: May 5, 2006 11:36 AM

• Francisco Torres

  
  Yancey, it is rather pointless for you to point out the irrelevance of Albatroz's objection. Even if resources were finite up to a point where we will ran out of land and water in 10,000 years or 1,000,000 years, he already made his mind that "solidarity" based systems are better - meaning high tax, welfare systems. HOW do these systems ration resources BETTER than a totally free, market price system, he does not care nor will he give you an answer, because all of this is purely rethorical.

  The most frightening fact is that Albatroz already established he is a teacher of economics and social science, meanign he very likely is MISshaping the minds of young people as we speak.

  Published: May 5, 2006 11:41 AM

• George Reisman

  The supply of economically useable, accessible energy is indefinitely expandable along with the supply of economically useable, accessible chemical elements. It is a question of enlarging the fraction of the virtual infinity of energy supplied by nature concerning which which we have sufficient knowledge and over which we have sufficient power to direct it to the satisfaction of our needs and wants. Again, this depends on the state of scientific and technological knowledge and capital equipment. For further explanation, see the same references as before.

  Published: May 5, 2006 11:41 AM

• Roger M

  Dr. Reisman makes some excellent points about the unlimited nature of natural resources. I would only add what I mentioned before that natural resources are a very small part of mature economies today and will grow smaller. Almost all growth will come from services.

  Published: May 5, 2006 11:54 AM

• Fred Mann

  Albatroz,
  Austrian economics is EXPLICITY concerned with the problems of scarcity ... scarcity of resources, scarcity of time, etc.. By saying that resources are limited, you are in no way refuting Austrian economics or its applications. If anything, you are confirming the validity of our arguments.
  So again, I'd like to see you refute the arguments against redistribution that I outlined above.

  Published: May 5, 2006 12:15 PM

• M E Hoffer

  "The most frightening fact is that Albatroz already established he is a teacher of economics and social science, meanign he very likely is MISshaping the minds of young people as we speak."

  Francisco,

  Good point.

  One would be better served panning for Gold in the river emanating from their kitchen faucet, than to continue wasting precious time attempting to pry open the lid of his unseeing eye.

  Published: May 5, 2006 1:11 PM

• Albatroz

  "Again, this depends on the state of scientific and technological knowledge and capital equipment."

  Yes, that's the problem. Let's not forget that we have been struggling for 50 years to control nuclear fusion, and we still didn't get there. Let's not forget that we still do not control something as simple as direct solar power. Let's not forget that to use hydrogen - the proverbial alternative power source - we must put more energy into the production process than we could get out by using that hydrogen. We may dream as much as we wish about the wonderful things we will do once we are wiser. But let's not be over optimistic about our future scientific and engineering capabilities. If what Prof. Reisman said was true, we would already have been visited by extraterrestrials from some planet where the secrets of eternal power and growth had been discovered. The chances are that we have already discovered most of the energy sources that can ever be available to us, although some of them only on a theoretical level. And things being as they are, the chances are that those energy sources, once they are available, will be used to benefit only a fraction of mankind. The others will continue being exploited and starved in the name of freedom and free trade...

  Published: May 5, 2006 5:47 PM

• Albatroz

  Fred,

  "Austrian economics is EXPLICITY concerned with the problems of scarcity ... scarcity of resources, scarcity of time, etc.."

  Prof. Reisman does not seem to aggree to the existence of such scarcity. Which of you two represents the real Austrian economics?...

  Published: May 5, 2006 5:53 PM

• Albatroz

  Francisco,

  "...he already made his mind that "solidarity" based systems are better - meaning high tax, welfare systems. HOW do these systems ration resources BETTER than a totally free, market price system, he does not care nor will he give you an answer, because all of this is purely rethorical."

  "Solidarity" is not meant to ration resources, but to allow for a more equitable distribution of those resources. From my point of view, resource management requires the use of only those resources that can be completely recicled or that are renewable. An exception can be made for the use of solar power, since it will last as long as the sun, and that we need not concern ourselves with our Earth after the sun goes out...

  As to my teaching functions, I can assure you that my students enjoy total freedom of thought, something that some of you seem to think that I should not be allowed to have...

  Published: May 5, 2006 6:10 PM

• George Reisman

  Your standard seems to be that if we haven't solved everything by now we never will. What we have solved, at least in the capitalist economies of the world, is that people can leave their home or office, get into an automobile, and within a few minutes be driving down a modern superhighway at 70 miles per hour, listening to a symphony orchestra while they go. That they can walk into a dark room, flick a switch, and see the room flooded with light. That they can flick another switch and see an event going on thousands of miles away. That they can pick up a phone and talk to their loved ones, who also may be thousands of miles away, and yet hear them as clearly as if they were in the next room. That they can open a refrigerator door and have food that has been brought from around the world.

  If you need further examples, they are readily available. What they all add up to is that we are already living in a world that a few generations ago would have been believed to belong strictly to the realm of science-fiction fantasy.

  Take off the shackles of government, inspired by hatred-eaten mediocrities, and the free incentivized human intelligence of businessmen and capitalists will provide the whole population of the world not only with what the masses in the United States, Western Europe, and Japan already enjoy but much, much more, generation by generation.

  Prof. da Silva, you really need to enlarge your intellectual horizons. You know nothing but the perspective of Marxism and exploitation. Read Mises, read Ayn Rand, read my book. Learn a different perspective. Learn that scarcity means that no matter how much we have, we shall never have enough, because man's life requires continuous thinking and continuous improvement.

  Published: May 5, 2006 7:22 PM

• George Gaskell

  my students enjoy total freedom of thought, something that some of you seem to think that I should not be allowed to have...

  If I had a nickel for every time some lefty academic complained that his rights to free "thought" and/or speech were violated because someone disagreed with and criticized him, I'd have enough money to develop my own working cold fusion reactor.

  By the way, sir, you never answered my question: is the problem with a free market economic order that it is unstable and self-destructive (as the Marxists and New Dealers of old said), or that it is so successful that it would continue to grow until it reached the limit of the Earth's capacity?

  (In case you haven't caught on, the question is something of a trap. No matter how you answer, you are wrong. Trying to compare economic growth to the natural resource "wall" you are attempting to describe is like comparing apples and oranges. Actually, that does an injustice to similarities between apples and oranges. It's like comparing apples and existentialism. The two have little or nothing to do with one another. Economic growth is a measure of the extent to which the billions of people on Earth manage to coordinate their productive activity with one another. Economic growth is the extent to which these coordinated behaviors generate higher-order goods, the extent to which consumption can be delayed by longer and longer time preferences. None of this necessarily requires the destruction of natural resources, if by destruction one means the consumption of resources that aren't ultimately replenished by the radiant energy of the sun. In any event, coordination of the mutually-beneficial productive activities of six or seven billion people can only be accomplished via economic liberty. A moment's sober thought should lead any intelligent person to accept this conclusion as not only true but rather obvious.)

  Published: May 5, 2006 7:38 PM

• Fred Mann

  Albatroz writes:

  "Let's not forget that we have been struggling for 50 years to control nuclear fusion, and we still didn't get there."

  Let's also not forget that we struggled with flight for thousands of years, but now we can fly around the world and send unmanned craft outside of the solar system! How long until we can send men out there? Who knows?

  Then Albatroz writes:

  "The chances are that we have already discovered most of the energy sources that can ever be available to us, although some of them only on a theoretical level."

  You've really outdone yourself here!
  After thousands and thousands of years of relatively steady progress (even exponential progress), Albatroz has declared that humans have reached a dead end!!! Nevermind that progress still continues at an unprecedented rate even as we speak. Sorry guys ... it's over. Albatroz says so.

  "Prof. Reisman does not seem to aggree to the existence of such scarcity. Which of you two represents the real Austrian economics?..."

  I'm sure Reisman would agree with me that we don't have an infinite amount of energy resources at our immediate disposal. Hence, various forms of energy have their price. HOWEVER, the point I believe he was trying to make is that the Universe IS infinite, and we do not AT PRESENT know how much of that Universe we will be able to utilize in the FUTURE. Of course, considering the fact that you think humans can/will no longer make any progress, it is no surprise that this distinction has evaded you.
  I also can't help but notice that you STILL have not answered my objections about redistributionism or George Gaskell's question about the true intent of your programs ... to wit -- " Are socialist policies designed and implemented for the purpose of hampering economic growth and development? For the moment, let's set aside the notion that they may attempt to do so as a gesture of grace, to magnanimously save us from hitting this 'wall' you mentioned. Do they hinder growth or not?"

  Published: May 5, 2006 9:31 PM

• Peter

  From my point of view, resource management requires the use of only those resources that can be completely recicled or that are renewable.

  Why? If everyone actually followed that rule, non-replenishable resources would never be usable by anyone, so what possible difference would it make if they were there or not? What would it matter if they were there by unusable, never existed in the first place, or used to exist but had been used up by previous generations? It seems to me, your view is indistinguishable from the view that we should use up all possible resources as fast as possible, so that future generations will have to make do with only replenishable ones :)

  Published: May 5, 2006 11:07 PM

• Peter

  "there by unusable" should be "there but unusable", of course.

  Published: May 5, 2006 11:10 PM

• Albatroz

  Let's walk into the "trap"...

  "is the problem with a free market economic order that it is unstable and self-destructive (as the Marxists and New Dealers of old said), or that it is so successful that it would continue to grow until it reached the limit of the Earth's capacity?"

  The key word here is "successful". Is an atomic bomb "successful" because it kills everything that moves? If "successful" means being capable of achieving what it was designed for, then free market economy - without saveguards - is both self-destructive and successful. It is self-destructive because unrestricted competition will destroy competition, and it is "successful" because it will end up using all available resources, leaving only a desert behind.

  Let's immagine an island with one wolf and 50 sheep. The successful wolf will kill - and eventually eat - all 50 sheep. Afterwards it starves... If you tell me that the successful wolf will let the sheep breed, so that he will always have meat to eat, then the wolf will have been converted to the principle of renewable resources... But the wolf is a killing animal. His success will be measured in terms of how quickly and how efficiently he will kill and eat the 50 sheep. So, he starves...

  Of course Prof. Reisman will say that, eventually, a flying saucer will land on the island with more sheep, because there is an enormous amount of sheep throughout the universe... The question is: will the wolf still be alive?...

  Published: May 6, 2006 6:27 AM

• Albatroz

  "If everyone actually followed that rule, non-replenishable resources would never be usable by anyone, so what possible difference would it make if they were there or not?"

  May I point out to you that Man is not the only species on Earth? Ant that everything on our planet is part of a global ecosystem, and that we should strive to preserve it? Unless our survival would depend on the use of those non-replenishable resources, my view is that we should leave them alone. However, I am not a fundamentalist on this. For instance, seeing that oil is probably of little use to anybody but us, I would have no problems with its full use by us. But I think that its substitution by an alternative, preferably renewable source, should have been prepared long in advance of its exhaustion. But because oil has been a relatively abundant and cheap resource, free market fanatics have refrained from using scarce financial resources in developping those alternatives. As a result we may find ourselves in an energy crisis, paying more than we had expected for the remaining oil, and without a short term alternative. Dumb, I would say.

  Published: May 6, 2006 6:44 AM

• Albatroz

  This should not be necessary, but to avoid misrepresentations, I am not a marxist and I am not against market mechanisms. I am, however, against unrestricted free trade. And I am against maximizing satisfaction for a minority at the cost of the majority. My philosophical foundation is not Marx, it is the Church's social doctrine, although I am not a catholic.

  Also I have seen a few attempts at supporting one´s views on the opinion of well or not so well known authors. I have refrained from entering into the "quotation contest" because there is a nearly unlimited number of sources supporting your and my views. You know them and I know them. We can always go back and reread them, if we feel like it. It is more interesting to use one's own brains in discussing these matters.

  Published: May 6, 2006 6:58 AM

• Albatroz

  "Prof. da Silva, you really need to enlarge your intellectual horizons."

  I am delighted that Prof. Reisman has decided to assist me on that... Actually that´s why I came to your discussion blog. But I was not prepared to have the "sharia" thrown at me...

  Having been confronted with the idea that resources are unlimited because the Universe is enormous, has opened up undreamed off possibilities. Why should we care about our little planet when there are billions of galaxies out there?...

  Pity Prof. Reisman doesn't mention those million of people who cannot "leave their home or office, get into an automobile, and within a few minutes be driving down a modern superhighway at 70 miles per hour, listening to a symphony orchestra while they go." Those who cannot "walk into a dark room, flick a switch, and see the room flooded with light." Those who cannot "flick another switch and see an event going on thousands of miles away." Those who cannot "pick up a phone and talk to their loved ones, who also may be thousands of miles away, and yet hear them as clearly as if they were in the next room." Those who cannot "open a refrigerator door and have food that has been brought from around the world", although they are part of "the masses in the United States, Western Europe, and Japan". Not to mention that that world of possibilities for the affluent in the US, Europe and Japan could only be made possible at the cost of exploiting uncounted people around the world.

  I can understand that in a world of "haves" and "have nots", those who have would like to preserve the mechanisms that enable them to continue having more and more. You are the wolves on the island I mentiond above. Just be careful not to eat all the sheep too quickly... You may end up starving...

  Published: May 6, 2006 7:21 AM

• George Gaskell

  At the least we can be thankful that the pity party thrown in honor of the trampling of your freedom of "thought" has come to an end.

  I am, however, disappointed that you chose to dodge my question rather than answer it. My own fault, I realize, for framing it so clumsily. You chose to quibble with the meaning of the word "successful," when I thought it was rather clear that it meant precisely the same idea of "economic growth" as you used it in your initial prophecy of the eventual demise of humanity and the Earth.

  See, for the entirety of the 20th century, and persisting to this very day, anti-free-market statism has been predicated on the theory that free markets are inherently unstable, that they lead invariably to economic collapse, that wages will continue to fall, the elite will continue to plunder the masses, that at some point the disparity between rich and poor will become so large that the economy could not function. People will not have any money to buy anything, or some such nonsense. You might recognize the traces of this insane fantasy in Keynes' idea of ever-waning "aggregate demand."

  Now, while promting THE VERY SAME SORT OF SOCIALIST POLICIES as these fools, you just happen to proffer a justification that is the exact opposite of the original version -- that free-markets will not, after all, lead to an inevitable reversal of economic growth, but instead they will continue to grow to the very limits of the Earth's capacity to bear it.

  It is the very same doomsday scenario, with a slightly edited third act. The set-up is the same, only the punchline has changed, a little.

  
  But because oil has been a relatively abundant and cheap resource, free market fanatics have refrained from using scarce financial resources in developping those alternatives. As a result we may find ourselves in an energy crisis, paying more than we had expected for the remaining oil, and without a short term alternative. Dumb, I would say.

  This is astonishing. The process you describe is not "dumb" at all. The rising of prices of oil-based energy is the very reason that alternative sources would become economically feasible. It is the anticipation of a crisis, as you put it, in terms of increasing prices for the same commodity (and its production factors) that would make development of alternatives competitive in the market. The market is not the problem here -- on the contrary it is a finely-tuned set of signals guiding the decisions and behavior of billions of people, based on actual, concrete information in the form of prices.

  Only the fluctuation of prices sends the economic signals to these billions of people to do two things: (a) change their production behaviors, and (b) change their consumption behaviors.

  As long as prices are stable, that sends the signal NOT to change. When prices change, behviors are signalled to change. Thus, if you interfere in the prices (through subsidies or price fixing), you interfere in the behaviors, either causing inappropriate changes, or preventing necessary ones.

  Since the market price (of anything) is based on the unique needs and preferences of billions of people (preferences that change over time, preferences that may not actually be known until they are tested by reality), these prices contain far more information, and more accurate information, than any one person or self-appointed set of so-called experts could possibly know.

  Compared to the massively-parallel super-computer that is the free market, even the greatest geniuses not yet born, or a priesthood of economic so-called experts, are sand-poundingly "dumb."

  Published: May 6, 2006 8:04 AM

• Roger M

  Albatroz,
  You're characterization of free markets as wolves and sheep seems to indicate that you believe that wealth is limited and one group can gain only at the expense of the other, what I call pokernomics. If so, I would urge you to reconsider. Although plunder has been the chief means by which most countries enriched themselves throught most of history, that has not been the case since the Dutch Republic of the 17th century.

  In fact, the study of economics went from being a theological/ethical issue to a political issue because of the Dutch. Spain had stolen billions in gold from American natives, yet grew poorer every year, while the Dutch, who had no natural resources compared to Spain, grew wealthier every year. Government ministers wanted to know why. They mistakenly concluded that the answer was in controlling trade, so they set up trade barriers and started wars. But the real answer was in new inventions that increased productivity and capital accumulation. The Dutch could do both, while Spain could do neither, because it had institutions that protected property better than anyone else.

  By the way, when you speak of unrestricted free markets, do you mean no laws against fraud or theft or enforcement of contracts?

  Published: May 6, 2006 8:41 AM

• Albatroz

  George,

  "I am (...) disappointed that you chose to dodge my question rather than answer it."

  I didn't dodge it. I answered it exactly as it was put to me. And it doesn't make any difference what meanig you give to the word "successful". The answer is still the same: free trade's success goes together with self-destruction.

  Pity you didn't comment on my wolf/sheep allegory. I thought it was pretty good, if I may be excused for saying so myself...

  "Only the fluctuation of prices sends the economic signals to these billions of people to do two things: (a) change their production behaviors, and (b) change their consumption behaviors."

  Basically I aggree with you on that. But the fact is that we have no alternative to oil on sight, and the price of oil is quickly reaching a level that will hinder both growth and development. If capitalism worked alright we should already have an alternative ready to be used. Curiously, ethanol, a partial alternative to oil, was developed mainly in Brazil with the help of state subsidies.

  Published: May 6, 2006 9:04 AM

• Albatroz

  Roger,

  My wolf/sheep allegory was meant to underline the fact that behaving as if resources are unlimited is self-destructive. Only management of resources and reliance on renewable ones will allow us to subsist.

  Published: May 6, 2006 9:19 AM

• Yancey Ward

  Albatroz,

  And who is to manage the resources? And by what mechanisms will they be managed?

  Published: May 8, 2006 10:32 AM

• Fred Mann

  Ditto on that request.
  Albatroz mentions "safeguards" that would prevent our destruction, but does not detail them.
  To quote Albatroz, "... then free market economy - without saveguards - is both self-destructive and successful [insofar as it is efficient at destroying itself]."
  

  Published: May 9, 2006 12:48 AM

• Albatroz

  Free market and free trade should not be used to increase inequality and poverty, and should not contribute to destroy the environment. The state - as representative of the community (as it is supposed to be in a democratic society) - should be responsible for the environment protection legislation and its enforcement, and it should guarantee a minimum standard of living to all those who are not competent enough, or healthy enough, to be productive and competitive in a free market society. The state should also penalize the excessive use of non-replenishable resources, and benefit those who switch to renewable resources. And, obviously, the state should promote competition and fight monopolies. If necessary by encouraging, or even subsidizing, competitors in closed markets. Nothing sinister, as you can see...

  Published: May 9, 2006 2:59 AM

• Roger M

  Albatroz,
  There's no such thing as the state or the market. Those terms are shorthand for people playing different roles. You have an enormous amount of faith in the people in government. I don't. Governments have murdered more of their own people than all of the wars, tsunamis and earthquakes put together. Just tally them: Hitler-12 million, Stalin--30+ million, Mao--30+ million, Pol Pot--2 million. Most people face a greater danger from the people in their own governments than from any other source. On the other hand, how many people have those involved in free markets killed? None. In addition, free markets prote precious resources through high prices better than any government can. And free markets don't cause inequality; that's another Marxist myth that's been proven false numerous times. Your faith is misplaced.

  Published: May 9, 2006 9:00 AM

• Paul Edwards

  Albatroz ,

  “The state - as representative of the community (as it is supposed to be in a democratic society)�

  The state does not represent me; does it really represent you? Are the agents of the state your agents, acting on your behalf? Do you have a contract that states such is the case and is it signed by you and these agents? As your agents, acting on your behalf, are you as well as they responsible, accountable and liable for any crimes they might commit while acting on your alleged instructions? Not at all. The state, whatever some might hope for, is anything but our representatives.

  “[the state]- should be responsible for the environment protection legislation and its enforcement,�

  Have you not ever noticed that, in point of fact, the agents of the state are never held responsible or accountable for anything, including even the environmental devastation that it creates itself?

  “and it should guarantee a minimum standard of living to all those who are not competent enough, or healthy enough, to be productive and competitive in a free market society.�

  I think that voluntary human decency expressed through family and private charity should be the only safety net. The state has neither the competence nor the humanity to properly care for our weak and needy.

  “The state should also penalize the excessive use of non-replenishable resources, and benefit those who switch to renewable resources.�

  Even if this were a justifiable role of the state, which it is not, the state can only create the very opposite results it is supposedly aiming at correcting. By penalizing the market for bringing cheaper commodities to the market, it reduces savings and investments in more productive sources in the future. By favoring and subsidizing alternative sources, it encourages inefficiency and malinvestments in areas that profit motivated entrepreneurs would not waste their own resources pursuing.

  “And, obviously, the state should promote competition and fight monopolies.�

  Yes the ultimate monopoly on coercion and compulsion will promote competition and fight monopolies. Ouch.

  “If necessary by encouraging, or even subsidizing, competitors in closed markets.�

  This is just plain sinister.

  “Nothing sinister, as you can see...�

  Ooops! Sorry.
  

  Published: May 9, 2006 10:48 AM

• BillG (not Gates)

  all of Albatroz's goals can be accomplished within an equal liberty framework.

  the state's role is to protect the inalienable, individual equal access opportunity rights of those being denied access to the natural commons.

  the extent to which individual's are being denied is measured by the extent that we are all subject to negative externalities.

  the negative externalities act as a tax on our wages.

  the way to rectify is to privatize the costs and socialize the benefits of enclosing the commons which provides a guaranteed income (a citizens dividend) to all not as charity but to uphold their property rights to labor.

  this results in a true cost accounting system for our consumable goods which favors efficiency and sustainable practices.

  BillG (not Gates)
  paleo-green of the Thomas Paine and Jefferson variety.

  Published: May 9, 2006 12:18 PM

• Yancey Ward

  BillG,

  No, it does not accomplish Albatroz's goals. Leaving aside some of the objections I have to the practicality your ideas (though I am not completely opposed to your ideas), Albatroz's goals are clearly authoritarian in nature, and are not satisfied by your geo-libertarian ideals. Everything Albatroz desires can only be accomplished through state control of economic activity.

  Published: May 9, 2006 12:37 PM

• Francisco Torres

  Albatroz wrote:
  "Solidarity" is not meant to ration resources, but to allow for a more equitable distribution of those resources.

  Uh, what do YOU think "ration" means, Albatroz, if not DISTRIBUTION? By the way, can you explain to me how does people "equitablely" distribute resources without a price system (the staple of a free market)?

  Let's immagine an island with one wolf and 50 sheep. The successful wolf will kill - and eventually eat - all 50 sheep. Afterwards it starves... If you tell me that the successful wolf will let the sheep breed, so that he will always have meat to eat, then the wolf will have been converted to the principle of renewable resources... But the wolf is a killing animal. His success will be measured in terms of how quickly and how efficiently he will kill and eat the 50 sheep. So, he starves...

  A measure of a man's stupidity is how badly he presents analogies - a wolf is a killing machine because he is driven by instinct. Man is a thinking machine, driven by imagination and problem-solving. A man would not starve.

  Published: May 9, 2006 3:25 PM

• Francisco Torres

  Yancey wrote:
  Everything Albatroz desires can only be accomplished through state control of economic activity.

  He is worse than that, Yancey. He believes humans should be sustained by recycling everything - meaning Albatroz is actually an anti-market, misanthropic ideologue.

  Published: May 9, 2006 3:28 PM

• BillG (not Gates)

  Yancey wrote:

  "Albatroz's goals are clearly authoritarian in nature, and are not satisfied by your geo-libertarian ideals. Everything Albatroz desires can only be accomplished through state control of economic activity."

  BillG responds:

  what goals does he have that I can not accomplish without state control?

  ownership in common is an invidiual right.
  the state's sole role is to protect individual rights.
  enclosure of the commons at some point violates individual rights to the products of labor.
  government being constituted to protect individual rights is justified in using force if necessary to support those rights...

  Published: May 9, 2006 4:33 PM

• Yancey Ward

  Bill G,

  For example, the call to use only renewable resources, or his fairly obvious call for equitable distribution of production. I could make a more extensive list based on his multiple posts, but those are a good start.

  Published: May 9, 2006 4:44 PM

• Paul Edwards

  Hi BillG,

  “the state's sole role is to protect individual rights.�

  The state is an inherent violator of individual rights. It is therefore a criminal organization. The instant the state confiscates its first involuntary compulsory tax, it becomes a coercive initiator of violence, an aggressor: a simple band of thieves. And since they claim the right to jail or even kill you if you resist taxation or the jail term, they are in fact a band of murderers as well as thieves.

  And since every state must tax on such an implicit basis, every state must be considered exactly as I describe it. Now really, can there be anything more naïve and inconsistent than to expect a criminal organization such as this to protect individual rights? Surely with these facts clarified, it becomes obvious why we never quite get the justice we had hoped for from our government.

  “government being constituted to protect individual rights is justified in using force if necessary to support those rights...�

  See above.
  

  Published: May 9, 2006 5:39 PM

• BillG (not Gates)

  Paul Edwards wrote:

  "The instant the state confiscates its first involuntary compulsory tax, it becomes a coercive initiator of violence, an aggressor: a simple band of thieves. And since they claim the right to jail or even kill you if you resist taxation or the jail term, they are in fact a band of murderers as well as thieves.

  And since every state must tax on such an implicit basis, every state must be considered exactly as I describe it"

  BillG responds:

  Geez Paul I thought by now you would have realized that I am a geo-libertarian and thus I view the landowner's monopolizing of the economic rent - EVEN IN THE ABSENCE OF ANY STATE AT ALL (anarchy) - as a theft (involuntary coercion) of the absolute property rights we all have to our labor products.

  so therefore the use of state force to prevent a theft of the labor product of those being excluded is actually a just use of force and not an act of a criminal organization...

  Published: May 9, 2006 10:18 PM

• Paul Edwards

  Billg,

  "Geez Paul I thought by now you would have realized that I am a geo-libertarian and thus I view the landowner's monopolizing of the economic rent - EVEN IN THE ABSENCE OF ANY STATE AT ALL (anarchy) - as a theft (involuntary coercion) of the absolute property rights we all have to our labor products.

  "so therefore the use of state force to prevent a theft of the labor product of those being excluded is actually a just use of force and not an act of a criminal organization..."

  LOL. Thank-you, Bill I do recognize your favorable stand on taxes and the state. You and I have gone through the debate quite in detail. There are as many varieties of invalid justifications for taxation and state initiated violence as there are grains of sand on the beach. Yours is just one of them. In my opinion, they all are founded on the same sandy foundation: fallacy, inconsistency and confusion.

  Under the geolilb ideal of allowing late-comers to make claims of ownership against land previously homesteaded and legitimately owned by early arrivers, no land-owner can ever know who will one day make a claim against his land, how much that claim will be for, or when this claim will arrive. This condition must necessarily encourage conflict rather than allow for conflict avoidance and this therefore rules out your philosophy as a valid ethic entirely. That you don’t realize this does not alter the fact that this is in fact the case.

  You of course are free to continue to disagree with me and make claims contrary to mine, but I will reserve the right to occasionally, but only when the spirit moves me of course, point out your error.

  Published: May 10, 2006 2:02 AM

• Albatroz

  "A measure of a man's stupidity is how badly he presents analogies - a wolf is a killing machine because he is driven by instinct. Man is a thinking machine, driven by imagination and problem-solving. A man would not starve."

  I find it fascinating when aspirant intelectuals start throwing abuse at their contradictors...

  A man - not being stupid - would not starve because he would understand that he must treat sheep as a renewable ressource and not eat all of the sheep before they had a chance to breed... Some libertarians, not having understood the point of the analogy nor the need to opt for renewable ressources, are clearly not human enough...

  Published: May 10, 2006 7:01 AM

• BillG (not Gates)

  Paul Edwards wrote:

  "I do recognize your favorable stand on taxes and the state."

  BillG responds:

  this statement makes about as much sense as saying:

  "yes Bill I do understand your favorable stand on gravity"

  the "taxes" you are referring to in an anarchy is "economic rent" the "state" you are referring to in an anarchy is the "landowner".

  the result is the same - the economic rent that results from two or more people naturally competing for access to scarce locations is involuntary and imposed via force.

  as the saying goes "now that we have agreed you are a prostitute we are just disagreeing over the price for your service".

  Paul Edwards wrote:

  "Under the geolilb ideal of allowing late-comers to make claims of ownership against land previously homesteaded and legitimately owned by early arrivers, no land-owner can ever know who will one day make a claim against his land, how much that claim will be for, or when this claim will arrive."

  BillG responds:

  what I am actually arguing is that the landowner by the very fact of having an exclusive right to a specific location is making an illegitimate legal and monetary claim against the SUPERIOR property rights claim to the ABSOLUTE ownership of those being excluded to their labor.

  a claim that can not be supported as being violated by the requirement of sharing (equally and directly) of the economic rent between neighbors in a community.

  1. the landowner doesn't labor to produce the land
  2. the landowner doesn't labor to create the unimproved land value (economic rent)
  3. the landowner doesn't labor to purchase the land because there is no purchase price to land in an economic rent sharing system.

  Paul Edwards wrote:

  "This condition must necessarily encourage conflict rather than allow for conflict avoidance and this therefore rules out your philosophy as a valid ethic entirely."

  BillG responds:

  conflict avoidance which violates the absolute right to the labor-based property rights of those being excluded is NO philosophically valid ethical substitute.

  Published: May 10, 2006 7:56 AM

• Fred Mann

  Albatroz,
  Here is the problem with your analogy, as I see it. You claim that the free market is like a mindless wolf who will eat all of the sheep and then die. In reality, the free market is not mindless. It is, in fact, extremely "intelligent". Through the price system, it allocates resources.
  Using your analogy, the free market would recognize the growing scarcity of sheep and cause their price to rise. This would cause a drop in consumption and/or an increase in production of sheep. The price rise would also spur on a search for alternatives to sheep.
  Do you disagree with any of this?

  Published: May 10, 2006 12:40 PM

• BillG (not Gates)

  Fred Mann:

  "In reality, the free market is not mindless. It is, in fact, extremely "intelligent". Through the price system, it allocates resources"

  BillG responds:

  Fred, not intelligent enough to be able to include the negative externalities in the price though, huh?

  but this is not a fault of the market per se but rather a specific school of economics - the neo-classical/marginalist utility school.

  as they purposely conflated for their paymasters (wealthy natural resource owners) benefit what had previously been known as a seperate and distinct factor of production - the natural commons (land) - during the classical liberal era.

  what had been previous thought of as "political" economy was transformed into the "dismal" abstract science that we know the study of economics is today with only "dismal" trade-offs like labor vs. capital or jobs vs. the environment.

  Published: May 10, 2006 1:08 PM

• Fred Mann

  BillG,
  You say, "this statement makes about as much sense as saying: 'yes Bill I do understand your favorable stand on gravity'"

  Taxes and the state are NOTHING LIKE GRAVITY. Gravity is truly a "natural law". It exists regardless of our will. In fact, it exists whether or not man exists. This is not debatable. I think the notion that certain man-made laws are, in fact, "natural" (i.e. not man-made), leads to a lot of confusion and incorrect conclusions.
  In another post (from Working Paper on Positive Rights), you write, "if land all starts out as owned in common (Lockean) it is right and just that individuals enclose portions for exclusive use [so long as Locke's proviso is met]"
  The problem here, as Paul pointed out, is that the legitimate ownership of land (which you admit is possible) can become illegitimate, SUDDENLY AND WITHOUT WARNING, due to the actions of other people. The mere presence of new people changes the status of the "enough and as good" proviso (i.e. the status of ANY resource can change from "enough" to "not enough" in an instant -- UNPREDICTABLY!!!). Therefore, Locke's Proviso (if it is a standard at all) does not provide an ACTIONABLE standard and is, therefore, useless. Locke's proviso would only be useful if one had a crystal ball and could see into the future. Only then could one know if the proviso is being met or will be met in the very near future. But in reality, one does not have access to this information.
  Obviously, in order to maximize production, and thus wealth in general, one must be secure in his property rights. If one is unable to predict potential costs (i.e. in this case, the level of taxes in the form of economic rent), one cannot create a business model. This predictability certainly DOES NOT EXIST under geo-libertarianism.
  So, if we wish to maximize peace and prosperity, geo-libertarianism must be scrapped.

  Published: May 10, 2006 2:05 PM

• Roger M

  Posters like Albatroz might stick around and discuss economics if some of you guys weren't so insulting.

  What Albatroz was trying to get at with his analogy of the wolves and sheep, I think, is that the sheep represent natural resources and the wolves are humans. He trust people in government more than he trusts businessmen, especially those in corporations. I would like to see some evidence or reason that politicians are more trustworthy than businessmen. He may be thinking that business brings out the greed in people while government brings out the good. I can't see it, myself.

  Albatroz has a high concern for natural resources. Because they are limited, he believes the world's wealth is limited and should be regulated. But this is pure mercantilism. Just look around and anyone can see that countries with large amounts of natural resources are among the poorest, and those lacking natural resources are among the richest. Oil provides a perfect example.

  He needs to consider, too, that although technically the natural resources on the planet are limited, he has no idea of their size. We may have used 90% of them, or 1%. The history of those who have proclaimed the end of natural resources for the past century indicates that we are closer to the 1% level, or less.

  Published: May 10, 2006 2:23 PM

• Yancey Ward

  RogerM,

  Albatroz seems to be of the position that some resources (oil, for example) are limited and, thus, should not be used at all, lest they run out. I find such a position to be nonsensical.

  Published: May 10, 2006 2:35 PM

• Albatroz

  Fred,

  "Using your analogy, the free market would recognize the growing scarcity of sheep and cause their price to rise. This would cause a drop in consumption and/or an increase in production of sheep. The price rise would also spur on a search for alternatives to sheep."

  In my analogy the rise in price mentioned by you as a consequence of scarcity would put the sheep beyond the wolf's means to buy them, and he would starve just the same... But the point of my analogy was to draw your attention to the need to manage resources and to opt for renewable ones. The increase in the production of sheep that you suggested would exactly be an example of such a preference for renewable resources.

  Published: May 10, 2006 6:26 PM

• Albatroz

  Roger,

  "He may be thinking that business brings out the greed in people while government brings out the good."

  Actually I trust politicians even less than businessmen. But, from a conceptual point of view, I consider that the state - as a representative structure - has an obligation to stop greedy capitalists from cornering most of the planet's wealth. Every living person, member of a human community, has a right to a share of the common wealth large enough to guarantee his or her subsistence. Since I do not think that charity should be used to protect people's rights, I think that it should be up to the state to guarantee that minimum distribution.

  Published: May 10, 2006 6:36 PM

• Albatroz

  Yancey,

  "Albatroz seems to be of the position that some resources (oil, for example) are limited and, thus, should not be used at all, lest they run out. I find such a position to be nonsensical."

  That's not my position. We may use non-renewable resources when we have no immediate alternatives. But we should not rely on them. As soon as possible we should develop renewable alternatives. The fact is that oil companies - which are the greatest beneficiaries of rising oil prices - are not interested in developping alternatives to oil. As a result we are still not in a position to use hydrogen - produced from water, and not from methane - as an alternative. Oil companies have had the power to stop or to slow down the development of those alternatives, but you still say that the state should not interfere. However, in Brazil it were state's subsidies that enabled the technologies to be developed to extract ethanol from sugar.

  Published: May 10, 2006 6:46 PM

• Fred Mann

  Albatroz writes,
  "I think that it should be up to the state to guarantee that minimum distribution."

  I already tried to present the necessary effects of redistribution above multiple times. If you glaze over this again, I'm probably going to call it quits. But on the hope that you will read and respond to it, here it is again (significantly revised and, hopefully, improved):

  "Now what can we say about redistribution?
  Well, the rich among us are either extremely motivated and productive, or they are theives (like high government officials who always seem to make much more than the average citizen -- i.e. US Senators make over $1000 per day of work/grandstanding -- but I'm sure that's just a historical anomoly, right?). Now, if we are going to redistribute the wealth of these theives, I'm all for it. But I'm sure that's not what you're talking about. No, you'd like to take money/resources from the productive rich and give it to the "poor" (a word which is always defined in relative terms, making the "poor" a permanent fixture in society, no matter the level of development) . Well, if you do that, you can guarantee that production will be hindered for two reasons (at least).
  One, you remove incentive to earn/produce beyond a certain amount, as the excess will be taxed away. If you don't like that, then you just don't like human nature (i.e. that humans are motivated by incentives). But not liking nature does not change it.
  Secondly, by definition, redistribution removes funds from the effective hands of the producers, and channels it into consumption. The net effect is a decrease in production of goods and services. Now, because growth tends to be exponential in a free-market, any interference in production will manifest itself as an exponentially larger loss in the future, relative to the state of production that would have existed without intervention. For example, if we take money from someone who constantly innovates, we not only are deprived of some of his innovative products, but we are also deprived of the new stock of goods that would have been produced by these innovations. The increased wealth that this stock of goods would have brought us cannot be reinvested into new production, and so on, and so on ...
  It is important to remember that a general increase in available goods IS wealth. More goods available = cheaper goods and a higher standard of living ... i.e. a reduction in poverty.
  So, the effect of redistribution is to give the favored group a TEMPORARY BENEFIT AT THE EXPENSE OF A MUCH MUCH MUCH BETTER FUTURE!! As time goes by, the difference between the wealth that DOES exist and the higher levels of wealth that WOULD exist continues to grow. Goods that are not produced are goods that cannot be consumed.
  Your redistributionist system is the ideal recipe for slow growth/stagnation/everlasting-poverty (at best), AND tyranny (in the form of World Government). In this scenario, we ALL lose ... rich and poor alike."

  If this isn't clear, let me know. It is certainly an oversimplification.

  Also, I would note that you have a general tendency toward egalitarianism. As I suggested above, you should read Rothbard's paper on egalitarianism (.pdf) : http://mises.org/journals/rae/pdf/rae8_2_3.pdf .
  It's FREEEE!

  
  

  Published: May 10, 2006 7:33 PM

• BillG (not Gates)

  Fred Mann wrote:

  "Taxes and the state are NOTHING LIKE GRAVITY. Gravity is truly a "natural law". It exists regardless of our will. In fact, it exists whether or not man exists. This is not debatable"

  BillG responds:

  not "taxes and the state" - economic rent is like gravity because it is natural occurring as two or more people compete for access to scarce locations even in an anarchy.

  this is not debatable as two people can not occupy the same location at the same time.

  Fred Mann wrote:

  "legitimate ownership of land (which you admit is possible) can become illegitimate, SUDDENLY AND WITHOUT WARNING, due to the actions of other people"

  BillG responds:

  legitimate ownership of land is only legitimate and absolute up to Locke's proviso because it imposes no economic burden that violates the property rights to labor of those being excluded.

  beyond Locke's proviso it has to become conditional and is only legitimate if the economic rent (which only naturally appears beyond Locke's proviso) is shared directly and equally with one's neighbors otherwise the superior absolute rights to the fruits of the excluded's labor are violated.

  this is logically irrefutable...

  Fred Mann wrote:

  "Therefore, Locke's Proviso (if it is a standard at all) does not provide an ACTIONABLE standard and is, therefore, useless."

  BillG responds:

  I can assure you that the landowner's collection of the economic rent at the expense of the excluded's property rights to their labor IS ACTIONABLE via a legal and monetary obligation imposed and infact is backed by force via the issuer of the title.

  if it is actionable for the landowner then there is no reason that it can not be actionable to protect the absolute property rights to the products of labor of those being excluded.

  Fred Mann wrote:

  "Locke's proviso would only be useful if one had a crystal ball and could see into the future. Only then could one know if the proviso is being met or will be met in the very near future. But in reality, one does not have access to this information."

  BillG responds:

  you are confusing personal utility value of the landowner vs. the market value of the community members who are being excluded.

  while personal utility value is always subjective and unpredictable the aggregate effects that make up the market value are easily measured.

  Roger Mann wrote:

  "Obviously, in order to maximize production, and thus wealth in general, one must be secure in his property rights. If one is unable to predict potential costs (i.e. in this case, the level of taxes in the form of economic rent), one cannot create a business model. This predictability certainly DOES NOT EXIST under geo-libertarianism.
  So, if we wish to maximize peace and prosperity, geo-libertarianism must be scrapped."

  BillG responds:

  first of all economic rent is not wealth for the landowner because there is no labor inputs by them.

  secondly, if what you say were true how can you explain Hong Kong's consistent top rating in the WSJ's economic freedom index yet no one owns their land - it is all leased from the state (whereas I advocate economic rent sharing between neighbors)??

  Published: May 10, 2006 8:04 PM

• BillG (not Gates)

  Albatroz wrote:

  "But the point of my analogy was to draw your attention to the need to manage resources and to opt for renewable ones. The increase in the production of sheep that you suggested would exactly be an example of such a preference for renewable resources."

  and...

  "from a conceptual point of view, I consider that the state - as a representative structure - has an obligation to stop greedy capitalists from cornering most of the planet's wealth. Every living person, member of a human community, has a right to a share of the common wealth large enough to guarantee his or her subsistence. Since I do not think that charity should be used to protect people's rights, I think that it should be up to the state to guarantee that minimum distribution."

  and...

  "We may use non-renewable resources when we have no immediate alternatives. But we should not rely on them. As soon as possible we should develop renewable alternatives."

  BillG responds:

  I believe your argument would be strengthened immensely if you could understand and would articulate that the private enclosure of the natural commons always eventually shift costs onto those that are being excluded that can only be satisfied at the expense of the superior property rights we all have to our labor which is the basis of property rights as the natural extension of the right of self-ownership.

  the reason this is allowed to happen is because the neo-classical/marginalist utility revolution (with the Austrian school as the main proponent) purposely conflated the natural commons from being a seperate and distinct factor of production (along with labor and capital) as it had been recognized by the classical liberals to simply private capital to create the dismal science which can only give us negative externalities and a wildly incentivized pricing system taht is completely inefficient and ultimately unsustainable.

  Published: May 10, 2006 8:27 PM

• Sione

  Albatroz

  Now that you realise your cause is lost you are getting emotional! This time you are trying to allude to the excuse that some parts of the world are peopled with a lesser order than others. That is the contention of a racist and there is no need for such nonsense. You should not try to prop up your arguments like that.

  You clearly know nothing of village life or life in the islands of the Pacific. It is all very twee to say that the Pacific Islands are a paradise and by implication Polynesians, Melanesians and Micronesians have it soooooooooo easy (hence they are lazy and inferior because they do not need to be otherwise- yes, I've heard all the collectivist prejudice nonsense previously). I'd agree that the Islands can be beautiful, but "paradise" they are not. There are issues, challenges and hardships to face (just as there are elsewhere). There are things such as stone fish, lack of certain goods and services, remoteness, getting adequate food and shelter, dealing with natural disasters like storms, cyclones, tropical diseases and infections (even small cuts can be a major health threat), lack of certain high-tech medical care, crop and fisheries failures, political issues, earning a living (jobs are difficult to come by) and so on. Now the trouble is, you are not familiar with the issues facing those who actually do live in the Islands and you've never lived there yourself. You are ignorant and yet cast aspersions and commentary as if you had direct knowledge and understanding. I put it to you that you've never directly dealt with any third world subsitence living. Nor have you used your own resources to alleviate it. How can you comment about the nature of subsistence living in the Islands and compare it with NYC living to come up with the notion you did? You're not in the position to comment anything worthwhile on the topic. You have no experience. You do NOT know.

  To correct your falsehood. It does not matter where someone is located or what race they are. The challenges of life remain. For example, I moved from the Islands some years ago. After living in various places I am now resident (for the time being) in Australia. Guess what. The same important matters face me here as everywhere else.

  It may have escaped your attention but in general people all over the world (not just in the Pacific) have good experience in self-preservation, survival and pursuing their goals. This has not altered in thousands of years. If this were not so then there wouldn't be people. Now that goes for NYC, Apia, Nukolofa, Paraparaumu, Wiri, Wollongong, anywhere people are. The big choice is freedom and its exercise or being subjugated by collectivists. The decision is easy enough. Your kind of collectivism should be strongly resisted. Keep away. Leave people alone.

  The point is people adapt, they learn, they act. The best thing is to leave them to so do. Your approach is the opposite. You think you know better then everyone else and that in the name of YOUR values people should be forced to act as you would have them. The trouble is that you do not know better then everyone else. You lack the knowledge, experience, skill or aptitude to run other people's lives. You are completely unqualified and unsuited to do so. Your schemes are not appropriate. They are necessarily based on ignorance of the particular situations and choices of other people (not to mention their particular values which are not the same as yours). That's why I recommended you leave other people alone.

  Should you really want to assist improving someone's life there are some valid approaches you can indeed consider. I supplied you with some options. From your outbursts I can see you'd rather be a commissar than an investor or provider of comfort, learning and charity. Why do you feel a need to build schemes to direct other people's lives? Assistance at the personal level with your own resources is far better. It works. You should try it and see.

  ---

  In all my years not once has a member of the Austrian School EVER tried to force people in the Islands to act under duress or to force a certain course of action or behaviour. Plenty of socialists, democrats, nationalists, imperialists and collectivists of all types have. Not one Austrian. So I'd rather stick with the Austrians thank you very much.

  In conclusion, what I hope for is that all the socialists and collectivists die out and never soil human affairs whether in the Home Islands or anywhere else ever again.

  Sione

  Published: May 10, 2006 9:09 PM

• Fred Mann

  Fred Mann wrote:

  "legitimate ownership of land (which you admit is possible) can become illegitimate, SUDDENLY AND WITHOUT WARNING, due to the actions of other people"

  BillG responds:

  "legitimate ownership of land is only legitimate and absolute up to Locke's proviso because it imposes no economic burden that violates the property rights to labor of those being excluded.

  beyond Locke's proviso it has to become conditional and is only legitimate if the economic rent (which only naturally appears beyond Locke's proviso) is shared directly and equally with one's neighbors otherwise the superior absolute rights to the fruits of the excluded's labor are violated.

  this is logically irrefutable..."

  BillG,
  You glossed over the most important point!! Locke's proviso "enough and as good" is a moving target. As I explained above, the STATUS of land ownership (or any other resource for that matter), can CHANGE from legitimate to illegitimate in an instant, when "new" people enter the scene. As people change location and their needs change, the measure of what is "enough and as good" must also change. And, of course, the various movements of people and the shifting of their needs is unpredictable. Therefore, one can never know the FUTURE status of a piece of land or a given resource, with respect to the proviso. One can not even know its status in the VERY NEAR future. And it is this ever-changing status of legitimate/illegitimate ownership which makes the creation of a business model exceedingly difficult.

  Published: May 10, 2006 9:18 PM

• BillG (not Gates)

  Fred,

  it doesn't matter if Locke's proviso is a moving target.

  I offer Hong Kong as proof that a business model that doesn't include absolute land ownership but cares more about protecting the absolute right to the fruits of labor is actually both more stable and prosperous than those that claim otherwise.

  Published: May 11, 2006 1:01 AM

• Fred Mann

  BillG writes,

  " it doesn't matter if Locke's proviso is a moving target."

  Care to expand on that?

  "I offer Hong Kong as proof that a business model that doesn't include absolute land ownership but cares more about protecting the absolute right to the fruits of labor is actually both more stable and prosperous than those that claim otherwise."

  This is not a proof of any kind! The phrase "in spite of" springs to mind.
  The State is always an anchor around the necks of its people. Hong Kongians (?) just have a smaller anchor.

  Published: May 11, 2006 1:53 AM

• Albatroz

  Dear Sione,

  The chip on your shoulder is the size of Mount Everest... But you had no need to fall back on the self-pitying, victim of racism discourse to hide your difficulty to accept different views. It will always be a mystery to me why some people fall into the trap of thinking that anyone with different views must necessarily be either stupid or ignorant. No, I am not a racist. In matter of fact my wife and I have two mixed race children. Yes, I do have first hand knowledge of less developed countries, having lived for six years in Brazil, Angola and the Ivory Coast. No, I am not stupid, although I will let you guessing about why I say so... Yes, I have different views from you, and I think I have good reasons for that difference. No, I do not despise you or your opinions. Can we now go back to discussing economics without getting emotional?...

  Published: May 11, 2006 3:08 AM

• BillG (not Gates)

  Fred Mann wrote:

  "The State is always an anchor around the necks of its people."

  BillG responds:

  even in an anarchy (absence of the state) the economic rent naturally appears as two or more people compete for access to scarce locations.

  so it matters not a whit to the "economy" who collects the economic rent as there is no choice as to whether or not to "have" it.

  but it makes all the difference in the world to the cause of equal freedom who pays it and who retains it.

  if the landless pay and the landowner retains what is socially created and people have to have access to inorder to be alive (3D space) then we have slavery.

  if the landowner pay and the landless retains the socially economic rent then we have a system inwhich the greatest number of people achieve the greatest amount of equal freedom.

  Published: May 11, 2006 6:41 AM

• Roger M

  Albatroz,
  I don't understand. How can you trust politicians less than you trust businessmen, then give politicians control of natural resources? How can corrupt men do any good? Referring to them collectively as the "state" doesn't make them any less corrupt.

  In a democracy, the same people who elect politicians also vote with their dollars on how to allocate scarce resources. Yet you would trust the politicians these people elect more than you trust the people themselves? As for greedy capitalists cornering the market in natural resources, you will have noticed that true monopolies don't and can't exist in free market economies. In the US, the only monopolies that have ever existed were created by politicians. Citizens voting with their dollars prevent any other monopolies from existing.

  Published: May 11, 2006 9:03 AM

• Roger M

  Yancey, I agree. Albatroz does seem to think oil is running out. But he doesn't know that, because he doesn't know how much oil exists. Yes, the amount is finite, but know one knows the limit. All we know is how much we've discovered so far. We should all be humbled by the numerous previous forecasts of the end of oil over the past century. As for working on alternative fuels, the major oil companies spend billions each year in research on alternatives like hydrogen and ethanol.

  Published: May 11, 2006 9:08 AM

• BillG (not Gates)

  Roger M wrote:

  "he doesn't know that, because he doesn't know how much oil exists. Yes, the amount is finite, but know one knows the limit. All we know is how much we've discovered so far."

  BillG (BA Geology)responds:

  because you can't produce what you haven't discovered and discovery lags production and follows a traditional bell shaped curve you can actually predict fairly well the production peak as Hubbert did in the mid-50's for the lower 48 (early 70's peak) and thus the amount that is remaining (if all discovery curves were revealed)...

  Published: May 11, 2006 9:19 AM

• George Gaskell

  But the point of my [wolf/sheep] analogy was to draw your attention to the need to manage resources and to opt for renewable ones.

  That's what prices do -- "manage" resources.

  It is a form of order than some people cannot even comprehend: spontaneous, decentralized order. But from a systemic perspective, it is certainly a form of "management," although I dislike the term because it easily deludes people into assuming that management must be active and based on force.

  Of course, "managing resources" is merely a euphemism for managing people's behavior. In terms of oil, there are two sets of behaviors to consider -- production and consumption. (You will see a similar arrangement as to other commodities as well.)

  Price fluctuations act as signals to change (or maintain) these behaviors. This is true because people engage in economic calculation all day every day -- they decide what to do (or not do) based on the costs and benefits of such decisions, in light of whatever they consider to be their personal goals.

  When you interfere with the fluctuation of prices, you interfere in the modification of such behavior. This is what causes problems with depletion of resources. This is what cases a crisis. People use too much of something believing that it will continue to exist, when a free market would have increased the price and modified the consumption pattern.

  Wolves are not men and sheep are not oil. Men predict the future, make calculations and decisions, and then act. Wolves do not.

  Sheep are renewable. Oil is not (not on a human time scale, at least.)

  Let's assume that it is true that oil is being depleted. This causes the price of that commodity to rise. The rise in price then makes alternatives more economically attractive. Alternative production methods, which cost money to invent, develop and implement, may not have been economically justifiable at $20 per barrel, but become much more attractive at $80. By this mechanism, the market tells producers when they should change their technologies.

  Albatroz does not understand this. He believes that "We may use non-renewable resources when we have no immediate alternatives. But we should not rely on them. As soon as possible we should develop renewable alternatives."

  This is one man's opinion, based on a tiny speck of information, clouded with his prejudices about how others should behave. In contrast, the fluctuation of prices is based on a mountain of information that could not be analyzed by a computer the size of the Milky Way galaxy.

  I mean that seriously -- even if every molecule in the Milky Way Galaxy were used to operate as a computer, it could not store and process all of the information that goes into gas prices on earth. It seems counter-intuitive, but if you consider that there are more possible configurations of a chess board than there are particles in the universe, you will start to see what I mean.

  Moreover, what is meant by we "rely" on them? We do not rely on oil, not in an absolute sense. The end of oil would require changes in our behavior. Changing our behavior patterns from the way we use it would require work. Such is life. How could the changing, interdependent behaviors of billions of people be coordinated without accurate prices?

  The idea that interfering with prices can "improve" the use of resources (or the use of anything) is so ludicrous, it is hard to express how profoundly wrong it is. It would be like trying to micromanage, via a centralized, active, conscious effort, every bio-molecular process in every cell of your body. It is hubris beyond our reckoning.

  But, from a conceptual point of view, I consider that the state - as a representative structure - has an obligation to stop greedy capitalists from cornering most of the planet's wealth.

  This is a 20-foot strawman. Monopolies do not exist, and have never existed, in even the semi-free markets that have been allowed to exist in human history.

  Consider the effects of another kind of monopoly -- the State. The State decided, in the mid-19th century, to assert a monopoly over road-building.

  How much do you think that this extension of the State's general monopolistic character has affected oil production and consumption?

  Consider in your answer the distribution of cities and neighborhoods along freeways, the location and size of grocery stores, etc.

  Also consider the near-monopoly that the state has on schooling, and how that monopoly, combined with the monopoly on roads, affects how and where houses are built, and thus how much people use cars, and thus oil.

  The State has interfered in the use of resources, including oil, for quite long enough.

  Published: May 11, 2006 10:06 AM

• BillG (not Gates)

  George,

  the market can't determine the true costs because the neo-classical/marginalist school conflated the natural commons (of which oil is a part of) for private capital.

  negative externalities which are the flip side of privatizing the commons (economic rent) is built into the system as a permanent feature that reveals the inefficiency within the system and thus can never provide proper economic signals let alone protect ecological health.

  the monopoly that is being referred to is the monopolization of the economic rent by the privatization of the natural commons which creates a monetary and legal obligation (negative externalities) on those being excluded as the natural benefits that are privatized.

  the negative externalities can only be satisfied at the expense of the labor-based property rights (wages) of thoise being excluded.

  this is nothing more than an income tax (in kind but not in substance)...

  Published: May 11, 2006 10:23 AM

• Yancey Ward

  At it's heart, the objection that collectivists have to the "managing" of resources by free market prices is that some are precluded from utilizing resources that they, personally, cannot afford. Of course, the rationing by government fiat that such collectivists advocate gives everyone a nominal right to such resources, but the actual exercising of the right ultimately becomes impossible since abolition of the price system slowly destroys the production of said resource.

  Published: May 11, 2006 10:38 AM

• Albatroz

  "...the major oil companies spend billions each year in research on alternatives like hydrogen and ethanol."

  Funny. Then why is it that the only country ever to develop ethanol as an alternative to petrol (gas, gasoline...) was Brazil, and that was only made possible by state subsidies?... Are oil companies spending "billions" less efficient than the Brazilian state?...

  Published: May 11, 2006 10:57 AM

• Yancey Ward

  Albatroz,

  I am sure government is the only entity that would develop phlogiston as an alternative source of energy. What is your point?

  If Brazil succeeded only with state subsidies, then this is a clear indication that resources have been wasted that would have gone into the production of something else that Brazilian citizens desire. It is amazing to me that you and other statists don't understand this very simple concept.

  Published: May 11, 2006 11:12 AM

• Yancey Ward

  BillG,

  I still don't understand how market prices cannot determine the costs of externalities, but government can?

  Published: May 11, 2006 11:15 AM

• George Gaskell

  Albatroz,

  The fact that ethanol is only viable due to state subsidies is, by itself, proof that it is (at present) inferior technology as an energy source. Therefore, forcing people to choose ethanol over oil is, by definition, creating economic inefficiency and decline.

  This is true because one cannot know the economic merit of choosing Option A over Option B (or choosing one behavior from among a billion possibilities, limited only by one's creative imagination) without first weighing the relative costs and benefits.

  On what other basis, other than price, could one possibly compare oil and ethanol? One must compare costs and benefits to make such a determination. How else, other than freely operating prices, is it possible to make any such decision?

  Until such decisions are reduced to prices, the more productive, efficient course of action is unknowable.

  Published: May 11, 2006 11:18 AM

• M E Hoffer

  Taking a page from F L Light( albeit, not so well ):

  The herd gathers, Mooo...
  Best, in the Goo...
  Of the Unintelligible Stew...
  the viewpoints of You...

  To continue to wind, without doubt...
  Around this axle, there is no out...

  The only Safety, is to assure...
  That We are, immature...

  That this gives us pleasure...
  will only measure...
  the true plunder of our Treasure...

  I do not mean offense, if any is taken, to anyone, in particular, or, really, at all.

  I only mean to illuminate that there have been "Brownouts", in Lower BFE, due to the electron draw of the server-farm supporting this thread, and mean to ask: " what has anyone learned, by this? "

  Published: May 11, 2006 11:46 AM

• BillG (not Gates)

  Yancey,

  you infer an assumption that is nowhere to be found in my statements...

  today we privatize the benefits of enclosing the natural commons and socialize the costs in the form of negative externalities.

  this is the essence of the neo-classical/marginalist utility revolution that the Austrian school sits on top of (treat the natural commons as private capital)...

  all that is needed to protect the absolute property rights of the excluded to their labor products as the classical liberals proscribed is to simply internalize externalities.

  so the obvious answer is to privatize costs and socialize benefits.

  the sole role then of government is to protect the labor-based property rights of those being subjected to negative externalities (a tax in kind but not in substance).

  limit the use of the natural commons to the sustainable yield sell annual titles for that amount of access on the open market.

  collect the economic rent and distribute it directly and equally to all those whose property rights to their labor had been in the past violated by negative externalities as the rightful owners of the commons (all of us equally).

  Published: May 11, 2006 12:17 PM

• Paul Edwards

  “Actually I trust politicians even less than businessmen. But, from a conceptual point of view, I consider that the state - as a representative structure - has an obligation to stop greedy capitalists from cornering most of the planet's wealth.�

  Putting aside the invalid premise of the need to protect the planet’s wealth from free market monopolies, let’s look at the fallacy behind “the state – as a representative structure�.

  This inconsistency is prevalent. The “conceptual point of view� is in fact a euphemism for the phrase “to accommodate my conclusions about the state which are inconsistent with my premises and plain reason�.

  Concretely speaking, there is no “representation� of the individual by the state. The state represents itself and answers to itself. The state has no obligation to do anything its constituents might want. If it had such an obligation, its agents would be punished when they failed to execute this alleged obligation. They are not punished, and can not be, because they are bound by no contract; they are agents with no principal, and so they do as they like. Furthermore, if there were such a contract, as democracy stands today, it would be void, because it would be a contract to perform theft and murder against one segment of the nation on behalf of another. This, of course is criminal, and cannot be upheld in a court of law. Also, if state officials were our agents, we would also be held accountable when they acted criminally on our directions. But they do not act on our directions, as everybody knows, because no contract exists that directs them to do so.

  What a con of incredible proportions it has been to present the democratic state as representative of the people. How incredibly pervasive that single bogus idea has become, and despite the obvious evidence that it is a bold-faced fraud. It certainly serves its intended purpose though, when a person can say he does not trust politicians, but yet he fully expects the "state" to fulfill its "obligations". Can propaganda be any more successful than that?
  

  Published: May 11, 2006 12:23 PM

• Roger M

  Albatroz,
  Brazil is an interesting case. I just spent a few weeks studying it for an article. Ethanol supplies 15% of Brazil's fuel needs, but the government spent about $10 billion to save $1.5 billion in oil imports per year. The auto makers spent the money on developing the engines that could burn both ethanol and gasoline. Articles focus on the number of cars that burn ethanol, but Brazil only has about 22 million cars, compared to the US's 133 million. Most of the vehicles in Brazil are trucks and busses that burn deisel and can't burn ethanol. Ethanol replaces gasoline, not deisel. By the way, ethanol contains just 60% of the energy found in a gallon of gasoline, so you have to burn almost twice as much per mile.

  Brazil makes ethanol from sugar cane, which produces about 8 times the energy as it consumes in the production. The US makes ethanol from corn, which only produces 26% more energy than the process consumes. If the US wants to burn ethanol, we need to switch to sugar cane. We use corn because the large ag businesses, such as Archers Daniel Midland, grow corn and they bribed congressmen (your beloved state) with campaign contibutions to pay for their corn-based ethanol.

  Brazil is at, or very close to self-sufficiency in oil, but not because of ethanol. They also began drilling for oil off the coast and have been able to replace what they imported.

  Ethanol was viable while commodity prices were low, but they are climbing now along with the price of oil. Some day, when oil becomes expensive enough, ethanol will be a good substitute. But when that time arrives, all of the research will have been done long ago, most of it by private companies.

  As for oil companies investing in research, check out the DOE's web site. The DOE provided matching funds for research and in most cases, the major oil companies provided 70-80% of the research funds. But for the most part, oil companies are betting on hydrogen as the next fuel.

  Published: May 11, 2006 1:11 PM

• Albatroz

  Paul,

  Your - and most people's - mistake is to take our usual so-called democratic institutions as the only possible model. Venezuela - so much disliked by libertarians - introduced a very interesting innovation, which is the possibility of withdrawing mandates from elected officials, by means of referenda. If the politician you helped to elect does not perform in accordance to the promises made, you can kick him out. In that way you create conditions for elected politicians to be accountable for their actions, much before the mandate comes to an end. This novelty and a more widespread use of referenda can help governments becoming more representative of people's ideas and wishes. If that can be achieved, I see no valid reason for the state not to intervene in our behalf. Libertarians idea that the state can and should be replaced by market forces, is indeed a weird one, only put forward to underline libertarians deep dislike of all forms of government. Only the problem is not the state but the model we chose to select our rulers.

  Published: May 11, 2006 1:29 PM

• Albatroz

  Roger,

  Thank you for the very interesting data on Brazil. The point I was making is that the Brazilian state was more successful in implementing an alternative to oil than any oil company. Ethanol may have been more expensive than oil, but the money spent in growing sugar cane and transforming it in ethanol was kept in Brazil, and helped the local economy. Money to pay for cheaper oil would leave the local economy and would not contribute to the creation of jobs for Brazilians. I aggree that there would be some benefit to the Brazilian economy if energy could be supplied at a lower price, but I think that the advantages of saving 1.5 billion dollars a year were greater than the disadvantages for firms of having an energy source somewhat more expensive. Fundamentalist libertarians will, obviously, disaggree...

  Published: May 11, 2006 1:38 PM

• George Gaskell

  Libertarians idea that the state can and should be replaced by market forces, is indeed a weird one, only put forward to underline libertarians deep dislike of all forms of government.

  It is the libertarian position that one does not "replace" the state with "market forces."

  First, there is no such thing as a "market force." There is behavior. There is voluntary behavior and there is coerced behavior. There are economic realities and immutable principles of economics, which is merely one form of the science of complex systems.

  (I have tried to outline one such aspect of complexity -- prices as information and the market as an information processor, but you have not even attempted to address these more theoretical comments.)

  Second, one does not "replace" the State with a free market. The State is a metaphor, a euphemism for a particular mode of behavior -- aggression by proxy, with a pretense of legitimacy for its organized coercion.

  We are opposed to all forms of government because we are opposed to all forms of coercive aggression, even the ones that attempt to diguise themselves with a pretense of benevolence.

  One might say that we should allow people to act in a mutually productive way, free from aggression against their life, liberty and property. One might do so by abolishing the State (i.e., putting an end to that particular mode of coercive behavior). But one does not "replace the State with market forces."

  Published: May 11, 2006 1:48 PM

• Albatroz

  George,

  I stand corrected on what terminology is concerned.

  "There is voluntary behavior and there is coerced behavior."

  Is it your point that all voluntary behaviour is beneficial, and that all coerced behaviour is harmful? If not, how do you propose to implement favourable coercive behaviour (stopping people from stealing, for instance) while avoiding harmful coercive behaviour? And how would you foster beneficial voluntary behaviour while discouraging or stopping harmful forms of voluntary behaviour (once more, stealing from other people)?

  Published: May 11, 2006 2:06 PM

• Yancey Ward

  BillG,

  How do you determine the cost of the externalities? I have questioned you numerous times about how to assess the economic rent of land, and you continue to give vague generalizations.

  Let us take land, since it comprises the natural resources for the most part. The only valid way that I see, to assess economic rent, is to open auction the leases for defined periods of time. This is the only way to fairly determine what value has been denied to the communutity by the enclosure. Do you agree or disagree?

  Published: May 11, 2006 2:31 PM

• George Gaskell

  how do you propose to implement favourable coercive behaviour (stopping people from stealing, for instance) while avoiding harmful coercive behaviour?

  This question is addressed to distinction between an anarcho-capitalist society and a minimalist State. Among libertarians, this is known as the difference between anarchists and minarchists.

  A minarchist state would, for example, be committed to freedom of prices, freedom of contract, enforcing property rights, protecting the right of free entry into all markets, rejection of subsidies, etc.

  All of this could be done while still performing the usual roles of arresting and punishing criminals, preventing murders, thefts, etc. The only thing a minarchist state could not do, of course, is claim to refrain for engaging in theft itself, since states collect taxes in order to fund these operations, and taxes are by definition collected at gunpoint.

  Minarchists essentially argue that some form of State is necessary, but that it is still wrong, and are fine living with that conundrum. In any event, minarchist libertarians believe that liberty is a matter of degree, that there are more and less intense forms of coercion, that communism is a little more oppressive than socialism, which is a little more oppressive than social democracy, and so forth.

  However, this distinction between minarchism and anarchism, while very interesting, is not what is at issue in this thread, nor the discussion over the last several days about the market for natural resources, specifically oil.

  As a result, explaining how and why a society should abolish the state altogether would be off-topic. It would also tend to leave behind the far more basic and relevant discussion, which is how making markets more free, by merely moving in a more libertarian direction (i.e., something less than a radical, immediate abolition of the State) would improve the quality of life and increase a territory's material wealth.

  Since you do not agree with the basic proposition that making markets more free (by freeing commodity prices and ending subsidies), I do not see how leaping ahead to a discussion of the distinction between minarchism and anarchism would be very helpful.

  And how would you foster beneficial voluntary behaviour

  I would not foster anything. People do this on their own. It is the basis for all of civilization.

  All forms of trade are cooperative. All voluntary trade is mutually beneficial -- no one would voluntarily enter a transaction unless he believed he would benefit. For the trade to occur, this must be true for both parties. That's simply the definition of "voluntary."

  The reason that both can (and usually do) benefit is that each party has his own subjective criteria as to what constitutes a "benefit." The two parties do not want exactly the same thing. Their needs and preferences are asymmetrical. Both gain as the result of making the trade, each in his own subjective way.

  Thus, all voluntary behavior is beneficial, and mutually productive.

  Now that I have addressed your questions, how about my comments on prices as information, and the impossibility of improving economic results by interfering with them?

  Published: May 11, 2006 2:34 PM

• Roger M

  Albatroz,
  Are Brazilians better off with ethanol? The government subsidized the ethanol jobs, but it didn’t create any; it merely took jobs from one segment of the economy through taxes, and gave those jobs to the ethanol segment. There would be no net increase in jobs. The money to subsidize ethanol came from high gasoline taxes. The government has to tax ethanol less in order to persuade people to buy it. Economists should look at the opportunity costs: Could that money spent on subsidizing ethanol have been used more productively elsewhere? Probably.

  As for keeping the money in Brazil, again that’s just pure mercantilism. If imports damage a country’s economy, then we should shut them all out immediately by making all imports of any goods illegal. It would be immoral to do less. In fact, we should go to war with any country that tries to sell us something. Oh, wait, European countries did that for about two hundred years.

  But if it’s true that we can import some things cheaper than we can make them ourselves, such as automobile fuel, we should do so. The savings will go to purchase other things made locally and create more jobs in those sectors. Both the importer and the exporter become richer as a result.
  

  Published: May 11, 2006 2:36 PM

• Yancey Ward

  Albatroz,

  Brazil spent more resources making ethanol than it would have spent using petroleum. That the ethanol is made locally is irrelevant. By your economic logic the Brazilian government could have just as easily paid citizens to collect their feces, ferment it, and collect the methane and become energy producers. That way every Brazilian could have a job as an energy producer. Your understanding of economics is laughable.

  Published: May 11, 2006 2:46 PM

• BillG (not Gates)

  Yancey wrote:

  "The only valid way that I see, to assess economic rent, is to open auction the leases for defined periods of time. This is the only way to fairly determine what value has been denied to the communutity by the enclosure. Do you agree or disagree?"

  BillG responds:

  I think you are too hung up on trying to exactly match the market valuations with personal utility values.

  land value taxation is about market values not personal utility...

  yes when a title comes on the market it becomes an objective data point (personal utility) but we are looking for market valuation as it is all the members of the community who are being excluded - thus the aggregate effect of all individual community members actions.

  Published: May 11, 2006 2:59 PM

• Yancey Ward

  BillG,

  An open auction gives you the market value of the lease. The winning bidder gets the lease at his personal utility value, whereas the losing bidders had different utility values.

  In what other ways would we determine the rent?
  

  Published: May 11, 2006 3:08 PM

• Albatroz

  Some people here seem to think that their arguments become more convincing if laced with abuse against those who think differently. I hope that is not part of the libertarian ideology... But, anyway, it is getting a bit tiring to try and argue in a civilized manner with those who seem to think that manners are part of the repressive system... I am going to get some fresh air elsewhere. In spite of the differences of opinion, I would like to thank Roger M, George Gaskell and Tokyo Tom for their views. And I hope you will be all around when your free market colapses under the weight of its obvious shortcomings...

  Published: May 11, 2006 3:51 PM

• Vince Daliessio

  Albatroz sez;

  "And I hope you will be all around when your free market colapses under the weight of its obvious shortcomings..."

  What "free market" is he talking about? I don't see one anywhere around here... only merchantilism.

  Published: May 11, 2006 4:18 PM

• Roger M

  Albatroz,
  Thanks for sparring! The main reason I post comments is to sharpen my thinking on economic issues and it works only if there's someone to disagree with. You're a worthy opponent!

  Published: May 11, 2006 4:38 PM

• BillG (not Gates)

  Yancey wrote:

  "In what other ways would we determine the rent?"

  BillG responds:

  I would do it exactly how you devised for titles to use the sky as a sink up to the sustainable yield and then return the economic rent (formerly the negative externalities) directly and equally to the owners of the sky as a common asset.

  but with regards to land it is not necessary...I would do nothing different then what we do today for real property assessment except we no longer have to assess anything built with human labor.

  Published: May 11, 2006 5:26 PM

• Paul Edwards

  Albatroz, (in case you come back)

  “Your - and most people's - mistake is to take our usual so-called democratic institutions as the only possible model. Venezuela - so much disliked by libertarians - introduced a very interesting innovation, which is the possibility of withdrawing mandates from elected officials, by means of referenda. If the politician you helped to elect does not perform in accordance to the promises made, you can kick him out.�

  Under democracy we can also “kick him out�. But what can we replace him with? Another criminal who we can later kick out as well, and another. The referendum does not enhance democracy in principle. It is but a little wrinkle in it.

  “In that way you create conditions for elected politicians to be accountable for their actions, much before the mandate comes to an end.�

  Are you telling me your politicians are forced to be accountable to you? I am amazed, but I will accept this is how you feel. But have you never wished they would encroach less on your life, not tax you so heavily, not subsidize something you don’t believe in, and yet found that he did not heed your wishes and nor did his successor? If not, I am impressed. But tell me this: if you happened to desire to be done with your relationship with your representatives altogether, and simply wished to represent yourself by living un-censored, un-taxed and unregulated, would your representative agree to your request? Would he remain accountable to your desires? If so, you’ve got what I want, and I’m envious.

  “This novelty and a more widespread use of referenda can help governments becoming more representative of people's ideas and wishes.�

  Is it your impression that governments are looking for help to become more representative of people’s wishes? If so, your view of the nature of the people in government is the opposite from mine. What I think they are looking for is ways to impose what they think is best on you, despite what you think. That is why they are in power: to exercise it; not take two-bit orders from those who they perceive, in truth, as the dumb masses who don’t know what is best for them.

  “If that can be achieved, I see no valid reason for the state not to intervene in our behalf.�

  And that “if� I take it is more than a hypothetical, I presume. Venezuela’s state has achieved this if I understand you correctly. Let us say you are correct and I am wrong. Say the state wants to and indeed can actually discern what the majority wants on all issues, and implements it with force and ensures that it does not impose its own desires on the majority. What of the minority; can they also influence decisions, or must they first become part of the majority. Is the majority’s desire necessarily ethical and do they truly care about justice? Does it matter; perhaps we shall assume that what the majority wants and gets is just by definition. The libertarian does not presume this.

  “Libertarians idea that the state can and should be replaced by market forces, is indeed a weird one, only put forward to underline libertarians deep dislike of all forms of government. Only the problem is not the state but the model we chose to select our rulers.�

  The state and the market are not replacements for each other. The former exists parasitically on the latter. The free market is an abstraction for a collection of free individuals voluntarily trading for their own mutual benefit. The state is an abstraction for a minority of individuals exercising coercive powers over this market. It unnaturally hamstrings the natural market and does it by compulsion and threat of violence. It is not based on voluntary exchange, but instead on coercive monopolization and confiscation. It is this fundamentally criminal nature of the state, rather than the details of its implementation, that libertarians object to.

  Published: May 11, 2006 6:00 PM

• averros

  Folks, stop arguing with Albatroz, he's a classical troll -- engaging in all kinds of demagoguery, ignoring logic, and twising everyone's words.
  

  
  Not to mention that he seems to have no clue whatsoever about economics -- of any kind, nor about libertarian ethics and ideas. All his statements is pure socialist propaganda. That horse was beaten to death so many times that it takes willful blindness not to notice the pulp.
  

  
  Do not feed the troll. He's either genuinely brainwashed and/or stupid -- and in this case you won't change his mind, or he's a paid or volunteer provocateur, in which case you also won't be able to change his mind.
  

  Published: May 11, 2006 7:41 PM

• Albatroz

  Paul,

  Your civility deserves a (last) comment.

  Presumably you accept that a firm needs a management, people who decide how the firm should be run, what to produce, how, and with what production factors. Presumably workers or employees are not left alone to make those decisions by themselves. By other words, there is a "government" in that firm, without which the firm could not function and be successful. If you accept that some people may direct other people within a production context, why not on a political community context? Workers can opt out if they are unhappy? But so can citizens. If I am not happy with the country I am in, I can move. Managers can be honest but politicians (properly chosen) not? Or are you saying that you don't care whether managers are honest or not, since bankruptcy is the punishment for ineptitude? Except that a dishonest manager may be quite successful, just like politicians.

  One of your fellow libertarians referred to being a minarchist rather than an anarchist. But either you accept government or you don't. Having a little bit government is like being a little bit pregnant. It doesn't make sense. I can understand your being fed up with governments of all kinds. But a society of individuals completely free of ties to one another, without rules or rulers is an impossible dream. In fact it surprises me that you are not more in favour of workers self-management or cooperatives, where there are no bosses, since this would, presumably, be closer to your libertarian ideal.

  The whole libertarian movement seems to me to be run by emotions rather than by reason. You can't get rid of people who manage some of your interests in your name. You just have to improve the way you choose them. I aggree that our so-called democracy is in fact a stinking oligarchy. But if we change the rules we may get closer to a real democratic system. That seems to me to be the mais issue. Not getting rid of any government.

  Good luck to you

  Albatroz

  Published: May 12, 2006 3:07 AM

• George Gaskell

  Workers can opt out if they are unhappy? But so can citizens. If I am not happy with the country I am in, I can move.

  This State=company idea is an exceedingly poor analogy.

  One of its many flaws is that an important aspects of a free market (in addition to free prices, discussed above) is that entrepreneurs form new companies in order to take advantage of inefficiencies or other sub-optimal performances of existing companies. The companies that do a better job at meeting their customers' wants and needs succeed. States have no such characteristics. As the War of 1861 illustrated, you cannot secede from a State without being forced back in at gunpoint. You cannot form your own autonomous, independent territory, not without being shot at.

  Another is that employment is voluntary, and therefore mutually beneficial, just like a trade of commodities. State-membership is involuntary, and is asserted over everyone who happens to be within a particular geographical territory, and even some others who aren't. To say "you can move" is a flippant and inadequate response. Moving means being dispossessed of one's property, which libertarians take very seriously.

  In short, the difference between a State and a company is the same thing as the difference between slavery and a contract. Let's say you have a man who is born a slave, who works as an agricultural laborer his whole life, lives on the plantation, which provides him with his basic necessities. Compare him to another man who is a farm employee, who works for money, who then uses that money to buy his basic necessities. Now, it is possible that these two men have virtually identical lives. But one is a slave and the other earns his living by making contracts -- voluntary trades with others. Do you see a difference between these two people's lives?

  Published: May 12, 2006 4:51 AM

• Albatroz

  George,

  You missed my point completely. I was referring to structures - whether firms or states - having need of "managers". If those "managers" are seen as necessary and positive in firms, why not in states? You may say that managers in firms manage their own affairs, but what about the employees? Do they have any saying in the running of the firm? Don't they benefit from good management and suffer from poor management? Is it acceptable that their only choice is sticking by or leaving? As you say, employment is voluntary, but it can just be the least of two evils: having a lousy job or none at all. Isn't this similar to what you complain about in states and governments? If politicians can be made accountable for their actions, can we not have good politicians as we can have good managers? Isn't this anti-government obsession a bit irrational? Even granting that our present way of choosing rulers is pretty bad.

  Published: May 12, 2006 5:52 AM

• BillG (not Gates)

  George wrote:

  "This State=company idea is an exceedingly poor analogy.

  ...As the War of 1861 illustrated, you cannot secede from a State without being forced back in at gunpoint. You cannot form your own autonomous, independent territory, not without being shot at.

  Another is that employment is voluntary, and therefore mutually beneficial, just like a trade of commodities. State-membership is involuntary, and is asserted over everyone who happens to be within a particular geographical territory, and even some others who aren't. To say "you can move" is a flippant and inadequate response. Moving means being dispossessed of one's property, which libertarians take very seriously."

  BillG responds:

  yes, the state = a landlord is a much more appropriate analogy.

  Published: May 12, 2006 7:21 AM

• Yancey Ward

  BillG,

  Ok, fair enough.

  Just for clarity, would you agree that a 100 acre pasture homogenous in its characteristics divided into two 50 acre lots, one of which remains unchanged, and the other contains a car factory must have the same economic rent; otherwise you would be taxing the improvements if the one with the factory had a higher tax?

  Also, would you agree that the basis of the assessed rent has to use as the primary factor the winning bid for the lease, and an adjustment factor that consists solely as a multiplier that is know well before the auction and cannot be changed during the term of the lease?

  I apologize if you find my questions somewhat repetitive or annoying, but having dealt with many geo-libertarians in the past who refused to put aside arbitrarily assigned rents, I always attempt to pin down what they believe the proper implementation of their philosophy is so that I know what I am dealing with.

  Published: May 12, 2006 8:46 AM

• George Gaskell

  If those "managers" are seen as necessary and positive in firms, why not in states?

  Because there is a vast difference in terms of (a) the factors that determine how people are being "managed," and (b) the alternatives available to those who are "managed."

  A company is a shorthand term for one or more owners of some form of property, together with the owner's employees. These owners have developed some service or product that is useful in the market -- an economic good. They cannot produce this good on their own, so they enter into contracts with others (the employees) to cooperate, for mutual benefit, toward achieving this goal.

  Employers and employees assume duties toward one another, and they do so voluntarily. Neither party will assume these duties unless they expect that doing so will be beneficial. Further, doing so will always be the best known course of action from among all existing alternatives.

  As I said before, the two parties to a transaction typically have asymmetrical needs and wants. In the case of employment, the employee needs the security of a fixed, immediate and stable payment (i.e., reduced risk). The employer has a longer time-horizon (i.e., can bear greater risk). The employer can wait longer for his payment (which comes from his customers). He therefore accomodates the employee's desire for certainty by paying him a fixed sum up front, paying it long before the income from the employee's labor is realized in the market. Thus the employee gains immediate payment, and a reduction of risk and uncertainty (as to what the price his product will earn when it is finally sold). He also gives up his autonomy when it comes to the selection of tasks.

  When an employer "manages" his employees, he is selecting these tasks. That is part of the bargain that formed the basis of the employment contract. If the tasks selected are unappealing to the employee for any reason, the employee must make the economic decision about what is more important to him: avoiding the task, or the benefits of continuing the employment. If at any time he decides that the costs outweigh the benefits, he is always free to make a better arrangement from among all of the available alternatives.

  (Remember, every person evaluates the "costs" and "benefits" according to different criteria and in different priorities.)

  Also, the selection of tasks by the employer is always controlled by the utility of those tasks in the marketplace. The employer is not managing his employees because he likes managing people. He does so because he is trying to produce a good that is attractive to customers in a competitive marketplace.

  Therefore, the "management" we find in the context of employment is always guided by these twin economic factors: the need to obtain labor that produces a good that is successful in the market, and the need to provide benefits to employees that outweigh the employee's potential desire to work elsewhere.

  Since everyone in a free market is free to choose the best course of action (however he subjectively defines "best") from among existing alternatives, everyone has the greatest opportunity to improve his situation. As long as there are free markets for (a) labor and (b) the goods that are produced by that labor, conditions in both these areas will tend toward being optimal.

  Contrast these economic factors and decisions to how a State "manages" people. State-based economic decisions (i.e., what to do and how to do it) are based on conflict and coercion, not mutual benefit. People are not allowed to weigh costs and benefits for themselves. These decisions are dictated for them by others. Start new companies is prohibited or restricted, even if doing so would be peaceful and economically successful.

  Also, a State is not competitive in the marketplace. It produces no good that it must sell to willing customers. It obtains its income by taxation. If, in the case of state-owned businesses, it produces a good that fails to be successful in a market, it will typically nationalize the entire market within its territory by eliminating domestic competition. When it cannot do so and must compete internationally, it will then subsidize the production of the good with tax revenues, thus passing the true costs of production onto people outside of the company.

  The people who run the company also have no incentive to make difficult changes in they way they do business, since they will not realize the benefits of doing more work than the minimum.

  As a result of these economic factors, over the long term, the quality of the good produced tends to go down, the costs of production tends to go up, and the working conditions of the employees tend to deteriorate.

  In the case of oil, incidentally, there is a LOT of oil in the US. It is merely more expensive to produce it here, in part because the price of labor for oil workers (and other production factors) is higher in Texas than in places like Saudi Arabia and Venezuela. Workers have better alternatives. It is also, for geographic reasons, easier to extract oil from Kuwait than it is from Louisiana. Which is fine. If foreign oil is cheaper to produce in a free market, it is therefore more economically efficient that the cheaper oil be extracted first.

  Thus, once again, the price system points the way toward economic efficiency for everyone.

  Published: May 12, 2006 9:13 AM

• Paul Edwards

  Albatroz,

  “Presumably you accept that a firm needs a management, people who decide how the firm should be run, what to produce, how, and with what production factors. Presumably workers or employees are not left alone to make those decisions by themselves. By other words, there is a "government" in that firm, without which the firm could not function and be successful.�

  I agree completely. In this case, we are using the term “government� to mean some form of hierarchical management structure. That’s cool. I govern my household in this way as well.

  “If you accept that some people may direct other people within a production context, why not on a political community context?�

  I’m glad you ask. Let’s see if I can focus the difference in these two scenarios to a needle point: states depend on coercion. All other free market forms of “government� are void of coercion. They are voluntary. States cannot be justified. All other free market forms of government are entirely justified.

  “Workers can opt out if they are unhappy? But so can citizens. If I am not happy with the country I am in, I can move.�

  As a worker you work on a voluntary basis for a company that is ethically justified in its existence and in negotiating the terms of employment with you. You can quit your job and go to work with a competitor or a company that at least competes in the job market. All of this is voluntary. As a citizen, on the other hand, you are subject to legislation in an involuntary basis under a state that is entirely unjustified. Your right to remain living un-molested by a coercive state far and away trumps its non-existent right to tax and coerce you because it claims a monopolistic jurisdiction over the territory you live in.

  “Managers can be honest but politicians (properly chosen) not?�

  Managers of free market firms are in place, in the ultimate and final analysis, to maximize customer happiness. The profit motive necessarily ensures this. Politicians are agents of a coercive monopoly. There are no profit and loss market forces, nor is there any force at all that motivates him to satisfy any customer or anyone. They depend on demagoguery and deception and illegitimately doling out special privileges to obtain and maintain political power. Their sole purpose is to wield this power.

  “Or are you saying that you don't care whether managers are honest or not, since bankruptcy is the punishment for ineptitude? Except that a dishonest manager may be quite successful, just like politicians.�

  Under a free market, with private courts and a naturally more diligent and awake nation, fraud would be punished more easily because there would be no arbitrary political power to peddle influence, advantage and favor to favored individuals. Those with money would have it and keep it only by satisfying and continuing to satisfy their customers. There would be no privileged wealth.

  “One of your fellow libertarians referred to being a minarchist rather than an anarchist. But either you accept government or you don't. Having a little bit government is like being a little bit pregnant. It doesn't make sense.�

  I can’t speak for the minarchists, but as for me, I agree with you.

  “I can understand your being fed up with governments of all kinds. But a society of individuals completely free of ties to one another, without rules or rulers is an impossible dream. In fact it surprises me that you are not more in favour of workers self-management or cooperatives, where there are no bosses, since this would, presumably, be closer to your libertarian ideal.�

  The libertarian ideal is very simple: non-aggression. There are several equivalent ways to put this; I’ll enumerate some of them:

  1. no initiation of force/violence.

  2. no coercion

  3. complete respect for the institution of private property and the homesteading principle

  4. private enforcement of natural law

  5. completely free markets

  What this means is that those who wished to be capitalists could do so. Those who wanted to be employees could do so; entrepreneurs, check, contractors, check. But: steal, confiscate, legislate, commit fraud, or murder: uh uh. This rules out private criminal behavior and it rules out a state.

  “The whole libertarian movement seems to me to be run by emotions rather than by reason. You can't get rid of people who manage some of your interests in your name.�

  If you accept the legitimacy of the state, then you can’t get rid of the state. If not the former, then the latter also does not hold. In the free market, there is no such thing as not being able to get rid of a supplier of ANY service. If I am unsatisfied with the service, I can switch or quit. And there is no one to point a gun at me or send me to jail for this.

  “You just have to improve the way you choose them. I aggree that our so-called democracy is in fact a stinking oligarchy. But if we change the rules we may get closer to a real democratic system. That seems to me to be the mais issue. Not getting rid of any government.�

  A rose by any other name would smell as sweet. And a state is a coercive monopoly of ultimate decision making over a claimed territory. This is the essential nature of a state. It is a criminal organization, and it can’t be spruced up sufficiently to avoid being so.
  

  Published: May 12, 2006 10:20 AM