The Mises Blog went live on May 5, 2003. Since then, it has hosted 16,647 posts and 234,839 comments and become one of the highest-ranked economics blogs on the internet, thanks to a fantastic slate of authors and an eager, informed, and intelligent community of readers, commentators, and friends. Thanks so much to all of you for making this possible.

As use of the blogosphere, Facebook, Twitter, and similar tools has exploded in the last few years, the need for a large, diverse, and busy group blog hosted at mises.org has diminished. We all have many channels for sharing news and views, and the formal, “traditional” organizational blog has become a little old fashioned. Therefore we’ve decided to close the Mises blog and replace it with smaller, lighter, more focused, streams — a news feed and a streamlined opinion blog, the Circle Bastiat. The Mises blog archives will remain on the site now and forever.

Thanks again for being part of the Mises community!

You’ve all heard the story of the Manhattan socialite who expressed shock at Nixon’s landslide 1972 victory because “nobody I know voted for him.” (Attributed variously to Pauline Kael, Katharine Graham, Susan Sontag, and others, and probably apocryphal, but who cares; it’s a great quote.) I was reminded of this by a line in Larry Summers’s confidential 2008 economic policy memo now making the rounds, courtesy of the New Yorker: “Greg Mankiw is the only economist we have consulted with [about the optimal stimulus package] who refused to name a number and was generally skeptical about stimulus.” How can a huge stimulus package be wrong — everybody I know favors it!

(For the record, the economists consulted — supposedly representing the full spectrum of legitimate opinion — were Robert Reich (recommended stimulus: $1.2 trillion over 2 years), Joe Siglitz ($1 trillion over two years), Paul Krugman ($600 billion in one year), Jamie Galbraith ($900 billion in one year), Dean Baker and colleagues ($900 billion), Marty Feldstein ($400 billion in one year), Larry Lindsey ($800 billion to $1 trillion), Ken Rogoff ($1 trillion over two years), Mark Zandi ($600 billion in one year), an unnamed group of Fed officials (over $600 billion), Adam Posen ($500-700 billion in one year), and an unnamed group at Goldman Sachs(!) ($600 billion). So, we’ve got left-wing Keynesians, right-wing Keynesians, moderate Keynesians, Robert Reich who wouldn’t know a Keynesian from a Kenyan, and Goldman Sachs. How’s that for diversity of opinion?)

[Cross-posted at Organizations and Markets]

Following up Art’s post, while Julian Simon was certainly right to take on Malthus (let alone the risible Paul Ehrlich), it’s worth remembering that the metaphor of human knowledge and agency as the “ultimate resource” is just that — a metaphor. Simon correctly pointed out that physical stuff is transformed into higher-order goods only when entrepreneurs figure out how to use the stuff in production. Menger himself noted that “things” become “goods” only when there are “[s]uch properties as render the thing capable of being brought into a causal connection with the satisfaction of this need,” and, particularly important, “[h]uman knowledge of this causal connection.” But it doesn’t follow that knowledge is itself an economic good, let alone higher-order good. As Mises (quoted the other day by Joe Salerno put it: “Capital is a praxeological concept. . . . It is a product of reasoning, and its place is in the human mind. It is a mode of looking at the problems of acting, a method of appraising them from the point of view of a definite plan. It determines the course of human action and is, in this sense only, a real factor.” In other words, physical goods become capital goods only as they are incorporated into an entrepreneur’s subjective production plan (Lachmann’s Capital and Its Structure and Kirzner’s Essay on Capital emphasize this point — see discussion here.) But that doesn’t mean these production plans are capital.

I’m reminded of the long-running debate on whether entrepreneurship is a factor of production. A few years ago I highlighted an insightful 1950 article from Jean Marchal on this point:

Some people doubtless will say that [the entrepreneur] provides the function of enterprise and receives as remuneration a sum which varies according to the results. But this is a tortured way of presenting the thing, inspired by an unhealthy desire to establish arbitrarily a symmetry with the other factors. In reality, the entrepreneur and the firm are one and the same. His function is to negotiate, or to pay people for negotiating under his responsibility and in the name of the firm, with two groups: on the one hand, with those who provide the factors of production, in which case his problem is to pay the lowest prices possible; on the other hand, with the buyers of the finished products, from which it is desirable to obtain as large a total revenue as possible. To say all this in a few words, the entrepreneur, although undeniably providing a factor of production, perhaps the most important one in a capitalist system, is not himself to be defined in those terms.

In other words, while production requires entrepreneurship, and resources exist only as mediated by knowledge, entrepreneurship is not itself a factor of production, and knowledge is not itself a resource, except in the trivial sense that resources — or any economic activity — cannot exist without knowledge.

Yale economist William Nordhaus, with the typically enlightened attitude of a Yale professor, offers his thoughts on monetary reform:

Mr. Nordhaus dismissed notions of scrapping the central bank, as well as criticism of its chairman, Ben Bernanke, as “partisan” and “ignorant.”

“Return to the gold standard? Give me a break. We’re not in Kansas. This is an integrated world economy,” he said. And forget doing away with the Fed: “Every country has a central bank. Money cannot manage itself.”

James Grant finds Sylvia Nasar’s history of economic thought, The Grand Pursuit, engagingly and gracefully written, but doesn’t quite buy the main thesis:

Her collected geniuses, Ms. Nasar claims, were “instrumental in turning economics into an instrument of mastery.” I find nothing in these pages remotely to substantiate that contention. Economics may be an “engine of analysis,” as Alfred Marshall said, or an “apparatus of the mind,” as Keynes put it. But economists no more set the world to producing and consuming than baseball statisticians hit home runs. Then, too, you’ll never see Bill James, the dean of the baseball sabermetricians, trip up a base runner the way the government thwarts an entrepreneur. The intervention-minded economists are the ones who give the government its big ideas.

Grant also wishes she had included a few more important, though less celebrated, figures:

There isn’t room for every economist in this book or any other, but I myself missed the voice of Jacques Rueff, the 20th-century theorist who was able to demonstrate the superiority of the classical gold standard over the faux gold standard devised by Keynes (incorporated in the Bretton Woods system of 1944-71) or the paper-money regime advocated by Fisher and Friedman.

I missed, as well, Murray Rothbard, who blamed the Great Depression on the Hoover administration. It didn’t intervene too little, Rothbard unconventionally sought to show in his 1963 book, “America’s Great Depression,” but rather too much. The economics profession just smiled at this contention, but the unsolved case of the depression of 1920-21 counts heavily for Rothbard’s thesis. It was a deep and painful slump (a young Army veteran, Harry S. Truman, lost his Kansas City haberdashery to bankruptcy), with the wholesale price index dropping by 37% and the measured rate of unemployment tripling to 12%.

But it ended. Why it ended will mystify anyone who has taken to heart the arguments of Keynesians for more fiscal and monetary stimulus to revive today’s economy. To meet the crisis that spanned the administrations of Woodrow Wilson and Warren Harding, the Treasury ran a budget surplus and the Fed raised interest rates. Yet the slump did end, and the 1920s roared.

See also Tom Woods on the forgotten depression of 1920.

In honor of Syfy’s Indiana Jones marathon, a favorite scene from Indiana Jones and the Last Crusade. Take that, German Historical School!

http://www.youtube.com/watch?v=qCqsGxC-ooI

A great op-ed from Pascal Salin, the Mises Institute’s 2008 Schlarbaum Laureate, in yesterday’s Wall Street Journal. Writes Pascal:

[I]n his more recent statements and decisions Mr. Sarkozy seems to have tilted France even closer toward socialism than one might previously have thought possible. Last month, reiterating a theme that he first broached during his election campaign, the president declared that it is unfair that shareholders and owners get to keep all of a firm’s profit, and that it would be more fair for company profits to be divided into three equal parts: one for shareholders, one for wage earners and one for reinvestment into the enterprise.

This proposal suggests that Mr. Sarkozy totally fails to understand the role and nature of profit or the workings of a capitalist firm. A firm’s employees, like its lenders and suppliers, receive a fixed price, their wages, in return for what they supply to the business—their labor. This wage is guaranteed whether the firm turns a profit or not. The owners, in exchange for taking the risk of loss, receive any residual income—that is, what is left over from the business’s revenue after the wages, suppliers and the rest have been paid. Saying that it is unfair that owners get the profit is as meaningless as it would be to say that it is unfair that wage-earners get all the wages.

Nevertheless, Mr. Sarkozy is now preparing to make his sense of fairness the law of the land. After some discussions about the precise features of this proposal, his government has now put forward a law that will force firms with more than 50 employees to pay them a bonus whenever profit increases from one year to the next. The precise amount of the bonus is to be negotiated with trade unions. And of course, unlike a business’s owners, wage earners will share in the profit but not help bear the cost of any losses.

These courses, co-taught at two of my institution’s sister campuses, are, well, a bit odd:

Recently, the University of Missouri-St. Louis (UMSL) and the University of Missouri-Kansas City (UMKC) sponsored two college courses: Introduction to Labor Studies and Labor Politics and Society, to be taught simultaneously through a video conference between to two campuses.

The Professors are Judy Ancel, Director of Labor Studies at UMKC and Don Giljum, business manager for the International Union of Operating Engineers at Ameren UE in St. Louis. (Bonus: he is a member of the Communist Party.)

In the class, the Professors not only advocate the occasional need for violence and industrial sabotage, they outline specific tactics that can be used. As one of our colleagues pointed out, its the matter-of-factness of it all that is so disturbing.

I’m guessing they don’t have W. H. Hutt or Morgan Reynolds on the syllabus.

The Mises Institute Brasil’s Second Austrian Seminar, today and tomorrow in Porto Alegre, is now streaming live. Speakers include Hans-Hermann Hoppe, Guido Hülsmann, Anthony Mueller, Gabriel Zanotti, Bob Murphy, myself, and several others. (Most lectures are in English, though a few are in Portuguese or Spanish.)

The über-Establishment Brookings Papers on Economic Activity is now free to all, another sign of the growing interest in open-access publishing within the research and policy communities. The Mises Institute, of course, is at the forefront of this trend.

The Universidad Nacional de Colombia is hosting a “Seminar in Austrian and Heterodox Economics” in Bogotá, August 9-11, 2011. The keynote speakers are Larry White, Adrian Ravier, and myself. The conference is organized by the Grupo de Investigación en Macroeconomía y Política Económica MACRÓPOLIS.

Thanks to Henry Manne for passing along this fascinating analysis by Gerard N. Magliocca of the Roosevelt Administration’s attempt to outlaw private payments in gold.

This Article presents a case study of how constitutional actors respond when the rule of law and necessity are sharply at odds.

In 1935, the Supreme Court heard constitutional challenge to the abrogation of “gold clauses” in contracts and Treasury bonds. Gold clauses guaranteed that creditors would receive payment in gold dollars as valued at the time a contract was made. Due to the deflation that followed the Great Depression, this meant that debtors were being forced to pay back much more than they owed originally. To stop a looming wave of bankruptcies, Congress passed a Joint Resolution declaring all gold clauses null and void.

Following oral argument, President Franklin D. Roosevelt was concerned that the Court would invalidate the Joint Resolution. He concluded that he could not accept this result, and thus drafted a Fireside Chat announcing that he would not comply such a decision. This unprecedented statement, which invoked the New Testament and necessity as the grounds for rejecting the Court’s decision, has never been closely analyzed until now.

In the end, the Court did not hold that the gold clauses must be enforced. With respect to Treasury Bonds, however, a plurality of the Justices concluded that the Joint Resolution was unconstitutional but that the bondholders were not entitled to relief. This slippery reasoning (in Perry v. United States) harkened back to Chief Justice Marshall’s approach in Marbury v. Madison – another case in which the Court was confronted with presidential defiance.

By recounting how President Roosevelt and Chief Justice Hughes – the author of Perry – sought to defuse (or, in some cases, exacerbate) the gold crisis, the dark arts of constitutional are exposed.

Adds Manne: “If you ever entertained the ridiculous notion that the SEC was just a benign regulatory agency and not an instrument of harsh political abuse, read this.”

Thanks to Tim Castelle for the pointer to Nina Paley’s great series of IP cartoons.

A bizarre op-ed by Columbia University President Lee Bollinger in today’s WSJ calls for a government bailout — no, even worse, ongoing government subsidies — for the dying journalism industry. In response to the obvious problem that this would make the industry even more dependent on, and friendly to, the state than it already is, Bollinger offers the universities as a counter-example:

There are examples of other institutions in the U.S. where state support does not translate into official control. The most compelling are our public universities and our federal programs for dispensing billions of dollars annually for research. Those of us in public and private research universities care every bit as much about academic freedom as journalists care about a free press.

Yet — through a carefully designed system with peer review of grant-making, a strong culture of independence, and the protections afforded by the First Amendment—there have been strikingly few instances of government abuse. Indeed, the most problematic funding issues in academic research come from alliances with the corporate sector.

Bollinger offers no argument or evidence to support this breathtakingly naive view of university “independence.” He is apparently blissfully ignorant of the vast body of evidence, going back many decades, showing precisely the opposite, namely that college and university faculty are much more statist than than the average citizen. I summarize some of this evidence in a recent Mises.org piece; the most recent detailed empirical work has been done by George Mason University professor Dan Klein and a series of coauthors. In short, the evidence confirms exactly what one would expect, namely that the de facto nationalization of the higher-education sector in the US (and elsewhere) has produced generations of faculty who see their main task as promoting “civic virtue,” i.e., support for an ever-larger and more powerful central state. The same fate no doubt awaits Bollinger’s proposed new state-media enterprise.

Update: See also Roger Pilon.

For students attending this week’s Rothbard Graduate Seminar: here are my lecture slides for chapter 7 and chapter 9 of Man, Economy, and State and chapter 7 of Power and Market.

From Art Laffer’s letter to the editor in today’s WSJ:

It’s normal practice in business, professional football and politics that the leaders of a losing organization also lose their jobs, even when fault is nigh on impossible to prove. The Obama administration has obsessed on accountability, whether it’s TARP recipients paying bonuses, or the firing of GM’s CEO Rick Wagoner. It wants businesses and banks to be held accountable.

Applying accountability principles, there’s no way Chairman Bernanke should be reconfirmed by the Senate, let alone reappointed by the Obama administration. Over the past six years, during the U.S. economy’s biggest train wreck since the Great Depression, Ben Bernanke has been involved in policy at the highest levels. He was a member of the Federal Reserve Board and Alan Greenspan’s right-hand person from 2002 to June 2005. He then became chairman of President George W. Bush’s Council of Economic Advisors from June 2005 to January 2006, and finally Federal Reserve chairman from February 2006 to the present. He’s been at the helm from the very beginning of this Great Recession. That alone warrants a “no” vote on reconfirmation.

In addition, the Fed’s behavior over the past 15 months has put America on a very dangerous path. The Fed has increased the monetary base (high-powered or wholesale money) by the largest amount ever, from colonial times to the present, times 10. Without an exit strategy, inflation is a virtual certainty over the coming decade, while an effective exit strategy virtually assures a further weakening of the U.S. economy. Chairman Bernanke has put the U.S. economy in a lose/lose situation. So on substantive grounds he also should not be reconfirmed.

Well, yeah, but there’s no accountability in politics.

Reihan Salam, writing in Forbes, takes the corrrect, Kleinian position on Jim Cameron’s Avatar, as against Kinsellian deviationism. “The irony of Avatar is that Cameron has made a dazzling, gorgeous indictment of the kind of society that produces James Camerons.” My point exactly! But I wish I’d thought to say this:

I’m pretty sure that I’d prefer baking bricks in the hot sun, guzzling motor oil, or jumping rope with barbed wire to spending an afternoon living among the Na’vi, perhaps the most sanctimonious and frankly boring humanoids ever portrayed on film. But the Na’vi are actually worse than just boring. Because the struggle for survival is the only source of meaning in their lives, the Na’vi celebrate physical courage and martial valor above all else, with the possible exception of mastering the admittedly cool ability of talking to trees.

Thanks to Ross Emmett for the pointer.

An illuminating passage from Thomas Powers’s NYRB review of The Puzzle Palace: A Report on America’s Most Secret Agency, James Bamford’s 1983 book on the US National Security Agency (NSA).

[The NSA's] true origins go back to the First World War when a State Department code clerk, Herbert O. Yardley, tried his hand at a secret message addressed to Woodrow Wilson in May 1916. He solved it within a couple of hours and immediately concluded that the British, who controlled the eastern terminal of transatlantic cables to North America, were reading the US government’s most secret diplomatic traffic. When the United States entered the war Yardley transferred to the military, founded a Code and Cipher Solution Subsection in the office devoted to military intelligence, and at the war’s end was arranging liaison with the French Chambre noire, or “black chamber,” a name Yardley borrowed when he was appointed to head a permanent code-breaking office in the War Department in 1919. . . .

[T]he end of the war presented Yardley with two major problems. The first was the end of official censorship, which meant he no longer had automatic access to international cable traffic. Indeed, it was now against federal law to intercept messages, but Yardley quietly arranged with the management of Western Union and Postal Telegraph, the two major international carriers, for the Black Chamber to temporarily “borrow” messages. The two companies agreed to this illegal arrangement in the interest of national security, a precedent that was to be enduring.

Uninformed critics of Austrian economics sometimes dismiss it as “religion, not analysis.” Perhaps they should heed statistician Andrew Gelman’s advice “to retire use of the term ‘religion’ to mean ‘uncritical belief in something I disagree with.’” Right on! I mean, how often have you been chided for your “belief” in “free-market fundamentalism”? Gag. (Although I guess I’m guilty of treating Keynesians in the same manner.) Anyway, Gelman notes that in statistics, Bayesian methods are often dismissed this way. Some funny examples:

[W]hen I started doing statistics, people often referred to Bayesianism as a religion. . . . One of my Berkeley colleagues who studied probability — really, a brilliant guy — commented once that “of course” he was a Bayesian, but he was puzzled by how Bayesian inference worked in an example he’d seen. My feeling was: Bayes is a method, not a religion! Can’t we evaluate it based on how it works?

And, a few years ago, someone from the computer science department came over and gave a lecture in the stat dept at Columbia. His talk was fascinating, bu the irritated me by saying how his method gave all the benefits of Bayesian inference “without having to believe in it.” I don’t believe in logistic regression either, but it sure is useful!

I’ve had similar experiences. Thank goodness for that twelve-step program!

Why can’t a central planning board mimic the operations of entrepreneurs? The key, for Mises, is that entrepreneurial appraisement is not a mechanical process of computing expected values using known probabilities. FULL ARTICLE