Jerry Cheng emailed me this link to the Chinese edition of my economic principles textbook. (The English version is here in various forms.) He said the Chinese authorities completely removed the chapter where I talk about how many millions of people the Chinese Communists killed, and they edited the chapter where I talk about the theoretical problems with socialism.

In related news, the Teacher’s Manual (English edition, of course) that will accompany LFTYE is just about ready to be sent to the printers. I don’t know the exact date of availability, but I imagine it will be early 2012.

For those who are vaguely aware of the Solyndra scandal but don’t know just how deep Obama and Biden stepped in it, here’s a quick video put out by IER (a free-market energy think tank for which I’m the economist).

That’s what Klaus Bernpaintner tells me the Mises Institute of Sweden called this article, summarizing my debate with Karl Smith. They weren’t choosing sides, just neutrally reporting on this photo they assembled from the YouTube of the debate:

I don’t think they doctored the above…You can draw your own conclusions from the halo and horns.

I recently wrote a Mises Daily article defending Carl Menger’s theory of the origin of money from the critique set forth by anthropologist David Graeber, in an interview where Graeber was discussing his new book. I wasn’t disputing Graeber’s (obviously) superior command of the historical evidence. Rather, I was claiming that his conclusions failed to appreciate the standard Austrian position.

In the comments attached to the original article, Graeber gave a lengthy response. (We have compiled his comments into a stand-alone post here). In the present post, I want to reiterate my original claim and use Graeber’s elaboration to underscore my points.

I Didn’t Read His Book

Graeber first objects that I wrote a critique of his views, without having gotten and read his book. That’s true. But in my defense, I didn’t say that Graeber’s book was wrong; I said the views he expressed in the interview struck me as wrong. It wasn’t as if Graeber were referring to unspecified evidence that the reader of the interview would need to look up in the book to verify; Graeber did a good job laying out his basic position and its evidence in the interview.

Remember, my main point here is not to challenge the historical evidence that Graeber and his colleagues have assembled. I claim that they are falsely concluding that the Mengerian logic must be wrong. Since I saw Graeber making such an invalid leap in the interview, I didn’t think I had to go get the book before offering my opinion.

It’s true, in general it’s always safer to get a book before saying anything about its thesis. But then the internet would be a much lonelier place. In any event, what tipped me off to Graeber in the first place were two posts (here and here) where the bloggers, on the basis of the interview, told their readers that the standard economist story had been overturned by anthropologists. Dr. Graeber, can you believe there’s such shoddy scholarship out there?! Please chastise these two lazy bloggers for the audacity of praising your interview, without having first taken the time to read your book and verify that you were making sense. Release the hounds!

Using Goods Versus Engaging in Barter

At least in the interview (as I admitted, I haven’t read his book), Graeber thought he had dealt the Smithian/Mengerian account a decisive blow by saying that we have no evidence that there were ever societies based on barter. In the comments to my article, Graeber wrote:

Here the evidence is simply in and you’d think an honest economist would acknowledge it. As Caroline Humphreys of Cambridge in the definitive anthropological work on barter put it, “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.” (By “barter economy” of course she means a community in which this is how everyday goods are normally distributed amongst neighbors.) Arguing that it might have been a brief period of history which we never happen to have noticed anywhere is a perfect example of special pleading. That argument might stand up if we had no examples at all of moneyless economies, so we had to guess what a moneyless economy would actually look like, but in fact, we have endless examples and they don’t look like what the model predicts. A responsible scholar would try to reassess their theory if it proves non-predictive. Saying “yeah, how do you know they weren’t doing in a time and place for which we can’t have evidence?” strikes me as an act of pure defiance of all normal principles of empirical science.

I have underlined the two relevant phrases above. As I pointed out in the original article, the Mengerian theory does not predict (or at least, it need not predict–I don’t know if Menger himself ever attached a time frame to it) that humans would be in a state of barter for a long period, with money emerging perhaps decades or centuries later due to the problems of a double coincidence of wants.

This is not Monday morning quarterbacking. We have actual case studies of communities starting from barter—the famous POW camp described in this economics journal article, and the whimsical Halloween dining room “economy” Jeff Tucker described. In both cases, the participants developed money very quickly—in about 15 minutes in the Tucker household.

This is why I’m hesitant to trust Graeber when he claims that the evidence has clearly overturned the standard explanation: Graeber doesn’t accurately tell us what the evidence would look like, if the standard explanation were correct. So why should I believe him when he says it’s been falsified?

In his latest reply, Graeber handles the POW camp and similar cases by saying that these people were already familiar with money-using economies, and so it’s not surprising that things played out the way economists would have expected. Graeber is saying that we have no evidence that historically this is how money first originated.

That’s fine, but again, the limited purpose of those examples was to show that Graeber is subjecting the Smithian/Mengerian theory to a false “test.”

I think partly what’s happening here is that Graeber (erroneously) assumes that an economist in the Mengerian tradition assumes that human beings always used private property and engaged in voluntary exchange. Yet this isn’t the case. I personally have no problem if Graeber and other anthropologists tell me that humans relied on all sorts of non-market institutional frameworks to turn resources into goods and services, perhaps for thousands of years, before the development of what I would classify as “private property.”

Indeed, except for Austrian economists who adopt a literal interpretation of the Bible and believe in a young Earth, modern Mengerians presumably accept the standard scientific view that humans evolved from ape-like ancestors millions of years ago. Such economists wouldn’t say, “Those creatures must have been using barter all along, until they finally invented money.” No, there clearly was a period in (pre-)human history when our ancestors did not use money, or barter, in the property sense of the word—we don’t say that apes right now engage in barter transactions, unless we’re speaking metaphorically.

So we see that the existence of communities—whether in the distant past or even in our times, in isolated regions of the planet—where the members don’t use money or barter, is hardly a problem for the economist. What I do have a problem with, is Graeber telling me that money could have emerged from such a non-market framework. This was my fairly modest point. In spite of the fascinating details of past societies that Graeber provides in his elaboration, I still maintain that position. In fact, the more Graeber talks about the evidence, the surer I become that Graeber is indeed erroneously rejecting the basic Mengerian account.

Spot versus Credit Transactions

In a crucial passage, Graeber says:

[T]he flaw in the barter theory of the origin of money is that barter presumes SPOT TRANSACTIONS. There is no reason whatsoever to presume that neighbors would limit themselves to spot transactions in dealing with one another. However, if one does not presume spot transactions, then the notorious problem of the “double coincidence of wants” does not occur. You end up with a system of broad, non-enumerated credits, and this is precisely what those who actually did research on communities that do not use money did find.

This is an excellent point, and Graeber is right: In the standard exposition of a barter economy, economists typically think in terms of spot transactions. But in principle, there’s no reason to restrict ourselves in this way. If we can imagine a farmer trading a pig for an axe, we can also imagine a farmer trading a pig for a promise to deliver an axe in two weeks.

Graeber is also right that the possibility of credit transactions expands the scope of a moneyless economy, and mitigates the problem of finding a double coincidence of wants. However, it doesn’t eliminate the problem. After all, we saw that money emerged in the POW camp and in Jeff Tucker’s dining room very quickly indeed.

Still, my fundamental objection is that Graeber thinks this elaborate system of “non-enumerated credits” can be amalgamated into a common system of enumerated credits, without having objective measures of the proper exchange ratios between the various heterogeneous goods.

It’s true, I can’t prove that it’s logically impossible for money to have emerged in this way. And Graeber’s points about legal penalties are well-taken. But let me wrap up this blog post by pointing to something that, if Graeber is correct and Menger is wrong, has to be one of the most amazing coincidences in world history.

An Interesting Coincidence

Look at Graeber when he describes a little more fully the “unit of account” developed by the temples, in an account that Graeber thinks discredits the Mengerian story:

The actual evidence is that in Mesopotamia – the first case we know anything about – these more widespread pricing systems in fact emerged as a side-effect of non-state bureaucracies. Again, non-state bureaucracies are a phenomenon that no economic model would even have anticipated existing. It’s off the map of economic theory. But look at the historical record and there they are. Sumerian Temples (and even many of the early Palace complexes that imitated them) were not states, did not extract taxes or maintain a monopoly of force, but did contain thousands of people engaged in agriculture, industry, fishing, and herding, people who had to be fed and provisioned, their inputs and outputs measured. All evidence that exists points to money emerging as a series of fixed equivalents between silver – the stuff used to measure fixed equivalents in long distance trade, and conveniently stockpiled in the temples themselves where it was used to make images of gods, etc – and grain, the stuff used to pay the most important rations from temple stockpiles to its workers. Hence a silver shekel was fixed as the amount of silver equivalent to the numbers of bushels of barley that could provide 2 meals a day for a temple worker over the course of a month. It was the Temples that actually had a need to extend a silver system from a unit used to compare the value of a limited number of rare items traded long distance, used almost exclusively by members of the political or administrative elite of the societies in question – to something that could be used to compare the values of everyday items, like planks of wood, jugs of beer, and so forth.

The standard Mengerian account easily explains why silver (and gold) emerged as the “natural” money in decentralized, private property settings. So if Menger is totally wrong, and Graeber is instead giving us an alternate history of the origin of money, isn’t it an astounding coincidence that the temples didn’t use a generic unit—such as the Temple Unit as I suggested in my original article—but instead they used silver as their money?

(Note too that this wasn’t merely a case of sloppy reading on my part: What originally set me down the path of reading Graeber was a post from Gene Callahan, who thought Graeber had demonstrated that fiat money preceded commodity money. But as it turns out, Graeber is showing nothing of the kind; at best he’s explaining that the commodity silver emerged as money for reasons different from the ones Menger gave. But in fairness to Gene, Graeber himself gave that impression in the interview, when he said, “So really, rather than the standard story – first there’s barter, then money, then finally credit comes out of that – if anything its precisely the other way around. Credit and debt comes first, then coinage emerges thousands of years later…”)

Graeber admits too that the temple authorities didn’t just independently pick silver because it was lying around. No, he says that silver was what was used to facilitate trades with foreigners.

This is exactly what I said the situation looked like, based on my reading of Graeber’s interview. Therefore, far from refuting my article, Graeber is here confirming it.

In conclusion, I still maintain that Graeber has yet to show us that the standard Mengerian story is wrong. Menger said that for money to emerge, you need to have antecedent barter transactions where at least one commodity outstrips its rivals in marketability. It then becomes the commonly accepted medium, and its exchange rate with other goods and services is determined through voluntary trades.

Graeber’s account is still consistent with that general explanation. The fact that the temples used silver as money, a practice which even he says they copied from the merchants who traded with foreigners, proves the point of my original article.

Last point: To repeat, I am not saying Graeber’s knowledge is useless. His discussion is fascinating, especially when he talks about the vitality of stateless communities. (Graeber might be surprised to see that I’ve written on that myself, from a theoretical rather than historical perspective.)

All I am saying is that Graeber hasn’t overturned the Mengerian theory of the origin of money.

In the comments attached to my article Have Anthropologists Overturned Menger?, David Graeber offered a lengthy response. Below we’ve compiled his comments into a convenient stand-alone post. I’ll respond in turn with a follow-up post.

You know serious scholars, if they are trying to refute an argument set forth in a book, actually take a look at the book, rather than writing an immediate refutation based on an interview about it. If the Von Mises Institute is hard up for cash and can’t afford the book, the relevant chapter can be viewed for free on the “look inside this book” function on Amazon.

This critique goes even further, since it is not a critique even of the position set forth in the interview, but a criticism of several paragraphs from an interview, ignoring most of the arguments made in that interview even on the topic in question. This makes sense only if we assume, either

(a) one of the laziest readers in history, or
(b) someone who is not really concerned with understanding my position at all, but only with being able to make the claim they refuted it

Now, presuming there is someone in the Mises Institute or its readership who actually do have an interest in the argument, let me set out what I am actually saying here:

1) The idea that there is a single “origin” of money is rather dubious in itself – if money is simply a mathematical system whereby one can compare proportional values, then something of that sort must have emerged in innumerable different occasions in human history for different reasons. The standard version of how it emerged, however, that goes back to Adam Smith, is repeated by Jevons, Mengers, etc, is one of the least likely, in fact, which is strongly counter-indicated by all existing evidence.

2) The flaw in the barter theory of the origin of money is that barter presumes SPOT TRANSACTIONS. There is no reason whatsoever to presume that neighbors would limit themselves to spot transactions in dealing with one another. However, if one does not presume spot transactions, then the notorious problem of the “double coincidence of wants” does not occur. You end up with a system of broad, non-enumerated credits, and this is precisely what those who actually did research on communities that do not use money did find.

Here the evidence is simply in and you’d think an honest economist would acknowledge it. As Caroline Humphreys of Cambridge in the definitive anthropological work on barter put it, “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available eth- nography suggests that there never has been such a thing.” (By “barter economy” of course she means a community in which this is how everyday goods are normally distributed amongst neighbors.) Arguing that it might have been a brief period of history which we never happen to have noticed anywhere is a perfect example of special pleading. That argument might stand up if we had no examples at all of moneyless economies, so we had to guess what a moneyless economy would actually look like, but in fact, we have endless examples and they don’t look like what the model predicts. A responsible scholar would try to reassess their theory if it proves non-predictive. Saying “yeah, how do you know they weren’t doing in a time and place for which we can’t have evidence?” strikes me as an act of pure defiance of all normal principles of empirical science.

3) I never argued that the moneyless spot trade (barter) did not exist in human history, only that

a) both the historical and anthropological record confirm it occurred almost exclusively between strangers, or those with whom one has no moral relationship
b) it does occasionally occur on a more widespread level in places where some relatively generalized form of money has existed, but where that money disappears or becomes unavailable.

In neither case can such systems lead to the “origins of money,” in the first case because the scenario of numerous actors exchanging numerous unanticipated products with one another, leading to the “double coincidence of wants” problem, would not arise, in the second, of course, because money has already been invented. The example of the POW camp, incidentally, far from refuting anything I say, is a perfect example of what I propose: that when one sees people interacting in terms of barter on an everyday basis, it’s because you are seeing people who grew up using money in everyday transactions who now suddenly have no access to the stuff.

Let’s take (3a) in greater detail. This is basically what my critic is falling back on – ironically, reproducing a theory of the origins of money which, ironically, seems to have been first proposed by Karl Marx, and later by Karl Bucher. Unable to find any plausible reason why neighbors will be limiting themselves to the spot trade, he seems to be arguing that Mesopotamian merchants _must_ have invented money as a medium of exchange through their own spot transactions in long-distance trade for that system to then be adopted as a unit of account in administrative transactions within Temples. Aside from the peculiar circularity of the argument – “since money can only have been invented by barter, if they were using money, it must have been invented at some time earlier through barter” – it flies in the face of both logic, and again, all empirical evidence we actually have about ancient or “primitive” trade.

The reason is simple: if you have irregular, occasional exchange between strangers, it will not generate a money system – since irregular, occasional exchange will not produce any kind of system at all. If you have regular exchange between strangers, it’s because there are specific goods that each side knows they want or need. One has to bear in mind that under ancient conditions, long-distance trade was extremely dangerous. You don’t cross mountains and deserts, or oceans, risking death in a dozen different ways, so as to show up with a collection of goods you think someone might want, in order to see if they happen to have something you might want. You show up because you know there are people who have always wanted woolens and who have always had lapis lazuli. Logically, what such a situation would lead to is a series of conventional equivalences – so many woolens for so many pieces of lapis lazuli – which are maintained despite contingencies of supply and demand, because all parties need to reduce risk or the trade would simply stop. And once again,what logic would predict is precisely what we find. Even in periods of human history where money and markets did already exist, high-risk long distance trade has often continued to be carried out through a system of conventional equivalents, administered prices, between specific commodities that merchants already know will be available, or in demand, at certain pre-established locations.

Now, could such a system generate something like money of account – that is, the use of one or two relatively desirable commodities to measure the value of other ones, once more items were added to the mix (say, you’re making several stops)? Sure. It is likely that in certain circumstances, something like this did happen – but it would have meant that money, in such cases, was created first as a means to avoid market mechanisms, and that it was not used mainly as a medium of transactions, but rather, primarily as a means of account. One could even make up an imaginary scenario whereby once you start using one divisible/portable/etc commodity as a means of establishing fixed equivalents between other ones, you could start using for minor occasional transactions, to measure negotiated prices for spot trade swaps on the side, in a more market-driven way. All that is possible and likely as not did happen here and there. However there is no reason to assume that such a system would produce a concrete medium of exchange actually used in making these transactions – in fact, given the dangers of ancient trade, insisting that some medium like silver actually be used in all transactions, rather than a credit system, would be completely irrational, since the need to carry around such a money-stuff would make one a far, far, more attractive target to potential thieves. A desert nomad band might not attack a caravan carrying lapis lazuli, especially if the only potential buyers were temples which would probably know all the active merchants and know that you had stolen the stuff (and even if you could trade for them, what are you going to do with a big pile of woolens anyway, you live in a desert?) but they’d definitely go after someone carrying around a universal equivalent. (This is presumably the reason why the great long-distance traders of the Classical World, the Phoenicians, were among the last to adopt coinage – if money was invented as a circulating medium for long-distance trade, they should have been the first.)

The other problem is there is no reason to believe that such mechanism – which would presumably only be used by that tiny proportion of the population who engaged in long distance trade, and who tended to treat such matters as specialized knowledge to be guarded from outsiders – could possibly create a money system used in everyday transactions within a society or any evidence that it might have done so.

4) The actual evidence is that in Mesopotamia – the first case we know anything about – these more widespread pricing systems in fact emerged as a side-effect of non-state bureaucracies. Again, non-state bureaucracies are a phenomenon that no economic model would even have anticipated existing. It’s off the map of economic theory. But look at the historical record and there they are. Sumerian Temples (and even many of the early Palace complexes that imitated them) were not states, did not extract taxes or maintain a monopoly of force, but did contain thousands of people engaged in agriculture, industry, fishing, and herding, people who had to be fed and provisioned, their inputs and outputs measured. All evidence that exists points to money emerging as a series of fixed equivalents between silver – the stuff used to measure fixed equivalents in long distance trade, and conveniently stockpiled in the temples themselves where it was used to make images of gods, etc – and grain, the stuff used to pay the most important rations from temple stockpiles to its workers. Hence a silver shekel was fixed as the amount of silver equivalent to the numbers of bushels of barley that could provide 2 meals a day for a temple worker over the course of a month. It was the Temples that actually had a need to extend a silver system from a unit used to compare the value of a limited number of rare items traded long distance, used almost exclusively by members of the political or administrative elite of the societies in question – to something that could be used to compare the values of everyday items, like planks of wood, jugs of beer, and so forth. The development of local markets within cities, in turn, came as a side effect of these systems, and all evidence shows they too operated primarily through credit. For instance, Sumerians, though they had the technological means to do so, never produced scales accurate enough to weigh out the tiny amounts of silver that would have been required to buy a single cask of beer, or a woolen tunic, or a hammer – the clearest indication that even once money did exist, it was not used as a medium of exchange for minor transactions, but rather as a means of keeping track of transactions made on credit.

4) As for the supposed refutation of my example of the village where people loan things to one another, no, the commentator does not get my argument right at all. First of all, we are not dealing with a situation where people borrow things from one another and expect an equivalent of exactly the same value. I suppose the certain Austrian school theories of human nature assume that’s what neighbors in a moneyless economy _would_ do with one another, but again, this just shows a flaw in those theories of human nature, because when tested against the empirical evidence, this is not what one finds. What one finds are a variety of mechanisms of distribution, some open-ended sharing, some relatively centralized allocation (the actual Iroquoian societies that people like Jevons used as examples mainly had women’s councils allocate things and didn’t swap directly between households at all), and some direct exchange, particular with people in that vague middle ground between neighbors and strangers – but that exchange was based not on exact value equivalence – a concept that presumes the prior existence of money in the first place, and is therefore completely illogical to attribute to people unfamiliar with the use of money to buy and sell things – but a broad sense of owing someone a favor of a roughly equivalent sort. This need not be a material object at all, it could be help, or ritual sponsorship, or maybe your son is in love with your neighbor’s daughter, but let’s leave that aside for a moment. Insofar as it is goods, it would generate a system of vague ballpark equivalents. And this is indeed what one finds where there is extensive “gift exchange”: a rank system, whereby certain types of goods are seen as roughly equivalent to others, but not a proportional (i.e., monetary) system where you can say how many of this type of rank B objects is equivalent to one of these rank A objects. The question is what would be the circumstances that would generate a system where one can measure such precise equivalents. Here, again, ethnography provides endless examples of what actually does happen and it’s nothing like the economists predict.

First of all, it is almost invariably the case that such transactions are not presented as “loans” but as gifts. That’s why I presented it the way I did: one person says “hey, nice cow” the other gives it to him, pretending it’s just a gift with no expectation of any sort of return, though of course everyone knows otherwise. (There are many parts of the world where this is still the case, you can’t praise another person’s possessions or they will automatically insist you take it, and then of course, they can later come and claim something of yours.) Now, this can lead to all sorts of results – maybe you don’t ask for anything back because you like to have someone feel beholden to you, maybe the other person gives you back something much more valuable than your cow to embarrass you in public by showing he’s more generous… This is because in such situations people are not, as the economic models assume, only thinking about the goods and how to maximize their advantage in material terms, but mainly interested in the social relations. But even if someone returns something you feel is inadequate, to head off any further claim you might have, you may well make fun of him as cheapskate, but you are extremely unlikely to come up with a mathematical formula for exactly how cheap you think they are.

So what, in such a context – that is, in the absence of Temple bureaucracies or whatnot – might lead to the creation of a system of pricing, of proportional equivalents between the values of any and all objects? (Remember I noted that money as a system of account probably emerged through different mechanisms at different times and places.) Well, again, anthropology and history both provide one compelling answer, one that again, falls off the radar of just about all economists who have ever written on the subject. That is legal systems. If someone makes an inadequate return you will merely mock him as a cheapskate. If you do so when he is drunk and he responds by poking your eye out, you are much more likely to demand exact compensation. And that is, again, exactly what we find. Anthropology is full of examples of societies without markets or money, but with elaborate systems of penalties for various forms of injuries or slights. And it is when someone has killed your brother, or severed your finger, that one is most likely to stickle, and say, “the law says 27 heifers of the finest quality and if they’re not of the finest quality, this means war!” It’s also the situation where there is most likely to be a need to establish proportional values: if the culprit does not have heifers, but wishes to substitute silver plates, the victim is very likely to insist that the equivalent be exact. (There is a reason the word “pay” comes from a root that means “to pacify.”) Again, this is not hypothetical. This is a description of what actually happens – and not only in the ethnographic record, but the historical one as well. The numismatist Phillip Grierson long ago pointed to the existence of such elaborate systems of equivalents in the Barbarian Law Codes of early Medieval Europe. For example, Welsh and Irish codes contain extremely detailed price schedules where in the Welsh case, the exact value of every object likely to be found in someone’s house were worked out in painstaking detail, from cooking utensils to floorboards – despite the fact that all evidence is that there actually were no markets where such items could be bought and sold. The pricing system existed solely for the payment of damages and compensation, both if someone broke something, and in order to calculate how the damages could be paid. True, Welsh and Irish people of the time probably had heard of the existence of commodity money – the Romans had been nearby in times past – but they had not adopted it. When they did start developing the use of money of account, it was for a completely different set of purposes than economists would have predicted.

I think the participants in this forum should reflect on what they consider the status of economics to be. Is it a science that generates hypotheses about empirical reality that can then be tested against the evidence, and changed or abandoned if they don’t prove to predict what’s empirically there? Or is it a kind of faith, a revealed Truth embodied in the words of great prophets (such as Van Mises) who must, by definition be correct, and whose theories must be defended whatever empirical reality throws at them – even to the extent of generating imaginary unknown periods of history where something like what was originally described “must have” taken place?

Even there, I think the persistence of the barter myth is curious. It originally goes back to Adam Smith. Other elements of Smith’s argument have long since been abandoned by mainstream economists – the labor theory of value being only the most famous example. Why in this one case are there so many economists desperately trying to concoct imaginary times and places where something like this “must” have happened, despite the overwhelming evidence that it didn’t? It seems to me because it goes back precisely to this notion of rationality that Adam Smith too embraced: that human beings are rational, calculating exchangers seeking material advantage, and that therefore it is possible to construct a scientific field that studies such behavior. The problem is that the real world seems to contradict this assumption at every turn. Thus we find that in actual villages, rather than thinking only about getting the best deal in swapping one material good for another with their neighbors, people are much more interested in who they love, who they hate, who they want to bail out of difficulties, who they want to embarrass and humiliate, etc. – not to mention the need to head off feuds. In actual long-distance trade, it turns out they are mainly worrying about danger, adventure (sexual and otherwise), glamour, fame, religious devotion, and all sorts of factors that are not simply getting the most lapis lazuli for the wool. (And that even if they were, it wouldn’t generate circulating money!) Indeed, the only occasions in which people act remotely like the models say they ought to act is when you already have a circulating medium of exchange and already have impersonal markets, and people become accustomed to operating that way – or even recreating something along the same lines, like the POWs, if suddenly the money is taken away. What you seem to be doing is projecting certain types of behavior created by certain social institutions backwards as an explanation of the institution themselves, rather like saying that the game of chess was invented to fulfill people’s preexisting desire to checkmate their opponents’ king – and then justifying it by saying that well, people are competitive, they like to win games, therefore, the desire to checkmate must always have existed.

On Saturday, September 10 I will be participating in the Mises Institute of Canada’s conference, “Liberty and Oil: the Foundations of Modern Civilization.” As the official description says, we will discuss questions such as the following: “Is resource richness a blessing or a curse? Are Alberta’s oil reserves the source of the relative freedom and opportunity in Alberta, or do they represent a harbinger of future tyranny?”

Liberty and Energy, Intertwined

Rob Bradley, founder of the free-market Institute for Energy Research, knows all too well that liberty and energy issues go hand in hand. Bradley is one of the world’s leading experts on government intervention into energy markets, and he also happens to be an Austrian economist—he picked Murray Rothbard as his dissertation advisor.

Bradley’s career has been devoted to studying the economics and politics behind government intervention in energy markets. His doctoral dissertation, Oil, Gas and Government, is the definitive history of U.S. government meddling in this arena.

Why does Bradley devote so much time to energy issues? The name of his blog, MasterResource, gives a hint. Julian Simon famously christened the creativity of the human mind as the ultimate resource. Rather than viewing people as bellies who would overburden a straining planet, Simon instead looked at people as wonderfully powerful brains who would solve the technical problems of food supply and traffic congestion.

It was Julian Simon who made the famous bet with arch-Malthusian Simon Ehrlich (of Population Bomb notoriety). In 1980, Simon let Ehrlich and his pessimistic colleagues pick five commodity metals. Simon was wagering that their (price-inflation-adjusted) price would go down during the 1980s, while Ehrlich et al. thought that growing population strains would drive their prices up. In October, 1990 Ehrlich mailed Simon a check for $576.07, in accordance with the terms of the wager. Even though the world’s population had grown by more than 800 million people in the interim, nonetheless entrepreneurship had managed to render the five commodities less scarce in an economically relevant sense.

Rob Bradley is therefore paying homage to Julian Simon with the title of his blog. Simon recognized the human mind’s creativity as the ultimate resource. Bradley, however, realized that it takes energy in order for modern man to implement his bold ideas.

“The Left’s War on Terror”

In the summer of 2006 I began working for the Institute for Energy Research. I focused primarily on climate change economics, and in particular the case for a carbon tax (and cap-and-trade). (This research eventually led to a publication in The Independent Review.)

When Rob Bradley asked me to join IER and focus on climate change, he and I knew that this would be a major battleground in the struggle for liberty over the coming decades. When I mentioned my career path to the (U.S.) Mises Institute’s Jeff Tucker, he remarked, “Global warming is the Left’s War on Terror.”

As I thought about it, Tucker’s remark was quite insightful. Just as a war on “terror” by definition could never be won, so too the issue of global warming (or what is now called climate change) was open-ended, and could always provide a bogeyman around the corner to justify some new intervention.

There are other similarities. The War on Terror provides the interventionists on the “right wing” excuses to invade all manner of liberties, from bank transactions (because people might be laundering money) to web browsing (people might be reading jihad recruitment sites). By the same token, the crusade against climate change provides the interventionists on the “left wing” an opportunity to regulate smokestacks, tailpipe emissions, impose compensating “carbon tariffs” on certain imports, and even to tell people what type of light bulbs and insulation they need in their homes.

Furthermore, the issue of climate change gave a huge emotional and moral advantage to those wishing to intervene in the free market. Just as nobody wants to seem “soft” on terrorism, by the same token those who protest against carbon taxes or other regulations “to save the planet” are demonized as heartless monsters and/or hired guns for the big oil companies.

Liberty and Oil

The Mises Circle Calgary recognizes that at this point in the development of capitalism, oil still represents the backbone of Western economies and way of life. In another century this will presumably no longer be the case, but for right now, a relatively free market in oil (and natural gas) is essential for the everyday liberties that Americans and Canadians enjoy.

In the United States, federal intervention in oil markets reached its zenith in the 1970s, with explicit price controls and other bureaucratic micromanagement of the drilling and refining industries. The controls were partially rolled back under Jimmy Carter and then more completely under the Reagan Administration. It was not until recently, with the massive push for regulating carbon emissions, that such heavy-handed intervention seemed politically possible once again.

Canada too has flirted with outright socialization of the oil industry. The National Energy Program (NEP) was introduced in 1980 in the House of Commons by Marc Lalonde.

The Liberals’ NEP publicly sought energy self-sufficiency and conservation, two goals that are always popular among those wishing to interfere with producer and consumer choices in energy markets. The NEP created tax incentives and prohibitions to favor locally-owned oil firms, including a “back-in” provision through which Ottawa took an automatic fourth of the revenues from any oil or gas discovery made on lands controlled by Ottawa.

It turns out that Canada’s efforts at central planning in the oil market were as disastrous as all such attempts. In 1980 there were 9,188 wells drilled in Canada, but that had dropped to 7,186 the following year. The number of drilling rigs in operation likewise fell quickly from 650 to 450. Needless to say, thousands of jobs disappeared from the industry.

In more modern times, Canada’s huge deposits of oil sands are coming under political fire. Business groups, potential workers, and consumers who understand the benefits of lower energy prices are clamoring for the development of this bountiful resource, while environmental groups and other, competing energy interests stand in opposition.

Conclusion

The new Mises Institute of Canada is an ally in the intellectual battle for liberty. Their upcoming conference in Calgary will explore the intersection of liberty and unfettered energy markets. Join us in Calgary this Saturday, September 10th to celebrate the launching of the Ludwig von Mises Institute of Canada and the natural resources that fuel the Alberta economy.

Rob Bradley is the specialist in energy markets from an Austro-libertarian perspective. Bradley’s doctoral dissertation (on government intervention in oil and natural gas markets) was overseen by Rothbard himself.

Recently at Bradley’s blog, MasterResource, there were two posts introducing MNR and Austrian economics to the pro-market energy audience. The first post was from Bradley, the second from Roger Garrison.

I am going to be one-half of the lunchtime presentation at the Risk and Insurance Management Society (RIMS) meeting in Atlanta on Thursday February 10th. They have graciously made an option for people who just want to go to the lunch and watch the debate.

Be careful when you go to the link; it looks like it’s saying the date is February 7, but that’s just their cut-off for ticket sales. Also note that if you do sign up for this, you need to print out your payment confirmation to get in the door the day of the event.

According to this preliminary flyer, the lunch seminar goes from noon – 1:30pm (Eastern time). I assume that is still accurate but you may want to double check for yourself. (I’m driving out there the night before so I can afford to have rational ignorance on this matter.)

I am going to say that the Fed is making markets more unstable with its current policies, and of course relate it to my views on the housing bubble.

Dwyer is going to offer the rationale behind the Fed’s current policies.

I don’t believe Krugman saw Judge Napolitano’s invitation, but he at least is grappling with specific (and modern-day) proponents of Austrian business cycle theory. There is a definite imbalance in the comments if any of you want to chime in. (And remember, they don’t like naughty words at the NYT.)

David R. Henderson has a great piece at antiwar.com showing how Admiral Mullen completely botches his attempted defense of the US intelligence budget. An excerpt:

This brings me to yesterday’s appearance by Adm. Mike Mullen on Fareed Zakaria’s show. Zakaria started off with a good tough question and then pursued it:

ZAKARIA: “But, you know, when one reads about these intelligence failures, if – if you look at the North Korean nuclear facility, which we were taken by surprise, you could look at this Afghan guy, it is puzzling. I mean, we spend tens – we spend more money on intelligence than the rest of the world. We spend $60 billion on it. You oversee a large part of that.”

MULLEN: “Sure.”

ZAKARIA: “Why does this happen? In the private sector, these guys would all be fired.”

MULLEN: “Well, I think that’s – I think it’s just too simple an answer. I mean, there is an extraordinary group of professionals who are working hard to – to uncover from an intelligence standpoint all the intelligence and information that we need, and I have seen that. I mean, I’ll shift just quickly to the – the recent threats coming from Yemen, with al-Qaeda on the Arabian peninsula there. And the cargo flights, the bombing that was – the potential – the Times Square incident, and also last year in Detroit.” 


But in those last two instances – the Times Square and Detroit bomber incidents – decentralized information worked and centralized information failed. In the Times Square case, it was a vendor, not a member of “an extraordinary group of professionals,” who noted something suspicious and notified the police. In the Detroit case, it was an heroic fellow passenger who foiled the bomber. Even worse, indeed, the U.S. government had plenty of intelligence about the bomber but refused to use it. And Mullen thinks that’s a success?

Then join the campaign!

Details here:

As of this writing, we’ve already got $762 pledged, and we only launched this last night. Make your pledge and do your part to up the ante on Krugman!

Just a reminder that my online Academy class exploring private law and defense begins this Tuesday. We’ve got about 50 people signed up so far, but the more the merrier. This is especially true because of the extensive debates/discussions we will be organizing each week. So please join us!

We have just added the finishing touches to the syllabus for Principles of Economics, the online Mises Academy class that I will be teaching which begins September 7, and which is open for enrollment now. You can click here to see a screenshot (If your browser automatically shrinks the image, click it to view it fully-sized). I think you will agree that this is going to be an exciting economics class. (And no, that’s not an oxymoron.)

The one thing missing from the syllabus is the links to various chunks of my soon-to-be-released book, Lessons for the Young Economist. The manuscript is done, and right now the graphics people are laying it out, inserting the artwork, etc. But Jeff Tucker reviewed the manuscript when he first saw it, and his praise actually made me blush.

Obviously, if you know students from about 7th through 10th grades, they are the ideal candidates for the book and accompanying class. But I suspect even older students–including grownups–would benefit as well. In all honesty, I learned some economics just writing the book. Richard Feynman once said that if physicists couldn’t teach something to undergraduates, then they didn’t really understand that phenomenon very well. In the same way, I had to fill in some gaps in my own understanding, in order to break down difficult concepts for junior high readers.

For example, when talking about methodological individualism (without using such intimidating vocabulary), I had to deal with things like people with multiple personalities. And when discussing the consequences of drug prohibition, I ended up explaining (in a footnote) why drug dealers couldn’t simply deposit their cash with a trusted third party to avoid shoot-outs during drug deals in parking garages. I had never worried about these details before, because economists typically discuss them at such a high-brow level that we breeze right through the mechanics.

Let me say a few words about the potential for the Mises Academy in general. At first this seemed like a great way to supplement the Mises Institute’s current activities, but the more it progresses, the more revolutionary and significant it becomes. Because of the economies of scale, a popular professor could actually make a living just teaching one of a standard selection of classes (on a rotating schedule) every four months.

At first this seemed like a good way for current faculty to make some extra dough, and for fans of the Institute to receive more specialized instruction than they could get just from reading Mises.org articles. But the implications are much deeper. The bigger the Academy grows, the more professors it can support. That means students who are now in high school and love Austrian economics, can pursue their dreams with much more job security.

In other words, it is still the case that a promising young person might shy away from pursuing a PhD in Austrian economics, because he or she doesn’t want to go into traditional academia. After all, there are only so many resident scholars that can live in Auburn, AL or the few other friendly places scattered across the world. Yet as the Academy grows, more and more people can actually support themselves by becoming world experts in Austrian economics (and related fields). For example, right now it would be incredibly risky to get a PhD in philosophy with a dissertation on Rothbardian ethics. But in five years, if the Academy takes off us we hope it will, that might not be so risky after all.

For those of you who like the idea of the online Academy, but aren’t sure if it will live up to its promise, here are some of the evaluations from my students from the business cycle class that wrapped up in June:
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I thought this was an awesome class. Bob is THE MAN! Not only does he have an amazing understanding of economics – HE CAN TEACH as well. I once congratulated one of my professors for getting his doctorate while I was taking his class in college. I’ll never forget what he told me…. that any moron can take a test and get his doctorate – but what truly sets the great professors apart is the ability to TEACH and pass the knowledge on to the students. Bob has that gift and that is so important for those of us that want to learn. Most of us here are econ geeks so the material is not dry for us, but for those who are new – it’s easy to get lost in this stuff and become bored very quickly. Bob prevents that from ever happening with interesting lectures and well chosen assignments.

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I loved the lectures and how open professor Murphy was with answering questions. He was able to switch from addressing introductory level questions to much more in depth questions without talking down to anyone or talking too much over anybody’s head.

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The syllabus was amazing in how it progressed from the core principles of capital and monetary theory to the impact of an increase in genuine savings to the impact of a credit expansion to criticisms of ABCT to empirical evidence.

–

Murphy was fantastic in both lectures and Q&A. I’ve listened to and appreciated the presentations of many different lecturers in the audio library on mises.org. But those are generally conventional lectures with perhaps a short Q&A session at the end. Dr. Murphy’s clarity, candor, and focus were really showcased in the extended Q&A sessions after lectures and during the office hours. He is very precise in his use of language, thinks quickly, and gives complete and patient answers

–

“I love Dr. Murphy’s practical approach to teaching, the selection of reading, podcast, and PowerPoint materials were outstanding, the lectures were well-organized and conversational in tone, and the course itself was seamlessly integrated into a coherent whole. The online venue is also well-organized and easy to navigate.

At this moment, I am one course and one paper away from a master’s in _______ from ______ University. This is the only online _______ training program with full accreditation, and each 10-week class costs $1700.00. Yet not one of the classes I have taken in that program even remotely compares in quality to this class on the business cycle, though the latter costs only $255 (all materials included!). From literally every standpoint — quality of materials, teacher involvement and interaction with students, discussion forums, and use of multi-media, Mises wins hands down, and at a small fraction of the cost. I couldn’t be more satisfied. Thank you for a wonderful learning experience — seriously.“

As a final thought, you should know that we are expecting a large demand for the Principles class. Although the Institute has the ability to handle a large student load, there is a technical upper limit because of the live video lectures. We are going to start promoting the class with a full-court press in about two weeks. If you (or a young person you have in mind) want to take part in September, I encourage you to register now and reserve your spot.

I hope to see you in September!

Incidentally, I realized after the initial reaction to this that a lot of the younger anti-Keynesians wouldn’t recognize the song. (Not that I’m that old myself–but my dad was a big “oldies” fan so I’m quite familiar with ’60s rock.) The actual song is The Buckinghams’ “Susan.”

Tomorrow (April 23rd) I will be participating in the Nashville “End the Fed!” rally, outside the Federal Reserve building. It officially starts at 2:30pm. Here is more information.

For a while I have been warning that one way the (price) inflation genie will get out of the bottle, is that banks will take some of their incredible excess reserves and buy Treasury debt (as opposed to granting new loans to customers). The trillion+ that Bernanke has injected into the banking sector would then start trickling out into the “real economy” via federal government spending.

So you can imagine my alarm when I read this story from CNBC:

Surprisingly strong Treasury auctions in March had help from banks, which normally stay away from such events.

Banks snapped up $5.7 billion of the total $34 billion auctioned in 10-year notes and 30-year bonds, providing demand for auctions that many analysts thought would flop…

“The pattern suggests that banks have been starting to put their large cash balances to work, but is not an indication that bank balance sheets as a whole have started to grow,” Deutsche Bank said in a research note.

The suggestion is that banks are using Treasurys as a way to get some return on their money that they might otherwise reap from making loans.
…
Yet combined with their purchase of agency-backed debt such as mortgages and student loans, banks bought a total of $40 billion from the Treasury in March, according to analysts at Deutsche Bank.

But there’s also another less-obvious reason banks could be stepping in to the Treasury market: A type of tacit quid pro quo with the Federal Reserve to keep short-term rates low by helping the government finance its debt through Treasury auctions.

Art Cashin, director of floor operations at UBS, noted after the 30-year auction suspicions among traders about who was doing the buying. In remarks to CNBC, he spoke of “all manner of conspiracy theories floating around. Is the Fed putting on a fake moustache and a raincoat and coming in as an indirect buyer?”

While there’s disagreement among analysts whether the actions are part of an explicit pact between the two sides, some suspect a gentleman’s agreement in which both sides benefit.

Now here’s the really interesting thing: Excess reserves fell about $41 billion in March. I don’t have the time to check all the possibilities, but it looks to me that my doomsday scenario is starting to play out.

I am a very awkward promoter, which is why it’s such a good thing that this online class in Austrian business cycle theory sells itself. Just click the link.

We are tentatively scheduling the live lectures at 7pm EST, to accommodate as many time zones as possible. Of course, if you have a conflict it’s not a dealbreaker; the lectures will be recorded so you can view them at your convenience.

We’ve always bounced around the possibility of online classes, but the technology was never quite there to do it right. Well check out the screen shots at the bottom of the above link. Grayson Lilburne and I have been testing out the software, and the technology has arrived.

If you have always wanted to learn more about Austrian business cycle theory, but were too busy to come down to Auburn for a week in the summer, this class is for you.

The class begins Monday, April 12—two weeks from today! Sign up now.

I understand Sheldon Richman’s arguments about the term capitalism, but I think we need to watch out for the tendency to be whiners. So yes, it’s true that a lot of people think the present U.S. is the epitome of “capitalism,” and as a libertarian I don’t endorse everything.

But on the other hand, the U.S. still does have a legacy of its more free-market past, and even now it’s hardly the worldwide bastion of central planning. So rather than just dismiss the term capitalism because people associate it with the U.S., I think it makes more sense (both intellectually and strategically) to say that the U.S. has been very successful economically because historically it was more “capitalistic” (in the Misesian sense of the term) than other countries, and that the parts of modern American society we abhor are often because of deviations from that tradition.

This was all driven home for me when Grayson Lilburne sent me an email on Friday. We are working out the bugs before we formally launch the promotion for the Mises Academy and the online business cycle course I will be leading. (Official details soon!) But here was Grayson’s quick note to me:

Great! I tried the web meeting software a bit. But I definitely want to test it out with you, and then figure out a way to somehow test its ability to handle a large number of participants…I’m going to drop my wife and her friend off at Disneyland and then set up shop in a Starbucks with my laptop (should only take a couple hours or so), and then be available for doing…Video stuff the rest of the day. But I’ll have my iphone before that, so feel free to e-mail me questions.
Grayson

Just reflect on what he is saying in the above. That would have been science fiction not very long ago. Incidentally, once Grayson got set up–in a coffee shop–to work, he and I were talking over a video connection. He was some 2,000 miles away from me at that point.

Note that this didn’t happen in a libertarian novel where “the freed market” is allowed to operate. This happened in our current, real-world United States. I say chalk one (or more like 1 million) up to capitalism.

On Tuesday the Federalist Society at Campbell Law in Raleigh, NC hosted a debate between a Federal Reserve economist and me. The topic was, “Did the Fed avert a second Great Depression?” Here is the video.

A month or so ago Jeff Tucker urged me to watch Up in the Air (which I still haven’t done). I said that if he wanted to see another movie with George Clooney that had an outstanding appeal for Rothbardian viewers, he should check out Burn After Reading.

I just watched it again and I think it’s fantastic. If you liked the humor of The Big Lebowski, you may end up thinking this movie is in your top ten. (Warning, there are a lot of F-bombs.)

I hesitate to say much more, since part of the greatness of the movie is trying to figure out what the heck it even is as you watch it develop. All I will say is this: My model of government officials was fundamentally altered after I watched this movie. I thought, “Of course that’s how things must be if we could see these guys behind closed doors.”