Wednesday, January 17, 2018

Civilization and Private Property Are Inseparable

Civilization and Private Property Are Inseparable

As Americans transitioned to 2018, I saw many articles about New Year’s resolutions. But while I saw a great deal of inconsistency between personal resolutions to do good for others and political resolutions to harm others to finance feathering one’s own nest, I didn’t find much that would improve both Americans’ personal and political behavior. That is why it occurred to me that perhaps what we need are some old years' resolutions to recommit ourselves us the wisdom we have often forgotten.

That thought triggered a memory of something that would fit the bill. It comes from Leonard Read, in “To Each His Own,” published fifty years ago in his Accent on the Right (1968). Its focus was that the biggest problems of government come from violations of commandments to not covet and not steal because coveting is the impetus behind harming others to benefit yourself and stealing is the action triggered by that coveting.  

The prevention of such violations is a central task of government, which can advance the general welfare by more effectively protecting all of our property from invasions by others (better enabling all of the voluntary relationships property rights make possible). This is illustrated by the enumerated functions of American government (e.g., national defense is the protection of you and your property from foreigners; police, courts, and prisons provide similar protection from your neighbors). But unfortunately, government has become a “respectable” way to violate what it supposedly defends.

Consider what Leonard Read had to say about the importance of those two commandments for the existence of any real civilization, as well as advances in it.   
THOU shalt not steal! To know that stealing is wrong…implies knowledge of an alternative that is right…to each his own, usually referred to as private ownership. The ancient taboo against stealing presupposes that an individual has a right to the fruits of his own labor.

Recognizing as evil the taking of that which belongs to another certainly antedated The Decalogue by many centuries.

There is every reason to believe that the observance of this taboo, this respect for the principle of private ownership, marked the dawn of civilization. Whether this thou-shalt-not is honored or breached primarily determines the rise or fall of civilization.

True, “thou shalt not covet” is even more basic than “thou shalt not steal”; if no one coveted the possessions of another, there would be no thievery.

To refrain from stealing is the genesis of civilizations! Only two points need to be understood…for this assertion to ring true. First, civilizations rise and fall with the rise and fall of individual freedom. Second, individual freedom rises and falls to the degree that private ownership — the absence of stealing — is respected and adhered to. Individual freedom is out of the question wherever and whenever private ownership does not prevail!

Creative outbursts — the mark of civilization — bear a direct correlation with increase in individual freedom…the record speaks for itself.

This private ownership thesis rests, fundamentally, on the defensible assumption that one person has as much right to his life as any other. If an individual has a right to his life, it logically follows that he has an equal right to sustain his life, the sustenance of life being the fruit of one’s own labor or what can be obtained for it in peaceful exchange. Livelihood is but the extension of life.

Thus, to steal is to take life. Not to steal is to respect life; it is to endorse and to hold sacrosanct the institution of private ownership.

It is self-evident that no civilization could be born without the observance of this taboo. The institution of private ownership — to each his own — has spawned all civilizations!...Were [thievery] the general practice, we would quickly descend into another dark age. A resort to law would be useless; the gendarmerie also would be thieves!

While the institution of private ownership has been given lip service over the centuries, by the people and governments alike, actual observance has been more of form than of substance…Few among us understand that private ownership can be universally endorsed in principle and completely obliterated in practice. Nor is it widely understood that the forcible taking of income, beyond that required for the principled functions of government, has the same eroding effects on private ownership as stealing. Legalizing the compulsory transfer of control still amounts to the destruction of private ownership.

It takes no mental giant to realize that individual freedom and, thus, the flowering of civilization are possible only where private ownership prevails. Merely imagine owning absolutely nothing required for your own livelihood. Your life would be in the hands of others.
Leonard Read saw the twin sins of coveting and theft as the greatest threats to civilization. The latter, motivated by the former, undermines the fundamental basis of the voluntary arrangements that create civilization — private property. As a result, he recognized that the essential function of government was to maintain the principle of “to each his own,” and that any time government fails to defend that principle from others’ invasions, or itself commits such infringements, it impedes rather than advances civilization.

Remembering that understanding, and recommitting to Read’s insight that “To each his own is a fundamental maxim for civilized men!” would make an excellent old year’s resolution for the new year.

Gary M. Galles

Gary M. Galles is a professor of economics at Pepperdine University. His recent books include Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013). He is a member of the FEE Faculty Network.

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Mega Play (November 1990)

Mega Play (November 1990)

Tuesday, January 16, 2018

K-Power (March 1984)

K-Power (March 1984)

How a Bitcoin System is Like and Unlike a Gold Standard

How a Bitcoin System is Like and Unlike a Gold Standard

Many commentators have compared Bitcoin to gold as an investment asset. “Can Bitcoin Be Gold 2.0,” asks a portfolio analyst. “Bitcoin is increasingly set to replace gold as a hedge against uncertainty,” suggests a Cointelegraph reporter.

Economists, by contrast, are more interested in considering how a monetary system based on Bitcoin compares to a gold-standard monetary system. In a noteworthy journal article published in 2015, George Selgin characterized Bitcoin as a “synthetic commodity money.” Monetary historian Warren Weber in 2016 released an interesting Bank of Canada working paper entitled “A Bitcoin Standard: Lessons from the Gold Standard,” which analyzes a hypothetical international Bitcoin-based monetary system on the supposition that “the Bitcoin standard would closely resemble the gold standard” of the pre-WWI era. More recently, University of Chicago economist John Cochrane in a blog post has characterized Bitcoin as “an electronic version of gold.”

In what important respects are the Bitcoin system and a gold standard similar? In what other important respects are they different?

Similarities and Differences

Bitcoin is similar to a gold standard in at least two ways. (1) Both Bitcoin and gold are stateless, so either can provide an international base money that is not the creature of any national central bank or finance ministry. (2) Both provide a base money that is reliably limited in quantity (this is the grounding for Selgin’s characterization), unlike a fiat money that a central bank can create in any quantity it likes, “out of thin air.”

Bitcoin and the gold standard are obviously different in other ways. Gold is a tangible physical commodity; bitcoin is a purely digital asset. This difference is not important for the customer’s experience in paying them out, as ownership of (or a claim to) either asset can be transferred online, or in person by phone app or card.

The “front ends” of payments are basically the same nowadays. The “back ends” can be different. Gold payments can go peer-to-peer without third-party involvement only when a physical coin or bar is handed over. Electronic gold payments require a trusted vault-keeping intermediary. Bitcoin payments operate on a distributed ledger and can go peer-to-peer electronically without the help of a financial institution. In practice, however, many Bitcoin transactions use the services of commercial storage and exchange providers like Coinbase.

The most important difference between Bitcoin and gold lies in their contrasting supply and demand mechanisms, which give them very different degrees of purchasing power stability. The stock of gold above ground is slowly augmented each year by gold mines around the world, at a rate that responds to, and stabilizes, the purchasing power of gold. Commodity (non-monetary) demands also respond to the price of gold and dampen movements in its value. The rate of Bitcoin creation, by contrast, is entirely programmed. It does not respond to its purchasing power, and there are no commodity demands.

Difference in Supply Mechanisms

Let’s consider supply in more detail. Secularly, annual production of gold has been a small percentage (typically 1% to 4%) of the existing stock, but not zero. Because the absorption of gold by non-monetary uses from which it is not recoverable (like tooth fillings that will go into graves and stay there, but unlike jewelry) is small, the total stock of gold grows over time. Historically this has produced a near-zero secular rate of inflation in gold standard countries.

The number of BTC in circulation was programmed to expand at 4.0 percent in 2017, but the expansion rate is programmed to fall progressively in the future and to reach zero in 2140. At that point, assuming that real demand to hold BTC grows merely at the same rate as real GDP, Bitcoin would exhibit mild secular growth in its purchasing power, or equivalently we would see mild deflation in BTC-denominated prices of goods and services. (Warren Weber’s paper similarly derives this result.) This kind of growth-driven deflation is benign, but the difference is small in real economic welfare consequences between a money stock that steadily grows 3% per year and one that grows 0%.

The key difference in the supply mechanisms is in the induced variation in the rate of production of monetary gold in response to its purchasing power, by contrast to the non-variation in BTC. A rise in the purchasing power of BTC does not provoke any change in the quantity of BTC in the short run or in the long run. In Econ 101 language, the supply curve for BTC is always vertical. (The supply curve is, however, programmed to shift to the right over time, ever more slowly, until it stops at 21 million units).

By contrast, a non-transitory rise in the purchasing power of gold brings about some small increase in the quantity of monetary gold in the short run by incentivizing owners of non-monetary gold items (jewelry and candlesticks) to melt some of them down and monetize them (assuming open mints) in response to the rising opportunity cost of holding them and to the owners’ increased wealth. The short-run supply curve is not vertical. Still more importantly, this rise will bring about a much larger increase in the longer run by incentivizing owners of gold mines to increase their output. The “long-run stock supply curve” for monetary gold is fairly flat. (I walk through the stock-flow supply dynamics in greater detail in chapter 2 of my monetary theory text.) The purchasing power of gold is mean-reverting over the long run, a pattern seen clearly in the historical record.

Because its quantity is pre-programmed, the stock of BTC is free from supply shocks, unlike that of monetary gold. Supply shocks from gold discoveries under the gold standard were historically small, however. The largest on record was the joint impact of the Californian and Australian gold rushes, which (according to Hugh Rockoff) together created only 6.39 percent annual growth in the world stock of gold during the decade 1849-59, resulting in less than 1.5 percent annual inflation in gold-standard countries over that decade. For reference, the average of decade-averaged annual growth rates over 1839-1919 was about 2.9 percent.

Predicting Supply

As a result of the long-run price-elasticity of gold supply combined with the smallness and infrequency of supply shocks, the purchasing power of gold under the classical gold standard was more predictable, especially over 10+ year horizons, than the purchasing power of the post-WWII fiat dollar has been under the Federal Reserve.

As I have written previously: “Under a gold standard, the price level can be trusted not to wander far over the next 30 years because it is constrained by impersonal market forces. Any sizable price level increase (fall in the purchasing power of gold) caused by a reduced demand to hold gold would reduce the quantity of gold mined, thereby reversing the price level movement. Conversely, any sizable price level decrease (rise in the purchasing power of gold) caused by an increased demand to hold gold would increase the quantity mined, thereby reversing that price level movement.”

Bitcoin lacks any such supply response. There is no mean-reversion to be expected in the purchasing power of BTC, and thus its purchasing power is much harder to predict at any horizon.

Describing gold supply, Warren Weber writes: “Changes in the world stock of gold were determined by gold discoveries and the invention of new techniques for extracting gold from gold-bearing ores.” This is not well put. Changes in the world stock of monetary gold come about every year from normal mining. Gold strikes and technical improvements in extraction brought about changes in the growth rate (not the level) of the stock.

Historically, the changes in the growth rate were not dramatic by comparison to changes in the postwar growth rates of fiat monies. As often as not, the changes in gold stock growth rates were equilibrating, speeding the return of the purchasing power of gold to trend from above trend. As Rockoff noted, some important gold strikes (like the Klondike in the 1890s) and some important technical breakthroughs (like the cyanide process of 1887) were induced by the high purchasing power of gold at the time, which gave added incentive for prospecting and research.

The phrase from John Cochrane quoted above is part of a sentence that reads in its entirety: “It's an electronic version of gold, and the price variation should be a warning to economists who long for a return to gold.” From the consideration of the mean reverting character of the purchasing power of gold, by contrast to Bitcoin’s lack of such a character, we can see that the second half of Cochrane’s statement is incorrect.

The inelastic supply mechanism that produces price variation in Bitcoin should give pause to those who predict that Bitcoin will become a commonly accepted medium of exchange. It says nothing about the purchasing power of gold under a gold standard.

Reprinted from Alt-M.

Larry White

Lawrence H. White is a senior fellow at the Cato Institute, and professor of economics at George Mason University since 2009. An expert on banking and monetary policy, he is the author of The Clash of Economic Ideas (Cambridge University Press, 2012), The Theory of Monetary Institutions (Basil Blackwell, 1999), Free Banking in Britain (2nd ed., Institute of Economic Affairs, 1995), and Competition and Currency (NYU Press, 1989).

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Monday, January 15, 2018

Stretch Panic (PlayStation 2)

Stretch Panic (PlayStation 2)

ANALOG Computing (March 1989)

ANALOG Computing (March 1989)

Sunday, January 14, 2018

Bitcoin Cynics Are on the Wrong Side of History

Bitcoin Cynics Are on the Wrong Side of History

“If you’re stupid enough to buy [Bitcoin], you’ll pay the price for it one day.”

– Jamie Dimon, CEO of JP Morgan Chase, 2017


On March 10, 1876, a new invention sent an invisible electrical signal through a pair of copper wires. On the other end of those wires, the signal was converted to sound waves and Alexander Graham Bell’s assistant heard the now-famous words: “Watson – come here – I want to see you.”

Later that same year, across the Atlantic, the chief engineer at the British Post Office boldly claimed that “The Americans have need for the telephone, but we do not. We have plenty of messenger boys.”

Meanwhile, over in America, the President of the Western Union Telegraph Company asserted that “This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication.”


Today, given the prominence of the telephone in our everyday lives, these assertions, made by some of the top executives and experts in the field of communication, seem remarkably absurd. And yet, at the time, they didn’t sound so ridiculous.

History is replete with entrepreneurs and inventors who have pushed the envelope of innovation and invention to the very edge of human imagination and maybe a little beyond. But new ways of doing things have a natural tendency to obfuscate the old ways, and there are always individuals and groups that benefit from the status quo who are quick to dismiss, and sometimes even condemn, new contraptions and revolutionary ideas.

The Birth of Bitcoin

On January 3, 2009, an anonymous developer known as Satoshi Nakamoto mined the first 50 bitcoin and created the Bitcoin Genesis Block. Since then, Bitcoin has provided the basic blueprint for hundreds of other currencies and platforms and has inspired the creation of an uncountable number of blockchain-based solutions to real-world problems.

But what is Bitcoin and why would I have the audacity to compare it to something as revolutionary as the telephone?

In short, Bitcoin uses public-key cryptography to create a decentralized, permissionless, publicly-viewable blockchain that serves as an immutable ledger, keeping track of who owns bitcoin and how much, all without a central, governing authority.

While this sounds complicated (and it is), don’t worry. Knowing cryptography and understanding the details of how a blockchain works are not necessary prerequisites to use and benefit from the technology any more than one needs to know how an internal combustion engine works in order to drive a car or how TCP/IP works in order to use the internet.

Why Bitcoin? Why Now?

But what use does the world have for a new type of digital money when we already perform near-instantaneous digital transactions with dollars, euros, and yuan via Paypal, Visa, and other financial institutions?


There are many reasons, including the desire of some people for increased privacy and anonymity in their transactions, more autonomous control over their own digital assets, and the obsolescence of the need for third parties to provide the necessary trust factor between two parties in order to perform a transaction. These are all great reasons why so many people view cryptocurrencies as superior to government-issued, fiat currencies. But there is another reason, one that I think is the most important.

Much of human history has been dominated by powerful, centralized governments that have been responsible for hundreds of millions of deaths through democide and war in the last century alone. Most of these deaths were made possible by governments’ ability to finance killing on an immense scale by monopolizing the supply of money, printing massive amounts of it, and declaring by fiat that their citizens had to use it, or else.

That system, that grotesquely bloated machine, incessantly spinning its morbid motor of merciless monstrosity, is thankfully coming to an end.

The Dawn of a New Era

The decentralization and democratization of money and banking through cryptocurrencies and platforms like Bitcoin, Litecoin, Ethereum, and Dash threatens the very foundation that makes possible large-scale murder, draconian limitations on international trade, and heavy government regulations on markets across the globe that cause so much destruction of the achievements of yesterday while simultaneously obstructing the progress of tomorrow.

The proverbial shots have been fired and a bloodless coup d'├ętat of sorts, led by internet nerds, hackers, libertarians, entrepreneurs, and outright geniuses is underway.

Revolutions do not typically happen overnight, especially one so bold as to question the necessity of a motor as powerful as centralized banking, coupled with seemingly limitless government power. But that motor will stop, and a new one, powered by voluntary, peer-to-peer, decentralized relationships and a greater measure of freedom will take its place.

In the future, whether it be ten, twenty, fifty, or a hundred years from now, people will look back on the cryptocurrency naysayers of today with the same incredulity that we now have when we look back at the telephone cynics of 1876.

Justin Faber

Justin Faber is the oldest of nine unschooled children. He studied Political Science and Philosophy at the University of Utah and is currently the writer for the "All This With Aldous" show.

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