Monday, August 28, 2017

Money Isn’t a Gift from the State

Money Isn’t a Gift from the State

I’ve begun working on a new book on the gold standard. In the first chapter I plan to discuss the origin of money, as a preliminary to discussing how silver and gold became the world’s dominant commodity monies.

The topic of the origin of money has become controversial in recent years. The dominant view among economists (for good reason), suggested by Adam Smith in the eighteenth century and fleshed out by Carl Menger in the nineteenth, is that money is a market-born institution.

Convergence on one or two commodities as the common media of payment emerged from the actions of barterers seeking more effective trading strategies, without anyone aiming at the final result. But this view has lately been challenged by a resurgence of the “state theory of money,” also known as Cartalism, which argues that governments played an essential role in the establishment of money.

Money's Origins: A Cartalist View

Cartalists have made the valid point that extensive specialization in production could not have preceded the development of commonly accepted media of exchange; rather, greater specialization and wider acceptance of media of exchange must have developed together.

But this is a useful expositional caveat rather than a refutation of the Mengerian theory. While a lecturer spelling out the Mengerian theory (and I have done this myself) may ask the listener to imagine a highly specialized producer (say, an asparagus farmer) entering a moneyless market and meeting frustration in attempts to trade directly (say, for a plaid shirt) in order to dramatize the difficulty of direct barter, this should not be taken to suggest that, as a historical matter, societies developed extensive specialization and trade before the emergence of money.

Indeed, because it starts from the premise that finding a well-matched trading partner (who “has what you want and wants what you have”) is very difficult, Menger’s theory implies the opposite. As Adam Smith himself emphasized, the division of labor is limited by the extent of the market, and the extent of the market is limited by the ease of trade.

The classic source of the Cartalist view is The State Theory of Money (1924) by the German economist George Friedrich Knapp. Knapp’s rejection of a market evolutionary account, it appears on close inspection, is more a matter of wordplay than of substance. Rather than regarding “money” in the conventional way as any medium of exchange commonly accepted in the market, and so viewing the explanatory challenge as how to account for a particular commodity coming to play that role, Knapp focuses his attention on what he calls public money.

The test of a public money, in his words, is that “the money is accepted in payments made to the State’s offices,” namely in tax collections. Knapp (1924, p. 95) declares:
“State acceptation delimits the monetary system.”
A market process cannot endow a payment medium with state acceptance; only the sovereign state can do that. Mengerians would reply: True enough, but this does nothing to contradict Menger’s logical evolutionary account of how a commonly accepted means of payment arises without state action.

The anti-Mengerians, in the words of sympathetic economist Charles Goodhart, “are those who argue that the use of currency was based essentially on the power of the issuing authority (Cartalists) — i.e., that currency becomes money primarily because the coins or monetary instruments more widely are struck with the insignia of sovereignty.”

The claim that state power or sovereignty is essential or primary for any currency to become a commonly accepted medium of exchange, however, is plainly at odds with the historical fact that privately issued banknotes without sovereign backing were the dominant media of exchange in the eighteenth and nineteenth centuries where they were allowed. And with the fact that privately minted silver and gold coins were widely accepted when and where they were allowed (which was much rarer), as in gold-rush California.

While Knapp (1924, p. 134) recognized the fact of the widespread use of private banknotes, he simply classified them — by definition — as outside the system of public money. A note-issuing private bank and its customers “form, so to speak, a private pay community; the public pay community is the State.”

Why Precious Metals?

Turning from the question of origins to the question of why silver and gold became the most popular commodity monies, out of a large set of contenders that included salt, cowrie shells, and oxen, one naturally wonders what the Cartalists have to say on the second question. The answer turns out to be: nothing helpful.

Menger’s approach lends itself to a decentralized account of why silver and gold emerged as the most commonly accepted, pushing other candidates to the margins. Put yourself in the position of a trader in a market where there are a variety of commodity exchange media (the market has not yet converged). You sell your produce for a physical payment medium which you then carry around with you until you spend it away in purchases.

In this situation, it pays you not only to consider which media are most popular with other traders, but also which media involve the least cost or hassle in acquiring, carrying to the next transaction, and trading away.

As textbooks during the nineteenth century emphasized, the precious metals have a number of properties that make them superior media of exchange in such a setting. Compared to other commodities, silver and gold score high on (1) portability or preciousness, allowing you to carry around high purchasing power with little bulk; (2) durability, not spoiling between the date of acquisition and a later date of spending; (3) divisible and fusible, like any metal, allowing pieces to be made in a range of sizes to suit a range of transactions, and allowing small change to be given; (4) stable in value across the seasons, unlike foodstuffs that are cheap right after the harvest but dear six months later. These properties enhance their widespread acceptance.

An important technical advance came with the introduction and spread of coinage in Turkey and Greece during the 7th to 5th centuries BCE. Unlike raw nuggets straight from the mine or variously refined precious-metal bars, coined pieces of silver and gold gained a major additional advantage: they became (5) uniform in size and quality, so that traders need not incur the cost of testing (or the risk of not testing) each piece for its weight and its fineness (percentage of pure silver or gold content). Early coining entrepreneurs could have profited, as later mint masters in California did, by charging for the service of converting raw silver or gold into easier-to-spend uniform coins.

With the spread of coinage to India, the Middle East, and Europe, merchants found silver and gold payments easier to make and to accept. The use of bulky commodity monies like shells and salt dwindled. Market convergence on the precious metals in coined form reflected a “survival of the fittest,” namely of the most convenient media for hand-to-hand exchange.

The Cartalist approach, by contrast, doesn’t provide a distinct theory as to how silver and gold came to dominate other commodity monies. In the Cartalist view the sovereigns of various lands must have chosen to preferentially accept silver and gold, of course, but why? It seems reasonable to suppose that sovereigns made the choice because they, like other transactors, were aware that coined pieces of silver and gold score high on the five useful properties listed above. If so, then sovereigns did not alter but merely reinforced the market process already underway.

Leading Cartalists have made other suggestions, however. Anthropologist David Graeber, author of Debt: The First 5000 Years, states in an interview that:
… coinage seems to be invented or at least widely popularized to pay soldiers — more or less simultaneously in China, India, and the Mediterranean, where governments find the easiest way to provision the troops is to issue them standard-issue bits of gold or silver and then demand everyone else in the kingdom give them one of those coins back again."
The economist L. Randall Wray (2000, p. 46) likewise states“Coins appear to have originated as government ‘pay tokens’ (in Knapp’s colourful phrase), as nothing more than evidence of debt.” Silver and gold coins, in other words, should be understood as state-issued tax-anticipation tokens, their value resting on a state-imposed obligation to pay them back.

This account fails to explain, however, why governments chose bits of gold or silver as the material for these tokens, rather than something cheaper, say bits of iron or copper or paper impressed with sovereign emblems. In the market-evolutionary account, preciousness is advantageous in a medium of exchange by lowering the costs of transporting any given value.

In a Cartalist pay-token account, preciousness is disadvantageous — it raises the costs of the fiscal operation — and therefore baffling. Issuing tokens made of something cheaper would accomplish the same end at lower cost to the sovereign. (By the way, note also Graeber’s equivocation “invented or.” Proposing that governments enlarged the acceptance of coins, after the market economy had already begun using them, is categorically different from proposing that governments invented coinage. Menger himself had no problem with the former proposition, but he rejected the latter as an unfounded prejudice.)

Wray offers in passing (p. 46) the conjecture that kings likely minted coins “in the form of precious metal to reduce counterfeiting.” But a sovereign imprint on silver or gold coins is not in any obvious way harder to counterfeit than the same imprint on iron or copper coins. So the bafflement remains.

The notion that full-weight silver and gold coins are mere tokens, deriving their value from the future tax liabilities they discharge, is in clear conflict with the historical experience that large-value silver and gold coins issued by (say) the Spanish national mint circulated well outside the set of Spanish taxpayers. (Small-value silver coins, which sovereigns debased and did treat as overvalued tokens, were another and more Cartalist story.)

Large-value coins were used as media of exchange among participants in an international trade network that operated beyond any one nation’s boundaries. They were valued by holders who had no tax obligations to the state of the issuing mint. In the international market, coins issued by various national mints were valued against one another in proportion to their precious metal content, not in proportion to the nominal values at which national tax offices accepted them, where the two values differed. These facts indicate a market source of the moneyness of large-value silver and gold coins, not a tax-acceptance source.

Wray denies that coins were valued according to their precious metal content, as it conflicts with his maintained view that even full-weight precious metal coins were merely tokens. He even denies (p. 47), rather surprisingly, that kings debased their coins, i.e. reduced their precious metallic content below the standard, since “it would make no sense” when they are mere tax-discharging tokens to begin with. The histories of state-issued Roman and medieval silver coins, however, shows repeated debasements.

Once sovereigns monopolized the mints they took advantage of the propaganda value of stamping their own faces on the coins, of course. But as far as we know coins were already in use among merchants before that happened. Very early coins from ancient Lydia, in what is now Turkey, were not inscribed with human faces but rather animal figures.

The Ancient History Encyclopedia states:
It appears that many early Lydian coins were minted by merchants as tokens to be used in trade transactions. The Lydian state also minted coins."
Regarding Lydian coins inscribed with the names Walwel and Kalil, the British Museum comments:
It is unclear whether these are names of kings or just rich men who produced the earliest coins.” Regarding a nearly contemporary ancient Greek coin bearing the legend “I am the badge of Phanes.”
The Museum comments:
We cannot be certain who this Phanes was, but it seems that he was placing his badge on coins as a guarantee of their quality.”
It is possible, of course, that in surveying the literature I have overlooked a more plausible Cartalist account of why sovereigns chose very expensive materials, silver and gold, for their tax-anticipation tokens. If anyone can point me to such an account, I would be grateful.

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).

This article was originally published on Read the original article.

Friday, August 25, 2017

Protecto Enterprizes (Commodore 64, VIC-20)

Protecto Enterprizes (Commodore 64, VIC-20)

Thursday, August 24, 2017

Amazon Destroys Jobs? Really?

Amazon Destroys Jobs? Really?

While the country was consumed with the Charlottesville debacle last week, President Trump was busy reigniting his PR campaign against an American retail staple: Amazon.

In a tweet composed last Wednesday, Trump said:
“Amazon is doing great damage to tax paying retailers. Towns, cities and states throughout the U.S. are being hurt - many jobs being lost!”
This anti-Amazon rhetoric is of course, nothing new for the president. During his campaign he made his opinions of the company well known. Going as far as to threaten the company before even being elected to office, the then-presidential candidate said, “believe me, if I become president, oh, do they have problems. They're going to have such problems."

Now, seven months after taking office Trump seems to be living up to his menacing promise. But is there any truth to Trump’s claims that the Amazon is both destroying jobs and “stealing” money from the taxpayer?

The Ultimate Job Destroyer?

The American people are not united on much these days, or so it would seem. However, if you wanted to give Americans a reason to unite against their leader, threatening their Amazon Prime accounts would be a surefire way.

Earlier this year, a report produced by the Consumer Intelligence Research Partners (CIRP) found that over 80 million people in the United States hold Amazon Prime memberships. A number worthy of recognition especially considering that it has doubled in less than two years.

Amazon has revolutionized the American retail experience. Not only do Prime members get free two-day shipping on essentially any item they wish to purchase from food to electronics, but members also have access to Amazon’s library of streamable films, shows, and music at their fingertips. Need an item in less than two days? No problem! Amazon Now offers delivery services in under an hour for participating products. Even more amazing, Amazon Prime now also dabbles in the restaurant delivery service business competing with the likes of Uber Eats and GrubHub.

And yet, in spite of all these subcategories, each requiring its own set of employees, Donald Trump has accused Amazon of inhibiting job growth in the United States. As of January of this year, Amazon had 306,800 employees and a promise to hire an additional 100,000 full-time employees by mid-2018.

On their own these numbers are impressive, but they do not account for the additional employees who will find future part-time employment via Amazon’s participation in the sharing economy.

Amazon Enters the Sharing Economy

Receiving an Amazon Prime package as an adult is akin to opening up a Christmas present from Santa Claus as a child. You don’t know how the package arrived, but it doesn’t matter. You asked for it and 48 hours later it appeared on your porch as if by magic. Unfortunately, there is no mythical Amazon being responsible for delivering these packages. There is, however, an army of Amazon delivery personnel who operate on the sharing economy model.

Like the “Uber of packages,” Amazon couriers work when they want. As with the rest of the sharing economy, this allows millennials interested in side hustles or others looking to get ahead financially the opportunity to work around their own schedules.

In the few years since the sharing economy has grown in the United States we are already seeing the benefits it brings both in job creation and consumer satisfaction. Amazon’s restaurant delivery service works the same way.

As Americans are generally discontent to live mediocre lives with mediocre salaries, these side hustles have become essential to living a full and prosperous life. Amazon’s contributions to the sharing economy as well as the overall job creation in the country is something worthy of praise. Yet instead, the company’s reputation is being eviscerated by the President in very public social media posts.

Why All the Condemnation?

Trump has made the claim that Amazon hasn’t paid its fair share of taxes and is thus, stealing money from the American people. This is entirely untrue, but what Trump is implying by this comment hits at the core of his real problem with the company: he’s a brick and mortar enthusiast.

After Trump’s tweet, Politifact dissected the president’s post to decipher which, if any, of his claims were true. According to the site:
”While Amazon takes advantage of tax breaks and loopholes, it pays federal corporate tax, and charges sales taxes in 46 U.S. jurisdictions. Last year, Amazon paid $412 million in federal, state, local and foreign taxes.”
So if it’s not about destroying jobs or stealing tax dollars, what is Trump so mad about?

Trump is a traditional businessman who made much of his money through the real estate business. By nature, the virtual business realm is almost completely foreign to him. Trump has made his living buying and selling physical space. Subscribers to the belief that Amazon is the boogieman of the brick and mortar world will appreciate this, as they see Amazon and other online retailers as a threat to their existence.

As Jeffrey Tucker says:
“It’s not just about ideology; it’s a battle of economic interests. Trump is joining an emerging war between old-style economic institutions, rooted in brick-and-mortar and nation-state loyalism, vs. new-style digital institutions that span the globe and empower producers and consumers directly
But it is not and never has been the president’s job to decide which companies succeed and which ones fail. That power rests with consumers who utilize the power of their own purses at their own discretion. Unfortunately for Trump and other brick and mortar protectionists, Amazon is constantly proving that consumers prefer to use its retail platform above all other options. For a president to openly condemn a company for outperforming the competition is antithetical to the free market that Trump pretends to support.  

At the end of the day, Trump is worried about his own interests, not the interests of consumers.

Hitting the nail on the head perfectly, Tucker explains the situation:
Consider that Trump is the consummate physical-world capitalist. He builds towers, casinos, hotels, country clubs, all rooted in real estate, and all with a gawdy 1980s-style aesthetic. With that comes “the art of the deal.” The deals are done on golf courses, in “old boys” clubs, through personal networks. It’s about meeting in board rooms with mayors and city planners and trading favors. He hires contractors to dig and build and rent. He puts his name on large structures and they reach to the skies to proclaim his personal glories.”
But there is another layer to Trump’s disdain for Amazon. And like many of Trump’s stances, this one is also rooted in personal drama.

Facts have never meant much to our president, but any criticism cast in his direction has quickly garnered his attention. Jeff Bezos, the CEO of Amazon, recently purchased the Washington Post, a publication that hasn’t shied away from attacking Donald Trump.

Addressing this issue head on, Trump has even made statements questioning Bezos’ motives:
"I have respect for Jeff Bezos, but he bought The Washington Post to have political influence, and I gotta tell you, we have a different country than we used to have."
He later continues this line of thinking saying:
"He owns Amazon. He wants political influence so that Amazon will benefit from it. That's not right.”
Unfortunately for Trump, he has chosen to attack a mighty monument of consumerism. Amazon’s services are just too good and too plentiful to fall victim to Trump’s attacks. In fact, Amazon Prime’s 80 million subscribers outnumber the 57.6 million people who voted in the 2016 election. Sorry President Trump, consumers have already voted with their dollars and they choose Amazon.

Brittany Hunter

Brittany Hunter is an associate editor at FEE. Brittany studied political science at Utah Valley University with a minor in Constitutional studies.

This article was originally published on Read the original article.

Wednesday, August 23, 2017

Some Refreshing Honesty about the Purpose of Mass Schooling

Some Refreshing Honesty about the Purpose of Mass Schooling

In case there was any ambiguity over the idea that mass schooling values and rewards conformity and compliance, an elementary school in Florida has made it very clear.

At Deer Park Elementary School in Pasco County, signs appeared this week showing a hierarchy of behaviors from good to bad. “Democracy” was at the top, “Anarchy” was at the bottom. While there are many issues with these posters, beginning with the fact that public schooling is far from democratic, the one causing the most outrage among parents is the desire for children to exhibit “Cooperation/Conformity.”

"Conform! How Orwellian," one parent wrote on Facebook.

The posters, tied to the school’s “behavior and classroom culture” project modeled after author Marvin Marshall’s Raise Responsibility System of discipline, suggest that a young person who “complies” and “conforms” is a model student. Under relentless pressure from parents and student advocacy organizations, the school indicated they would temporarily remove the posters until they could better communicate their initiative to parents and the public.

These school posters explicitly reveal the troubling reality that mass schooling retains its 19th-century roots as a system of social control. Originally designed to bring order to an increasingly diverse population, the industrial model of mass schooling continues to impose order by encouraging compliance, rewarding conformity and eliminating individuality.

As author and academic, Noam Chomsky, says "the education system is supposed to train people to be obedient, conformist, not think too much, do what you’re told, stay passive…”

In educator John Holt’s bestselling book, How Children Learn, republished this month in honor of its 50th anniversary, Holt writes about the systematic ways schooling destroys children’s natural curiosity and originality:
We like to say that we send children to school to teach them to think. What we do, all too often, is to teach them to think badly, to give up a natural and powerful way of thinking in favor of a method that does not work well for them and that we rarely use ourselves. Worse than that, we convince most of them that, at least in a school setting, or any situation where words or symbols or abstract thought are concerned, they can’t think at all.”
The elementary school posters in Florida are an overt reminder that schooling and learning are strikingly different. Children, especially those young elementary schoolers, have an incredible capacity for creativity, an inherent zest for exploration and discovery, and an insatiable appetite for learning about the world around them. Then they go to school where tactics that encourage conformity and compliance crush their natural learning instincts. At least these posters tell the truth.

Reprinted from Intellectual Takeout.

Kerry McDonald

Kerry McDonald has a B.A. in Economics from Bowdoin and an M.Ed. in education policy from Harvard. She lives in Cambridge, Mass. with her husband and four never-been-schooled children. Follow her writing at Whole Family Learning.

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Tengen (Sega Genesis)

Tengen (Sega Genesis)

Did You Know about the Great Hyperinflation of the 17th Century?

Did You Know about the Great Hyperinflation of the 17th Century?

The oldest trick in the monetary book is cheating the people by debasing the coin or currency. It goes back at least as far as the Eighth Century B.C. when the Jewish prophet Isaiah chastised the Israelites for doing it. “Thy silver has become dross, thy wine mixed with water!” he admonished.

Reputable private issuers of money, when governments don’t ban them for self-serving reasons, might be tempted to dilute the value of their product. Their incentives, however, tend to run strongly in the other direction.

If their product gains in value, they make money (literally and figuratively). If they debase it, they might be prosecuted for counterfeiting or fraud. But in any event, customers will flee to competitors happy to “make money” by offering it in a more trustworthy form.

When entrepreneurs and willing customers shape the framework of a market, the famous Gresham’s Law works in reverse: the good money drives out the bad.

Similarly, because you prefer fresh eggs to expired ones, or use an iPhone now instead of a walkie-talkie, the inferior product disappears. But when political monopolists backed by the coercive power of government are in charge, the quantitatively-eased stuff is foisted on you whether you like it or not, while the good alternatives are driven overseas or underground.

Kipper and Wipper

I thought I knew the low points in the interesting history of monetary corruption until I came across this fascinating article from Smithsonian magazine. It’s about a brief hyperinflation in 17th Century Europe at the start of the Thirty Years’ War.

Titled “Kipper und Wipper”: Rogue Traders, Rogue Princes, Rogue Bishops and the German Financial Meltdown of 1621-23, the article’s author (historian Mike Dash) claims that this instance of “monetary terrorism” may in fact be “the most bizarre episode in all of economic history.” It arguably yielded the Western world’s first full-scale financial crisis.

The German terms “kipper” and “wipper” derive from two nefarious practices: One is clipping coins then using the scrap to make new ones, or melting coins into a cheapened mix of precious and baser metal. The other is rigging the scales so that recipients of coinage so debased could be deceived.

And if you’re not sure what the Thirty Years’ War (1618-1648) was about, just think of it as the most destructive of the many European religious wars. Eight million casualties resulted from a Catholic vs. Protestant conflict that ballooned into a continental power struggle between the royal houses of France, Spain, the Low Countries, and some 2,000 German microstates of the fracturing Holy Roman Empire. In those German territories alone, no less than 20 percent of the population perished.

In early 17th Century Europe, the minting of coins was typically the exclusive prerogative of kings and princes, which they often delegated to their well-connected cronies in local governments, the church, or even private business. On the eve of the War, in 1617, thirty mints operated in Lower Saxony alone, according to Peter H. Wilson in “The Thirty Years War: Europe’s Tragedy.” Debasement, however, was rare—until the financial demands of the war pressed governments to find new sources of revenue. The crisis and depression spawned by the five-year hyperinflation (1618-1623) is known in German as the “kipper-und-wipperzeit.”

The Polish mathematician and astronomer Nicolaus Copernicus is universally acclaimed for his assertion that the sun was at the center of the solar system, not the earth. Less well-known are his important contributions to monetary theory, made just a century before the kipper-und-wipperzeit. If this Copernican observation had been heeded, perhaps the folly of what I’m about to tell you might have been avoided:

The greatest and most forbidding mistake has to be when a ruler tries to make a profit from the minting of coins by introducing and circulating new coins with an inferior weight and fineness, alongside the originals, and claims that they are of equal value.
The Debasement Begins

Desperate to raise cash and secure material for war, many of the German states in 1618 resorted to the debasement of coinage. They clipped and they melted. At first, they adulterated their own coin but then discovered that they could do the same to that of their neighbors too.

They would gather up as much of other states’ coins as they could, melt them down and mix in cheaper metals (most often copper), and then mint new ones that looked like the original but in fact were cheap counterfeits. Then they would send them with couriers back to the other states in the hope of passing them off on ignorant and unsuspecting citizens. The couriers would return with good coin and/or wagon loads of food and supplies.

Mike Dash noted in his Smithsonian magazine article that just about everybody got into the act:

While it lasted, the madness infected large swaths of German-speaking Europe, from the Swiss Alps to the Baltic coast, and it resulted in some surreal scenes: Bishops took over nunneries and turned them into makeshift mints, the better to pump out debased coinage; princes indulged in the tit-for-tat unleashing of hordes of crooked money-changers, who crossed into neighboring territories equipped with mobile bureau de change, bags full of dodgy money, and a roving commission to seek out gullible peasants who would swap their good money for bad. By the time it stuttered to a halt, the kipper-und-wipperzeit had undermined economies as far apart as Britain and Muscovy, and—just as in 1923 [during the infamous Weimar Republic inflation]—it was possible to tell how badly things were going from the sight of children playing in the streets with piles of worthless money
This is an opportune moment to remind readers of a crucial distinction between inflation and rising prices. They are not the same, in spite of the commonly-held sense that they are. Inflation is an increase in the money supply (and in credit as well, though credit and capital markets in the early 1600s were small and primitive by today’s standards). Rising prices are among the many deleterious effects of the inflation.

The German states first inflated the money supply by corrupting the coinage, then prices rose. Other effects of the inflation were evident too, including the destruction of savings and fixed incomes, a general economic malaise and social turmoil.

In his voluminous history, The Thirty Years War: A European Tragedy, Peter H. Wilson writes:

Good coins disappeared from circulation, while taxes were paid with debased currency. The real value of civic revenue fell by nearly 30 percent in Naumberg. Prices soared as traders demanded sackfuls of bad coins for staple commodities: the cost of a loaf of bread jumped 700 percent in Franconia beween 1619 and 1622. Those on fixed incomes suffered, like theology student Martin Botzinger whose 30 fl. annual grant became worth only three pairs of boots. Serious rioting spread from 1621, with that in Magdeburg leaving 16 dead and 200 injured.
It was all over in about five years (the inflation, not the war). Burned by the self-defeating chaos it created, the German states agreed to stop cheating and restore reasonably sound currencies. Then through taxes, requisitions and other forms of plunder, they and most of the rest of Europe waged another 25 years of bloody hostilities.

A hundred years later, France would be the scene of the Western world’s first experiment in hyperinflation  using paper instead of metal. And in the two centuries since that, history records dozens of ruinous paper inflations. These episodes in monetary cheating all produced the same calamitous results no matter what form they took.

So what do men learn from history? Sometimes I think it’s little more than the fact that history is, well, interesting.

For additional reading, see:

“Kipper und Wipper”: Rogue Traders, Rogue Princes, Rogue Bishops, and the German Financial Meltdown of 1621-23 by Mike Dash

Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger

“Finance and the Thirty Years War” by C. N. Trueman

Special Exhibit of the Deutsche Bundesbank: The German Economic Crisis of 1618-1623 

“Where Have All the Monetary Cranks Gone?” by Lawrence W. Reed

“The Times That Tried Men’s Economic Souls” by Lawrence W. Reed

Lawrence W. Reed

Lawrence W. Reed is president of the Foundation for Economic Education and author of Real Heroes: Incredible True Stories of Courage, Character, and Conviction and Excuse Me, Professor: Challenging the Myths of ProgressivismFollow on Twitter and Like on Facebook.

This article was originally published on Read the original article.

Tuesday, August 22, 2017

Socialism – Not Oil Prices – Is to Blame for Venezuela’s Woes

Socialism – Not Oil Prices – Is to Blame for Venezuela’s Woes

So the Left is finally talking about Venezuela again. That is a good thing. For about a decade, large sections of the Left were in the grip of Venezuelamania. We would not hear the end of it. Venezuela’s version of socialism was their shining example, the model which the rest of the world should emulate.

When the country’s meltdown could no longer be denied, they dropped it like a hot potato. And a long period of silence ensued. But recent events have forced the issue back on the agenda again.

The Double Life of Oil Prices

The responses vary. Commentators on the Stalinist Left now sound like a copy of the Pravda from the 1930s, fabulating about saboteurs and counter-revolutionaries undermining the economy. The more media-savvy sections of the Left, however, realise that they are unlikely to win many people over if they sound too much like the villain in a Cold War movie.

So they have adopted a more innocuous-sounding line, blaming Venezuela’s woes primarily on the decline in oil prices. Of course, Venezuela is doing badly, they argue. Any economy that is so dependent on commodity prices would do badly under those circumstances. It has nothing to do with socialism.

It sounds superficially plausible. But do you remember which prominent Chavista said this during the oil price boom:
Of course Venezuela is doing well. Any economy that is so dependent on commodity prices would do well under those circumstances. It has nothing to do with socialism.”
You guessed right: none of them. Oil prices lead a double life in the Chavista-Corbynista mindset. When oil prices skyrocket, the ensuing boom is proof that social works, but when they fall again, the ensuing decline has nothing to do with socialism.

It is true that low oil prices would hurt Venezuela’s economy. But here’s the thing: we don’t currently have low oil prices. We had abnormally high oil prices in the decade leading up to 2014/15. Oil prices have not “collapsed”. They have merely reverted to a level which is more in line with the long-term average. More precisely, they are back (in real terms) to where they were in 2004, about the time when Venezuelamania started. And they are still noticeably higher than they were in the two decades before then.

When Oil Prices Were Peaking

Perhaps more important, though, the problems that we commonly associate with Venezuela, especially shortages of basic essentials like food and medicine, predate the drop in oil prices. Take this description:
…of milk, eggs, sugar and cooking oil there was no sign. Where were they? … Welcome to Venezuela, a booming economy with a difference. Food shortages are plaguing the country at the same time that oil revenues are driving a spending splurge … Milk has all but vanished from shops… eggs and sugar are also a memory.”
This is from a Guardian article, published in 2007 – when oil prices were about to reach their historic all-time peak. Or this one, from a year before the drop in oil prices:
…food shortages in Venezuela have not only peaked but they have lasted longer than ever. … Venezuela’s central bank … has been publishing a scarcity index … [It] puts this year’s figure at [a level which] is similar to countries undergoing civil strife or war-like conditions.”
There are a handful of alternative history novels in which the fall of the Berlin Wall never happens, and the German Democratic Republic still exists today. It is a fascinating thought experiment, but the authors all face a problem in creating that backdrop: when the Wall fell, the GDR was not just politically, but also economically finished. How do you get around this, if you want your alternative history to be at least somewhat plausible?

Two authors have found a simple, but seemingly effective solution: in their version, the GDR regime discovers oil reserves just off the Baltic coast. The GDR is soon swamped with petrodollars; it becomes a socialist, Northern European version of Saudi Arabia.

The authors’ thinking must have been: “Let’s just give them oil reserves. Surely oil revenue can make any economy work, even a socialist one.”

I like the idea. But Venezuela’s experience shows that the authors were over-optimistic.

Oil Isn't Enough

Socialists have always argued that socialism will eventually work, it just needs the right circumstances. They are now effectively saying:
Of course socialism works. All you need is the world’s largest proven oil reserves, the longest oil price boom in history, and the highest oil price level ever recorded in history. That boom must obviously go on forever. Even then, you will have constant shortages of food, medicines and other basic essentials. But on the plus side, you will have Western intellectuals lining up to tell you how lucky you are.”
It doesn’t quite cut the mustard, does it?

Reprinted from CapX.

Kristian Niemietz

Dr. Kristian Niemietz is the Institute for Economic Affairs' Head of Health and Welfare.

This article was originally published on Read the original article.

Monday, August 21, 2017

Why the Rich Actually Love High Taxes

Why the Rich Actually Love High Taxes


So we always hear that the rich should pay taxes more, that our tax rates aren't high enough. If only we raise taxes we can solve a lot of our problems – inequality would go down and maybe we'd even have more economic growth. Now the funny thing about this view is it really doesn't comport with our historical experience at all. Whenever we have raised taxes on the rich, we have seen horrible offenses against inequality and economic growth.

The most illustrative of these eras was the 1950s, when the top tax rate, the top income tax rate in the United States, went all the way up to 91%. Now I want to point out that that is no misprint. The top tax rate in the United States was 100% minus 9%, 91%. If you made $200,000 or more, your last income was subject to 91% confiscation by the United States government.

There were also 26 brackets in the income tax code, and they ran from 20% all the way up to 90%. If you made any kind of money at all, you were paying 30%, 40%, 50%. If you started making more money, 60%, 70%, 80%, 90%. That was a high tax era.

Now you may be thinking, "But wait a minute. The 1950s, they were the greatest economic era ever. That's when everybody had a job. Those jobs were for life. People got to live in suburbia and go on vacation and do all sorts of amazing things. It was post-war prosperity, right?"

Actually, all of these things are myths. In the 1950s, the United States suffered four recessions. There was one in 1949, 1953, 1957, 1960, four recessions in 11 years. The rate of structural unemployment kept going up, all the way up to 8% in the severe recession of 1957-58.

So there wasn't significant economic growth in the 1950s. It only averaged 2.5% during the presidency of Dwight D. Eisenhower, and the tax code spawned inequality that is even unheard of today. How so? Well, when you have a marginal rate of the income tax that is 91%, to have an exception from that income tax is very valuable. If you were able to get a statute written into the tax code that says you don't have to pay that 91% and you're high-income, you could either pay nothing, or pay a much lower rate. That exemption is very valuable.

The tax code in the 1950s was 11,000 pages. The first two pages of the tax code said very simple things. The opening line of the tax code said that income is taxable from any and all sources derived. Okay, if you make income, it's taxable. And then the second two pages of the tax code with a list of the rates, the rates that started at 20% on low income and went all the way up to 91% on high income.

The next 11,000 pages after those first two pages were exceptions to those statements. They were pet statutes that were written into law by Congress at the behest of lobbyists that said, "This income is not subject to taxation.” And always, in almost every case, it had to do with the income of the rich. Let's give some examples.

One of the most notorious cases, perfectly legal, by the way, was that of the movie studio mogul Louis B. Mayer. In 1951, Louis B. Mayer retired from his studio in Hollywood, and he got a lump sum payment from the studio of $2.7 million, which is, you know, probably about $20 million dollars today, and that income was not subject to the 91% tax rate. It was only subject to a 25% tax rate. How did that happen?

Louis B. Mayer hired a lobbyist who got a Congressman to write a pet statute into the law that exempted his income from taxation and it applied only to Mayer and his associate who got those lump sum payments. That's what the 11,000 pages in the tax code were. They were a nest of cronyism.

And the only way that those exemptions would ever be thought to be put in the tax code is if the marginal tax rate were high. The marginal tax rate was high, therefore all sorts of people wanted exemptions from it. There was a famous comment among the legal bar in the 1950s. It was recorded by John F. Kennedy's SEC chairman, William Carey. And that comment was, "Once you become a millionaire, you don't try to litigate a tax case. You don't try to contest the IRS if you say ... they think you owe more money than you do. You simply get the statute changed." That's how easy it was in the 1950s to get Congress to write the pet exemption for you in the tax code.

So you can see what kind of pernicious effects that had on the inequality situation in the United States in the 1950s. The rich had all the money and they hid it from the tax man. Meanwhile, in doing so, they weren't deploying their capital in ways that were productive for jobs and economic growth. They were hiding it in all these little ways that Congress permitted them to hide it. I mean, the Treasury estimate in the middle of this in 1957 said that only 43% of income in the United States is really subject to taxation. The other 57% is hidden in mortgage interest and all the other 11,000 pages of exemptions.

Unions ended up calling the tax code the "Swindle Sheet," because that's where the rich were able to hide their income, and they weren't making it available for productive growth. So when we talk about the era of high taxes, that it was associated with economic growth and jobs for everyone, that actually is not accurate at all. It was an era in which the rich deployed their income in ways that the government told them to so that they could keep it, and the net result was A, inequality, and B, slow economic growth. There's a reason we dumped all that for tax rate cuts in the 1960s.

Reprinted from Learn Liberty.

Brian Domitrovic

Brian Domitrovic is assistant professor of history at Sam Houston State University in Huntsville, Texas, and author of Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity.

This article was originally published on Read the original article.

Sunday, August 20, 2017

The Best Anti-Nazi Strategy Is to Let Them Speak

The Best Anti-Nazi Strategy Is to Let Them Speak


While the country is still reeling from shocking images of the violence in Charlottesville, VA last weekend, CNN reports the so-called “Alt Right” is planning nine events for this weekend, including a “free speech rally” in Boston. As expected, counter-protests are being planned, although local police in most areas are planning to take measures to keep the adversarial groups apart to avoid violence.

I’m sure this strategy will be criticized because it will give White Supremacists, Neo-Nazis and others of their ilk a safe space to “spew hate.” That’s right; it will. And that’s precisely why it’s the right strategy, for a number of reasons. It should have been employed in Charlottesville. Everyone involved would have been both freer and safer.

The ACLU Is Right on This

A wise man once said, “We don’t have the First Amendment so we can talk about the weather. We have it so we can say very controversial things.” No reasonable person believes the attorneys for the ACLU have any sympathy for what the speakers at the Unite the Right rally were going to say last weekend. But they recognized how important it was to defend their right to assemble and exercise their rights, even to say things the overwhelming majority of Americans find offensive. So, the ACLU went into federal court to get a local decision to revoke the group’s permit overturned.

The pertinent question isn’t “Why let them speak?” It’s “Why not let them speak?” The answer to the latter question is fear. Well-meaning people are genuinely afraid of these people growing their movement. After all, it happened before, right? And it didn’t happen in some Third World backwater, but in one of the leading industrial nations of the world. There are still people alive today who survived that horror.

It comes down to whether Americans are going to trust each other with freedom or not. The media has used all its cinematic arts to paint last weekend’s march as the bellwether of a dark political movement that could sweep the country. Really? Does anyone really believe that a few hundred losers looking and sounding like the Illinois Nazis from the Blues Brothers movie are going to persuade a significant percentage of Americans they’re right? “The Jew is using the black as muscle against you.” That’s literally what they were saying in Charlottesville. We used to lampoon this stuff.

Mockery, Not Muscle

For all the criticism President Trump has absorbed for his statements about last week, there were some surprising moments of clarity. It’s true that not all the people who showed up to protest removing the statue were White Supremacists or Nazis. And it’s also true not all the counter-protestors were peaceful. It takes quite a bit of self-righteous denial to not see Antifa seizing an opportunity to do what they always do – assault people and destroy property – just as the Nazis seized the opportunity of the statue’s removal to preach their idiotic message. Americans don’t need to take a side in that fight.

But we should take the First Amendment’s side regarding similar events in the future. If we’ve lost trust in our neighbors even to reject the arguments of Nazis, we’ve acquiesced to giving up freedom itself. We may as well accept the rest of the arguments of central planners looking to rule over every aspect of our social and economic lives. Theirs is the same reasoning: we rubes can’t be trusted with freedom.

The Nazis should be allowed to speak and have video of their events widely disseminated by the media. Had that approach been taken last weekend, we might all be laughing at them now instead of mourning the death of an innocent woman.

Tom Mullen

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? and A Return to Common  Sense: Reawakening Liberty in the Inhabitants of America. For more information and more of Tom's writing, visit

This article was originally published on Read the original article.

Saturday, August 19, 2017

My Lunch with a Nazi

My Lunch with a Nazi


College made me profoundly aware and disdainful of leftist socialist ideology. It was everywhere in every discipline: history, psychology, sociology, ethics, and even economics. The alternative I knew about was called “right wing” or conservatism/libertarianism. 

These were the days of the Cold War. Everything was clear. To be pro-American meant to be pro-freedom and certainly not a leftist. The bad guys blamed America for everything and never stopped putting down freedom.

Where do the Nazis fit in here? They didn’t matter in the slightest, except as a matter of history. I took a class in World War II. The impression I had was that Nazis were a cult that came out of nowhere, killed a lot of people, and were then vanquished by the Allied troops. And that was the end. There was little discussion of the ideological structure, its meaning, its import. It was just some weird junta that came and went.

Nazis Exist

That’s where things stood until a very strange lunch in Alexandria, Virginia. Years had gone by. I was perhaps 26 years old. A journalist in Washington, D.C., an acquaintance with some odd views that I couldn’t quite place, had arranged a meeting. He told me of a wealthy philanthropist who I really needed to meet. She could make some good connections for me.

I wasn’t sure I understood what all this was about but I was up for it.

I arrived at the brightly lit and elegant tea room where the waitstaff were bustling around, serving high-end clientele. I sat and waited, and then a hand touched my shoulder.

“Jeffrey Tucker?”

“I am he,” I said and stood up to greet a beautiful woman in her 60s, gorgeously dressed, blonde hair pinned up top. She had flawless manners, a pretty way of speaking, and all the signs of “high birth,” as they say, on top of the classic “beauty that money buys.” I held her chair and seated her. We ordered some small sandwiches and tea and began to talk.

We began with the problem of leftism and how terrible it all is. I was intrigued at the polished cadence of her language. And the way she moved her hands. And her bright and pretty eyes. Her perfume. And the way she smiled and connected with me so personally. I was enjoying this, feeling special.

The nature of the conversation began to shift gradually. The problem was not the left as such, she said, but the global elites. It is they who are behind the corruption of the culture through Hollywood and the media generally. Their power is bad enough, she explained, but the real problem is within the banking system and the world financial system that they own.

I didn’t really understand what she meant by “they” but I didn’t like every movie, so I was okay with a solid attack on Hollywood. And I certainly didn’t like the Fed. I would respond in each case with a point about the problems of government. Each time, she would gently explain to me that the problem is not the government but the people who occupy the government who are building a world order to benefit only one tribe.

I still didn’t entirely understand. Finally, she put a fine point on it.

“The real problem, Jeffrey, and I hope you can come to understand this more fully, is the Jews.”

Ok, now I’m rolling my eyes. Here we go with the cranky stuff. I’ve heard this kind of talk before but mostly from uncouth and uneducated malcontents who seem consumed by class resentment. It was boring and dumb. I must say, however, that I had never heard someone of her beauty and intelligence speak this way. I found it embarrassing more than anything. 

I didn’t argue with her, mostly because I wouldn’t even have known where to begin. Mostly I had no real understanding of her outlook, where it came from, what it meant, where she was going with talk of this. In the world I grew up in, I had no consciousness of Jews or non-Jews or anything at all related to this topic.

Above all, I would stop and wonder: why am I having lunch with this person?

She shifted again to talk about her personal biography. Her husband left her a substantial amount of money. She set up her own philanthropic empire. She supported journalists, magazines, institutions, conferences. She is highly careful in her spending, she explained, making sure that she backs people and institutions who know both the problem and the answer.

Now I understood where this was going. She was recruiting me, testing me. Maybe if I studied and learned, and deepened the sophistication of my personal philosophy, I too could benefit from her generosity.

From there, things ramped up quickly. She said, “well, that’s enough serious talk. Let’s offer a small toast to the greatest man of our century.”

Maybe she meant Reagan? We lifted our glasses. Then she finally came out with it.

“Adolf Hilter.”

Well, now that seemed to come from nowhere. I made a sheepish face and slowly lowered my glass. She knew that she had shocked me but gave a playful smile and engaged in more small talk. I wasn’t listening anymore, simply because I was just a bit distracted by her toast.

At some point in the remaining minutes of this meeting I realized: I was having lunch with a real Nazi. It was not a frothing-at-the-mouth thug with a club and torch. It was a beautiful, erudite, and highly educated woman of high breeding. 


Fortunately, lunch time ended. We did air kisses and polite goodbyes and said we would stay in touch. I walked to my car as quickly as I could without seeming to rush. I sat down and exhaled as much air as I could and took another deep breath. What had just happened? Who was this woman and what did she believe? Why was I sitting there with her?

I never saw her again. Over the coming weeks, I gradually came to realize that this was a very important person, the main source of money for what was then a nascent Nazi movement in America. At the time, the whole thing seemed ridiculous. Today, not so much.

I never had a Nazi professor, never heard a Nazi media commentator, never read a mainstream book promoting Nazism. Until recently, such a bloodthirsty political longing has had to live in dark corners or come in beautifully deceptive packages such as this women. For this reason, it has mostly escaped the notice of several generations. That doesn't mean it is not a danger to rationality, decency, and freedom. And it doesn't mean that it cannot grow and infect the ideological outlook of a new generation.

Another 20 years would go by before I seriously began to study and learn about this warped and freaky branch of totalitarian thought which today goes by many names (fascism, alt-right, neoreaction, and so on). I've learned that Nazism was and is the culmination of dangerous ideological tendencies from a century earlier. They didn't die after the war.

As Ludwig von Mises (one of the most consistent anti-Nazi intellectuals of the 20th century) warned repeatedly: bad ideas are never entirely gone; they come back and back, which is why the friends of liberty must never rest in learning about them and being true champions of the free society.

Over time, I’ve also learned that it is not enough to hate the left, or even to hate the government as it is (occupied or not). It is all about what we love. If we can identify and describe what we love, and with a clean conscience and sincere hope for the good of ourselves and everyone, we are where we need to be to recognize and resist all threats to liberty, from whatever source, beautiful or not. 

As for my lunch partner that day, I assume that she is gone from this earth by now. But her ideological children are more numerous than ever.

Jeffrey A. Tucker

Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

This article was originally published on Read the original article.

Thursday, August 17, 2017

How Middle-Class Europeans Fare Under the Welfare State

How Middle-Class Europeans Fare Under the Welfare State

According to progressives like Bernie Sanders, European nations have wonderfully generous welfare states financed by high tax rates on the rich.

They’re partly right. There are very large welfare states in Europe (though I wouldn’t use “wonderfully” and “generous” to describe systems that have caused economic stagnation and high levels of unemployment).

But they’re wrong about how those welfare states are financed. Yes, tax rates on the rich are onerous, but not that much higher than in the United States. Instead, the big difference between America and Europe is that ordinary people pay much higher taxes on the other side of the Atlantic.

The US Has the Most “Progressive” Tax System

Indeed, I’ve previously cited Tax Foundation data showing that the United States arguably has the most “progressive” tax system in the developed world. Not because we tax the rich more, but simply because we impose comparatively modest burdens on everyone else.

And now we have some new evidence making the same point. Joseph Sternberg of the Wall Street Journal has some very sobering data on how the German tax system imposes a heavy weight on poor and middle-income taxpayers.
Europeans believe their tax codes are highly progressive, giving lower earners a break while levying significant proportions of the income of higher earners and corporations to fund generous social benefits. But that progressivity holds true only for direct taxes on personal and corporate income. Indirect taxes, such as the value-added tax on consumption and social-security taxes (disguised as “contributions”), are a different matter. The VAT disproportionately affects lower earners, who spend a higher proportion of their incomes. And social taxes tend to kick in at lower income levels than income taxes, and extract a higher and more uniform proportion of income. …if you look at the proportion of gross household income paid in all forms of tax, the rate varies by only 25 points. The lowest-earning 5% of households pay roughly 27% of their income in various taxes—mainly VAT—while a household in the 85th income percentile pays total taxes of around 52%, mostly in social-security taxes that amount to nearly double the income-tax bill.
Here’s a chart the WSJ included with the editorial.

As you can see, high payroll taxes and the value-added tax are a very costly combination.

And the rest of Europe is similar to Germany.
…Germany is not unique. The way German total revenues are split among income taxes, social taxes and the consumption tax is in line with the rest of Western Europe, as are its tax rates, according to OECD data. If other countries are more progressive than Germany, it’s only because Germany applies its second-highest marginal income-tax rate of 42% at a lower level of income than most.
Percent of Economic Output

Speaking of the OECD, here’s the bureaucracy’s data on the burden of government spending.

Germany is in the middle of the pack, with the public sector consuming 44 percent of economic output (Finland edges out France and Greece for the dubious honor of having the most expensive government).

The overall burden of the public sector is far too high in the United States, but we’re actually on the “low” side by OECD standards.

According to the data, total government spending “only” consumes 37.7 percent of America’s GDP. Only Ireland, Switzerland, and Latvia have better numbers (though my friend Constantin Gurdgiev explains we should be cautious about Irish economic data).

But I’m digressing. The point I want to emphasize is that punitive taxes on poor and middle-income taxpayers are unavoidable once politicians decide to impose a large welfare state.

Which is why I’m so inflexibly hostile to any tax increase, especially a value-added tax (or anything close to a VAT, such as the BAT) that would vacuum up huge amounts of money from the general population. Simply stated, politicians in Washington will have a hard time financing a bigger burden of government if they can only target the rich.

Sternberg makes the same point in his column.
Tax cuts have emerged as an issue ahead of Germany’s national election next month, with both major parties promising various timid tinkers… Not gonna happen. The VAT and social taxes are too important to the modern welfare state. The great lie is that there are a) enough “rich people,” b) who are rich enough, that c) taxing their incomes heavily enough can pay for generous health benefits and an old-age pension at 65. None of those propositions are true, and the third is especially wrong in an era of globally mobile capital and labor. That leaves the lower and middle classes, and taxes concealed in price tags or dolled up as “insurance contributions” to obscure exactly how much voters are paying for the privilege of their welfare states. …reform of the indirect taxes that impose such a drag on European economies awaits a more serious discussion about the proper role of the state overall.

There’s no feasible way to ease the burden on ordinary German taxpayers (or regular people in other European nations) unless there are sweeping reforms to reduce the welfare state.

And the moral of the story for Americans is that we better enact genuine entitlement reform if we don’t want to suffer the same fate.

P.S. If you don’t like German data, for whatever reason, I wrote last year about Belgium and made the same point about how a big welfare state necessarily means a bad tax system.

P.P.S. By the way, even the OECD admitted that European nations would grow faster if the burden of government was reduced.

Reprinted from International Liberty.

Daniel J. Mitchell

Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

This article was originally published on Read the original article.

The iPhone in Your Pocket Is Worth Millions

The iPhone in Your Pocket Is Worth Millions

Several years ago, I had a bit of fun estimating how much an iPhone would have cost to make in the 1990s. The impetus was a story making the rounds on the web.

A journalist had found a full-page newspaper ad from RadioShack dating back to 1991. He was rightly amazed that all 13 of the advertised electronic gadgets – computer, camcorder, answering machine, cordless phone, etc. – were now integrated into a single iPhone. The cost of those 13 gadgets, moreover, summed to more than $3,000. Wow, he enthused, most of us now hold $3,000 worth of electronics in the palm of our hand.

I saluted the writer’s general thrust but noted that he had wildly underestimated the true worth of our modern handheld computers. In fact, the computing power, data storage capacity, and communications bandwidth of an iPhone in 2014 would have cost at least $3 million back in 1991. He had underestimated the pace of advance by three orders of magnitude (or a factor of 1,000).

Well, in a recent podcast, our old friend Richard Bennett of High Tech Forum brought up the $3 million iPhone 5 from 2014, so I decided to update the estimate. For the new analysis, I applied the same method to my own iPhone 7, purchased in the fall of 2016 – 25 years after the 1991 RadioShack ad.

My iPhone 7 has 128 gigabytes (GB) of flash memory, which would have cost around $5.76 million back in 1991. Its A10 processor, which includes a CPU and GPU, has 3.3 billion transistors, running at 2.34 gigahertz (GHz) and delivering roughly 120,000 million instructions per second (MIPS). This amount of computing power would have cost something like $3.6 million back in 1991.

The iPhone 7 also delivers astonishing communications speed via 4G LTE mobile networks. Peak and average mobile speeds vary, depending on geography, network load, and other factors, so I just decided to use the speed I normally get on my mobile LTE connection (not Wi-Fi) at my office. With just two of five dots’ worth of signal strength, I enjoy a connection of 33 megabits per second (Mbps). That kind of wireless bandwidth might have cost something like $3.3 million back in 1991.

Adding it up, we get $5.76 + $3.6 + $3.3 = $12.66 million to produce today’s iPhone back in 1991. And that’s just for the three components that are easiest to measure and compare across time. This estimate doesn’t include the camera, display, random access memory (RAM), MEMS gyroscope and accelerometer, or any of the other amazing parts and features packed into an impossibly compact package. Nor does this account for inflation, which means our comparison may understate the effect.

These are fairly rough estimates. Yet it’s interesting that the new $12-million figure is four times the $3-million estimate from three years ago – which just happens to be the pace of Moore’s law, a doubling every 18 months or so. By many accounts, Moore’s law is slowing down or is even “dead.” Yet these types of cost-performance improvements suggest Moore’s law, at least for now, lives on.

Reprinted from American Enterprise Institute.

Bret Swanson

Bret Swanson is a visiting fellow at AEI’s Center for Internet, Communications, and Technology Policy and president of Entropy Economics LLC, a strategic research firm specializing in technology, innovation, and the global economy.

This article was originally published on Read the original article.

Wednesday, August 16, 2017

Why Do So Many Intellectuals Oppose Capitalism?

Why Do So Many Intellectuals Oppose Capitalism?

Following the valuable advice of co-blogger David Henderson, I've gotten my hands on Milton Friedman on Freedom, a new collection edited by the Hoover Institution. The book will surprise all of us who never properly appreciated the insights and wisdom of Friedman's political thinking. His own peculiar blend of classical liberalism comes out all the more as subtle and relevant.

Among the several chapters, I did particularly enjoy a 1974 interview with Reason magazine. Friedman was then interviewed by the editorial trio (Tibor Machan, Joe Cobb, Ralph Raico), who were challenging him from what they considered a more consistent libertarian position.

The interview is rich and interesting in many ways. Friedman defends a negative income tax and school vouchers as "devices for enabling the free market to play a larger role." He admits that the work of E.G. West made him revisit his own rationale for compulsory education (but not to abandon vouchers as a practical policy proposal), and he discusses inflation and the gold standard.

Friedman also speaks on a matter which has likewise been pondered by many of his contemporaries: why intellectuals oppose capitalism.

To these questions, some have replied that the main reason is resentment (intellectuals expect more recognition from the market society than they actually get); some have pointed out that self-interest drives the phenomenon (intellectuals preach government controls and regulation because they'll be the controllers and regulators); some have taken the charitable view that intellectuals do not understand what the market really is about (as they cherish "projects" and the market is instead an unplanned order).

Friedman rejects the resentment view and proposes a version of the self-interest thesis by looking at the demand-side, so to speak. And it shows – behind the veil of his civility – very little consideration for the tastes of his fellow intellectuals for complex arguments, which seems to me quite a criticism.

Here's the passage:
REASON: Perhaps we can go back to your comment about intellectuals. What do you think of the thesis put forth by von Mises and Schoeck, that envy motivates many contemporary intellectuals' opposition to the free market?

FRIEDMAN: Well, I don't think we'll get very far by interpreting the intellectuals' motivation. Their critical attitudes might be attributed to personal resentment and envy but I would say that a more fruitful direction, or a more fundamental one, is that intellectuals are people with something to sell. So the question becomes, what is there a better market for? I think a major reason why intellectuals tend to move towards collectivism is that the collectivist answer is a simple one. If there's something wrong pass a law and do something about it. If there's something wrong it's because of some no-good bum, some devil, evil and wicked – that's a very simple story to tell. You don't have to be very smart to write it and you don't have to be very smart to accept it. On the other hand, the individualistic or libertarian argument is a sophisticated and subtle one. If there's something wrong with society, if there's a real social evil, maybe you will make better progress by letting people voluntarily try to eliminate the evil. Therefore, I think, there is in advance a tendency for intellectuals to be attracted to sell the collectivist idea.

REASON: It's paradoxical but people might then say that you are attributing to the collectivist intellectual a better feeling for the market.

FRIEDMAN: Of course. But while there's a bigger market for Fords than there is for American Motors products, there is a market for the American Motors products. In the same way, there's a bigger market for collectivist ideology than there is for individualist ideology. The thing that really baffles me is that the fraction of intellectuals who are collectivists is, I think, even larger than would be justified by the market.

Reprinted from Library of Economics and Liberty.

Alberto Mingardi

Alberto Mingardi is Director General of Istituto Bruno Leoni, Italy’s free-market think tank.


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