The Great Panic

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I have long been a fan of the Panic of 1893, which is the usual name for the great depression of the 1890s. When I say “great” I mean it is comparable by all available measures (business losses, unemployment, political turmoil) to the Great Depression of the 1930s — with two exceptions. First, the depression of the 1930s lasted for more than ten years, ending only with the start of the Second World War in Europe; the depression of the 1890s lasted less than half as long. Second, in the 1930s the federal government intervened massively to try to end the depression, whereas the government of the 1890s did as little as it could.

These two exceptions are closely related. In 1893 and after, President Grover Cleveland had the political and above all the intellectual courage to allow prices to sink until recovery could begin. He devoted his best efforts to stabilizing the dollar, so that sound money and real prices could beget confidence, and confidence could beget reinvestment. This happened. But in 1929 and after, Presidents Herbert Hoover and Franklin Roosevelt were guided by the economic ignorance and sheer quackery of their times (and ours); they intervened to keep prices up and bail out bad investments — using money, of course, extorted from the people who had made good investments. Roosevelt’s subsidies extended to the destructive political ideas of his time; he encouraged political action to fulfill the borderline-crazy terms of his first inaugural address, in which he announced:

The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

The result was not only chronic political turmoil but a failure of reinvestment caused by a chronic absence of confidence in the nation’s economic and political prospects. Money, as R.W. Bradford used to say, wants to be invested, but it didn’t during the 1930s, when for a series of years there was actually “negative investment” in the economy.

In 1929 and after, Presidents Herbert Hoover and Franklin Roosevelt were guided by the economic ignorance and sheer quackery of their times (and ours).

So you see one reason why I am a fan of the depression of the 1890s — it provides clear and persuasive economic, political, and, if you will, spiritual lessons. But another reason is that the economic and political controversies of the 1890s are a lot of fun. Communism is dull stuff, no matter where it appears, and in the 1930s it manifested itself in remarkably dull, stupid, pompous, and oppressive forms. Compared with that, the nostrums of the 1890s are bright, delusive rays of sunshine. You just have to smile at Jacob Coxey’s plan to save the country by a complicated scheme for the federal government to print tons of paper money and use it to give free loans to local governments so they could create jobs in public building programs — a plan he implemented in the first of the great marches on Washington, the march of Coxey’s Army. The march culminated in Coxey’s arrest at the Capitol, for walking on the grass.

And who wouldn’t have fun trying to follow the logical permutations of the Free Silver idea, the notion that the American economy would be perfected if the federal government would simply produce unlimited quantities of silver dollars (and paper instruments representing them), priced at 16 silver dollars for one gold dollar, when the market price of a gold dollar was much higher than 16 silver dollars? This was a recipe for outrageous inflation, yet in 1896 it captured the Democratic Party and could have led to the election of the Democratic candidate, William Jennings Bryan, he of the stirring Cross of Gold speech:

You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.

It’s a good speech, and some of the books and pamphlets written in favor of Free Silver are immensely clever complications of an argument that is clearly wrong but has a way of starting to look right if you don’t take a step backward and remind yourself of what it’s really about.

Compared with the remarkably dull, stupid, pompous, and oppressive forms of communism that manifested in the 1930s, the nostrums of the 1890s are bright, delusive rays of sunshine.

Now comes Bruce Ramsey, author of the book I am reviewing and — all cards on the table — senior editor of Liberty and a good friend of mine. Bruce is a tireless researcher of the events, theories, and movements of the 1890s. He knows their importance. He knows they reveal important truths about the ways in which economies function, and in which people function within them. And he knows they’re fun. The only problem is that the vast majority of Americans have simply forgotten about the depression of the 1890s. They forgot about it almost as soon as it was over. (I have an essay about this in Edward Younkins’ Capitalism and Commerce in Imaginative Literature [Lexington Books, 2015].) In the popular imagination, the decade of desperation was soon transformed into the Gay Nineties.

There aren’t a lot of good treatments of national politics and economics in the 1890s. Allan Nevins’ biography of Cleveland (1932) remains the best. And there are few decent treatments of the effects of the depression on individual men and women, in their local communities. That’s the vital part of the story that practically nobody knows. And that’s what Ramsey gives us in his brilliant new book about the state of Washington during the Panic.

In writing such a book, Ramsey faced one of the hardest challenges a writer of history can encounter. A straight-line narrative of national political and economic events would capture only part of the picture. So would an exclusive concern with one particular locality, such as Bruce’s home state, Washington. So would concentration on certain personalities, as in the cheap, tangential approach to history that one sees in the Ken Burns films. What Bruce needed to present was the full tapestry of local people and local events, rippling in the strong winds of national affairs; he needed to capture not only the big patterns but the individual figures in the tapestry, and he needed to show those ripples of history too. But he was equal to the challenge.

The vast majority of Americans have simply forgotten about the depression of the 1890s. They forgot about it almost as soon as it was over.

Bruce Ramsey is a quick but colorful narrator. He provides the pungent detail and the suggestive episode and then moves briskly onward to the next significant picture, whether it’s the portrait of an interesting man or woman, an array of statistics, a sketch of political developments nationwide, or a tale of something that’s too ridiculous to be true, but is. Did you know that in 1893 the Populist governor of Kansas tried to use the state militia to oust the Republicans (who happened to be in a majority) from the House of Representatives in Topeka? (If Dorothy wanted adventure, she could have stayed right in Kansas.) This absurd drama — one of many in Ramsey’s book — offers some perspective on the absurd politics of the present era. To say that Ramsey’s political narrative is entertaining is itself absurd; it’s an absurd understatement.

Here are thousands of stories, small in the number of words that Ramsey, a thrifty narrator, allots to each, but large in drama and implication. We see people who are found talking gibberish in darkened hotel rooms because their bank deposits of $256 had been lost to the panic. We see government officials who steal money, and lose it, and then escape to Argentina, or to a place off the coast of Washington called Tatoosh Island, thence to change identities and be discovered working as mowers in Idaho. We learn of a government official who is acquitted by a jury that doesn’t believe that bribery is against the law. We listen to a contractor for the Northern Pacific railway who says he “had put white men at work at $2 and gradually raised their wages to $2.50, although there was no time when [he] could not have employed Chinamen at 80 cents” (p. 51). We meet mayors who work in shingle mills because their cities can’t pay them a salary, and unionists who resort to riot and terror to keep their salaries from being cut.

The sheer number of stories that Ramsey tells is remarkable; still more remarkable is his unfailing ability to integrate them into larger contexts of meaning. Here’s one of the general patterns he sees. Businesses and banks that made it through this great depression often did so because they backed each other up. Seattle, where the spirit of cooperation was strong, suffered many fewer losses than such competing communities as Tacoma and Spokane. Seattle’s bankers went so far as to refuse deposits from people who had withdrawn them in panic from other banks. This was individual action, but it was mutually supportive. It was a kind of spontaneous order, and it often saved the day.

We see people who are found talking gibberish in darkened hotel rooms because their bank deposits of $256 had been lost to the panic.

Here’s another pattern. Led by President Cleveland, the federal government disclaimed responsibility for helping individuals — whether bankers or street sweepers — get out of their financial jam. Most public opinion seems to have backed him up. Newspapers in the Pacific Northwest counseled their readers to take responsibility for themselves — and above all not to hurt business by fleeing to some place with a marginally better economy. Their message was “stay here and keep pitching.” A Baptist potentate cautioned against giving money to the poor indiscriminately; this was “a selfish act, done to make the giver feel good” (83). Some local governments acted in what they regarded as the spirit of community and provided employment on public works projects, and some of them went broke doing it. But charity ordinarily began at home. As Ramsey observes, very perceptively, “In a world with little free public food, people tend to be generous with their private food” (93).

A darker side of community spirit was the almost universal feeling that if anyone was going to be without a job, it shouldn’t be someone white. Everywhere Asians were fired from jobs or prevented from getting any, and mobs formed to destroy Chinatowns throughout the region. It was only a temporary rescue when the wife of a local missionary faced down a mob that came for the Chinese people of La Grande, Oregon: “She appeared with a Winchester and announced that the first man to enter the house would be shot” (79). Most of the Chinese left town anyway; and although 14 rioters were arrested, none was convicted. Oregon’s Progressive governor haughtily rejected President Cleveland’s request that he protect the rights of the Chinese.

A darker side of community spirit was the almost universal feeling that if anyone was going to be without a job, it shouldn’t be someone white.

Much of Ramsey’s book is devoted to racism and progressivism during the depression. It’s quite a story, and again, it’s a gift of perspective: then as now, the predominant individualism of America was too much of a burden for many Americans to bear.

Obviously, the implications of Ramsey’s stories go far beyond the Pacific Northwest. The stories of that region cannot be explained without reference to the bigger stories of the nation’s money policy, its “reform” and “progressive” movements, and its national elections. Ramsey devotes lively chapters to all these things. If you don’t know the 1890s, this is the book for you, wherever you live. If you do know the 1890s, you know a lot about America, and this book will help you learn even more.

The Panic of 1893 is beautifully illustrated, with fine contemporary pictures, and backed by years of patient research. It is a distinguished and compelling book.


Editor's Note: Review of "The Panic of 1893: The Untold Story of Washington State’s First Depression," by Bruce Ramsey. Caxton, 2018, 324 pages.



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A FreedomFest Report

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FreedomFest, LasVegas, July 2018: Fewer breakout sessions. Shorter hours. Only one special-event luncheon. What’s going on at FreedomFest? Are we losing it?

Actually, it’s quite the opposite. Too much choice can be daunting. As first timer Walter Block of the Mises Institute and Loyola University told us, “I attended FreedomFest for the first time in 2018. It was a magnificent experience. Rarely have so many lovers of liberty gathered under one roof. The only ‘problem’ I had with the event was the concurrent sessions. I wanted to attend ALL of them!”

We wanted this year’s event to involve our attendees more directly — not just sitting in chairs listening to speakers, but participating actively in the discussion.

History professor Barry Strauss of Cornell University concurred, saying, “FreedomFest was one of the few conferences that I’ve attended in my professional career of which I could say, ‘I only wish that I could have attended more sessions.’ From start to finish, it was an inspiration.”Imagine the frustration of previous years, when we offered 30% more sessions from which to choose!

Sometimes “less” really is “more.” When presentations are tightened, only the best remain. That’s what we decided to do at FreedomFest this year, reducing the number of concurrent breakout session from 13 to ten and ending each day at 6:30 instead of 8.

We wanted this year’s event to involve our attendees more directly — not just sitting in chairs listening to speakers, but participating actively in the discussion. So we lengthened our Q&A times, reduced the number of breakout sessions, created a scavenger hunt that brought attendees more actively into the exhibit hall, and added “conversation circles” in the evenings where attendees and speakers could discuss thematic topics. We expanded our “FreedomFest after Dark” activities with Karaoke led by “Lady of Liberty” Avens O’Brien and clubbing at a local night spot. The result was a more vibrant, engaged experience for everyone.

The Mock Trial was back too, this year charging the Public School System with fraud. We even had a hint of scandal in the jury box.

Of course, not everything was brand new. Perennial favorite Judge Napolitano was back, reporting on the Constitution and the significance of President Trump’s choice of Brett Kavanaugh to replace retiring Supreme Court Justice Anthony Kennedy. And we followed his speech with a special-event luncheon moderated by Steve Forbes. But most attendees enjoyed the break time by visiting the exhibit hall, viewing one of our lunchtime movies, or buying a sandwich and visiting with other attendees in our lounge areas.

The Mock Trial was back too, this year charging the Public School System with fraud. We even had a hint of scandal in the jury box, when the foreman announced a tie of 6–6, even though the collected ballots were clearly marked 7 to convict, 4 to acquit, and one with both options marked. Was this an example of the New Math? Or the “everybody wins a trophy” mindset? We promise Price Waterhouse wasn’t tabulating the results!

Of course, FreedomFest is never without controversy. Our panel on “The Rise and Triumph of the Angry Voter” led to some testy anger among the panelists, and the debate between Newsmax contributor Wayne Allyn Root and New York Times columnist Ross Douthat over whether Trump is more like Reagan or Mussolini became predictably (for Root) loud. The debate between Douthat and Hugh Hefner biographer Steve Watts on whether FreedomFest should dedicate a room to the late Hugh Hefner was controversial as well — was Hefner a hero who liberated women from Victorian sexual mores, or a lecher who objectified women by turning them into sexual playthings? Interestingly, the debate on “Faith and Reason” between Dan Peterson and Michael Shermer was more popular than the Playboy debate, with standing room only.

Eli Whitney, John Deere, Alexander Graham Bell, and even Ray Kroc drastically changed the face and future of America, “and it did not begin at the ballot box."

First-timer George Will was another keynote speaker, delivering an inspiring speech about the power of entrepreneurship and innovation. Referencing Ted Kennedy’s declaration that “change begins at the ballot box,“ Will offered several examples refuting the claim; he reminded the audience that Eli Whitney, John Deere, Alexander Graham Bell, and even Ray Kroc drastically changed the face and future of America, “and it did not begin at the ballot box. It began with the spark of entrepreneurial genius. . . . It began in individualism, which is important to everyone in this audience.”

Financial speakers have always been part of our faculty, and this year attendees enjoyed the new “Fast Money Summit” sponsored by Eagle Publishing, with its shortened 25-minute breakout sessions featuring top financial experts such as Steve Forbes, Mark Skousen, Doug Casey, Jim Rogers, Gena Lofton, Alex Green, Peter Schiff, Keith Fitz-Gerald, Marin Katusa, Jim Woods, and many more. At FreedomFest we believe that financial freedom is just as important as political freedom; money makes it possible to support causes and live a fuller personal life. “One good tip is worth the price of your admission,” was Eagle’s promise.

Others found their way to the Anthem Libertarian Film Festival — and some never left. “I can buy the recordings of the speeches,” one woman told me. “Where else can I watch these great films and meet the directors afterward?” In all modesty, as the director of the world’s only fully juried libertarian film festival — I couldn’t agree more. We had the best films and the best attendance in our eight-year history, with four world premiere films, five SRO screenings, 11 hard-hitting panels, and films that inspired us even as they told stories that outraged us. Libertarian films can be depressing when they’re set in dystopian futures or focus entirely on the hopelessness of big government; what I loved about this year’s lineup is that they offered hope for a brighter future through greater freedom, greater courage, greater understanding, and greater technology. And the production values of our films this year were top notch.

Storytelling can be more powerful than a lecture because of the emotional connection it creates with the audience.

Our films focused on themes such as immigration, escape from communism, criminal justice reform, and technology. Their messages were often indirect and compelling. One of my favorites was the Best Comedy winner The Inconsiderate Houseguest (Rob and Letitia Capili), which offers a subtle (Rob claims “unintended”) and unexpected theme about immigration beneath its quirky story about an uptight, rule-oriented roommate. “Subtle” is the key here; messages don’t need to shout if they are presented well. Storytelling can be more powerful than a lecture because of the emotional connection it creates with the audience. In fact, at our Thursday night Master Class for filmmakers, one of the panelists credited the television show Modern Family with changing public opinion, and thus public law, regarding gay marriage because of its likeable gay couple and its reluctantly tolerant and loving family patriarch. “Everyone knows the message of a Michael Moore movie, but almost no one watches his documentaries. They just hear about it on the news,” another panelist observed. Engaging stories with nuanced messages have the power to move hearts and change minds. That’s the main reason we started the Anthem Libertarian Film Festival.

The $2,500 Anthem Grand Prize went to Skid Row Marathon (Mark Hayes, director), an inspiring documentary about L.A. Judge Craig Mitchell who, troubled by the outrageous mandatory sentencing he was forced to impose, started a running club to help former felons regain their self-confidence and restart their lives. Mitchell has taken the club to marathon competitions throughout the world. The club is financed through private donations and teaches the principles of choice and accountability. Club member Rafael Cabrera was on hand for the Q&A following the screening. The film also won the $500 AnthemVault Prize for Best Original Score, featuring music composed by club member Ben Shirley. I defy you to watch this film with a dry eye.

Saber Rock (Matt and Thomas Locastro, directors), about a young Afghan interpreter for the American military who was targeted for assassination by the Taliban when he began teaching children about the principles of freedom, won the Anthem award for Best Short Documentary. The real Saber Rock attended the festival and gave an impassioned opening night speech to the FreedomFest crowd. Rock was a festival favorite, taking selfies with numerous fans throughout the week. He was awarded Anthem’s Special Jury Prize for heroism and received a standing ovation from the audience.

The room was so packed that we had to bring in 50 more chairs, while many leaned against the walls or sat on the floor and at least 20 more brought chairs to sit five-deep in the doorway.

Festival judge Gary Alexander argued at the judges’ meeting that America Under Siege: Antifa was one of the most important films at the festival because it reveals the truth behind the rising violence against free speech. Meanwhile, the gentle tone of Off the Grid with Thomas Massie won the hearts of festival attendees, who awarded it the Audience Choice trophy. Director Matt Battaglia follows the brilliant MIT graduate and inventor around the Kentucky farm that he built and maintains with his own hands as he talks about the priorities in his life and why he went to Congress. In one memorable segment he describes his congressional lapel pin, which garners him deferential treatment wherever he goes in Washington, as “Precious” and describes how difficult it can be to keep “Precious” from corrupting one’s focus and integrity.

A second Audience Choice trophy was awarded to Jimmy Morrison for his film The Housing Bubble, which features interviews with FreedomFest regulars Doug Casey, Peter Schiff, Jim Rogers, Gene Epstein, Tom Palmer, and others. It offers a cogent history of money, interest rates, inflation, and how they affect each one of us. The room was so packed that we had to bring in 50 more chairs, while many leaned against the walls or sat on the floor and at least 20 more brought chairs to sit five-deep in the doorway. The post-screening panel included all of the speakers who were featured in the film. Said director Morrison of the experience, “After all the delays with my movie, I really needed to make a statement with my premiere. I can't thank you enough for all that you did to make last week so successful!” That’s why we do what we do. These libertarian films need a venue. We provide it.

The Anthem Libertarian Film Festival is one of the fastest-growing features of FreedomFest, and also the best kept secret. Film aficionados can purchase a FilmLovers Pass for all four days for just $149, less than a third of the FreedomFest retail price. It includes all the films, plus film panels featuring top FreedomFest speakers and entrance to the exhibit hall. You can’t attend the FreedomFest general sessions or breakout sessions with it, but come on — with films and panels like these, who needs FreedomFest?

Members of the Reason crew presented the libertarian position on drug policy, gun control, biotechnology, pensions, prison reform, Bitcoin, transportation, and more. It was a libertarian feast.

My husband, Mark Skousen, who produces FreedomFest, completely disagrees with me on this, of course! “Why would anyone go to a movie when they can hear these great speakers in person?” he often asks me. And he has a point. With nearly 250 speakers and over 200 sessions, it’s hard to choose. A good point, but only one point.

This year, in honor of the 50th anniversary of Reason magazine, FreedomFest hosted six Reason Day breakout sessions, plus the Reason Media Awards at our Saturday night banquet. Reason notables Katherine Mangu-Ward, Nick Gillespie, Matt Welch, Bob Poole, Ronald Bailey, Jacob Sullum, Lisa Snell and others presented the libertarian position on drug policy, gun control, biotechnology, pensions, prison reform, Bitcoin, transportation, and more. It was a libertarian feast, culminating in presenting the Friedlander Prize to Steve Forbes at the Saturday night banquet.

But don’t just take me word for the success of FreedomFest 2018; here’s what Marc Beauchamp, former west coast bureau chief for Forbes Magazine, foreign correspondent in Tokyo, and trade association executive director in Washington DC, said about FreedomFest this year:

“For me . . . FreedomFest is where you hear things you don’t hear anywhere else.

“Like the foreign policy panel where it was pointed out that Russia’s economy is smaller than that of Italy or South Korea and Doug Casey said, ‘Russia is a gas station in a wheat field attached to a gun store.’

“You can get pretty glum watching talking heads on cable TV. The antidote is David Boaz’s optimism — that there’s never been a better time to be alive in the United States, and in almost any other country on the planet.

FreedomFest is an individualist’s dream (though admittedly, for those who arrange it, it can have its nightmare moments).

“FreedomFest is a movable feast. You never know what’s on the menu. I enjoyed Skeptic magazine’s Michael Shermer’s breakout session on the scientific search for evidence of an afterlife, and his conclusion that we should focus on living a full meaningful life rather than worrying about what might or might not happen in the afterlife.”

In sum, FreedomFest is an individualist’s dream (though admittedly, for those who arrange it, it can have its nightmare moments). As in those old “Choose Your Own Adventure” novels of the ’70s and ’80s, you can create your own conference as you circle your favorite sessions and decide what you’re going to hear and do.

We can’t wait to see all of our friends at FreedomFest 2019 where our theme is “The Wild West.” Escape the Deep State to Live Free! Come choose your own adventure in Las Vegas July 17–20. Hats and boots optional. Leave your horse at home.




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When Nobody Knew What a Dollar Would Be

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The Caxton Press has just published my book, The Panic of 1893, and I can now write for Liberty about it. Its topic is the final economic downturn of the 19th century. For more than three years, my head was in the 1890s — in books, articles, personal and official papers, lawsuits, and, especially, old newspapers, chiefly from my home state. The book’s subtitle is, The Untold Story of Washington State’s First Depression.

It is a popular history, not a libertarian book as such. But I have a few thoughts for a libertarian audience.

Many libertarians espouse the Austrian theory of the trade cycle, in which the central bank sets interest rates lower than the market rate, leading to a speculative boom, bad investments, and a collapse. In the 1890s the United States had no central bank. Interest rates before the Panic of 1893 were not low, at least not in Washington. The common rate on a business loan was 10%, in gold, during a period in which the general price level had been gently falling. Washington was a frontier state then, and it needed to pay high interest rates to attract capital from the East and from Europe. Credit standards, however, were low, sometimes appallingly low. Many of Washington’s banks had been founded by pioneers — optimistic patriarchs who lent freely to their neighbors, associates, relatives, and themselves. By a different road from the Austrians’ theory, the economy was led to the place it describes: a Hallowe’en house of bad investments.

The Sherman Silver Purchase Act was a sop to the inflationists, who wanted an increase in the money supply, and to the silver mining interests, who wanted the government to continue buying their silver.

The dollar was backed by gold, with the US Treasury intending to keep at least $100 million of gold on hand. But in 1890, at the peak of the boom period, Congress passed the Sherman Silver Purchase Act, obligating the Treasury to buy up the nation’s silver output with newly printed paper money. It was a sop to the inflationists, who wanted an increase in the money supply, and to the silver mining interests, who wanted the government to continue buying their silver, which it had been doing to create silver dollars. Politically the Sherman Silver Purchase Act was also part of a deal to pass the McKinley Tariff, which raised America’s already high tariff rates even higher.

The problem with the Sherman Silver Purchase Act was that the new paper money being paid to the silver miners could be redeemed in gold. The prospect of an increase every year in paper claims against the Treasury’s gold alarmed foreign investors, and they began to pull gold out. Two crises abroad also shifted the psychology of lenders and borrowers worldwide: Argentina defaulted on a gold loan from the Baring Brothers in 1890 and a real estate boom in Australia collapsed in 1893. These crises shifted the thoughts of financial men from putting money out to getting it back, from a preference for holding promises to a preference for cash.

By the time Grover Cleveland took office in March 1893, the Treasury’s gold cover had shrunk to $101 million. A run began on the Treasury’s gold — and that triggered the Panic of 1893.

In the Pacific Northwest, the four-year-old state of Washington (pop. 350,000 then) had 80 bank failures in the following four years.

Two crises abroad also shifted the psychology of lenders and borrowers worldwide: Argentina defaulted on a gold loan from the Baring Brothers in 1890 and a real estate boom in Australia collapsed in 1893.

Economists have listed the ensuing depression as the second-deepest in U.S. history. (One estimate: 18% unemployment.) But they don’t know. The government didn’t measure unemployment in the 1890s. And the rate of unemployment may not be the best comparison. America was less wealthy in the 1890s than in the 1930s, and living conditions were harsher. In absolute terms, the bottom of the depression of the 1890s was clearly lower than that of the 1930s.

The Left of the 1890s, the Populists and silverites, wanted cheap money. They blamed the depression on the gold standard. And gold is not an easy taskmaster; libertarians have to admit that.

The silverites wanted a silver standard. Most of them were “bimetallists,” claiming to favor a gold standard and a silver standard at the same time, with 16 ounces of silver equal to one ounce of gold. Their idea was that by using gold and silver the people would have more money to spend.

Free silver was a policy well beyond the Sherman Silver Purchase Act, which compelled the Treasury to buy silver at the market price. In the mid-1890s, silver fell as low as 68 cents an ounce. At that price, a silver dollar had 53 cents’ worth of silver in it and the silver-gold ratio was 30-to-1.

In absolute terms, the bottom of the depression of the 1890s was clearly lower than that of the 1930s.

The bimetallists wanted 16-to-1. That was the ratio for U.S. currency set in the late 1700s when the market was at 16-to-1. Later the market shifted and Congress changed the ratio to 15 1/2-to-1. Then came the Civil War, and the U.S. government suspended the gold standard, and printed up its first “greenbacks,” the United States Notes.

The United States Notes were effectively a new currency, and traded at a discount from metallic dollars. In September 1896, the Seattle Post-Intelligencer reminded readers of those times:

There never was a time from the beginning of the first issue of greenbacks down to the resumption of specie payments when the greenback dollar was ever accepted on the Pacific Coast for anything more than its market price in terms of gold.

The greenback was discounted, sometimes by 50 to 60%.

In 1873, Congress decided to define the dollar as a certain weight of gold, but not silver. The silver people in the 1890s called this “The Crime of ’73.”

Redemption of paper money under the gold standard began in 1879. To placate the silver interests, Congress had passed a law requiring the government to buy silver at the market price and coin it into dollars — the Morgan dollars prized by collectors today. At the beginning, the silver in a Morgan dollar was worth about a dollar, but by the 1890s, the value of silver had fallen.

In 1890, the silver-dollar law was replaced by the Sherman Silver Purchase Act, which created paper money. The government still coined silver dollars, and by 1896 had more than 400 million of them in circulation.

To placate the silver interests, Congress had passed a law requiring the government to buy silver at the market price and coin it into dollars.

The law did not require the Treasury to pay out gold for silver dollars, and it hadn’t. But the law declared all the different kinds of dollars (and there were five different kinds of paper money, at that point) to be equally good for everyday use except for taxes on imports. At the amounts an individual was ever likely to have, a silver dollar was as good as a gold dollar.

If you ask why a sane person would have designed a monetary system with gold dollars, silver dollars, Gold Certificates, Silver Certificates, National Currency, Treasury Notes, and United States Notes — Congress had designed it, one variety at a time.

Under the proposal for “free silver,” gold would be kept at the official price of $20.67 and silver set at one-sixteenth that price, or $1.29. Just as the world was free to bring an ounce of gold to the Treasury and take away $20.67 — “free gold” — the world would be free to bring an ounce of silver to the Treasury and take away $1.29. Free silver! The advocates called this the “unlimited coinage” of silver, but the aim was to create dollars, not coins. Most of the silver could pile up in the Treasury and be represented by crisp new pieces of paper.

The gold people argued that for the United States to set up a 16-to-1 currency standard in a 30-to-1 world was nuts. Essentially, the Treasury would be offering to pay out one ounce of gold for 16 ounces of silver. It would be a grand blowout sale on gold, and the world would come and get it until the gold was gone. The Treasury would be left with a Fort Knox full of silver, and the U.S. dollar would become a silver currency like the Mexican peso.

Surely the gold people were right about that. (And today’s ratio is 78 to 1.)

Milton Friedman argues in his book Money Mischief that two standards, with the cheapest metal defining the dollar in current use, would have worked all right. If the cheap metal got too expensive, the system would flip and the dollar would be defined by the other metal. In theory it makes sense, and apparently before the Civil War it had worked that way. But the financial people didn’t want a system like that.

The Treasury would be left with a Fort Knox full of silver, and the U.S. dollar would become a silver currency like the Mexican peso.

In 1896, America had a watershed election, with the silver people for Bryan, the Democrat, and the gold people for McKinley, the Republican. A third party, the People’s Party, endorsed Bryan. Its followers, the Populists, didn’t want a silver standard. They were fiat-money people. But Bryan was against the gold standard, and that was enough.

In that contest, the silver people were derided as inflationists. They were, to a point. They wanted to inflate the dollar until the value of the silver in dollars, halves, quarters, and dimes covered the full value of the coin. The silver people were not for fiat money.

Here is the Spokane Spokesman-Review of October 1, 1894, distinguishing its silver-Republicanism from Populism:

Fiat money is the cornerstone of the Populist faith . . . Silver money is hard money, and the fiatist is essentially opposed to hard money . . . He wants irredeemable paper money, and his heart goes out to the printing press rather than the mint.

The Populists and silverites argued in 1896 that the gold standard had caused the depression, and that as long as gold ruled, the nation would never recover. History proved them wrong. They lost, and the nation recovered. It began a recovery after the election settled the monetary question. Investors and lenders knew what kind of money they’d be paid with.

Milton Friedman makes a monetarist point in Money Mischief that starting in about 1890, gold miners had begun to use the cyanide process, which allowed gold to be profitably extracted from lower-grade ore. The result was an increase in gold production all through the decade. I came across a different story in my research. The increase in the supply of gold (about which Friedman was correct) was outstripped by the increase in the demand for gold. Prices in gold dollars declined sharply during the depression of the 1890s, including the prices of labor and materials used in gold mining. It became more profitable to dig for gold. Deflation helped spur a gold-mining boom — in the Yukon, famously, but also in British Columbia, in Colorado, and in South Africa.

The US began a recovery after the election settled the monetary question. Investors and lenders knew what kind of money they’d be paid with.

Under a gold standard, a deflation sets in motion the forces that can reverse it. This is a useful feature, but it can take a long time.

The recovery from the depression of the 1890s began not with a burst of new money but with a quickening of the existing money. What changed after the election was the psychology of the people. They knew what sort of money they held and could expect. The important point wasn’t that it was gold, but that it was certain. If Bryan had been elected and the dollar became a silver currency, people would have adjusted. With gold, they didn’t have to adjust, because it was what they already had.

The writers of the 1890s had a less mechanistic view of the economy than people have today. People then didn’t even use the term, “the economy.” They might say “business” or even “times,” as if they were talking of weather conditions. They talked less of mechanisms (except the silver thing) and more of the thoughts and feelings of the people. People today are cynical about politicians who try to manipulate their thoughts and feelings, and think that it’s the mechanisms that matter. And sometimes mechanisms matter, but the thoughts and feelings always matter.

Prices in gold dollars declined sharply during the depression of the 1890s, including the prices of labor and materials used in gold mining. It became more profitable to dig for gold.

Now some observations about the ideas of the 1890s.

The Populists, called by the conservative papers “Pops,” were much like the Occupy Wall Street rabblerousers of a decade ago: anti-corporate, anti-banker, anti-bondholder, anti-Wall Street, and anti-bourgeois, but more in a peasant, almost medieval way than a New Left, university student way. Many of the Pops were farmers, with full beards at a time when urban men were shaving theirs off or sporting a mustache only. More than anti-Wall Street, the Pops were anti-debt, always looking for reasons for borrowers not to pay what they owed. On Wikipedia, Populism is labeled left-wing, which it was mainly. It was also rural, Southern, Western, anti-immigrant, and often racist. In Washington state it was anti-Chinese.

In the 1890s traditional American libertarianism was in the mainstream. In the newspapers this is very striking, with the Republican papers championing self-reliance and the Democratic papers championing limited government. Democrats, for example, argued against the McKinley Tariff — which imposed an average rate of more than 50% — as an impingement on individual freedom. Here is Seattle’s gold-Democrat daily, the Telegraph, of September 10, 1893:

If it be abstractly right that the government shall say that a man shall buy his shoes in the United States, why is it not equally right for it to say that he shall buy them in Seattle? . . . Where shall we draw the line when we start out from the position that it is the legitimate and natural function of government to regulate the affairs of individuals . . .

Our idea is that the least government we can get along with and yet enjoy the advantages of organized society, the better.

Here is the silver-Republican Tacoma Ledger of Dec. 3, 1895:

Thoughtful men must perceive that our whole system of civilization is undergoing a revolution in its ideas; and we are in danger of gradually supplanting the old, distinctive idea of the Anglo-Saxon civilization — the ideas of the individualism of the man, his house as his castle, and the family as his little state, which he represents in the confederation of families in the state — by the Jacobinical ideas of . . . continental republicanism . . . The continental republican theory contemplates the individual man as an atom of the great machine called the nation. The Anglo-Saxon considers every man a complete machine, with a young steam engine inside to run it. The continental republican must have a government that will find him work and give him bread. The Anglo-Saxon wants a government only to keep loafers off while every man finds his own work and earns his own bread.

Contrast that with today’s editorial pages.

The Populists were anti-debt, always looking for reasons for borrowers not to pay what they owed.

Here’s a final one I particularly liked. Archduke Franz Ferdinand of Austria-Hungary — the same gent whose assassination 21 years later would touch off World War I — came through Spokane on the train in 1893. Americans, fascinated with him just as they would be a century later with Princess Diana, stood in the rain for hours to get a glimpse of the famous archduke — and they were sore because he never showed himself. On October 9, 1893, here is what the Seattle Telegraph had to say about that:

Why in the name of common sense should the people of this country go out of their way to honor a man simply because he happens to be in the line of succession to a throne . . . The correct thing is to let their highnesses and their lordships and all the rest of them come and go like other people. To the titled aristocracy of Europe there is no social distinction in America.

The America of the 1890s had some unlovely aspects. But in my view, the Telegraph’s attitude toward princes is exactly right. I recalled the Telegraph’s patriotic comment during all the blather over the wedding of Princess Diana’s son.

The 1890s had its blather, but after 125 years, sorting out facts from nonsense is easier. Silly statements, especially wrong predictions, don’t weather well. It makes me wonder what of today’s rhetoric will seem utterly preposterous in the 2100s.




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Is the Libertarian Movement Moving Anymore?

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It’s been a long time since there was a new libertarian book I wanted to read. Or a libertarian argument I itched to join.

Libertarian thought isn’t what it used to be. Nor libertarian influence. I think it peaked in the ’90s.

Think back on that time. In 1994 the Republicans rallied against Hillary Clinton’s health insurance plan and took back the House of Representatives for the first time in 40 years, and with a staying power they hadn’t had in 70 years. Bill Clinton tacked to the right, famously saying in 1995, “The era of big government is over.” Whether or not Bill meant it, it meant something that he said it.

Politicians get their proposals from ideas current at the time. If the New Deal was socialistic, it was because in the first half of the last century, socialism was in the air. Similarly, Bill Clinton did some pro-market things in the ’90s that Democrats wouldn’t have done 70 years before.

Libertarian thought isn’t what it used to be. Nor libertarian influence.

The reigning ideas had changed. When Richard Nixon got rid of the draft, the idea came from the free-market economists, principally Martin Anderson and Milton Friedman. Starting under Jimmy Carter and continuing under Ronald Reagan, the federal government followed the advice of the economists and ripped away price and entry controls over airlines, trucking, and natural gas. It opened up the telephone industry to competition and removed interest-rate controls on banks. The New York Stock Exchange freed itself of controls on commissions. The Supreme Court freed professionals of controls on advertising. When unions failed to seed themselves in the new tech industries, they lost their grip on most of the private economy.

Under Clinton, the government supported the extension of private property into the radio spectrum and into the North Pacific fisheries for halibut and black cod. Clinton signed the Republicans’ North American Free Trade Agreement and the Republicans’ welfare reform.

In the last half of the ’90s came the dotcom boom. Bill Gates, Steve Jobs, Jeff Bezos and others became cultural figures in a way businessmen hadn’t since the 1920s. The Democrats were happy with the dotcom boom. Al Gore even claimed parenthood of the Internet.

When Richard Nixon got rid of the draft, the idea came from free-market economists.

All this was totally unlike the reigning Democratic thought of the 1930s, 1940s, 1950s, or 1960s.

And in the ’90s there came peace. For the first time since Adolf Hitler, America had no enemy. That was a new thing, and a wonderful thing.

None of this is hardcore libertarianism, but think of what libertarianism really is. The essence of it is that your life belongs to you, not the community. We celebrate the private life. Well, the biggest threat to private life is war. From 1940 through 1973, the military could pluck a young man out of private life against his will, put a gun in his hands and make him bellow, “Yes, Sir!” But even with the draft gone, war still skews thought and feeling. It limits what a society can afford, what it can allow, or even what it can discuss. Remember the time after Sept. 11, 2001.

Libertarians like to say their philosophy is about freedom, but it is a particular brand of freedom. The Left offers a brand of freedom: “Just let us control your work and property, and you can be free of worry about food, shelter, schooling, public transit, sickness, and old age.” The Left dismisses the libertarian’s freedom as “the freedom to starve” — which, among other things, it is. The freedom to venture out includes the freedom to fall on your face. And if enough individuals crash and burn, people may decide the system that allows it is not worth it. The libertarian’s freedom requires a large dose of self-reliance — and in the ’90s, self-reliance was pushing forward with welfare reform and the most entrepreneurial economy since the 1920s.

The essence of libertarianism is that your life belongs to you, not the community. We celebrate the private life.

Regarding self-reliance, the frontier political struggle was for private accounts within Social Security. Here was a proposal to phase down payments out of a common pot under government control and phase in individual accounts under private control. Libertarian purists were prissy about it, because the individual’s control was going to be limited and the contributions would still be compulsory, but these are not realistic people, and nothing was ever going to satisfy them. The limited Social Security “privatization” would have been a big change, a culture-shifting change. The Left sensed how big it was, and denounced it in an emotional fury as a Wall Street plot to make financiers rich. And it wasn’t. I knew who the proponents were. I had interviewed some of them and written about them. I had read their books. They weren’t trying to make money; they were trying to make the world better. The most credible ones, the ones from the commercial world, made an economic case that had to do with individual wealth, not Wall Street’s profits. (For example, see The Real Deal: The History and Future of Social Security, bySylvester Schieber and John Shoven, published by Yale University Press in 1999.)

We forget that in the private sector, individual accounts did push aside “common-pot” pension plans. They’re called 401(k) plans. They increase the individual’s chance to gain and also his risk of loss — a net gain for self-reliance. They were put in by employers, not by employees. But with Social Security, the Democrats appealed to employees’ fear of loss, and the “privatizers” were defeated — decisively. Given a choice, Americans stuck with the system designed in the 1930s. And those who keep predicting that Social Security will fail are wrong. It won’t. Congress will fix it by raising taxes, probably by eliminating the cap on taxable income. If they have to, they’ll cut benefits in some gentle and technocratic way.

The freedom to venture out includes the freedom to fall on your face.

It has been years since Republicans talked about private accounts in Social Security. It’s a dead body they don’t want to be reminded of. Donald Trump vowed never to go near it, and he won’t.

The ’90s were the time of greatest libertarian momentum. By my reckoning, they ended with several events.

The first event was the protest against the World Trade Organization in my hometown, Seattle, on November 30, 1999. The Left came out — tens of thousands of them — against trade. I had imagined that the Left had withered away like the Marxian state, but I was wrong. They were here. They would come again in the Occupy Wall Street demos, and in the Bernie Sanders campaign, loud and obnoxious.

The second event was the end of the dotcom boom in early 2000. You can extend the rules of capitalism when there is a surplus of happiness. Not otherwise.

Given a choice, Americans stuck with the system designed in the 1930s.

The third event was the attacks of September 11, 2001. George W. Bush wasn’t going to be a free-market president. He was going to be a war president, if he had to start one himself.

After the war came another recession, worse than the one before it. Bankers and capitalists were seen to be bad, and Alan Greenspan was ejected from the people’s hall of heroes.

And then came Barack Obama, and now Donald Trump.

Can anyone argue that we’re progressing?

Has there been a libertarian moment to compare with the ’90s? There were the campaigns of Ron Paul — which amounted to what? What did they achieve? Paul has not changed his party, as Barry Goldwater famously did. Donald Trump has changed the Republican Party, and into an anti-immigrant, anti-trade, resentful mess. Ron Paul’s son is still in the Senate, but one man does not a movement make. Note the exit of Sen. Jeff Flake, Republican of Arizona — not a good omen.

George W. Bush wasn’t going to be a free-market president. He was going to be a war president, if he had to start one himself.

So where are we, now? Here in Seattle, with my city council putting a (since-retracted) head tax on Amazon in order to succor the squatters on public land — and passing out tax-funded vouchers to donate to dingbat political candidates — it feels like a socialist moment. I also read in the press that Democrats across the country have turned left, and are toying with such Bernie-style ideas as free college for everyone, Medicare for everyone, and a guaranteed job for everyone. There is even babbling out there for UBI — universal basic income.

For everyone.

Those are all hobgoblin ideas until you think of the typical American Democratic politician we all know trying to define them, sell them, and get the average American to love them and pay for them. I imagine that, and I feel better. I think the socialists are selling something Americans won’t want to buy.

Anyway, I hope so.




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Leland Yeager, R.I.P.

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Leland B. Yeager, a distinguished economist and proponent of liberty, died on April 23, in Auburn, Alabama. He was 93 years old.

In public accounts of his life you will see it noted that he was Professor Emeritus at Auburn University and the University of Virginia and that he was a monetarist economist who believed that government should keep its hands off the money supply, except by defining a “unit of account.” He was the author of many books, including International Monetary Relations: Theory, History and Policy (1976), Experiences with Stopping Inflation (1981), The Fluttering Veil: Essays on Monetary Disequilibrium (1997), and Ethics As Social Science: The Moral Philosophy of Social Cooperation (2001).

When you read his work, you will find that his interests were as wide as the world.

Many of Leland Yeager’s shorter publications, as well as his fascinating collection of essays, Is the Market a Test of Truth and Beauty? (2011), can be found on the website of the Ludwig von Mises Institute. When you read his work, you will find that his interests were as wide as the world. Unlike other polymaths and original thinkers, however, he was always careful to stipulate where his own knowledge stopped. He believed in limited government; he believed also in responsible self-limitation. As a result, he was never a pedant, and he was never a bore.

But now I’ve started to talk about Leland Yeager the person, and as I do, I feel a sense of overwhelming loss. For three decades, Leland honored Liberty with his contributions, and I had the privilege of working with him as editor on most of them. He was a fine writer and a gracious fellow citizen of the republic of letters. His friendship inspired me. He cannot be replaced in my esteem.

Leland had many intellectual involvements, and in his last years his health was failing, so I knew I was doubly fortunate to maintain a literary relationship with him. Not that he ever indicated, as academics are wont to do, that he was tired of all the demands on his time. Oh no. There was no falsity about Leland Yeager. He did what he could, and he was interested in doing what he could.

He was a fine writer and a gracious fellow citizen of the republic of letters. His friendship inspired me. He cannot be replaced in my esteem.

If I could have published his essays, reviews, and comments every month, or every week, I would have. But I tried to be respectful of his time. Every few months I asked him whether he might be thinking about something that would be good for Liberty. Usually he’d mention some interests; I’d say that I shared them, and I was sure our readers would also; and soon his crisp, clear copy would appear in my inbox. I’d make a few editorial suggestions, of which he accepted maybe half; but whether he did or he didn’t, he would discuss the logic behind his final choice of words or syntax. I always looked forward to that.

Many authors aren’t interested in discussing words. They’re more interested in what they have to say than in how they actually say it. But Leland was in love with the way language works and with the reasoning behind our syntax, diction, and even punctuation. To an editor, he was the ideal author, a person with whom one could freely discuss the craft of writing and editing, a person from whom one could learn, even when one disagreed with him.

Leland sometimes joshed me about my “flattering” him into writing his next article for Liberty, but there was no flattery involved. I told him exactly how good he was. I looked forward to discovering what his next subject would be. Economics? Government? History? Words themselves? Leland was better at explaining economics than anyone else I ever encountered, with the possible exception of Murray Rothbard (and that’s saying something); but the same enthusiasm and authorial integrity he showed in discussing economics appeared in his treatment of ethics, linguistics, history, and every other subject. A careless word, a willful exaggeration, an improbable “fact,” a cheap piece of abuse — those were things he would never permit himself. Leland never thought that good intentions could excuse bad writing.

Leland was in love with the way language works and with the reasoning behind our syntax, diction, and even punctuation. To an editor, he was the ideal author.

Rereading Leland’s works for Liberty, I found everything as fresh as the day he wrote it — and how much journal writing can you say that about? I’ll mention a few examples:

  • Leland’s essay on alternative histories, the histories of things that never happened (Liberty, September 2009);
  • his essay on free will and determinism (February 2017);
  • his introduction to the “auxiliary language” Interlingua (February 2008);
  • his essay on national and occupational cultures (April 2011);
  • his review of “Reaganomics,” with an exposition of the reasons for separating economy and state (January 1989); and
  • his magisterial consideration of government debt (December 2000).

In 2007 I persuaded him to debate the existence of God with me. He took the unbeliever’s side, but his essay remains a favorite of mine: “Is There a God? And Does It Matter?” (October 2007).

Leland’s last contribution to Liberty was an incisive analysis of Bitcoin. The essay, which I assume to be the final publication in a long career of authorship, appeared on April 4 of this year.

But I mean the final publication during his life. Last November 20, Leland wrote me a message in his characteristic manner. He noted that he was “93 and in poor health.” “Still,” he said, “I can’t and don’t complain.” Then he filled me in on his current literary project:

For years I have been working on a book on capital and interest. It is substantially complete, although still in rough form. Now, I think, I have a coauthor, an eminent economist, who will finish the book after my death and try to get it published.

I am looking for news on this project, and as I get it, I will report it here. Meanwhile, his published work remains — large and rich and thoughtful, and ready at all times to encourage people who delight in true works of the mind.




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Bitcoin Blues

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Enthusiasts expect bitcoin to become a new privatized money, perhaps even replacing government money. The system will keep track of cash balances and transactions in such a way as to prevent fraudulent double-spending of the same units. Operating without any centralized recordkeeping (as by a bank or government), it will enhance financial privacy. It will employ an advanced technology called blockchain. As the Federal Reserve Bank of St. Louis Review (first quarter 2018) said, to really understand bitcoin and its many imitators requires combined knowledge of cryptography, computer science, and economics.

I lack this knowledge. Some points, though, are clear enough. A workable monetary system requires a unit of account and a medium of exchange. Prices, values, debts, claims, and cash balances are expressed, and accounting is conducted in the unit. The medium is something routinely used for receiving and making payments; in the United States it is currency and bank accounts denominated in dollars. Each transactor needs to hold some of the medium of exchange because receipts and expenditures are uncertain in exact timing and amount and are not closely synchronized.

The bitcoin unit goes undefined by anything and lacks redeemablity.

A suitable unit of account has an at least roughly stable value, which may be achieved in either of two ways. First, the unit may be defined by a quantity of some good or basket of goods, with the definition kept operational by two-way convertibility between money and the defining good or basket. Under the gold standard the US dollar was defined as the value of 1.5046 grams of pure gold. Under such a system the money supply adjusts almost automatically to the defined value. Alternatively, the value of the unit may be managed by central control of the money supply. The price level then adjusts to rough proportionality with the money supply, as explained by the quantity theory of money.

The bitcoin unit goes undefined by anything and lacks redeemablity. Its quantity grows in a strange way called “mining.” As a reward for taking part in the system’s decentralized record-keeping and especially for solving increasingly difficult mathematical problems, miners obtain new bitcoins. Their final amount is limited to 21 million. Who knows what happens then? Meanwhile, bitcoin-mining destroys real wealth by consuming vast amounts of electricity to operate huge computers.

Wild fluctuations in bitcoin’s undefined value rule out its use as unit of account and so, almost completely, as medium of exchange. Who wants to hold amounts of such an unstable asset for receiving and making payments? The occasional business firm “accepting” bitcoin promptly sells it for standard money rather than adding it to its transactions cash balance. A video by a Wall Street Journal reporter shows the great effort and extra costs of buying a pizza with bitcoin in New York City.

The final amount of bitcoins is limited to 21 million. Who knows what happens then?

Why, then, does anyone hold bitcoin? Some libertarians hold it to express disgust with government money and a hope for some kind of private and privacy-preserving alternative. (But other and academically respectable proposals for privatized money are available.) Some enthusiasts buy it as an investment or speculation. (Saying so in no way denies that speculation generally serves sound economic functions and that the distinction between it and investment is fuzzy.)

Prudence recommends that anyone considering an investment should ask how the desired gain might come as a share of real wealth — desired goods and services — created by his own and others’ investment. Even a gambling casino creates wealth in the perhaps questionable form of hopes, excitement, and entertainment. Gain on an investment or speculation with no prospect of creating wealth must come as a transfer from losers.

Meanwhile, bitcoin-mining destroys real wealth by consuming vast amounts of electricity to operate huge computers.

How, then, might promoting bitcoin create wealth? The advantages of a sound nongovernmental monetary system could count as wealth, but as a “public good” in the technical sense of something whose benefits cannot be withheld from people not paying for it — such as national defense or policing. Furthermore, competition from bitcoin’s surviving imitators would dilute any profits. More optimistically, experience with bitcoin might spur profitable improvements in its blockchain technology, which is already being extended beyond monetary uses.

Bitcoin might even evolve, after all, into a workable privatized money, quite in contrast with our current system. But how? Ayn Rand would dismissively reply: “Somehow.”

A final comment may be unfair, but I cannot resist making it. Excitement over bitcoin reminds me of the dotcom boom of the 1990s and even more so of the British South Seas bubble of 1720. For little more reason than that stocks kept going up, speculators drove prices still higher — until the crash came. Meanwhile, stock in dubious new enterprises sold readily. Charles Mackay (Extraordinary Popular Delusions and the Madness of Crowds, 1848) writes of one promoter who disappeared with the proceeds of successfully issuing stock in something described as “A company for carrying on an undertaking of great advantage, but nobody to know what it is.”




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Profound and Destructive

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President Trump’s destructiveness requires few words here. Consider how world stock and currency markets have been shaken by the resignation on March 6 of Gary Cohn, regarded until then as Trump’s chief economic adviser. Although not a trained economist, Cohn apparently had some sound instincts derived from years of financial experience. His departure apparently and ominously leaves more influence, or echo, to Peter Navarro — look him up with Google.

This latest example of destructiveness follows the one touched off by Trump’s March 2 tweet bewailing America’s loss of “many billions of dollars on trade with virtually every country it does business with” and heralding trade wars as “good, and easy to win.”

Trump views international trade as a game, a zero-sum game in which one player’s gain is another’s loss.

I’ll spend more words on how profound Trump’s ignorance is. He considers a country’s excess of imports over exports a measure of loss. This measure applies even to trade with each foreign country separately. He counts China and Mexico among the worst offenders, deserving punishment. He does not understand the multilateral aspect of beneficial trade.

Nor does he understand how we gain in buying goods cheap from abroad. What difference does it make if steel and aluminum are cheap because of low foreign prices or because they grow cheaply on bushes at home? Money cost is a measure of opportunity cost, which means the loss of other goods when resources go instead to make the particular good in question. Opportunity cost reflects scarcity. Scarcity applies even to prosperous America, where we could enjoy still higher standards of living if food, clothing, shelter, entertainment, and other goods and services came costlessly and miraculously from heaven. Scarcity and how gains from domestic and foreign trade alleviate it are fundamentals of economics. The principle of comparative advantage goes far in explaining how.

The profundity of Trump’s ignorance goes beyond economics, extending even to the behavior of a decent human being.

Without understanding the academic presentation of the “absorption approach to the balance of payments,” everyone should be able to grasp its central idea, which is sheer arithmetic. If we as a country use more output for consumption and real investment than we produce, then the difference must come from somewhere — from abroad in the form of more imports than exports. A big item in this excess absorption, alias national undersaving, is government deficits. Yet Trump and Congress are complacent about increasing the deficit and debt by taxing less and spending more.

All too many politicians say that they are in favor of free trade if it is “fair trade” played on a “level playing field.” These slogans express Trump’s view of international trade as a game, a zero-sum game in which one player’s gain is another’s loss.

Trump does not understand how the price system coordinates economic activity, making most government planning about jobs and industries unnecessary and harmful.

The profundity of Trump’s ignorance goes beyond economics. It extends to diplomacy in domestic and foreign relations and even to the behavior of a decent human being. Yet his destructive economic ignorance remains prominent.




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OPEC Death Watch

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A number of recent articles suggest that OPEC — that kleptocratic cartel that has artificially jacked up oil prices for so many decades — is in its death throes.

The cause is something upon which I have long commented in these pages: the roaring renaissance of the American oil and natural gas industry, a renaissance produced by entrepreneurial capitalism — as opposed to interventionist statism. While the Department of Energy funded wind and solar power, along with biomass and ethanol production, all of which together have accounted for only a tiny sliver of American energy production, and that only with massive subsidies and draconian mandates — private enterprise backed the winners: oil and natural gas.

But the recent dramatic increase in production and exportation was occasioned by Speaker Paul Ryan’s success in enacting into law the right of American energy companies to export those resources. This allows frackers (and ordinary drillers) to increase production, because they now have an unlimited world market within which to sell their products.

There's a roaring renaissance in the American oil and natural gas industry, a renaissance produced by entrepreneurial capitalism — as opposed to interventionist statism.

And this is already happening, as several noteworthy articles report. One is a Bloomberg report that of all countries, no less than the United Arab Emirates (UAE) — the fourth largest oil exporter in OPEC — is buying oil from shale wells in Texas. It turns out that the Texas crude is much “sweeter” (lighter and of superior quality) and more useful to the UAE’s refining than the local brand. The 700,000 barrels of oil that it is buying are their first purchase from us.

Bloomberg notes that while American exports to the UAE are not projected to continue, the explosion of American oil exports will. Shipments from America rose from a mere 100,000 barrels per day (BPD) five years ago to 1.53 million BPD in November of last year.

Besides increasing American exports of oil, the fracking revolution has reduced non-American imports to below 3 million BPD, the lowest level since data were first gathered 45 years ago. Our current net imports are only one-fourth of what they were in 2006, and we are likely to become a net exporter in about a decade — sooner, if ANWR is finally tapped, and new offshore areas are opened up for drilling.

The 700,000 barrels of oil that the UAE is buying are their first purchase from the US.

A second story reports the rapid growth in exports of domestically produced natural gas. It reveals that China has signed a long-term contract with Cheniere Energy — a major exporter of liquefied natural gas (LNG) — under which Cheniere will ship LNG from the Gulf Coast to China. Under this contract, Cheniere will provide 1.2 million tons of LNG annually to China, starting in five years, and lasting for 20 years after that.

And there is a third story, which notes that besides a rapid rise in American LNG shipments to China, we are seeing an explosion of exports of American crude oil shipments to that country. These exports have mushroomed from zero, before two years ago, to 400,000 barrels per day during the past two months. And again, if we bust open ANWR and the coastal waters of Alaska, such exports will increase even more quickly.

One nice side effect of this is that the more oil China buys from us, the lower our balance-of-trade deficit is with China. Two months ago our trade deficit with China was $25.55 billion. Last month it dropped to $21.895 billion.

Our current net imports are only one-fourth of what they were in 2006, and we are likely to become a net exporter in about a decade.

For the foreseeable future, of course, China will continue to buy most of its oil from Russia and the OPEC countries. But our share of the Chinese market will grow, for two reasons. First, at $60 per barrel, American crude is more than $4 cheaper than the benchmark (Brent) price. Second, while there are certain infrastructure bottlenecks that have to be overcome, they are being addressed. For example, while we don’t yet have ports capable of handling the biggest oil tankers (“Very Large Crude Carriers”), we have already started expanding one of the largest ports on the Louisiana coast.

All of this has added to the stress on OPEC that may result in its collapse as a cartel: the members of the cartel may go their own ways. The recent uptick in oil prices above the $60 per barrel range has helped OPEC find some relief. The recovery of the old price from its lows in the $40–50 range has two causes.

One is the meltdown of socialism in Venezuela, which has cut its oil production dramatically. Venezuela, a founding member of OPEC, is allocated by the Cartel to produce 1.97 million BPD. But the near civil war in Venezuela has dropped actual production to only 1.64 Million BPD. In fact, Venezuela’s production dropped by a whopping 30% last year alone. This is a steeper decline than that experienced by Russia when the Soviet Union broke up, and that experienced by Iraq following the 2003 invasion!

As noted by the Wall Street Journal article that I am referencing, the drop in Venezuelan petroleum output will likely continue, if not accelerate, because the nation is trapped in a vicious socialized spiral. As it exports less, it receives less foreign currency, which cuts its ability to buy food and other necessities that its own dysfunctional economy cannot produce, which in turn increases its hyperinflation and thus the political and economic failure. Moreover, Venezuela’s declining shipments of crude are deducted to paying creditors (such as Russia) and are in constant danger of being seized by creditors.

All of this has added to the stress on OPEC that may result in its collapse as a cartel: the members of the cartel may go their own ways.

In short, the ill winds that have so badly buffeted the hapless Venezuelan people have blown great good to the rest of OPEC. I suspect this is the real reason why Russia — no longer itself socialist — so strongly supports the Venezuelan socialist regime: it keeps a formidable competitor on the ground. The Russians want nothing so much as fair competition — the history of their Olympic teams shows that!

Speaking of Russia, the second major reason that OPEC has been able to keep the price of oil as high as it has recently (i.e., in the $60–70 per barrel range) is that so far Russia has stuck to its agreement with OPEC to hold down production. In early 2017, OPEC and Russia — which, while not a member of OPEC, is certainly an ally of it — agreed to cut back Russia’s production. This agreement has held up for thirteen months, now, and the Russians have signaled that they are inclined to keep to the bargain through the rest of this year and even into the first half of next year. However, the Russian oil oligarchs are expressing doubts about the deal — since Russia needs to maximize its income in order to arm itself maximally.

Vadim Yakovlev, deputy CEO of Gazprom Neft, the giant Russian oil company, has said that the company views the OPEC agreement as only temporary, and it irks the company to be forced to hold back production. Gazprom’s CEO Alexander Dyukov has said, “Following the OPEC agreement, instead of growing at eight to nine percent, we [Gazprom] have increased by just 4.5 to five percent. Which is, without a doubt, a negative factor for us.”

At this point, American production is a regulator of world prices: whenever the price rises much above $60, the industry jacks up production, and the result brings the price right back down.

It is clear that OPEC’s day of rule is coming to an end. America — already the greatest producer of oil and natural gas combined — is on track to become the world’s biggest oil producer this year. Energy research firm Rystad Energy estimates the US production will rise by 10%, hitting 11 million BPD. America hasn’t been the global leader since — 1975!

The report from which I have drawn that last piece of information notes that in 2015 the Saudis drove oil prices down to $26 a barrel. This lowered American production by 11%. But the American oil industry, not destroyed, became stronger — and more efficient, able to turn a profit with prices as low as $30 a barrel. While some experts are not so sanguine about the US becoming number one, it is clear that our production will continue to grow. At this point, American production is a regulator of world prices: whenever the price rises much above $60, the industry jacks up production, and the result brings the price right back down. A recent article spells this out — oil prices have been driven down by American production’s rise to a new high of 10.25 million BPD.

In sum, the days of OPEC — an evil cartel of evil states, from socialist Venezuela to religious-fascist Iran to duplicitous Saudi Arabia to revanchist neofascist Russia — are numbered. The free market will at last prevail.




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Why Do Economists Disagree?

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The influence of economics suffers from the idea that economists disagree to the point of uselessness. George Bernard Shaw supposedly complained that “if all the economists were laid end to end, they'd never reach a conclusion.” A similar old adage says that if you ask the advice of five economists, you will get five different answers, or, if Keynes is one of the five, six answers.

Such talk may be fun, but it is unfair. "The first lesson of economics,” said Thomas Sowell, “is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics." Why? With characteristic exaggeration, H.L. Mencken observed that “no educated man, stating plainly the elementary notions that every educated man holds about the matters that principally concern government, could be elected to office in a democratic state, save perhaps by a miracle . . . by a combination of miracles that must tax the resourcefulness even of God” (Notes on Democracy, 1926, pp. 103, 106). A politician who understands economics and tries to apply it loses votes. One who understands it but conceals that fact is dishonest. Honest ignorance is an electoral advantage.

Externalities, monopoly, inflation, recessions, mistakes, inadequate foresight — all do occur. Economists are tempted to damn reality for being real.

Economists agree on the basics of their subject; disagreement on policy has other sources. The following list merely names the main points of agreement. Explaining them would go beyond this note, although, toward the end, it does expand on the most fundamental of them.

  1. Scarcity and the need for choice; opportunity cost.
  2. The division of labor, gains from trade, and comparative advantage.
  3. Marginalism and diminishing marginal returns.
  4. The role of the price system in exploiting the fragmented knowledge and coordinating the productive efforts of millions and billions of people in the nationwide and worldwide economy. The task includes allocating resources between the present and the future. The midget economy of the Swiss Family Robinson on its desert island contrasts instructively with the vast capitalist world of diverse resources, abilities, and preferences.
  5. “Economic calculation,” which is more than the mere dovetailing of such activities as automobile production and tire production, suitably proportioned. It refers, further, to producing the chosen amount of each good and service at minimum sacrifice of other desired things. Efforts at such calculation without genuine markets and prices, whether in theory or in the real world, have failed.
  6. Money as an institution that vastly promotes specialization and gains from multilateral trade. Money prices express opportunity costs, convey information and incentives, and ration scarce resources and goods.
  7. Private property, innovation, and entrepreneurship as essential to a thriving economy.
  8. Refutation of fallacies that have contaminated policy for centuries, especially ones relating to international trade and to a supposed self-regulation of money — the “real-bills doctrine” that the money supply will be correct if based on short-term bank loans to finance the production or marketing of real goods.

Shared understanding does not end there. Economists agree that reality has “imperfections” in comparison with an imaginary perfectly working price system. Externalities, monopoly, inflation, recessions, mistakes, inadequate foresight — all do occur. Economists are tempted to damn reality for being real, and they agree on many such matters. Price inflation traces above all to creating too much money.

Recessions are episodes of snowballing impediments to transactions, and economists explain them in various ways. In no field do professionals totally agree. An example in macroeconomics is the opinion of central bankers worldwide, shared by many but not all economists, that 2% inflation — a halving of money’s purchasing power every 36 years — is a proper objective of policy and that lower inflation is a cause for concern. Some technically valid arguments do exist for chronic mild inflation, but they are not decisive. Economists disagree on the weights to be accorded to agreed considerations.

Disagreement on policy traces overwhelmingly to matters other than economics.

But disagreement makes news while agreement does not. Lack of total agreement parallels what also occurs in the natural sciences: total understanding and consensus never are reached; room always remains for further research. As in other disciplines, economists disagree, when they do, on details and at the “frontiers” of research but not on the basics.

Disagreement on policy traces overwhelmingly to matters other than economics. Economists are not equally bold in predicting the future. They (as well as political scientists) hold differing opinions about how well government and politics function. Scientific issues join in policy disagreement, as about how serious a problem global warming is.

Economists are not equally knowledgeable about history, as about periods of advance and stagnation, crises, recessions, and monetary systems. Historical knowledge is valuable for making judgments about prospective population growth and technical and other innovation, but agreement cannot be expected to the extent that it can be expected on the basics of economics.

Psychology is sometimes at issue. Not all economists have the same understanding of people’s psychological quirks and of whether policy “nudges” might improve their decisionmaking.

Economists sometimes yield to wishful thinking. An example is the belief that proposed tax-rate cuts will so stimulate economic activity as to increase, not reduce, tax revenues.

Sociological questions arise, such as whether and to what extent welfare programs foster a culture of dependency and undermine the traditional family. So do issues of ethics and social philosophy, as about inequality of wealth and income, concern for future generations, how progressive the tax structure should be, whether the estate tax is fair, and what claims poor people at home and abroad are entitled to make on the more fortunate. “Bleeding-heart libertarians” do exist and have a web site of that name.

Like other people, economists sometimes yield to wishful thinking. An example is the belief that proposed tax-rate cuts will so stimulate economic activity as to increase, not reduce, tax revenues. Such a belief does not mean rejection of economic principles; in rare circumstances, that happy result could occur.

Career advancement can be a factor. Some economists seek distinction in cleverly working on the “frontiers” of research, in deploying impressive mathematics, or in finding exceptions to generally agreed applications of basic principles. Alternatively, some may be paid for rationalizations about policy that selectively emphasize some valid principles while disregarding (though not denying) others.

Some economists, perhaps seeking influence and fame, make compromises by taking account of political feasibility (i.e., votes), endorsing policies other than those they truly consider best. Full honesty would require openly acknowledging what they are doing (see Clarence Philbrook’s eloquent article in the American Economic Review, December 1953).

If enough demand exists, wouldn’t private enterprise satisfy it, and in a less costly and otherwise more suitable part of town?

Not all so-called economists are real ones who have completed graduate studies in the field and try to keep up with and occasionally contribute to the professional literature. It is not enough to hold an economics-related government position or to be prominent on TV. Disagreement among such people shouldn’t be allowed to disparage the professionals.

The most basic economic principles concern scarcity and opportunity cost. The city council of Auburn, Alabama, has voted to build an outdoor ice-skating rink downtown, where it will gobble up scarce parking space, worsen traffic problems, and otherwise inconvenience nonskaters. Evidently the council has not made a full cost-benefit analysis. Might not the money be better spent for other city purposes or left to taxpayers for their own purposes? How intense, anyway, is the demand for ice-skating here in the Deep South, where, by the way, the ice would have to be artificial? If enough demand exists, wouldn’t private enterprise satisfy it, and in a less costly and otherwise more suitable part of town?

I conjecture that the city council simply agreed with someone’s idea that a rink would be a good thing. So why not build it? It is easy to forget asking how desirable it would be and how great the opportunity cost in sacrifice of other public or private use of resources.

Disregard of opportunity cost is disregard for a principle accepted by all economists.

Such blitheness about opportunity cost shows up on the big-city and national levels. If a proposed museum would be nice or another overseas military base would seem to be a wise precaution, why not vote for it? A new sports stadium might please the fans, and consultants will conceive of side benefits for nearby restaurants, so why not support it with city money? An individual legislator pays practically nothing himself and might gain some votes.

James L. Payne shows how disregard of opportunity cost supports thinking that government money is somehow “free” (The Culture of Spending, 1991). Lobbyists not only for governors and mayors but also for industries swarm Washington seeking local projects and grants of money. Understandably, witnesses calling for such favors in congressional hearings far outnumber those who dissent. A similar explanation applies to firms and industries seeking protection from competition. But disregard of opportunity cost is disregard for a principle accepted by all economists.

Nothing said here denies that economists have expertise in contributing to policy judgments and that they — and quasi-economists — often disagree. Such disagreement rarely hinges on core principles and does not excuse disregarding them. Specialists cannot and should not have the decisive vote on policy, but that judgment does not excuse neglecting the basic principles that concern everybody and on which economists emphatically do agree.




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The Reality of “Emerging Markets”

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The British Empire was the largest in history. At the end of World War II Britain had to start pulling out. A major part of the reason was, ironically, the economic prosperity that had come through industrialization, massive improvements in transportation, and the advent of telecommunications, ethnic and religious respect, freedom of speech, and other liberties offered by the empire.

After the departure of the British — as well as the French, German, Belgians, and other European colonizers — most of the newly “independent” countries suffered rapid decay in their institutions, stagnant economises, massive social strife, and a fall in standards of living. An age of anti-liberalism and tyranny descended on these ex-colonized countries. They rightly got to be known as third-world countries.

The blame — at least among those on the Right — went mostly to socialism and the rise of dictators. This is not incorrect, but it is a merely proximate cause.

An armchair economist would have assumed that these ex-colonized countries, still very backward and at a very low base compared to Europe, would grow economically at a faster rate. Quite to the contrary, as time passed by, their growth rate stayed lower than that of the West.

The blame — at least among those on the Right — went mostly to socialism and the rise of dictators. This is not incorrect, but it is a merely proximate cause. Clarity might have been reached if people had contemplated the reason why Marxism and socialism grew like weeds in the formerly colonial countries.

According to conventional wisdom, the situation changed after the fall of the socialist ringleader, the USSR, in the late ’80s. Ex-colonized countries started to liberalize their economies and widely accepted democracy, leading to peace, the spread of education and equality, the establishment of liberal, independent institutions, and a massive economic growth sustained during the past three decades. The “third-world” would soon be known as the “emerging markets.”

In some ways, government regulations and repression of businesses in the “emerging markets” have actually gotten much worse.

Alas, this is a faulty narrative. Economic growth did pick up in these poor countries, and the rate of growth did markedly exceed that of the West, but the conventional narrative confuses correlation with causality. It tries to fit events to ideological preferences, which assume that we are all the same, that if Europeans could progress, so should everyone else, and that all that matters is correct incentives and appropriate institutions.

The claimed liberalization in the “emerging markets” after the collapse of the USSR did not really happen. Progress was always one step forward and two steps back. In some ways, government regulations and repression of businesses in the “emerging markets” have actually gotten much worse. Financed by increased taxes, governments have grown by leaps and bounds — not for the benefit of society but for that of the ruling class — and are now addicted to their own growth.

The ultimate underpinnings of the so-called emerging markets haven’t changed. Their rapid economic progress during the past three decades — a one-off event — happened for reasons completely different from those assumed by most economists. The question is: once the effect of the one-off event has worn off, will the so-called emerging markets revert to the stagnation, institutional degradation, and tyranny that they had leaped into soon after the European colonizers left?

In the “emerging markets” (except for China) synchronized favorable economic changes were an anomaly. They resulted in large part from the new, extremely cheap telephony that came into existence (a result of massive cabling of the planet done in the ’80s) and the subsequent advent of the new technology of the internet. The internet enabled instantaneous transfer of technology from the West and, by consequence, an unprecedented economic growth in the “emerging markets.”

Those who hold China in contempt for copying Western technology don’t understand that if copying were so easy, the rest of the world would have done the same.

Meanwhile, a real cultural, political, and economic renaissance started in China. It was an event so momentous that it changed the economic structure not just of China but of the whole world. Because China is seen as a communist dictatorship, it fails to be fully appreciated and respected by intellectuals who are obsessed with the institution of democracy. But now that the low-hanging fruit from the emergence of the internet and of China (which continues to progress) have been plucked, the “emerging markets” (except, again, for China) are regressing to the normal: decay in their institutions, stagnant economies, and social strife. They should still be called the “third world.”

There are those who hold China in contempt for copying Western technology, but they don’t understand that if copying were so easy, Africa, the Middle East, Latin America, and South Asia would have done the same. They were, after all, prepared for progress by their colonial history. European colonizers brought in the rule of law and significantly reduced the tribal warfare that had been a daily routine in many of the colonies — in the Americas, Africa, the Middle East, and Asia. Britain and other European nations set up institutional structures that allowed for accumulation of intellectual and financial capital. Western-style education and democracy were initiated. But this was helpful in a very marginal way.

For those who have not travelled and immersed themselves in formerly colonized countries, it is hard to understand that although there was piping for water and sewage in Roman days, it still does not exist for a very large segment of the world’s population. The wheel has been in existence for more than 5,000 years, but a very large number of people still carry water pots on their heads.

It is not the absence of technology or money that is stopping these people from starting to use some basic forms of technology. It is something else.

A remark often attributed to Churchill, although unverified, has more than passed the test of time: “If Independence is granted to India, power will go to the hands of rascals, rogues, freebooters; all Indian leaders will be of low calibre and men of straw. They will have sweet tongues and silly hearts. They will fight amongst themselves for power and India will be lost in political squabbles. A day would come when even air and water would be taxed in India.”

The hope that once the correct incentives are in place and institutions have been organized, the third world on a path to perpetual growth, couldn’t be more wrong.

Europeans of that time clearly knew that there was something fundamentally different between the West and the Rest, and that the colonies would not survive without the pillars and cement that European management provided. With the rise of political correctness this wisdom was erased from our common understanding, but it is something that may well return to haunt us in the near future as expectations from the third-world fail and those who immigrate to Europe, Canada, Australia, and the US fail to assimilate.

For now, the hope among those in the World Bank, the IMF, and other armchair intellectuals has been that once the correct incentives are in place and institutions have been organized, imposed structures will put the third world on a path to perpetual growth. They couldn’t be more wrong.

The cart has been put in front of the horse. It is institutions that emerge from the underlying culture, not the other way around. And a cultural change is a millennia-long process, perhaps even longer. As soon as Europeans quitted their colonies, the institutional structures they left started to crumble. Alas, it takes a Ph.D. from an Ivy League college and a quarter of a million dollar salary at the World Bank or IMF not to understand what is the key issue with development economics and institutional failures: the missing ingredient in the third world was the concept of objective, impartial reason, the basis of laws and institutions that protect individual rights. This concept took 2,500 years to develop and get infused into the culture, memes, and genes of Europeans — a difficult process that, even in Europe, has never been completed.

European institutions were at roots a product of this concept. Despite massive effort by missionaries, religious and secular, and of institutions imposed on poor countries, reason failed to get transmitted. Whatever marginal improvement was achieved over 200 to 300 years of colonization is therefore slowly and surely being undone.

Without reason, the concepts of equal law, compassion, and empathy do not operate. Such societies simply cannot have institutions of the rule of law and of fairness. The consequence is that they cannot evolve or even maintain the Western institutions that European colonizers left behind. Any imposed institutions — schools, armies, elections, national executives, banking and taxation systems — must mutate to cater to the underlying irrationalities and tribalisms of the third world.

Alas, it takes a Ph.D. from an Ivy League college and a quarter of a million dollar salary at the World Bank or IMF not to understand what is the key issue with development economics and institutional failures.

In these “emerging markets,” education has become a dogma, not a tool; it floats unassimilated in the minds of people lacking objective reason. It has burdened their minds. Instead of leading to creativity and critical thinking, it is used for propaganda by demagogues. Without impartial reason, democracy is a mere tribal, geographical concept steeped in arrogance. All popular and “educated” rhetoric to the contrary, I can think of no country in the nonwestern world that did well after it took to “democracy.”

The spread of nationalism (which to a rational mind is about the commonality of values) has created crises by unifying people tribally. The most visible example is what is happening in the Middle East, but the basic problem is the same in every South Asian and African country. It is the same problem in most of South America. India, the geographical entity I grew up in, has rapidly been collectivized under the flag and the anthem. It might eventually become the Middle East on steroids, once Hindutava (Hindu nationalism) has become well-rooted.

In Burma, a whiff of democracy does not seem to have inhibited Buddhists’ genocide against the Muslim Rohingya. Thailand (which wasn’t colonized in a strictly political sense) has gone silent, but its crisis hasn’t. Turkey and Malaysia, among the better of these backward societies, have taken paths of rapid regression to their medieval pasts. South Africa, which not too far in the past was seen as a first-world country, got rid of apartheid, but what it now has is even worse. The same happened with Venezuela, which in the recent past was among the richer countries of the world. It is ready to implode, as may Brazil one day. Pakistan, Bangladesh, Nepal, and East Timor are acknowledged to be in a mess, and are getting worse by the day. Indonesia took a breather for a few years and is now again on the footprints of fanaticism. India is the biggest democracy, so its problems are actively ignored by the Western press, but they won’t be for long, as India continues to become a police state.

The spread of nationalism has created crises by unifying people tribally.

Botswana was seen as a country whose growth was among the fastest for the longest. What was ignored was the fact that this rather large country has a very small population, which benefited hugely from diamonds and other natural resources. The top political layer of Botswana is still a leftover from the British. The local culture continues to corrode what was left by them, and there are clear signs that Botswana is past its peak. Papua New Guinea was another country that was doing reasonably well, before the Australians left. It is now rapidly regressing to its tribal, irrational, and extremely violent norm, where for practical purposes a rape is not even a crime.

The world may recognize most of the above, but it sees these countries’ problems as isolated events that can corrected by a further imposition of Western institutions, under the guidance of the UN or some such international (and therefore “noncolonialist”) organization. Amusingly, our intellectual climate — a product of political correctness — is such that the third world is seen as the backbone of humanity’s future economic growth.

Unfortunately, so-called emerging markets are headed for a chaotic future. The likeliest prospect is that these countries will continue catering to irrational forces, particularly tribalism, and that they will consequently cease to exist, disintegrating into much smaller entities. As their tide of economic growth goes out with the final phase of plucking the free gift of internet technology, their problems will surface rapidly, exactly when the last of those who were trained in the colonial system are sent to the history books.




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