no third solution

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Category Archives: Anarchy!

Re: the Austrian Delusion

February 26th, 2009

I read an interesting blog post a while back called the Austrian delusion. I think the criticism are, for the most part either without merit altogether, or haphazardly miscast as applicable to any “Austrian”, when the plain fact of the matter is that there are people of many different political creeds that are associated with Austrian economics.

So, in other words, “Austrian” economics is right — no matter what evidence can be presented — because it is based logical deductions from axioms which are, by definition, true. Capitalism is great because 2+2=4

It’s not that vulgar, is it? No, it’s not. If you read things like Jim Davies’ most recent post on STR (Misallocation), you’ll see that what many “Austrians” or near-Austrians mean by “capitalism” or “free markets” is markedly at odds with either the Marxist conception thereof, or the current state of affairs. Without getting into a semantic debate, I think it’s more than fair to ask that people stop relying on intentionally misrepresentative assumptions and/or loaded, emotionally charged definitions.

any problems we face now are due to the state and most definitely not due to the profit seeking activities of business men — unless they are bankers, of course, but even then it is all the fault of the central bank…

So, variations on that theme. Also, of course, they will be stressing that the state should do nothing, that wages should be cut (although the impact of that may not be what they hope), that people should be thrown out of their homes if they cannot pay the rent or mortgage, and so on. Once the collapse if finished, then the economy will bounce back better than ever but the pain is good for the economy — and serves you right for not worshipping at the idol of von Mises!

This is not a flaw specific to “Austrians”, it’s a deductive error committed by a great deal of right-libertarians no matter what school of economic thought with which they self-identify. It’s an inadvertent, but obvious error, to paraphrase: the state is the cause of all the problems, but they take for granted (and often apologize for) a great deal of the institutional inequalities that are likely byproducts of the State, assuming that these same institutional arrangements would persist in the absence of a State or neglecting to account for any other possibilities.

As an example, suggesting that people should be “thrown out of their homes if they cannot pay the rent or mortgage” presupposes that the creditor has a superior and morally justifiable claim to the property in question. In many, if not most, if not all circumstances, it is not at all the case, that the creditor has a superior claim based on the no-interest nature of the fiat money loan “contract.”

The key problem with the “Austrian” theory is that it bases the crisis in banks artificially lowering the rate of interest from its equilibrium (“natural”) price. This has three major problems:

1. It is in contradiction with their normal claim that equilibrium is a meaningless concept and unlikely to exist in reality. Except, apparently, in the banking industry (where it can be used to demonise the state for the failings of capitalism) and in the labour market (where it can be used to bash unions and such like).

A “natural” price is not the same as an “equilibrium” price. A “natural” price occurs in the absence of state intervention. An “equilibrium” price does not exist because circumstances are in constant flux.

2. It is in contradiction with their defence of entrepreneurial activity within capitalism. After all, why do banks artificially lower interest rates? To make money by meeting customer demand! It seems hard to blame the government when (as Minsky argues) such activity is a natural part of the entrepreneurial activities of the banks seeking profits.

I respectfully disagree. Banks loan money into existence in order to earn a profit without putting any of their own skin in the game. As long as they continue to loan money, they make a nominal profit which is realized before prices have fully risen as a result of the increased MS. If for some reason they can’t print/loan any more money, they have to call in their loans—a painful process which allows the banks to take title to real assets for which they risked nothing, in the first place. The entrepreneur always has his own skin in the game.

Anything else is rent-seeking. Stop calling it “entrepreneurship”.

Such activity which would be otherwise intolerable, is encouraged by the government. The artificial lowering of interest rates is predicated upon a foundation of fractional reserve banking, which permits(among other things) certain individuals/institutions to create pure debt obligations out of thin air, which the market is forced to accept at par value with legitimate money. Morally flawed, corrupt or corruptible individuals are far more likely to prosper in any system that tolerates or encourages the extraction of unearned rents. The State is such a system.

3. It is also ignores that an interest rate, firstly, does not reflect the time preference of individuals and, secondly, even if it did, it is also the source of income for banks! Hence they have a market interest to act as they do, regardless of whether there is central banking or not.

I do not think you know what “interest” is (especially in regards to originary/natural interest derived as a function of time preference). The interest rate is not the source of profits for banks, rather it is the yield spread between what they pay to borrow money, and what they charge to loan money. This would conceivably be true for an individual capitalist, except he is rarely in a position (on a free market) to borrow low and sell high, pocketing the yield spread. Instead, in order to earn interest, he has to forsake a certain amount of income or property that he has already earned, for a period of time. His “cost of borrowing” is actually a his opportunity cost — that which he might’ve otherwise earned, or that consumption he might’ve otherwise enjoyed.

For further reading, I have a particularly detailed post about the Malinvestment, as a consequence of fiat money inflation, suffice to say that “these same institutional arrangements” would not be long for this world in a truly free market. I’ve also got a lengthy post about Entrepreneurs, the Firm, and the Knowledge Problem, which in my experience is the syndicalist-left’s favorite free market whipping boy.

How Government Destroys Community

February 5th, 2009

Christopher Wellman lays out a clear and concise comparison between taxation and theft, on pages 3 to 5 of Is There a Duty to Obey the Law?, which after the introductory paragraph on page 3, was a pleasant surprise. Evidently, though, he is “not an anarchist”, a decision he bases presumably on several “plausible” premises which must obtain in order to justify the state, the crucial element of which is the consequentialist appeal: “States can render their services without imposing unreasonable costs upon those they coerce.”

Now, unreasonable is a fairly ambiguous term, devoid of objectivity. Who determines what is (or is not) unreasonable? Is it unreasonable if the poor man can’t find a job because of restrictive wage laws or occupational license requirements? Is it unreasonable if the wage-earner can’t escape the shackles of his Nine-to-Five in order to self-employ, because of onerous and often unfavorable tax codes? Is it unreasonable to destroy families in an unwinnable “war” on drugs? Is it unreasonable to use taxpayer money to bail out the Financial Elite responsible for bringing the world economy to its knees?

Those are surely questions worth asking.  But instead, Wellman resorts to the Hobbesian war, of “all against all,” in which life is “nasty, brutish, and short.”

Perhaps the best way to get a sense of the benefits of political society is to imagine what life would be like if your state were to go completely out of existence. Unless one lives in a very close-knit, face-to-face community where everyone knows each other and is invested in the group as a whole (which almost none of us does), it seems unrealistic to think that life without a political state would be anything but a horribly chatotic and perilous environment where one would lack the security necessary to pursue meaningful projects and relationships. In other words, for the vast majority of us, it would be virtually impossible to live a rewarding life.

Wellman qualifies his argument with an important assumption, that meaningful existence is not possible “Unless one lives in a very close-knit, face-to-face community where everyone knows each other and is invested in the group as a whole (which almost none of us does).” I believe that the question which really needs to be answered here is: why not?

Why don’t we have a vested interest in our communities?

A simple answer is that we don’t live in genuine communities.  Genuine communities have largely been co-opted or destroyed by governments. Governments “take care of the poor” so we don’t feel the responsibility to take care of ourselves. Governments “protect us” so we don’t responsible for our own protection. Governments give us “work” so we don’t need to be productive.

But in order to provide (technically, this is just redistribution) any of those things, the factions competing for control of the Government instigate class warfare, pitting individual members of society against one another, communities against communities, interests against interests.  The resultant decline in genuine community is then used as justification for even more government.  We don’t look out for one another anymore, because those who aspire to rule have the population convinced: not only are the “others” not looking out for you, they’re also your enemy.

The real “enemy” is anyone perpetuating this fiction.

What really happens, is the Hobbesian evil is concentrated, distilled by the existence of the State. According to numerous philosophers, anthropologists, and sociologists, Hobbes was wrong

[I]it is civilization, and the technology we have organized ourselves to produce, that enables us to kill millions half-way around the globe at the push of a button. This is the ultimate proof that Hobbes was wrong–civilization is the way we organize ourselves to commit mass violence, not the way we organize ourselves to contain it.

If we live in a violent world today, it is because life is out of balance, because our “animal pity” has not learned to cross the same distance that our missiles can.

The latter opinion is something I’ve argued before, far from being the savior or protector, governments are the single greatest threat to the human species. To be sure, some are less oppressive or less violent than others, but taken as a whole, they’ve slaughtered many millions more than individuals (no matter how evil) could ever dream of doing on their own.

We need more “community.” But government isn’t going to give it to us, we have to build it on our own.

no third solution

Blogging about liberty, anarchy, economics and politics