La importancia (creciente) del liberalismo. Algunos libros.

Lista de libros (por Miguel Anxo Bastos)

  1. Mañana el capitalismo, Henri Lepage
  2. La gran ilusión, Norman Angell
  3. Libertad o igualdadKuehnelt Leddihn
  4. El milagro Europeo, Eric Jones
  5. Los orígenes del capitalismoJean Baechler
  6. Derecho legislación y libertad (vol. I, II y III), F.A. Hayek (vol. II, “El espejismo de la justicia social”)
  7. Fundamentos de la libertad, F.A. Hayek
  8. Precios y producción, F.A. Hayek
  9. El capitalismo del pentágono, Seymour Neymar
  10. El manantial, Any Rand
  11. El Estado, Anthony de Jasay
  12. Teoría e Historia, Ludwig von Mises
  13. Socialismo, cálculo económico y función empresarialJesús Huerta de Soto
  14. Auge y decadencia de las grandes potencias, Paul Kennedy
  15. Crítica del intervencionismo, Ludwig von Mises
  16. La envidia igualitaria, Gonzalo Fernández de la Mora
  17. Los errores de la nueva ciencia económica, Henry Hazlitt
  18. Teoría positiva del capital, Eugen von Böhm-Bawerk

Bonus Tracks (en construcción)

  1. La increíble maquina de hacer pan, R.W. Grant
  2. La economía en una lección, Henry Hazlitt
  3. El corazón invisible, Russ Roberts
  4. Un mundo feliz, Aldous Huxley
  5. El mundo de ayer, Stefan Zweig
  6. La miseria del historicismo, Karl Popper
  7. El cisne negro, Nassim N. Taleb
  8. La antropología del capitalismo, Rafael Termes
  9. Gobierno omnipotente, Ludwig von Mises
  10. Dinero, crédito bancario y ciclos económicos, Jesús Huerta de Soto
  11. Historia bancaria de los Estados Unidos, Murray N. Rothbard
  12. Falacias económicas, F. Bastiat
  13. Camino de servidumbre, F.A. Hayek
  14. Antifrágil, Nassim N. Taleb
  15. The Man versus the State, Herbert Spencer
  16. EnsayosMontagne
  17. Civilización, Niall Ferguson
  18. The Cash Nexus, Niall Ferguson
  19. El capital humano, Gary Becker
  20. Capitalismo y libertad, Milton Freedman
  21. Las culturas fracasadas, José Antonio Marina
  22. La fatal arrogancia: los errores del socialismo, F.A. Hayek
  23. The Nature of the Firm, Ronald Coase
  24. The Rational Optimist, Matt Ridley
  25. The Tipping Point, Malcolm Galdwell
  26. The Wisdow of the CrowdsJames Surowiecki
  27. The Commanding Heights, Daniel Yergin y Joseph Stanislaw
  28. Meditaciones, Marco Aurelio
  29. Sobre la brevedad de la vida y la felicidad, Séneca
  30. Cartas a su hijo, Lord Chesterfield
  31. La Mediterránea y los bárbaros del Norte, Luis Racionero
  32. On Human Nature, David Hume
  33. Teoría de los sentimientos morales, Adam Smith
  34. La sociedad abierta y sus enemigos, Karl Popper
  35. The Bourgeois Virtues, Dierdre N. McCloskey
  36. Institutions, Institutional Change and Economic Performance, Douglass North
  37. The Coming of Post-Industrial Society, Daniel Bell
  38. Proceso al Estado, Lorenzo Bernaldo de Quirós
  39. The Great Escape, Angus Deaton
  40. The Tyranny of Experts, Bill Easterly
  41. Governing the Commons, Elinor Ostrom
  42. Thinking Fast and Slow, Daniel Kahneman
  43. A Conflict of Visions, Thomas Sowell
  44. The Counter-Revolution of Science, F.A. Hayek
  45. Individualism and Economic Order, F.A. Hayek
  46. Institutional Foundations of Impersonal Exchange, Benito Arruñada
  47. Adapt, Tim Harford
  48. The Liar’s Poker, Michael Lewis
  49. The Intelligent Investor, Benjamin Graham
  50. Why Nations Fail, Daron Acemoglu y James Robinson
  51. Economic Facts and Fallacies, Thomas Sowell
  52. Knowledge and Decisions, Thomas Sowell
  53. The Theory of Free Banking: Money Supply under Competitive Note Issue, George Selgin
  54. El antiguo régimen y la revolución, Alexis de Tocqueville
  55. El criterio, Jaime Balmes
  56. Reflections on the Revolution in France, Edmund Burke
  57. Good Money, George Selgin
  58. The Great Depression, Murray N. Rothbard
  59. La conquista de la pobreza, Peter T. Bauer
  60. La teoría de la eficiencia dinámica, Jesús Huerta de Soto
  61. Discovery and the Capitalist Process, Israel Kirzner
  62. Bienestar social y mecanismos de mercado, Joaquín Trigo
  63. Competition and Entrepreneurship, Israel Kirzner
  64. Discovery and the Capitalist Process, Israel Kirzner
  65. Las primeras burbujas especulativas, Douglas E. French
  66. Método de las ciencias sociales, Carl Menger
  67. Ensayos políticos, David Hume
  68. La libertad y la ley, Bruno Leoni
  69. Principios de un orden social liberal, F.A. Hayek
  70. Los enemigos del comercio, Antonio Escohotado

Diez lecciones de Juan de Mariana que han sobrevivido a los siglos

Ángel Fernández (16/04/2016)

Del Siglo de Oro destaca el genio de la filosofía moral, de la historia y de la economía política Juan de Mariana, un hombre con unas ideas en plena vigencia.  

Cuadro del padre Juan de Mariana
Cuadro del padre Juan de Mariana/ Wikimedia

Se suele emplear la denominación Siglo de Oro para hacer referencia al florecimiento cultural del arte y la literatura en España, desde el descubrimiento de América en 1492 y hasta la muerte en 1681 del excelso dramaturgo Calderón de la Barca, habiendo trascendido entre las decenas de autores: el genio de la pintura Diego Rodríguez de Silva y Velázquez y el genio de la novela Miguel de Cervantes Saavedra.

Sin embargo, el Siglo de Oro sobresalió también por las grandes aportaciones en el área de las humanidades, destacando el genio de la filosofía moral, de la historia y de la economía política Juan de Mariana que, además de publicar el primer libro científico de historia de España titulado Historia de rebus Hispaniae (1592), heredó y mejoró las ideas escolásticas previas en sus obras de economía política De Rege et regis Institutione (1599) y De Monetae Mutatione (1609), identificando plenamente el marco institucional de una sociedad civilizada, abierta y libre:

– Primero, la defensa del derecho natural que es intrínseco, inherente e inalienable por el poder político y que se fundamenta en el respeto por los derechos individuales a la vida, la propiedad, la libertad y la igualdad de trato ante la ley.

– Segundo, la defensa a ultranza del derecho a la vida que es la principal institución moral que defendieron todos los escolásticos españoles junto con la propiedad privada.

La defensa de la soberanía del pueblo, que es el principio constitutivo de la sociedad civil

– Tercero, la publicación de obras intelectuales donde se eleva al máximo la protección de la vida humana y, también, de la propiedad adquirida como fruto del trabajo del hombre y situada como un límite institucional frente al poder político, porque se observa una evolución institucional en el amparo a las propiedades en los autores dominicos y, después, en los padres jesuitas como Juan de Mariana, Francisco Suárez y Juan de Lugo.

– Cuarto, la defensa de la soberanía del pueblo, que es el principio constitutivo de la sociedad civil y que es cedida solamente en fideicomiso al poder político.

– Quinto, la necesidad de un Gobierno limitado en la gestión de los asuntos comunes de un territorio, centrado fundamentalmente en la triple seguridad (exterior, interior y jurídica), dotar ciertas infraestructuras, atender en las emergencias y socorrer a los pobres, en opinión del propio Juan de Mariana.

– Sexto, la importancia de que los gobernantes tengan un conjunto de valores morales, fijos e inmutables, según los modelos medievales del “Princeps” y el “Rex”, frente a la inmoralidad, el relativismo moral y el maquiavelismo que subyacen detrás de la corrupción y la razón de Estado.

– Séptimo, la defensa del principio de consentimiento del pueblo antes de que un Rey y su corte (o “mutatis mutandis” un Gobierno) realice cambios en la leyes, aumente impuestos o adultere el dinero, porque atañen a las propiedades y haciendas del pueblo.

La prevalencia de jueces y tribunales independientes para evitar la corrupción de los gobernantes

– Octavo, la existencia de Cortes (o “mutatis mutandis” Parlamentos) que representan al pueblo y deben limitar al poder ejecutivo.

– Noveno, la prevalencia de jueces y tribunales independientes para evitar la corrupción de los gobernantes.

– Décimo, la validez del derecho de oposición, derrocamiento y rebelión frente a los gobernantes que se convierten en tiranos, cuando atacan las instituciones anteriormente mencionadas.

El 23 de noviembre de 2015 defendí una tesis doctoral sobre la vida y obras del jesuita toledano Juan de Mariana (1536-1624) en la Universidad Complutense de Madrid, que demuestra con pruebas documentales que las ideas escolásticas católicas del padre Mariana se encuentran presentes en las obras de economía política del filósofo moral inglés John Locke (1632-1704) y del segundo presidente de los Estados Unidos de América, John Adams (1735-1826).

Estos conceptos institucionales eran enseñados habitualmente en las obras y las universidades españolas de los siglos XVI y XVII por autores de gran relevancia intelectual como: Francisco de Vitoria, Domingo de Soto, Tomas de Mercado, Diego de Covarrubias y Leyva, Martín de Azpilcueta, Francisco de Suárez, Luis de Molina, Juan de Lugo, Juan de Salas o Juan de Mariana.

De hecho, si me lo permiten, desde esta columna iré desgranando periódicamente las principales contribuciones de cada uno de los escolásticos españoles en la identificación correcta de los principios del funcionamiento del mercado y de las bases institucionales de una sociedad civilizada, abierta y libre.

Aquellos lectores que estén interesados en los fundamentos económicos que descubrieron estos grandes autores españoles, pueden asistir el próximo sábado 16 de abril al acto en homenaje al padre Mariana que se celebrará en la Catedral de Toledo, con ocasión del 10º aniversario del Instituto Juan de Mariana, y en el que disertaré sobre la Escuela Española de Economía (*) aunque, sin duda, se trata también de una escuela de teología, filosofía moral, derecho, historia, análisis institucional y política, que tiene como denominadores comunes la defensa de la vida, la propiedad privada y la libertad, mediante el estudio de los fenómenos humanos desde la perspectiva del derecho natural (“algo que existe con independencia de la voluntad humana”) y que, aunque soliviante a cientifistas, ateos y laicistas, está íntimamente ligada a la tradición occidental, grecolatina y cristiana y, sin duda, es responsable directa de la existencia de sociedades abiertas y libres en Europa y América.

“How the West (and the Rest) Got Rich”

Dierdre N. McCloskey (may 2016), via WSJ

The Great Enrichment of the past two centuries has one primary source: the liberation of ordinary people to pursue their dreams of economic betterment

A statue of Adam Smith in Edinburgh, Scotland
A statue of Adam Smith in Edinburgh, Scotland PHOTO: ALAMY

Why are we so rich? An American earns, on average, $130 a day, which puts the U.S. in the highest rank of the league table. China sits at $20 a day (in real, purchasing-power adjusted income) and India at $10, even after their emergence in recent decades from a crippling socialism of $1 a day. After a few more generations of economic betterment, tested in trade, they will be rich, too.

Actually, the “we” of comparative enrichment includes most countries nowadays, with sad exceptions. Two centuries ago, the average world income per human (in present-day prices) was about $3 a day. It had been so since we lived in caves. Now it is $33 a day—which is Brazil’s current level and the level of the U.S. in 1940. Over the past 200 years, the average real income per person—including even such present-day tragedies as Chad and North Korea—has grown by a factor of 10. It is stunning. In countries that adopted trade and economic betterment wholeheartedly, like Japan, Sweden and the U.S., it is more like a factor of 30—even more stunning.

And these figures don’t take into account the radical improvement since 1800 in commonly available goods and services. Today’s concerns over the stagnation of real wages in the U.S. and other developed economies are overblown if put in historical perspective. As the economists Donald Boudreaux and Mark Perry have argued in these pages, the official figures don’t take account of the real benefits of our astonishing material progress.

Look at the magnificent plenty on the shelves of supermarkets and shopping malls. Consider the magical devices for communication and entertainment now available even to people of modest means. Do you know someone who is clinically depressed? She can find help today with a range of effective drugs, none of which were available to the billionaire Howard Hughes in his despair. Had a hip joint replaced? In 1980, the operation was crudely experimental.

Nothing like the Great Enrichment of the past two centuries had ever happened before. Doublings of income—mere 100% betterments in the human condition—had happened often, during the glory of Greece and the grandeur of Rome, in Song China and Mughal India. But people soon fell back to the miserable routine of Afghanistan’s income nowadays, $3 or worse. A revolutionary betterment of 10,000%, taking into account everything from canned goods to antidepressants, was out of the question. Until it happened.

What caused it? The usual explanations follow ideology. On the left, from Marx onward, the key is said to be exploitation. Capitalists after 1800 seized surplus value from their workers and invested it in dark, satanic mills. On the right, from the blessed Adam Smith onward, the trick was thought to be savings. The wild Highlanders could become as rich as the Dutch—“the highest degree of opulence,” as Smith put it in 1776—if they would merely save enough to accumulate capital (and stop stealing cattle from one another).

A recent extension of Smith’s claim, put forward by the late economics Nobelist Douglass North (and now embraced as orthodoxy by the World Bank) is that the real elixir is institutions. On this view, if you give a nation’s lawyers fine robes and white wigs, you will get something like English common law. Legislation will follow, corruption will vanish, and the nation will be carried by the accumulation of capital to the highest degree of opulence.

But none of the explanations gets it quite right.

What enriched the modern world wasn’t capital stolen from workers or capital virtuously saved, nor was it institutions for routinely accumulating it. Capital and the rule of law were necessary, of course, but so was a labor force and liquid water and the arrow of time.

The capital became productive because of ideas for betterment—ideas enacted by a country carpenter or a boy telegrapher or a teenage Seattle computer whiz. As Matt Ridley put it in his book The Rational Optimist (2010), what happened over the past two centuries is that “ideas started having sex.” The idea of a railroad was a coupling of high-pressure steam engines with cars running on coal-mining rails. The idea for a lawn mower coupled a miniature gasoline engine with a miniature mechanical reaper. And so on, through every imaginable sort of invention. The coupling of ideas in the heads of the common people yielded an explosion of betterments.

Look around your room and note the hundreds of post-1800 ideas embedded in it: electric lights, central heating and cooling, carpet woven by machine, windows larger than any achievable until the float-glass process. Or consider your own human capital formed at college, or your dog’s health from visits to the vet.

The ideas sufficed. Once we had the ideas for railroads or air conditioning or the modern research university, getting the wherewithal to do them was comparatively simple, because they were so obviously profitable.

Storefronts along Hudson Street in New York City, circa 1860 to 1900.
Storefronts along Hudson Street in New York City, circa 1860 to 1900. PHOTO: FOTOSEARCH/GETTY IMAGES

If capital accumulation or the rule of law had been sufficient, the Great Enrichment would have happened in Mesopotamia in 2000 B.C., or Rome in A.D. 100 or Baghdad in 800. Until 1500, and in many ways until 1700, China was the most technologically advanced country. Hundreds of years before the West, the Chinese invented locks on canals to float up and down hills, and the canals themselves were much longer than any in Europe. China’s free-trade area and its rule of law were vastly more extensive than in Europe’s quarrelsome fragments, divided by tariffs and tyrannies. Yet it was not in China but in northwestern Europe that the Industrial Revolution and then the more consequential Great Enrichment first happened.

Why did ideas so suddenly start having sex, there and then? Why did it all start at first in Holland about 1600 and then England about 1700 and then the North American colonies and England’s impoverished neighbor, Scotland, and then Belgium and northern France and the Rhineland?

The answer, in a word, is “liberty.” Liberated people, it turns out, are ingenious. Slaves, serfs, subordinated women, people frozen in a hierarchy of lords or bureaucrats are not. By certain accidents of European politics, having nothing to do with deep European virtue, more and more Europeans were liberated. From Luther’s reformation through the Dutch revolt against Spain after 1568 and England’s turmoil in the Civil War of the 1640s, down to the American and French revolutions, Europeans came to believe that common people should be liberated to have a go. You might call it: life, liberty and the pursuit of happiness.

To use another big concept, what came—slowly, imperfectly—was equality. It was not an equality of outcome, which might be labeled “French” in honor of Jean-Jacques Rousseau and Thomas Piketty. It was, so to speak, “Scottish,” in honor of David Hume and Adam Smith: equality before the law and equality of social dignity. It made people bold to pursue betterments on their own account. It was, as Smith put it, “allowing every man to pursue his own interest his own way, upon the liberal plan of equality, liberty and justice.”

And that is the other surprising notion explaining our riches: “liberalism,” in its original meaning of “worthy of a free person.” Liberalism was a new idea. The English Leveller Richard Rumbold, facing the hangman in 1685, declared, “I am sure there was no man born marked of God above another; for none comes into the world with a saddle on his back, neither any booted and spurred to ride him.” Few in the crowd gathered to mock him would have agreed. A century later, advanced thinkers like Tom Paine and Mary Wollstonecraft embraced the idea. Two centuries after that, virtually everyone did. And so the Great Enrichment came.

Not everyone was happy with such developments and the ideas behind them. In the 18th century, liberal thinkers such as Voltaire and Benjamin Franklin courageously advocated liberty in trade. By the 1830s and 1840s, a much enlarged intelligentsia, mostly the sons of bourgeois fathers, commenced sneering loftily at the liberties that had enriched their elders and made possible their own leisure. The sons advocated the vigorous use of the state’s monopoly of violence to achieve one or another utopia, soon.

Intellectuals on the political right, for instance, looked back with nostalgia to an imagined Middle Ages, free from the vulgarity of trade, a nonmarket golden age in which rents and hierarchy ruled. Such a conservative and Romantic vision of olden times fit well with the right’s perch in the ruling class. Later in the 19th century, under the influence of a version of science, the right seized upon social Darwinism and eugenics to devalue the liberty and dignity of ordinary people and to elevate the nation’s mission above the mere individual person, recommending colonialism and compulsory sterilization and the cleansing power of war.

On the left, meanwhile, a different cadre of intellectuals developed the illiberal idea that ideas don’t matter. What matters to progress, the left declared, was the unstoppable tide of history, aided by protest or strike or revolution directed at the evil bourgeoisie—such thrilling actions to be led, naturally, by themselves. Later, in European socialism and American Progressivism, the left proposed to defeat bourgeois monopolies in meat and sugar and steel by gathering under regulation or syndicalism or central planning or collectivization all the monopolies into one supreme monopoly called the state.

While all this deep thinking was roiling the intelligentsia of Europe, the commercial bourgeoisie—despised by the right and the left, and by many in the middle, too—created the Great Enrichment and the modern world. The Enrichment gigantically improved our lives. In doing so, it proved that both social Darwinism and economic Marxism were mistaken. The supposedly inferior races and classes and ethnicities proved not to be so. The exploited proletariat was not driven into misery; it was enriched. It turned out that ordinary men and women didn’t need to be directed from above, and when honored and left alone, became immensely creative.

The Great Enrichment is the most important secular event since human beings first domesticated wheat and horses. It has been and will continue to be more important historically than the rise and fall of empires or the class struggle in all hitherto existing societies. Empire did not enrich Britain. America’s success did not depend on slavery. Power did not lead to plenty, and exploitation was not plenty’s engine. Progress toward French-style equality of outcome was achieved not by taxation and redistribution but by the Scots’ very different notion of equality. The real engine was the expanding ideology of classical liberalism.

The Great Enrichment has restarted history. It will end poverty. For a good part of humankind, it already has. China and India, which have adopted some of economic liberalism, have exploded in growth. Brazil, Russia and South Africa, not to speak of the European Union—all of them fond of planning and protectionism and level playing fields—have stagnated.

Economists and historians from left, right and center cannot explain the Great Enrichment. Perhaps their sciences need revision, toward a “humanomics” that takes ideas seriously. Humanomics doesn’t abandon the economics of arbitrage or entry, or the math of elasticities of demand, or the statistics of regression analysis. But it adds the study of words and meaning and their stunning contribution to our enrichment.

Over 200 years, average world income per person has soared from about $3 a day to a stunning $33 a day.
Over 200 years, average world income per person has soared from about $3 a day to a stunning $33 a day. PHOTO: GETTY IMAGES

What public policy to further this revolution? As little as is prudent. As Adam Smith said, “it is the highest impertinence…in kings and ministers to pretend to watch over the economy of private people.” We certainly can tax ourselves to give a hand up to the poor. Smith himself gave to the poor with a liberal hand. The liberalism of a Christian, or for that matter of a Jew, Muslim or Hindu, recommends it. But note, too, that 95% of the enrichment of the poor since 1800 has come not from charity but from a more productive economy.

Rep. Thomas Massie, a Republican from Kentucky, had the right idea in what he said to Reason magazine last year: “When people ask, ‘Will our children be better off than we are?’ I reply, ‘Yes, but it’s not going to be due to the politicians, but the engineers.’ ”

I would supplement his remark. It will also come from the businessperson who buys low to sell high, the hairdresser who spots an opportunity for a new shop, the oil roughneck who moves to and from North Dakota with alacrity and all the other commoners who agree to the basic bourgeois deal: Let me seize an opportunity for economic betterment, tested in trade, and I’ll make us all rich.

Dr. McCloskey is distinguished professor emerita of economics, history, English and communication at the University of Illinois at Chicago. This essay is adapted from her new book, “Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World,” published by the University of Chicago Press. Via The Wall Street Journal.

The Great Enrichment and Social Justice, by Will Wilkinson (May 2016)

The great strange fact of human history is how it came to be that a good chunk of our species, after more than 100,000 years of scraping by, suddenly got rather wildly rich. Deirdre McCloskey, the eminent economic historian and social theorist, calls it the “Great Enrichment.”

Here’s a picture:

Growth

(Source: Alex Tabarrok and Tyler CowenModern Principles of Economics.)

The suddenness of the Great Enrichment is nuts. Graphs like this one actually conceal how nuts it is. Imagine a linear horizontal axis that is nothing but a flat line hovering above zero for, like, a mile. And then, about a second ago in geological time, wham! And here you are, probably wearing pants, reading about it on a glowing screen. Nuts is what it is.

Accounting for the Great Enrichment is the deepest puzzle of the social sciences. Some think it was all just a matter of figuring out how to exploit natural resources, or some combination of enslavement, exploitation, and colonial plunder, or maybe it was just geographic and genetic good luck. None of that really explains it.

Joel Mokyr says it was the development of science and technology. Douglass North and his followers, such as Daron Acemoglu and James Robinson, say it was a matter of stumbling into the right political and economic “institutions”—of getting the “rules of the game” right. Acemoglu and Robinson say institutions need to be “inclusive” rather than “extractive.” They become more inclusive when ruling elites take a little pressure off the boot they’ve got on people’s backs (which they do mainly when cornered by effective collective action from below) and allow economic and political rights to expand. Deirdre McCloskey says the Great Enrichment came about from a shift in beliefs and moral norms that finally lent dignity and esteem to the commercial classes, their “bourgeois” virtues, and the tasks of trade and betterment. This revaluation of values was the advent of what has come to be known as “liberalism.” 

Each of these views is part of the truth. The debate is mainly a matter of how beliefs and norms, institutions and incentives, scientific knowledge and technical innovation all fit together. Which are the causes and which are the effects? There’s no way to adequately summarize  the involuted nuance of the debate. But it’s not wrong to sum it up bluntly like this: humans rather suddenly got immensely better at cooperatingand now a lot of us are really rich.

Before I go on, I hasten to add that not all of us are really rich. Most humans don’t live in the places first touched by the Great Enrichment and aren’t that rich now. Moreover, the path from “extractive” to “inclusive” institutions in the places that did get rich has been bumpy and brutal, and the liberal revaluation of values has always been opportunistically applied and rife with hypocrisy.

Here’s a familiar example. When the American colonial elites, piqued by their lack of power to set local policy, rebelled against their king and seceded from his empire, they drew on compelling new liberal ideas about natural equality and set up a constitution that was, at the time, a huge leap forward toward more “inclusive” institutions. But their rebellion and new liberal legal order locked in place an absolutely monstrous, maximally exclusive, maximally extractive system of human enslavement—which, it so happens, was abolished across the British Empire in 1833, three decades before the Emancipation Proclamation. Suffice it to say, the complaints of George Washington and Thomas Jefferson against King George were completely trivial next to the complaints of the people Jefferson and Washington bought and bred and worked and whipped like so much livestock. The enrichment has been great, but its progress has been greatly uneven and its riches unevenly, unfairly spread. These inequalities shape our world, and our politics, to this day.

Still, a lot of us did get rich, and it happened through grand improvements in the scope and fruitfulness of cooperation. We cooperate because we do better together. When we effectively coordinate our efforts, we produce gains over and above what we could have done acting independently. Those gains are the “surplus” of cooperation. Enrichment—that is to say, economic growth—is about creating ever more and ever larger surpluses from cooperation.

But whenever we produce a surplus there’s always the question of how to divvy it up. If it’s a question about how to divide it fairly—about who ought to get what, rather than about who has the power to snatch the mostthen it’s a question of “distributive justice.”

Questions of distributive justice are hard. Who did how much work? How well did they do it? How relatively valuable were the efforts of the various contributors to the common enterprise? Maybe everyone agreed to the division in advance. But was the distribution of bargaining power that led to the agreement itself fair?

Our answers to these questions matter. When the distribution of the burdens and benefits of cooperation aren’t fair, we get fed up. And we want to keep positive-sum games going. We need to keep them going. But if we keep getting less than those doing less, we feel used. So we fight for our share. We develop enforcement mechanism to punish free-riders. We impose sanctions. We negotiate. According to some thinkers, the adaptive function of some of our most basic emotions is to police compliance with cooperative norms and bargain over who does and gets how much of what. An indignant fit of pique, slow-burning resentment, an explosion of petulant anger—all are common “moves” in everyday distributional negotiation. If we can’t negotiate a fairer deal, we’ll withdraw or minimize our efforts, one way or another. The surpluses will get smaller. Positive-sum enrichment might turn into negative-sum conflict. Lacking good exit options, mainly we press on and bargain the best we can with the leverage we’ve got.

Humans may be natural cooperatorswith a built-in instinct for distributive fairness, but we’re also natural opportunists who will negotiate over everything, including the very idea of distributive fairness, to increase or preserve our shares. “That’s not fair!” is always a bargaining move and only sometimes a fact.

Surplus-promoting distributive fairness is so hard to achieve in part because we rarely agree when it is a fact. People with outsized bargaining power have always found a way to convince themselves that they deserve it, and they tend to use that power to crush those clamoring, often righteously, for a bigger cut of the surplus. Indeed, the powerful get nervous when a fairer distribution of burdens and benefits induces greater cooperative effort, spurs creativity, and creates larger surpluses—even if it makes themricher. The trouble is that growth makes others richer, too, decentering power, inviting challenges from rival, new-money elites. So the old guard sooner or later tends to close ranks and reassert rules of exclusion and exploitation and stagnation. Acemogulu and Robinson say something like this happened to the Venetians, to the Romans, probably even happened to the Mayans. We’ve always had the potential for great enrichment in us, but we always managed to crush it with domination, expropriation, and war. Until, miraculously, we didn’t.

When people talk about “social justice,” sometimes they’re really talking about “distributive justice.” The immense influence of socialist ideology in the 20th century encouraged the idea that social and distributive justice pretty much came to the same thing. But 1991 was a long time ago, and these days when people agitate for social justice, or refer derisively to those who do as “social justice warriors,” they’re likely to be talking at least as much about the distribution of rights and dignity as they are to be talking about the distribution of material resources and economic opportunities. That’s a healthy development. Social justice is about a lot more than dividing up the surplus from the totality of society’s manifold, interlocking cooperative schemes. Social justice is also about (but not exhausted by) the way we need to treat people in order to get cooperation off the ground in the first place. How do we bring people to the table? How do we encourage them to bring their best? How do we get them to adhere to and enforce the norms that make cooperation more productive and that keep it from falling apart?

There’s not a single answer to that, but here are some good ones. Treat people as though their lives matter. Treat them as equals. Treat them with respect. Honor their rights.

You know what’s nuts? What’s nuts is that nobody kicks off a discussion of justice, distributive or social, with the fact of the Great Enrichment. Because the upshot of our best accounts of the most important thing that has ever happened to the human race seems to be that equalizing the distribution of rights and liberties, powers and prerogatives, respect and esteem led to an increase in the scope and productivity of cooperation, generating hugely enriching surpluses.

And these gains spurred further demands for and advances in inclusion and dignity—that is to say advances in giving people what they’re morally due, in virtue of being people—which led in turn to broader, more intensive, more creative cooperation, producing yet more enrichment, and so on. There appears to be a very happy relationship of mutual reinforcement between what is very naturally called “social justice” and the sort of enrichment that is known to produce longer, healthier, happier, human lives.

This seems incredibly important, but we haven’t heard that much about it. Why not?

Here’s my best guess: an unintentional 20th century left-right conspiracy made it all-but-impossible for anyone to take seriously the idea that gains in social justice launched and sustained the era of modern growth, and that enrichment in turn reinforced and promoted further gains in justice, and still does.

The 20th century socialist-leaning left misdiagnosed the sources of the economic growth. The Great Enrichment was rooted in the exploitation of labor and the depredations of colonialism, while ongoing post-capitalist production was largely a matter of technology and rational state management. Poverty is toxic and the effects of widespread wealth are beneficial. But wealth in excess of potential-realizing sufficiency isn’t improving. Stable equality is improving, and brings out the best in us. Continuously rising market-led prosperity, on the other hand, encourages un-civic avidity and generates inequalities that undermine the amiable stability of egalitarian social justice.

The left-leaning 20th century literature on the distributive aspects of social justice as often as not treated wealth like manna from heaven. It’s as if the astonishing bounty of the Great Enrichment was something we’d just stumbled upon, like a cave full of naturally-occurring, neatly-stacked gold ingots in a newly-discovered cave beneath the village square. How do we divide up the gold among the villagers? Equal shares seems fair!

Or else wealth was something workers produced automatically by working only to have it stolen by the idle rich, who control the state’s goons. Or wealth was something that mechanical and social engineers could get together to produce with the right combination of workers and machines. Since it was no problem whatsoever producing more than enough for everybody (our best men are on top of it!), there was no good reason for anybody to have more than everybody else.

John Rawls’ Theory of Justice, the 20th century’s most influential text on the nature of social justice, was controversial on the left because it provided a supply-side argument against the assumption that socialist equality was the end-all-be-all of distributive justice. Rawls recognized that incentives to production have something to do with levels of consumption and argued persuasively that unequal shares are justified if they leave society’s least advantaged as well off they can be. For many socialists, admitting that justice can possibly admit of unequal shares gives away the store. Rawls sold them out.

Yet Rawls himself, like many other mid-century social democrats, had an uneasy attitude toward enrichment, and tended not to see much to admire in the human motives or legal rights that tend to produce it. Rawls was a liberal who saw society in liberal terms as a “cooperative venture for mutual advantage,” but there was in Rawls’ theory very little appreciation of the possibility that liberal rights and economic growth might need each other. Indeed, he thought that, after a certain modest level of material comfort had been achieved, a regime of fair cooperation founded on liberal rights would do better—and would still be the most desirable of all regimes—without any growth at all.

When you take a certain level of productive, surplus-generating social cooperation more or less for granted, and consider economic output to be a sort of engineering problem, the moral problems of political economy, the problems of social and distributive justice, have to do with consumption, not production. Assume a pie. Now, who should get how much of it? This consumption-side fixation led thinkers on the left to prescribe measures that would and did harm the productive institutional, cultural, and moral underpinnings of the Great Enrichment.

Now let’s flip the ideological coin. Those on the classical liberal/libertarian right, who I think more clearly grasped the causes and moral significance of the Great Enrichment—thinkers like Ludwig von Mises, Friedrich Hayek, Milton Friedman, and Ayn Rand—inclined toward indifference or outright hostility to the idea of “social justice.” They tended to see it, not entirely unreasonably, as a stalking horse for a technocratically managed economy, confiscatory levels of taxation on the wealthy, and progressive redistribution in the name of socialist material equality.

Hayek thought the liberal market order could survive only if its champions were able to articulate moral ideals as inspiring as socialism. Yet he found it inconceivable to argue for his own ideal of the liberal market order as a realization of social justice. It wasn’t that the left was wrong about what social justice requires. It was that “social justice” was pernicious gobbledygook. For Hayek and the mid-century liberal right, capitalism was a goose that lays golden eggs. “Social justice” was a euphemism for breaking its neck.

In Free-Market Fairness, John Tomasi, a political theorist at Brown, makes the case that the classical liberal and libertarian allergy to social justice, which he calls “social justicitis,” is based on a number of intellectual mistakes. I think he’s right, and will have a thing or two to say about what’s wrong and right in the attacks of Hayek and others on the very idea of social justice in a future post. In Tomasi’s forthcoming book with Matt Zwolinski, Libertarianism: A Progressive Intellectual History, they argue that 20th century libertarians became so obsessed with combating socialism that libertarianism narrowed into a sort of codified anti-socialism, fixated on defending the underpinnings of the free enterprise system against technocratic economic planning and redistributive leveling. In the process, they argue, libertarianism lost much of what had made 19th-century classical liberalism such a powerfully progressive and emancipatory force. Having hunkered down in a defensive anti-socialist posture, libertarians become unable to see, for example, that the feminist and civil rights movements were fighting for forms of freedoms earlier classical liberals had devoted their lives to. Social justictis, in my view, is a further symptom of this anti-socialist monomania. And it saddled classical liberals with a distorted and enfeebled message that forces a false choice: whatever liberty is, whatever free markets and limited government are good for, it ain’t social justice.

In McCloskey’s magisterial “bourgeois” trilogy, she shows that moral rhetoric has real, often profound political and economic consequences. I don’t think she says so, but her argument led me to suspect that it was a big intellectual and rhetorical mistake for classical liberals to concede social justice to the socialists and technocratic welfare-state liberals.

Hostility to the very idea of social and distributive justice lent weight—and continues to lend weight—to the charge that those who defend robust economic rights, regulatory restraint, and limited government are heartlessly indifferent to the welfare of the poor and working classes. Moreover, libertarian and conservative hostility to social justice creates a strong, though illogical, presumption of hostility to whatever social justice is thought to require. That’s why many advocates of economic liberty—even those who don’t believe in the absolute inviolability of property rights and the inherent injustice of redistribution—reflexively badmouth the welfare state with little regard for the possibility that the welfare state is an efficiency-enhancing institution that helps maintain popular support for relatively free markets by ensuring they more or less benefit everyone. Meanwhile, people who like social insurance, and worry about bad luck and the human costs of capitalist creative destruction—that is to say, mostpeople—turn away in contempt or bemusement from what’s advertised to them as the politics of freedom.

More importantly, and more disastrously, rejecting the very idea of social justice, letting it harden into principle, hobbled classical liberalism’s ability to make the argument it has always been making, in less attractive terms, all along: that social justice is, first and foremost, a supply-side concept; that social justice is about the moral equality, respect, and rights that call forth cooperation and foster the creativity and cultivation of potential that generates ever larger surpluses, which, once they’ve been created, we can worry about divvying up; that social justice is a cause and effect of the Great Enrichment; that increasing social justice will make us greater and more greatly enriched.

It’s a potent and beguiling argument. It is an important argument. I’m convinced that it is, in broad strokes, a sound argument. The failure of our forebears to make it shouldn’t stop us from making it now.

Lenin and Marx: Sound Money Advocates? by Louis Rouanet (Mises Institute)

Most modern socialists are in favor of inflation, because it is supposed, in Keynes’s words, to “euthanize the rentiers.” It doesn’t mean however, that the “founding fathers” of socialism were in favor of inflation. In fact, the opposite is true. Karl Marx had a wide knowledge of the economic literature and even though he’s usually wrong, he was correct in his preference for a gold standard.

As for Lenin, he was in his writings opposed to inflation and saw paper money as a means used by the bourgeois capitalists to enrich themselves. Even though Marx and Lenin were not supporters of inflation, they supported sound money for the wrong reasons. But, at least, we can say that concerning money they did not succumb to naïve inflationist views.

Karl Marx, Inflation, and the Gold Standard

Marx applied the labor value theory to money. According to Marx, the use of a particular commodity like gold or silver for money rests on the fact that — like all other commodities — there is an amount of “socially necessary labor” required to produce it. If, for example, one ounce of gold requires ten hours’ labor, its value is equal to another product requiring ten hours’ labor. Marx’s labor theory led him to say that “Although gold and silver are not by nature money, money is by nature gold and silver …”

What Marx put forward was that the total value of needed currency represented a total amount of labor value, and therefore a total weight of gold. According to Marx, if the total of gold is replaced by inconvertible paper money and the paper money is then issued in excess, prices will go up:

If the paper money is in excess, if there is more of it than represents the amount of gold coins of like denomination which could actually be current, it will (apart from the danger of falling into general disrepute) represent only that quantity of gold, which, in accordance with the laws of circulation of commodities, is really required and is alone capable of being represented by paper. If the quantity of paper money issued is, for instance, double what it ought to be, then in actual fact one pound has become the money name of about one-eighth of an ounce of gold instead of about one-quarter of an ounce. The effect is the same as if an alteration had taken place in the function of gold as a standard of prices. The values previously expressed by the price £1 will now be expressed by the price £2.

Therefore, Marx opposed the use of inflation as a means for increasing production. However, Marx’s monetary theory is very confusing. Concerning money, Karl Marx owes nothing to Ricardo. He was influenced by Tooke and the Banking school while he was very critical of the Currency school. Furthermore, Marx was fiercely opposed to Peel’s Act of 1844 which forbade notes unbacked by metallic money. Oddly enough however, Marx was criticizing fiduciary credit as being “fictitious capital” which seems to be in contradiction with his opposition to Peel’s Act.

We must keep in mind, however, that the main difference between Marx and other economists is that Marx was simply trying to describe how capitalism operates, with or without inflation. He was not saying that inflation will improve or destroy capitalism. In Marx’s view, capitalism is inevitably unstable and doomed. For him, workers must abolish capitalism and replace it with socialism, in which there are no problems of prices, inflation, crises, and unemployment.

Lenin, the Bolsheviks, and Inflation

The following quote is often attributed to Lenin: “The best way to destroy the Capitalist System is to debauch the currency.” This supposed statement has circulated widely among economists and the public. Hellwig remarked that: “It is almost a ritual, on the occasion of the required tributes to a stable monetary standard, to quote Lenin as a bogeyman.”[1] The problem is that this quote has never been found in Lenin’s works. The first attribution of this statement was made by J.M. Keynes in his book The Economic Consequences of the Peace (1919). No one at the time challenged what Keynes was attributing to Lenin, and even today, this quote is still used by some sound-money advocates. However, Lenin’s few remarks on monetary matters give the opposite impression from the remark attributed to him by Keynes. In September 1917, before the Bolsheviks overthrew the government in power, Lenin wrote an article on “The Threatening Catastrophe” where he speaks about money and banking. Of inflation he said:

Everybody recognizes that the issue of paper money is the worst kind of a compulsory loan, that it worsens the conditions principally of the workers, of the poorest section of the population, that it is the chief evil in the financial confusion. … The unlimited issue of paper money encourages speculation, allows the capitalists to make millions, and places tremendous obstacles in the path of the much-needed expansion of production; for the dearth of materials, machines, etc., grows and progresses by leaps and bounds. How can matters be improved when the riches acquired by the rich are being concealed?

This paragraph could have been written by an Austrian economist, and it is known that the Marxist tradition is sometimes close to the Austrian analysis concerning business cycles (see Huerta de Soto’s Money, Bank Credit and Economic Cycles). Like Lenin, we believe that inflation can foster income inequality, hamper economic growth, impoverish the poor, and cause asset inflation.

However, once they were in power, the Bolsheviks were responsible for hyperinflation. In Socialism, Ludwig von Mises wrote:

The Bolshevists, with their inimitable gift for rationalizing their resentments and interpreting defeats as victories, have represented their financial policy as an effort to abolish Capitalism by destroying the institution of money.

Mises is right, but he forgot to say that political opportunism and not ideology was the reason why communists used inflation. Basically, for the communists, inflation is wrong when communists are not running things, but it is all right when they are in control. Professor E.H. Carr wrote:

None of the Bolsheviks wanted, or planned, inflation. But, when that happened (since the printing press was their main source of revenue) they rationalized it ex post facto by describing it as (a) death to the capitalists and (b) a foretaste of the moneyless Communist Society. Talk of this kind was widely current in Moscow in 1919 and 1920. … Keynes in 1919 had no special knowledge of Lenin; everything that came out of Moscow was automatically attributed to Lenin or Trotsky, or both.

Hayek wrote once that as long as it remains theoretical, socialism is internationalist, but when it is put into practice, it becomes violently nationalist. We should also say: as long as it remains theoretical, Marxism is anti-inflationist, but when it is put into practice, it becomes violently inflationist.

Why Government Deficits and Debt Do Matter, Richard Ebeling

The Congressional Budget Office (CBO) reported in early May that for the month of April 2015 the Federal government ran a budget surplus, taking in more in taxes than it laid out in expenditures. Don’t be fooled by one month, especially when it was a month when people filed and pay their taxes. Government deficits and growing debt are on the horizon for as far as the human eye can predict.

Yes, for right now the trillion-dollar-a year budget deficits that marked the first years of the Obama Administration have abated. For 2015 through 2017, the CBO projects that Washington’s budgetdeficits will be “only” in the range of $468 billion and $489 billion per year.

But after that, given current “entitlement” legislation for such programs as Social Security, Medicare and ObamaCare, the annual budget deficits will start rising again after 2017, and will be over a trillion dollars once more in 2025.

The CBO calculates that by 2025 these more “modest” annual budget deficits will cumulatively add over $7.5 trillion to the existing $18.3 trillion of Federal government debt, for a total a decade from now of almost $26 trillion. This will be more than a 40 percent increase in the Federal government’sdebt over the coming ten year period.

The per capita government debt burden for every American in 2015 is estimated to be about $58,000. In ten years, in 2025, based on demographic estimates of U.S. population growth, that per capita debt burden will have increased to nearly $78,000, for an almost 35 percent increase, while the U.S. population will have only increased by around 8 percent over the decade.

The Government’s Burden Equals What is Taxed and What is Borrowed

Does it matter that the government funds part of its expenses through deficit financing instead of simply raising taxes to cover all of its expenditures? Noble prize-winning free market economist, Milton Friedman (1912-2006), was adamant that what mattered was what government spent, not how it raised the money to pay for it:

“Keep you eye on one thing and one thing only, how much government is spending, because that’s the true tax . . . If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing. The thing you should keep your eye on is whatgovernment spends, and the real problem is to how down government spending as a fraction of your income, and if you do that, you can stop worrying about the debt.”

If the government taxes the citizenry, the dollars collected and the real resources those dollars have buying power over in the marketplace are transferred from private sector hands to the hands of Uncle Sam, who then decides for what they will be used.

But this is no less the case when the government borrows dollars in financial markets to cover part of its expenses in excess of collected taxes. Instead of a private borrower borrowing those dollars and using the real resources those dollars can buy in the marketplace for investment, capital formation or other purposes, the government borrows them and uses the real resources that can be bought with them for its own political-oriented goals and ends.

Either way, the total amount of the income and resources of the society transferred out of private hands and into the hands of the government is represented by the total spending by thatgovernment, even if part has been taxed and part has been borrowed.

Friedman once asked the question: Which is preferable, a situation under which the governmenttaxes and spends $800 billion with a balanced budget; or a situation in which it taxes $400 billion and borrows $100 billion for a total of spending of $500 billion, with a budget deficit?

In terms of the total extraction of wealth and income from the members of society by government, clearly its siphoning off $500 billion is preferable to it taking and using $800 billion of the resources and products produced through the peaceful and productive efforts of the citizen-taxpayers, Friedman reasoned.

America’s Former Balanced Budget Fiscal Rule, and Its Benefits

However, while it may be true that whether the government taxes or borrows the taxpayer-citizens are poorer by that total amount, it is nonetheless the case that government following a balanced budget rule versus a budget deficit expedient has a huge political difference on the institutional ease or difficulty of government growing over time.

Many years ago, Noble Prize economist, James M. Buchanan (1919-2013), and his colleague, Richard Wagner, wrote a book on Democracy in Deficit (1977). They pointed out that during the first 150 years of the United States, the Federal government followed what they referred to as an “unwritten fiscal constitution.”

There is nothing in the U.S. Constitution that requires the government to annually balance its budget. Such a balanced budget “rule” for managing the government’s spending and taxing was considered a way to assure transparency and greater responsibility in the financial affairs ofgovernment.

It was argued that a balanced budget made it easier and clearer for the citizen and the taxpayer to compare the “costs” and “benefits” from government spending activities.

Since each dollar spent by the government required a dollar collected in taxes to pay for whatever the government was doing, the citizen and taxpayer could make a more reasonable judgment whether they considered any government spending proposal to be “worth it” in terms of what had to be given up to gain the supposed “benefit” from it.

The trade-off, was explicit and clear: any additional dollar of government spending on some program or activity required an additional dollar of taxes, and therefore, the “cost” of one dollar less in the taxpayer’s pocket to spend on some desired private-sector use, instead.

Or if taxes were not to be increased to pay for a new or expanded government program, the supporter of this increased spending had to explain what other existing government program or activity would have to be reduced or eliminated to transfer the funds to pay for the new proposed spending.

There was an exception to this balanced budget rule, and that was a “national emergency such as a war, when government might needed large amount of extra funds more quickly than they could be raised through higher taxes.

But it was also argued that once the national emergency had passed, the government was expected to manage its finances to run budget surpluses, taking in more than it spent each year. The surplus was to be used to pay off the accumulated debt as quickly as possible to relieve current and future taxpayers from an unnecessary and undesirable burden.

Amazingly, in retrospect, this actually was the fiscal rule and pattern followed by the United Statesgovernment throughout the nineteenth century and into the twentieth century until the Great Depression in the 1930s.

CBO deficits

The Keynesian Call for Budget Deficits to “Stimulate” the Economy

However, starting with the 1930s, this unwritten fiscal constitutional was permanently overturned as part of the Keynesian Revolution. It was argued that the government should not balance its budget on a yearly basis. Instead, the government should balance its budget “over the business cycle.”Government should run budget deficits in “bad” years (recession or depression) and run budget surpluses in “good” years (periods of “full employment” and rising Gross Domestic Product).

This new “rule” of a balanced budget over the business cycle became a generally accepted idea for fiscal policy among many economists and government policy makers.

However, there has been one major problem with this alternative conception of the role and method of managing government spending and taxing: During the 70 years since the end of the Second World War in 1945, the U.S. government has run budget deficits in 58 of those years and had budget surpluses in only 12 years.

Hence, as Buchanan and Wagner referred to it, “democracy in deficit.”

With the elimination of the balanced budget “rule” as the guide for fiscal policy, it has been possible for politicians to create the economic illusion that is it possible to give voters “something for nothing” – a “free lunch.”

The Fiscal Illusion of Giving Voters Partly “Something for Nothing”

Politicians have been able to offer more and more government spending to special interest groups to obtain campaign contributions and votes in the attempt to be elected and re-elected to political office.

They can offer benefits in the present in the form of new or additional government spending, but they no longer have to explain where all the money will come from to pay for it. The “costs” of that deficit spending is be paid for by some unknown future taxpayers in some amount that can be put off discussing until that “some time” in the future.

Thus, politicians can supply benefits in the present – “now” – to targeted groups whose votes are wanted on election day, and avoid answering how the money will be paid back (with interest) because that can be delayed until the future – a period later in time, years ahead, when someone else will hold political office and will have to deal with the problem.

It is not as if the danger from unrestrained government borrowing was never warned about before John Maynard Keynes (1883-1946) made deficit spending a “virtue” in the name of “stimulating” the economy in his famous book, The General Theory of Employment, Interest, and Money (1936).

 

The Deficit Monster Cartoon

 Warnings about Deficits and Government Debt from Long Ago

The famous Scottish philosopher, historian and economist, David Hume (1711-1776), expressed the danger in his essay, “Of Public Credit” (1741), over two hundred and fifty year ago:

“It is very tempting to a minister [in the government] to employ such an expediency, as enables him to make a great figure during his administration, without overburdening the people with taxes, or exciting any immediate clamors against himself. The practice, therefore, of contracting debt will almost infallibly be abused, in every government. It would scarcely be more imprudent to given a prodigal son a credit in every banker’s shop in London, than to empower a statesman to draw bills[borrow money], in this manner, upon posterity.”

And almost 150 years ago, the American economist, Dudley Baxter (1827-1875), very clearly contrasted the incentives at work on those running for and holding political office when the institutional rule is a balanced budget versus deficit spending and accumulated debt in his book, National Debts (1871):

“When money is raised by taxation within the year for which it is needed, the amount that can be raised is limited by the tax-enduring habits of the people, and must be as small as possible in order not to provide discontent [among the voters]. By the same reason it must be spent economically, and made to go as far as possible.

 “But when the money is raised by loans, it is limited only by the necessity of the interest [payment] not to be too large for the taxable endurance of the people, or provoking their discontent. Hence the limits of borrowing are about twenty times larger than the limits to taxation, and an amount that is monstrous as a tax, is (apparently) a very light burden as a loan. In consequence, borrowing is freed from the most powerful check that restrains taxation . . .

 “When a loan is obtained the reason for economical expenditure is equally wanting, and borrowed money is commonly expended with much greater profuseness, and even wastefulness, than would be the case with taxes.”

Keynesian Economics served as an additional and powerful rationale for politicians to do what they like to do: spend other people’s money. In the process, it pushed aside the warnings of those like David Hume and Dudley Baxter, and many other economists, who understood clearly the dangers of unrestricted government authority to both tax and borrow.

 

Children Pulling Big Government Cartoon

 The Moral Dimension of Government Debt Financing

There is an additional moral dimension to the issue of government deficit spending and its resulting accumulation of debt. This was a theme especially addressed by economist, James M. Buchanan.

Normally, when a private individual or enterprise undertakes debt financing of some portion of his current expenditures, the legal obligation to pay back the contracted principle and interest falls upon the borrower. If he defaults or passes away before repayment of all that had been borrowed, creditors have a lien on the borrower’s positively valued assets.

The “benefits” of having the use of a greater sum of money in the present than his own income would enable him to spend, imposes on the borrower a “cost” of an obligation to pay back the loan out of his future income and assets. The cost and the benefit are linked together within the same person.

It is not the same, Buchanan argued, with government deficit spending and repayment of accumulated debt:

“If I borrow $1,000 personally, I create a future obligation against myself or my estate in the present value of $1,000. Regardless of my usage of the funds, I cannot, by the act of borrowing, impose an external cost on others. Unless I leave positively valued assets against which my debts can be satisfied, my creditors cannot oblige my heirs to pay off their claims.

 “By contrast, suppose I ‘vote for’ an issue of public debt in the amount of $1,000 per person. I may recognize that this debt embodies a future tax liability on some persons, but I need not reckon on the full $1,000 liability being assigned to me. If I leave no positively valued assets, the government’s creditors can still enforce claims on my progeny as members of the future-period taxpaying group.

 “Further, the membership in the taxpaying group itself shifts over time. New entrants, and not only those who descend directly from those of us who make a borrowing-spending decision, are obligated to meet debt, interest and amortization charges.

“In sum, the institution of public debt introduces a unique problem that is usually absent with private debt; persons who are decision makers in one period are allowed to impose possible financial losses on persons in future generations. It follows that the institution [government] is liable to abuse this and overextend its borrowing practices. There are moral and ethical problems withgovernment deficit financing that simply are not present with the private counterpart.”

Government debt is a way to impose part of the cost of what special interest group voters and politicians want “today” on those who “tomorrow” will have to be taxed to pay back the borrowed money.

Even if a current recipient of such governmental deficit spending largess is, himself, one of the future taxpayers, he is usually likely to have received a greater benefit than his personal portion of the future tax burden. Suppose that he is a farmer, for instance, who receives “today” $100,000 from the government for not growing a crop. When “tomorrow” comes and taxes have to be raised to pay back that $100,000 to the creditors who lent that sum to the government, that particular farmer’s additional tax burden will be a small fraction of that total amount.

To continue with the same example, many farmers who may have benefited from agricultural price-support programs decades ago have passed away. The burden of paying back whatever portion of that farm price support spending originally financed by deficit spending now falls upon others who even may not have been born at the time the recipient received this special privilege from thegovernment.

What is the ethics, James Buchanan asked, of a fiscal system under which incentives exist and come into play that enable the current generation of taxpayers and recipients of government programs to shift part of the burden to pay for them to future generations? Is that a culturally and economically healthy legacy to leave to our children and grandchildren?

 

Bailing Out Before Debt is Due cartoon

 The Importance of Balanced Budgets and Debt Limits

This is why it would desirable to incorporate a balanced budget amendment into the U.S. Constitution. It would not guarantee that government did not tax and spend more. But it would impose a greater clarity and transparency to the fiscal dimension of government decision-making that would make it far more difficult for those offering other people’s money in exchange for votes to do so without having to also explain who would be paying for the favors and privilege given to some, and how much they would have to pay.

In lieu of adding such an amendment to the Constitution, it is imperative that the Congress does not give up its authority to raise the Federal debt limit. While raising the debt limit has become more or less a rubber stamp after a number of congressmen make some verbal objections to moregovernment borrowing, the fact is if Congress were to ever have sufficient pressure from voting constituents to say, “NO,” that very act would impose a balanced budget on the Federalgovernment. Since once Uncle Sam had reached the hard debt limit, he would only be able to spend what he had taken in taxes.

This, combined with a strong educational and political campaign to reawaken the principles and ideals of individual liberty and limited government can bring the seemingly the unlimited growth in the size and scope of government to a halt.

Once halted, then a repeal and retrenchment drive can begin to reverse that size and scope of Big Government so to restore a society of freedom grounded in individual rights and economic liberty.

The Cultural and Political Consequences of Fiat Money, Jörg Guido Hülsmann (30/11/2014), Mises

 

 

 

It may seem unusual that an economist would talk about culture. Usually, we talk about prices and production, quantities produced, employment, the structure of production, scarce resources, and entrepreneurship.

But there are certain things that economists can say about the culture, and more precisely, that economists can say about the transformation of the culture. So what is culture? Well, to put it simply, it is the way we do things. This can include the way we eat — whether or not we dine with family members on a regular basis, for example — how we sleep, and how we use automobiles or other modes of transportation. And of course, the way we produce, consume, or accumulate capital are important aspects of the culture as well.

Limiting Budget Is the Key to Limiting Governments

Now to understand the effects of fiat money on the culture, we must first look at the relationship between financial systems and the nature of government.

A number of economists have observed that fiat money is a prerequisite for tyrannical government, and the idea that monetary interventionism paves the way for tyrannical government is very old and goes back to Nicolas Oresme in the fourteenth century. It has not been emphasized in the twentieth century, but Ludwig von Mises is among the few who has stressed the importance of this relationship.

Mises said that when it comes to limiting government power, it is essential that the government is financially dependent on the citizens, and this addresses the fundamental political problem of controlling the people in office once they are there. We know that generally, once they are in office, elected politicians turn around and do very different things than they said they would do, with many acting contrary to the common good and interests of their constituents.

So how do we ensure that the people in power can be controlled?

Mises tells us the way we control government is through the budget, and this is necessary in a free society. In a democratic system, at least, we elect certain people to the government, and they often enter office believing that they have a mandate to do certain types of things while in office.

But it’s not sufficient that the people tell government officials what they should be doing. It is equally important, if not more important, to dictate how much money the government will have to achieve those ends. So, it is not enough to tell the government that it will only protect private property. This mandate could be pursued with $100,000 or a billion dollars depending on what the people are willing to pay. So if the budget it not controlled, a limited mandate in itself offers no limitation on taxation or how much money is spent.

Mises believed that those who paid the taxes would then need to specifically limit the size of the government budget. The mission of the government does not by itself deter- mine the amount of resources to be used in the mission.

In response, many will complain that if budgets are tightly controlled, then we’ll never have an increase in government services because people hate taxes. That might be so, but, of course, that is the point.

Now, if we abandon a strict connection between what the citizens pay and what government spends, then we find that we move away from rule by the citizens who are being taxed, and toward greater rule by the elites.

The first way this shift can happen is by the government going into debt. The financial relationships then shift toward the new group that is funding the government, namely those who are extending credit to the government. This then weakens the relationship to the citizens who are being taxed, and it also allows the government to spend more money than would have been possible with taxation alone.

Now of course fiat money allows government to take out loans to an unlimited extent because fiat money by definition can be produced without limitation, without commercial limitation or technological limitation, and can be produced in whatever amount is desired. In this way, the government benefits from the support of a central bank, which is to be expected because the central bank itself depends on the legal framework of monopoly provided by the government.

Through these means of finding government revenues outside of directly taxing the population, we see then that fiat money allows for an extension of government activities unconnected to the willingness of the population to actually support revenue increases. In turn, the government’s rule becomes rule by elites such as central bankers and financiers rather than rule by the taxpayers, and the government’s ability to spend becomes more dependent on the ability to access fiat money than the ability to convince the citizens to accept a higher tax burden.

The Cultural Features of a Debt Economy

Now we come to the many ways through which a fiat money system affects the behavior of ordinary citizens.

One of the central features of a fiat money system is that it tends to produce near-permanent price inflation. This contrasts with the workings of an economy based on natural monies such as gold and silver. Here the price levels tend to stay flat over the long run or decline, especially in the presence of vigorous economic growth. We saw this throughout the nineteenth century in both Europe and the US, where deflationary growth has been the rule.

The reality of price inflation shapes culture in a variety of ways and much of this is deliberate, as it has long been an idea among government planners and ideologues of all sorts, even before Keynes, that ordinary people should be prevented from “hoarding” money at their homes.

In a free economy with a natural monetary system, there is a strong incentive to save money in the form of cash held under one’s immediate control. Investments in savings accounts or other relatively safe investments also play a certain role, but cash hoarding is paramount, especially among low-income families.

By contrast, when there is constant price inflation, as in a fiat-money system, cash hoarding becomes suicidal. Other financial strategies now become more advisable. It becomes advisable to exchange one’s cash for “financial products,” thus offsetting the loss of purchasing power of money through the return on that financial investment. It also becomes advisable to go into debt and leverage one’s investments. In a word, it becomes rational to pursue riskier investments in order to find a rate of return that can match or exceed the rate of price inflation. This is true across all sectors, including households and productive operations.

Before the twentieth century and widespread access to fiat money, debt was far less common and there were cultural imperatives against going into debt for consumption. Credit for households, for example, was virtually unknown before the twentieth century, and only very poor households fell back on debt to finance consumption.

But in a fiat money system, as price inflation diminishes the value of one’s monetary savings, we are encouraged to adopt a short-term perspective. That is, we need to hurry up to obtain credit as soon as possible and obtain revenue from that debt as soon as possible, because savings lose value if we just hold on to cash.

It no longer makes sense to save up money for a decade to buy a house, for example. It is much more opportune to go into debt to buy a house immediately and to pay back the loan in devalued money. There is then a generalized rush into leverage in a fiat money system since debt- financed investment brings greater returns than savings in cash or equity-financed investments.

It needs to be stressed that this tendency has no natural stopping point. In other words, fiat-money systems tend to make people insatiable in their quest for ever higher monetary returns on their investments. In a natural monetary system, as savings increase, the return on investments of all sorts diminishes. It becomes ever less interesting to invest one’s savings in order to earn a return, and thus other motivations shift into the foreground. Savings will be used increasingly to finance personal projects including the acquisition of durable consumers’ goods, but also philanthropic activity. This is exactly what we saw in the West during the nineteenth century.

By contrast, in a fiat money society, you are more likely to increase your returns by remaining in debt and continuing to chase monetary revenue indefinitely by leveraging more and more funds.

You can imagine, then, how this inflation and debt- based system, over time, will begin to change the culture of a society and its behavior.

We become more materialistic than under a natural monetary system. We can’t just sit on our savings anymore, and we have to watch our investments constantly, and think about revenue constantly, because if it is not earning enough, we are actively getting poorer.

The fact that the fiat money system pushes us into riskier investments also increases dependency on others because one must depend on the good behavior of those on whom the value of our investments depend.

Similarly, the stronger the level of debt the stronger is the selfish concern about the behavior of others who may owe us money. So fiat money creates an attempt to control others through the political system.

But at the same time, no household and no firm individually has an interest in abolishing the fiat system and putting in its place a natural monetary system. The short-term costs of such a transition would be immense. In this, we see that we are in a “rationality trap” in which one is motivated to maintain the fiat money system in spite of all its downsides, and because the culture at this point is so transformed by more than a century of easy access to fiat money.

Conclusion

We can apply economic analysis to explain cultural transformation, and a particularly important example is fiat money. It has a very important impact on our culture. This is something we would not see unless we step back and take a longer-term historical perspective. Of course, there are many other factors that come into play, but fiat money is an important factor, and the system is perpetuated by the fact that everyone stands to lose in the short run if the current system ceases to function. Moreover, given how our modern culture has been so shaped by fiat money systems, it runs against the very cultural foundations of our current society. In spite of the many short-term costs, we should nonetheless dare to change this system, and it is ultimately a question of courage, and insight, and of the will.