Power & Market

Recently, Berkshire Hathaway vice chairman Charlie Munger spoke vehemently against bitcoin and other cryptocurrency, claiming, “I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out of your extra billions of billions of dollars to somebody who just invented a new financial product out of thin air.” This sentence, right off the bat, both summarizes his issues with cryptocurrency and contains the major flaws that make his criticisms wrong.

First and foremost is the obvious hypocrisy of the first half of that claim. The US dollar is almost equally useful to kidnappers and extortionists. “Satoshi Nakamoto” created bitcoin only as recently as 2009, and last I checked, kidnapping and extortion existed long before that. Arguments can be made on either side about bitcoin’s actual privacy. Realistically, the fact that it operates on an open source ledger makes it significantly less private than many believe it to be, especially when compared to other more privacy-targeted cryptocurrencies—most popularly monero. However, bitcoin not being as private as is sometimes assumed in and of itself does not inherently discredit Munger’s point, because it is still true that bitcoin can be and is used it in an increasingly private manner. He is correct that it is used by criminals. But while it is true that bitcoin’s privacy shortcomings don’t inherently discredit his claims, it is also true that bitcoin's use by criminals does not inherently prove that it is worth condemning on those grounds. This is because it is just as common—if not overwhelmingly more common—for criminals to operate in cash. Munger is missing the vital lesson that Hazlitt so famously taught us: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy.” If Munger were to have his wish come true and the success of bitcoin failed because it was too useful to kidnappers and extortionists, he would be correct in that the immediate effect would be that kidnappers and extortionists would have to cease using cryptocurrency. But what is step two in that process? It is not that kidnapping and extortion would simply end. They would continue just as they always have, operating in cash. The only difference would be that now all the decentralizing benefits of crypto currency to the average person would also disappear.

Next, comes the simple but vital point that there is no greater kidnapper or extortionist than the federal government. I don’t have to explain to a Mises Wire reader that taxation is in and of itself extortion. As for kidnapping, the American criminal justice system holds almost 2.3 million people in prison. Of those imprisoned, 46.4 percent of inmates are in for largely victimless drug offenses. While many in agreement with the status quo can perform the necessary mental gymnastics to justify this, we can also turn to Rothbard’s For a New Liberty:

The distinctive feature of libertarians is that they coolly and uncompromisingly apply the general moral law to people acting in their roles as members of the State apparatus. Libertarians make no exceptions. For centuries, the State (or more strictly, individuals acting in their roles as “members of the government”) has cloaked its criminal activity in high sounding rhetoric…. In fact, if you wish to know how libertarians regard the State and any of its acts, simply think of the State as a criminal band, and all of the libertarian attitudes will logically fall into place.

The state as a criminal band raises two important issues with Munger’s point: first is that if he is to oppose a currency that is useful to extorters and kidnappers, then he must vehemently oppose the currency that is completely controlled and designed to benefit the largest of all violent criminal organizations. Next is that if Munger is correct to claim that bitcoin is useful to the criminals he named, then, reductio ad absurdum, it must also be true that it is useful also to those committing the victimless crimes that make up such a staggering amount of the US prison system. So even if Munger is correct in claiming this, it is not a foregone conclusion that the tradeoff is less aggressive and violent acts.

Additionally, Munger claimed that “nor do I like just shuffling out of your extra billions of billions of dollars to somebody who just invented a new financial product out of thin air.” But if anyone is to be considered the enemy based on such a sentence, it is not the average bitcoiner mining in his basement. It is the Federal Reserve. Munger is completely correct to find issue with the creation of wealth out of a new financial product being created out of thin air. To understand this we can turn to Richard Cantillon; for brevity’s sake, I’ll only quote the abstract of chapter 7 of An Essay on Economic Theory:

When there is an increase in the quantity of money, prices will increase depending on how the new money holders decide to spend their money. The price changes will also be affected by such things as regulations on trade and the perishability of the products that are traded. In other words the simple quantity theory of money is naïve in proposing that a doubling of the quantity of money would double all prices equally. Changes in the quantity of money will change relative prices and have real effects on the economy, a phenomenon now known as the Cantillon Effects.

Simply put, when there is an increase in the money supply, those who benefit most are those who first have access to it, as the money slowly loses value each step of the way as the effects of the inflationary policies hit. Presently, the banks are the first recipients of the new money, and the consumers are the ones who have value stolen. Munger is not completely wrong to point to bitcoin in its own way as a tool for such an effect. The major difference between the Federal Reserve and bitcoin is that for the first time in modern history, cryptocurrency offers these Cantillon effects in favor of the common man and at the expense of elites such as Munger, which I suspect is one of the most pressing reasons he is truly against cryptocurrency.

But the last piece that Munger gets mostly wrong is that he misunderstands his role. As George Selgin said in Less Than Zero “Economists should not smuggle ethical judgments into what purports to be a discussion of positive requirements for an efficient use of resources.” Bitcoin is a technology. Money in and of itself is a technology. It is true that these technologies may be used in negative ways. But it is also true that they may be used in positive ways. Cryptocurrency is an empty vessel, and for Munger to describe it as “disgusting and contrary to the interests of civilization” is for him to misunderstand his place as an economist.

This definition is used by many historians of the state, and by many within the field of political science. Rothbard, however, employees this definition to delve deeply into a better understanding of how the state affects human freedom.

In doing so, Rothbard opens with an equally important concept: what the state is not. People everywhere have many misconceptions of the state as a charitable organization. Rothbard takes painstaking steps to disabuse the reader of this perception. One of his most important points is addressing that the state is not a representative organization, or as he puts it,

We must, therefore, emphasize that “we” are not the government; the government is not “us.” The government does not in any accurate sense “represent” the majority of the people. But, even if it did, even if 70 percent of the people decided to murder the remaining 30 percent, this would still be murder and would not be voluntary suicide on the part of the slaughtered minority. No organicist metaphor, no irrelevant bromide that “we are all part of one another,” must be permitted to obscure this basic fact.

Especially throughout the twentieth century, when prodemocracy sentiments were at an all time high and the belief that the government was in fact representing us, most importantly, needed to be dismantled. Unfortunately, one step of this is removed and that is in the scenario we’ve seen so present this last year. While many still believe that the government does represent us and has our best interest at heart and this needs to be discredited, it is also true that the average person seems not to simply view the government as “us” but rather as a truly separate entity that is not “us” but rather somehow greater than us and knows better than we. As a result we see the worst of both worlds, where the person takes just enough of Rothbard’s lesson to believe that the state is not directly us, but not enough to recognize that these people who are not us are no better than we are and in many ways are worse. This is most glaringly apparent through the coronavirus activity of the last year. We went from two weeks to slow the spread, to people claiming it was just being hyped up for the election, to we just need the vaccine, to we just need herd immunity, to who knows what. But to ensure I don’t specifically target one group of people taking the government at their word, I’ll also state that in the other biggest issue of this past year it has been just as prevalent on the other side, as we’ve seen members of the Right defend police brutality under claims that victims should have just obeyed better, as an unwitting defense of a belief that the government is in fact an entity that knows what is best for us somehow better than we do. This belief that they know better, whether about covid, security, or any number of other issues, seems to view them as a separate entity than us, but in so believing, people believe that this separate entity has more understanding and knowledge than we do—this needs to be disillusioned just as much as the fact that they are not us.

Author, crypto expert, and instructor Vin Armani describes this willingness to believe just about anything as long as it comes from someone perceived to know better as “the dim age.” He explains it referring to Arthur C. Clarke’s third law, which states that “[a]ny sufficiently advanced technology is indistinguishable from magic.” “The dim age” refers to many things, but one of the large points Armani references is that because the technology we see in day-to-day life has reached such a level that the average person can’t understand it, people have to turn to the experts to know what is science and what is fictional magic.

This sounds quite plausible as one reads it or listens to Vin Armani explain it, however it runs contrary to the Austrian understanding of the division of labor and leads us to wonder how we can square that circle. Leonard E. Read’s "I, Pencil" demonstrates the beauty of division of labor at its absolute best. Read claims that “I’ll bet there isn’t a person on earth who knows how to make even so simple a thing as a pencil.” Read explains that for even a pencil to be made, a tree must be grown and harvested. To make the tools to grow and harvest the tree, ore must be mined, steel must be made, and then steel must be refined. Hemp must be grown. The wood must be shipped. The wood then must be shaped. As well it must be painted. The paint must be made. Capital accumulation must occur to create the pencil factory where the wood will arrive. The so-called lead must be created, as it is not just lead but rather graphite, which must be mined, manipulated, and shipped. A piece of metal must be formed and attached to attach the eraser, which in and of itself is a whole product to be made. Then, when all is said and done, a simple pencil is made. This division of labor is what allows our society to be possible. Without it we wouldn’t be able to manage technology as simple as a pencil, let alone something as incredibly advanced as a smartphone. So how do we receive the benefits of the mass division of labor we see in society without having to rely on the word of an expert—or worse yet, the word of the state?

The answer to this is also found in "I, Pencil." It is here that Read explains the vital point that is missing

There is a fact still more astounding: the absence of a mastermind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead we find the Invisible Hand at work.

When we as individuals see the division of labor perform the beautiful task demonstrated in "I, Pencil," we must recognize that we are in fact not experts. As a result, we must lean on the experts for some understanding in almost all things. However, it is equally important to remember that no expert is a mastermind and thus is only looking at a tiny percentage of the picture. So while we must remind the world that we are not the government, we must also remind the world that they are not masterminds; even their best experts only understand part of the picture. So keep pushing Rothbard’s message, but don’t ever forget his other message “Libertarians make no exceptions, no double standard, for government.” They are not masterminds, just one piece of a massive machine of division of labor.

Last month, I mentioned the case of Karen Garner, a seventy-three-year-old, eighty-pound woman with dementia who was beaten by police for “resisting” arrest in June 2020. At the time, Garner was allegedly guilty of almost stealing thirteen dollars' worth of merchandise at Walmart after apparently forgetting to pay. When confronted by store workers, Garner attempted to pay but was thrown out of the store by Walmart staff.

Garner, who was apparently confused at the time of arrest, was soon confronted by Loveland, Colorado, police officer Austin Hopp while Garner slowly walked home. Within seconds—with the help of fellow officer Daria Jalali—Hopp threw the elderly, disabled woman to the ground, breaking her arm, and dislocated her shoulder.

The officers then threw Garner in a jail cell, denying her any medical treatment, for six hours.

But the story doesn’t end there.

Lest anyone think these officers made a well-meaning error in judgment or were unaware of Garner’s injuries, we can turn to video recorded at the Loveland Police Department facility following Garner’s arrest.

Shortly after Garner’s arrest, while Garner sat ten feet away in agony in her jail cell, officers Hopp, Jalali, and police staffer Tyler Blackett proceeded to review the body cam video from Garner’s arrest.

During this period of fun and revelry—captured on the station’s video cameras, and surely occurring “on the clock”—Hopp joked about dislocating Garner’s arm and declared, “I love it!” when he heard “the pop” that was apparently audible when Hopp wrenched Garner’s arm from its socket.

Hopp, Jalali, and Blackett proceeded to enjoy several minutes of hilarity as Hopp delighted in his torture of Garner and as Jalali and Blackett giggled and looked on.

Hopp and Jalali then when on to “fist bump” to congratulate themselves for Garner’s arrest.

Clearly, Hopp, Jalali, and Blackett were quite comfortable with amusing themselves with the suffering of others, and did not appear at all concerned that they might be disciplined for refusing medical attention to a woman in their custody who was clearly known to at least one of the officers to be injured. The dislocated shoulder, of course, was in addition to Garner’s bloodied face, which had earlier been observed and commented upon by police personnel in the body cam video itself.

And it seems the officers had little reason to suspect there might be any repercussions for their sadistic and unprofessional behavior. Although these officers’ little video party took place right in the middle of the police station, and right under the nose of supervisor Philip Metzler—who can be seen walking by Hopp and Jalali as they discussed the arrest—the Loveland Police department completely ignored the incident. The video suggests no other officers questioned this behavior or regarded it as untoward in any way. Certainly, Jalali and Hopp were not going to report on each other. We now know they were in a sexual relationship at the time of Garner's arrest. 

It was only eight months later, when Garner’s attorney sued the Loveland Police Department, that the department was forced to acknowledge the video, the arrest, and its officers’ behavior. But even now, the department is hard at work sweeping the matter under the rug. The three officers most closely involved with the incident—Hopp, Jalali, and Blackett—were all allowed to resign rather than be fired. This presumably will allow these officers to retain their pension benefits and pursue work as police officers in other departments.

The chief himself has offered no sign that he will accept any responsibility for what is apparently considered acceptable behavior in his department.

Bizarrely, in the midst of all this, the arresting officers still have their defenders. For example, last week, when some Loveland residents turned out to protest, some heavily armed locals turned out to shout at protestors who were allegedly guilty of insufficiently “backing the blue.”

Of course, the taxpayers already "back the blue" every day. The police budget is well funded to the tune of approximately $25 million per year in the small, virtually crime-free suburban town of Loveland. The idea that taxpayers—taxpayers like Karen Garner—ought to be harangued for a lack of police support should boggle the mind. For generations, Loveland police officers have been well paid to police a peaceful town where rarely does any officer deal with anything resembling a gangland slaying. Countless Loveland officers retire with generous benefits. Loveland citizens have financially backed the blue to the hilt for decades.

Two Important Reforms

The Loveland case also illustrates the need for other reforms we've discussed here at mises.org in the past. The first needed reform is abolishing police unions—and all public sector unions, for that matter. It is likely that a central reason the police department has avoided any real disciplinary action against Hopp et al. is because it is known the police union would provide legal services to the police officers and would fight tooth and nail to keep these officers in their positions. Police unions are one of the primary institutions most responsible for keeping abusive police officers on the payroll.

Second, legal immunity for police must be ended. Fortunately, in Colorado, this is already the case, and police can be found personally liable for up to $25,000 for abusive behavior. However, this new legislation did not take effect until after Garner's arrest. 

Believing that Western civilization is not unique is a fashionable sentiment. Today many argue that the West has no distinctive traits. However, critics suggest that individualism, freedom and human rights are innately Western constructs. Yet there is more to the West than its history of freedom. Western civilization is easily rejuvenated by creative elements. Throughout history, other cultures have relied on new knowledge to justify old beliefs, but Westerners have consistently allowed foreign ideas to unleash their revolutionary potential.

During the medieval ages, for example, the Latin West was mesmerized by the teachings of Islamic scholars. Such knowledge was appropriated to create novel intellectual inquiries. Historian Peter O’brien offers a glimpse of this spectacular development: “The knowledge transmitted to Latin Christendom via Islamic civilization touched and upset virtually every discipline. Thomas Aquinas, for instance, devoted the lion's share of his scholarly attention to wrestling with theological and epistemological quandaries stemming from Arab philosophy…Lettered Europeans scrambled to absorb this torrent of new knowledge pouring in from their rivals. Those who could, journeyed to loci of Islamic erudition. "Since at present the instruction of the Arabs...is made available to all in Toledo," explained Daniel of Morley, "I hastened there to attend the lectures of the most learned philosophers in the world." Both Adelard of Bath and Ramón Llull travelled to the Levant to learn Arabic, study Arab texts and carry the newly acquired knowledge back to Europe.”

Earlier in his text, O’brien recounted evidence that may suggest that Western civilization is not unusual in this regard: “Cultivated Muslims embraced ancient learning. Not only did they preserve and venerate the works of Greek masters such as Plato, Aristotle and Euclid that were lost to the Latins, Islamic and Jewish sages the likes of Musa al-Khwârizmî, al-Farabi, al-Ghazzali, Abu Ma'shar (Albumasar), Ibn Sina (Avicenna), Ibn Rushd (Averroës), and Maimonides augmented and improved the inherited storehouse of knowledge.”

But what O’Brien failed to say is that the Islamic Golden Age was inspired by a few dissident Muslims who were influenced by Hindu, Greek, and Persian learning. Furthermore, Christian intellectuals who were trained by the scholars at Jundi Shapur played a crucial role in translating ancient texts. It was only in the West that intellectual revolutions became a permanent fixture. Notwithstanding the brilliance of some Muslim scholars in the Islamic faith, reason is intertwined with revelation. Up until the nineteenth-century the principle of natural causality was denied by Muslim intellectuals. Whereas though Christians believed that natural laws were instituted by God – there was the expectation that one would explore the natural world without resorting to religion.

The destruction of the Abbasid Caliphate by the Mongols negatively affected the course of science in the Islamic world, but nonetheless there was already a revival of traditional schools that were hostile to scientific inquiry prior to the invasion. Islam lacked a culture able to sustain the passionate debates that would lead to continuous revolutions. Ali. A Allawi in the Crisis of Islamic Civilization lucidly explains the tension between Islam and non-theological reasoning: “The Arabic word “individual”- al -fard - does not have the commonly understood implication of a purposeful being, imbued with the power of rational choice…The power of choice and will granted to the individual is more to do with the fact of acquiring these from God, at the point of a specific action or decision – the so-called iktisab – rather than the powers themselves which are not innate to natural freedoms or rights…Therefore to claim the right and responsibility of autonomous action without reference to the source of these in God is an affront, and is discourteous to the terms of the relationship between human beings and God…None of the free thinking schools in classical Islam – such as the Mu’tazila – could ever entertain the idea of breaking the God-Man relationship and the validity of revelation, in spite of their espousal of a rationalist philosophy.”

Similarly, the Chinese are excessively praised for their successes during the Song Dynasty. Using Chinese history as a case study, multiculturalists often posit that the West is not peculiar. Although as David Landes informs readers, the Chinese did in fact build a great civilization, but under the spell of hubris they shunned foreign technologies thinking that outsiders could not enrich a superior culture: “Along with Chinese indifference to technology went imperviousness to European science. The Jesuits and other Christian clerics brought in not only clocks but (sometimes obsolete) knowledge and ideas. Some of this was of interest to the court: in particular, astronomy and techniques of celestial observation were extremely valuable to a ruler who claimed a monopoly of the calendar and used his mastery of time to impose on the society as a whole…Little of this got beyond Peking, however, and the pride some took in the new learning was soon countered by a nativist reaction that reached back to long forgotten work of earlier periods. One leader of this return to the sources, Wen Ting (1635–1721), examined the texts of mathematicians who had worked under the Song dynasty (10th–13th centuries) and proclaimed that the Jesuits had not brought much in the way of innovation.”

Unlike countless societies Western civilization is willing to admit when its culture requires regeneration from outside forces, and this is a major reason for its dynamism. Had the West not been a self-critical society there is no doubt that it would have stagnated like other areas of the world. Another interesting point about the West is the centrality of the idea of progress. Because Western culture is self-reflective it can objectively judge the true state of society. As such, innovation often trumps traditionalism. The Renaissance, for example, repudiated much of medieval scholasticism.

Yet one cannot discuss the concept of progress in Western civilization without examining its link to the Christian notion of linear time. Contrary to the Greeks, Chinese, and other civilizations, Christianity asserts that time will not revert to older cycles. Based on this reasoning, society can only go forward. Obviously, developments can either be progressive or regressive, but one must always strive to attain progressive ends by not returning to the ignorance and superstition of the past. In short, despite the rantings of multiculturalists Western civilization is indeed special.