Power & Market

Some conservatives are now bending over backwards to try to justify their calls for more federal intervention in local law enforcement around the nation. This has been problematic for many because some of these people also have pretended to be in favor of decentralization, local control, and a strict reading of the Constitution when it suits them. But now that the actual respect for the Tenth Amendment and the federalism built into the Constitution for the moment favors left-wing protestors and rioters, the Right is now attempting to come up with reasons why the federal government should be called in to solve our problems after all.

I have dealt with some of the claims elsewhere, such as the claim that the federal government can do whatever it wants when there is an "insurrection"—however loosely defined. And some claim the feds can do whatever they want in order to "guarantee a republican form of government."

But for the more unsophisticated participants in this debate, the memo has apparently gone out stating that federal meddling of this sort is fine because George Washington once did it. While I have seen this stated more than once, an example from the Mises Institute's Facebook page, in response to this article, will serve as an example:

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The basic "argument" made by "Jack Jackson" here is that since Washington used federal troops against tax protestors in the 1790, then the president today can obviously do the same, and it must all be both perfectly moral and legal.

Yet Washington's invasion of western Pennsylvania was clearly immoral by the standards of the American Revolution, and thus a betrayal of what countless Americans had died for during the war. Not surprisingly, virtually no taxpayer in the backcountry supported Washington's expedition. After all, internal excise taxes imposed by outsiders had been a major cause of the American secessionist cause in the 1770s—what we now call the American Revolution. In other words, Jackson's interlocutor here, a "Robert Davis" is correct. Washington's grandiose ride to abuse and browbeat Pennsylvania farmers into submission was "the beginning of the end" of what most Americans imagined they were signing on for when they submitted to the US Constitution.

Moreover, contrary to what is simply assumed by those whose view of history extends not far beyond conservative talk radio, Washington's "suppression" of the tax rebellion failed. Murray Rothbard explains in detail how the Whiskey "rebels" were the good guys, and how Washington was a bumbling big-government wannabe who later—helped by the ever atrocious Alexander Hamilton—covered up his failure to get his way.

From chapter 44 of Making Economic Sense:

The Official View of the Whiskey Rebellion is that four counties of western Pennsylvania refused to pay an excise tax on whiskey that had been levied by proposal of the Secretary of Treasury Alexander Hamilton in the spring of 1791, as part of his excise tax proposal for federal assumption of the public debts of the several states.

Western Pennsylvanians failed to pay the tax, this view says, until protests, demonstrations, and some roughing up of tax collectors in western Pennsylvania caused President Washington to call up a 13,000-man army in the summer and fall of 1794 to suppress the insurrection. A localized but dramatic challenge to federal tax-levying authority had been met and defeated. The forces of federal law and order were safe.

This Official View turns out to be dead wrong. In the first place, we must realize the depth of hatred of Americans for what was called “internal taxation” (in contrast to an “external tax” such as a tariff). Internal taxes meant that the hated tax man would be in your face and on your property, searching, examining your records and your life, and looting and destroying.

The most hated tax imposed by the British had been the Stamp Tax of 1765, on all internal documents and transactions; if the British had kept this detested tax, the American Revolution would have occurred a decade earlier, and enjoyed far greater support than it eventually received. 

Americans, furthermore, had inherited hatred of the excise tax from the British opposition; for two centuries, excise taxes in Britain, in particular the hated tax on cider, had provoked riots and demonstrations upholding the slogan, “liberty, property, and no excise!” To the average American, the federal government’s assumption of the power to impose excise taxes did not look very different from the levies of the British crown.

The main distortion of the Official View of the Whiskey Rebellion was its alleged confinement to four counties of western Pennsylvania. From recent research, we now know that no one paid the tax on whiskey throughout the American “back-country”; that is, the frontier areas of Maryland, Virginia, North and South Carolina, Georgia, and the entire state of Kentucky.

President Washington and Secretary Hamilton chose to make a fuss about Western Pennsylvania precisely because in that region there was a cadre of wealthy officials who were willing to collect taxes. Such a cadre did not even exist in the other areas of the American frontier; there was no fuss or violence against tax collectors in Kentucky and the rest of the back-country because there was no one willing to be a tax collector.

The whiskey tax was particularly hated in the back-country because whiskey production and distilling were widespread; whiskey was not only a home product for most farmers, it was often used as a money, as a medium of exchange for transactions. Furthermore, in keeping with Hamilton’s program, the tax bore more heavily on the smaller distilleries. As a result, many large distilleries supported the tax as a means of crippling their smaller and more numerous competitors.

Western Pennsylvania, then, was only the tip of the iceberg. The point is that, in all the other back-country areas, the whiskey tax was never paid. Opposition to the federal excise tax program was one of the causes of the emerging Democrat-Republican Party, and of the Jeffersonian “Revolution” of 1800. Indeed, one of the accomplishments of the first Jefferson term as president was to repeal the entire Federalist excise tax program. In Kentucky, whiskey tax delinquents only paid up when it was clear that the tax itself was going to be repealed. 

Rather than the whiskey tax rebellion being localized and swiftly put down, the true story turns out to be very different. The entire American back-country was gripped by a non-violent, civil disobedient refusal to pay the hated tax on whiskey. No local juries could be found to convict tax delinquents. The Whiskey Rebellion was actually widespread and successful, for it eventually forced the federal government to repeal the excise tax.

Except during the War of 1812, the federal government never again dared to impose an internal excise tax, until the North transformed the American Constitution by centralizing the nation during the War Between the States. One of the evil fruits of this war was the permanent federal “sin” tax on liquor and tobacco, to say nothing of the federal income tax, an abomination and a tyranny even more oppressive than an excise.

Why didn’t previous historians know about this widespread non-violent rebellion? Because both sides engaged in an “open conspiracy” to cover up the facts. Obviously, the rebels didn’t want to call a lot of attention to their being in a state of illegality.

Washington, Hamilton, and the Cabinet covered up the extent of the revolution because they didn’t want to advertise the extent of their failure. They knew very well that if they tried to enforce, or send an army into, the rest of the back-country, they would have failed. Kentucky and perhaps the other areas would have seceded from the Union then and there. Both contemporary sides were happy to cover up the truth, and historians fell for the deception.

The Whiskey Rebellion, then, considered properly, was a victory for liberty and property rather than for federal taxation. Perhaps this lesson will inspire a later generation of American taxpayers who are so harried and downtrodden as to make the whiskey or stamp taxes of old seem like Paradise.

Judy Shelton’s long and bumpy Federal Reserve nomination cleared an important hurdle last week when the Senate Banking Committee voted on party lines to send her for final consideration before the full Senate. Right away, Shelton’s nomination received pushback from the resistance wing of the Republican Party, with Mitt Romney and Lisa Murkowski going on the record as opposing her nomination. With unanimous Democratic objection to Shelton, it would take just two more Republican dissenters to eliminate the most interesting Federal Reserve nominee in recent history.

While it’s easy to simplify the political intrigue as just yet another inner-DC Trump proxy war, the battle over Judy Shelton’s nomination—particularly in the context of the Fed’s actions over the last few months—is very useful as an illustration of our wise senators’ remarkably shallow grasp of monetary policy. It is true that there are reasonable criticisms of some of Shelton’s past work, including her more recent pivot toward a more Trump-friendly championing of an interest rate cut last summer. However, these criticisms seem trite in a world where the Fed is engaging in unprecedented actions, such as buying up corporate junk bonds and utilizing BlackRock to effectively nationalize large parts of America’s financial market.  

It is noteworthy that many of Shelton’s loudest critics have been completely silent on this matter.  

One of the most common critiques waged against Dr. Shelton is that she would be a political loyalist and has questioned the value of Fed political independence. Ignoring the fact that documented American history has shown the notion of “Fed independence” to be a noble myth, I am curious to know what a politicized Fed would look like in practice. After all, the Fed has long tossed aside its traditional policy tools in no small part so that it can accommodate the political decisions made by the legislative and executive branches.  

The proudly independent Jerome Powell had already bent the knee to the White House’s wishes when he failed to follow through with a gradual reduction of the Fed’s balance sheet as stock market turbulence created political headaches. Naturally, there were no cries then from the faux populist Sherrod Brown, who has long been in lockstep with fellow progressives in opposing any sort of monetary tightening. It is unclear whether these alleged working-class champions are intentionally advocating for policy that enriches the billionaire dollar class by boosting financial asset prices, or whether they simply don’t understand the real-world consequences of what they parrot in public hearings.

Among Dr. Shelton’s Republican critics has been Senator John Kennedy of Louisiana, who made the snide comment that “Nobody wants anybody on the Federal Reserve that has a fatal attraction to nutty ideas” following her testimony in February. Unfortunately, that seems to be precisely what we have, with a Federal Reserve engaging in levels of economic intervention beyond anything America has seen. Rather than rail against Jerome Powell’s apparent dedication to turning America into Japan, during the last Senate oversight hearing he asked a few courteous questions of our wise Fed chair and signed off early.  

In Senator Kennedy’s defense, it’s easy to take silly potshots at a public figure who has become something of a pinata to a certain class of Serious People in American financial punditry. It’s much harder to be a critic of America’s central banker at a time of crisis when elected officials are struggling to keep up with daily news. But it is precisely the fact that legislators are utterly ill-equipped to provide serious checks on Federal Reserve “expertise” that someone like Dr. Shelton would be the rare plus to the Fed’s board. 

While it is unlikely that if confirmed Dr. Shelton would masterfully reveal that she is actually the gold bug the media has depicted her as, what is clear is that she would give the Federal Reserve something it desperately needs—ideological diversity. This is also why Very Serious People hate her. Shelton’s willingness to challenge the deified “PhD” standard of modern fiat money and question such sacred cows as Fed independence makes her a potentially dangerous threat to the groupthink that has become far too pervasive in central banks. Dr. Shelton understands the dangers of central banks becoming de facto central planners in modern economies, and she understands the valuable role that gold played in past monetary systems. She reads and respects the ideas of serious heterodox monetary scholars whose perspectives have long been completely ignored within Fed deliberations. She even received her education in places like Portland and Utah, quite a different resume from most of her Ivy League–trained colleagues. 

If confirmed, will Judy Shelton be a revolutionary force within America’s central bank? Almost certainly not. Just as no election will truly drain the swamp in Washington, no Fed nominee is going to restore humility to the Eccles Building.  

Instead, Shelton’s nomination is best seen as a litmus test for Republican senators. Are you interested in actually promoting ideological diversity within American institutions, or are you simply willing to stand with the academic gatekeepers that have given us the Federal Leviathan that we have today? 

We know where Mitt Romney and Susan Collins stand. We shall soon see where the rest of their colleagues fall.

Ludwig von Mises was called several names and epithets in his life, by his admirers and enemies alike. His friends and colleagues dubbed him the “Last Knight of Liberalism,” while his critics called him intransigent, fanatic, and even less flattering epithets.

Just recently I came across another nickname the great Austrian had in the 1920s and 30s: the sunny pessimist. Writing to Bettina Greaves in 1974, Karl Menger, the son of the famous economist, recounts how this came about:

In the years 1927–36, I often met Mises in homes of common friends. In the second half of that period he mad[e] the most terrible predictions. (Once, I was told, a lady after listening to him for half an hour retired and had to be comforted.) All his gloomy prophesies (later surpassed by reality) were uttered with complete equanimity and a constant smile, which earned him the nickname of the sunny pessimist.

It is easy to understand how Mises could be pessimistic in the 1920s and '30s, as Europe was descending rapidly into the hell of socialism. He could explain almost in real time how the policies of the Nazis and the socialists they replaced in power led to the destruction of civilization and the world war. Omnipotent Government from 1944 is perhaps his fullest explanation of the process of the destruction of German civilization, but he saw the same trends in other European countries. Thus, in 1940, in the manuscript that was later published under the title Interventionism: An Economic Analysis, Mises wrote that the Nazis had practically won before they even invaded France; the policies of the western democracies were practically indistinguishable from the National Socialists’, and the French government found it more important to prosecute war profiteers than to ensure adequate provisioning of the French army.

It is more impressive that Mises kept calm and smiling throughout, just like Vera Lynn urged the British soldiers to. Already at the end of the First World War, Mises recounts in his Memoirs (p. 55), he had arrived at the “hopeless pessimism that had long pervaded the best minds of Europe.” Yet his personal philosophy allowed him to escape the apathy such pessimism can lead to. Already as a teenager he had chosen a line from Virgil: tu ne cede malis sed contra audentior ito (do not give in to evil but proceed ever more boldly against it) as his motto. This continued to be his attitude through the darkest days of European history.

Another anecdote recounted by Rudolf J. Klein, one of Mises’s pupils, may substantiate Mises’s prophetic abilities. Writes Klein:

In 1935 he [Mises] came back to Vienna from Geneva for a short visit. I saw him at his old office at the Chamber of Commerce and asked what he thought would be the final outcome of the Hitler regime. He replied (in 1935!), “When one wing of the German army will be at Vladivostock and the other at Gibraltar, the whole thing will break down!”

Aside from the geographic inaccuracies—as is well known, the Germans never invaded Spain and they were stopped at Moscow and Stalingrad, not Vladivostok—Mises’s foresight is eerie. Others, it is true, predicted German aggression throughout the thirties, but those predictions seem based on little more than Teutophobia. Mises, on the contrary, loved German culture, was well read in the German classics and German philosophy, and it pained him deeply to see the destruction of German and European civilization. Yet he understood the inevitable outcome of socialism and autarky: the breakdown of the international division of labor and war.

Mises’s social philosophy is just as relevant today as ninety years ago for understanding the chaos around us. Ideas rule the world, and the real factor supporting the ruling elite is always the dominant ideologies. Just like Mises had to battle the Marxist and non-Marxist socialists who took power across Europe in the first decades of the twentieth century (and in most places hold on to it to this day), so today we are faced with cultural Marxists and progressive mobs. Since there is no way to defeat them in the long run except by exposing their erroneous and antisocial doctrines, and since the “progressive” barbarians may well remain in control for the foreseeable future (and cause untold damage to the economic and spiritual civilization of the West—or what’s left of it), it’s well to keep before us Mises’ personal example. There are reasons enough to be pessimistic, but let us at least be sunny pessimists.

Tu ne cede malis sed contra audentior ito.

In his noneconomic magnum opus, The Ethics of Liberty (henceforth TEoL), Murray Rothbard outlined what he considered to be the fullest and most complete ethical system of freedom and libertarian natural law. Additionally—at least up until Hans-Hermann Hoppe introduced his argumentation ethics—Rothbard also considered this book to contain the strongest available ethical case for libertarian self-ownership, property, and the nonaggression principle. The most famous and elaborate component of Rothbard’s moral case is his natural law system, which was a renovation of older Scholastic and Thomistic natural law and took up the majority of TEoL’s early chapters. I do not, however, consider his natural law to be Rothbard’s strongest case for liberty, even though he seemed to think it was.

Natural law is very interesting and enlightening, but Rothbard’s real strongest argument is one which I rarely see mentioned (besides Kuznicki’s interesting summary) and which I call the Rothbardian trilemma. Rothbard lays it out almost offhand, to the side of what he seems to think is his primary argument, in chapter 8, “Interpersonal Relations: Ownership and Aggression.” Here is how he introduces it:

Here there are two alternatives: either we may lay down a rule that each man should be permitted (i.e., have the right to) the full ownership of his own body, or we may rule that he may not have such complete ownership. If he does, then we have the libertarian natural law for a free society as treated above. But if he does not, if each man is not entitled to full and 100 percent self-ownership, then what does this imply? It implies either one of two conditions: (1) the "communist" one of Universal and Equal Other-ownership, or (2) Partial Ownership of One Group by Another—a system of rule by one class over another. These are the only logical alternatives to a state of 100 percent self-ownership for all.

Essentially, the argument goes like this: someone must control our bodies, because otherwise we are left in a contradictory state where we can do nothing with ourselves, not even commit suicide, because we would be controlling (or, in the case of suicide, damaging) property that we do not own. Now, if someone must control our bodies, there are three different ways we can arrange that right of control—which is what we call right of ownership—of bodies:

1. Everyone owns (“the libertarian natural law for a free society”)
2. Everyone owns everyone else equally (“Universal and Equal Other-ownership,” as Rothbard calls it)
3. Some (group of) people own others (“Partial Ownership of One Group by Another”)

Only some of these are tenable, as we shall see.

Rothbard next begins to knock down alternatives (2) and (3)—either showing them to be untenable or unethical. First, he deals with (3):

here, one person or group of persons, G, are entitled to own not only themselves but also the remainder of society, R. But, apart from many other problems and difficulties with this kind of system, we cannot here have a universal or natural-law ethic for the human race. We can only have a partial and arbitrary ethic, similar to the view that Hohenzollerns are by nature entitled to rule over non-Hohenzollerns.

Essentially, option (3) fails the universalizability test: if you would choose this option, the burden of proof falls on you to show why some should rule. Ask yourself, what is it about a king or an aristocracy that gives them the right to rule their subjects? The the divine right of kings previously supplied just that sort of justification—yet even that justification fails, because it is an impossible task. Although there are many differences between rulers and subjects, there are none which are ethically relevant.

Next, Rothbard takes (2) out of the running. First, he points out that “if there are more than a very few people in the society, this alternative must break down and reduce to…partial rule by some over others.” This is because, he says, “it is physically impossible for everyone to keep continual tabs on everyone else, and thereby to exercise his equal share of partial ownership over every other man.” It is impossible, in other words, for every man to get permission from every other man before he does what he wants to do: we would all die before that was possible. Moreover, as Rothbard says in the next paragraph, “it is surely absurd to hold that no man is entitled to own himself, and yet to hold that each of these very men is entitled to own a part of all other men!” For, how could they vote on what the other people should do, without exercising unilateral control over their own decision and mouths? If they did not exercise such unilateral control, there would first have to be a vote on how everyone could vote—ad infinitum! In this way, we can see that universal and equal other-ownership is already an impossible situation.

Now, it is possible that such control rights, which Rothbard would call ownership, could be exercised on a “retroactive” basis: essentially, everyone is free to exercise unilateral control over themselves until there are enough votes telling them to do something else to outweigh their partial share in their own bodies—two votes, in the case of equal other-ownership. This would solve the problem of infinite voting regress, but it would likely result in first-come-first-served aristocracy, where whoever can jet around the fastest (along with a buddy) and “command” the most people would own all of those people, including how those people vote. Additionally, this assumes that one needs only a majority of those present, and not a unanimity, to make a decision—an assumption which is in fact contrary to universal equal ownership. All this really devolves back to (3), since those who aren’t around currently don’t get to exercise ownership rights and become slaves of the person with the bigger army unless they bring an army of equal size. Also, this arrangement, where everyone has de facto control over themselves, but a different kind of control over others, which requires not their permission before their “property” is used, but their assertion of a contrary rule, is a double standard which would actually have to be voted for by an equal other-owning collective like the one described above, therefore not actually escaping infinite regress.

There are a few other options which Kuznicki mentions in his article which I would like to address briefly as well, since the natural objection to the Rothbardian trilemma is to attempt to break out of it. First, he muses that “in the real world, people may acquire use rights not only through ownership, but also through lease, rent, borrowing, or other forms of agreement with the owner….it is not necessarily clear that all types of use rights must stem from someone’s ownership somewhere.” My challenge to this, then, is to find just such a moral claim which does not simply regress to option (3) as the use-until-contradiction option I covered above does. This is a claim which would have to be substantiated, because as far as I am aware, partial ownership, no ownership, and whole ownership cover the entire breadth of possible arrangements of control rights. After mentioning briefly a possible theological turn for this, Kuznicki moves on to his final point on the subject: “if we have use rights, but not ownership, many of the same assertions Rothbard later makes will still be valid.” Here I would ask, What is the difference between having use, or control, rights, and having ownership? If I have a right to control every aspect of something, that is identical to full ownership: if someone else tries to control it, that means that for a time I do not have control of it. If I have only partial control rights over something, then I have partial ownership, which is already covered in the trilemma. Hence, we return to option (1): libertarian self-ownership, which reveals itself to be the only option which is both desirable and logically possible.

In conclusion, I find this to be a much stronger case for libertarian self-ownership than any other that I am aware of. It requires, moreover, very little buildup or framework, and makes almost no assumptions, making it ideal for those not already willing to consider libertarianism. In light of this, I am very surprised to find that it is not mentioned all that often. I think that, with some extending and defending, it could even be stronger than argumentation ethics.