Power & Market
The biggest threat to our prosperity, to your pension and to the prospects of your children and grandchildren is in all likelihood something that you’ve never heard of. Yet Modern Monetary Theory (MMT), which ironically is neither modern nor a monetary theory, has been setting alight debate on the Left and looks set to form a substantial role in Labour’s interventionist power grab over the economy.
MMT is utopian in the extreme. It provides justification for policies like Jeremy Corbyn’s “People’s Quantitative Easing”, which would require the Bank of England to print money to fund infrastructure and apprenticeships. An important basis of the “Green New Deal” being demanded by socialists in the American Democrat party, MMT has also been used to justify the Bank of England channelling billions into green investment – that is, to use the capacity of the bank to create cash for explicitly ideological investment purposes. American proponents of the idea say that in this way they could slash greenhouse emissions, create cushy taxpayer-funded jobs and offer free healthcare for all without bothering about who would pick up the bill. They claim that since the US government is the issuer of the nation’s currency, it cannot go bankrupt, but instead just keep creating and printing money.
For the adherents of MMT, all public expenditure can thus be financed by public debt – because the bonds of the government are as good as the money that the sovereign state issues. Public debt is no problem because it has its balance in financial wealth in the private sector.
Read more from Dr. Mueller on MMT with his new paper from the Adam Smith Institute, "The Magic Money Tree: The Case Against Modern Monetary Theory"
Unsurprisingly, the idea has found a receptive audience among the Corbynistas that head up the Labour Party. If there is no fiscal restraint for public spending, opposition to huge public expenditure programmes loses its legitimacy and projects like free university for all, renationalisation of services and a comprehensive upgrading of the country’s infrastructure can be launched with gusto. MMT provides the sales pitch for the agenda of socialists who hope scarcity can be abolished with the right policy.
You can see why the Left likes it. Instead of having to think like a household, needing income before it can spend and having to balance its books, they get to say that they can spend with impunity. In their dreams, government spends without hitting your savings, creating income and activity in the private sector instead. A Labour government could spend and have huge deficits without destroying private investment – and could then walk away from the huge piles of public debt they’ve put on the shoulders of future generations. Their argument, though, is that government could always be free of any fiscal restraint because it can always create as much money as is needed.
The problem is, this is all theoretical nonsense. The inflationary consequences of substantially increasing government spending are an economic reality. Promising to spend wisely assumes a knowledge of the economy that we all know politicians don’t have – let alone the current Marxist front bench.
Devotees of MMT assume a one-sector economy with an unlimited supply of capital whose only constraint is labour. Such a view of the modern economy is wholly unrealistic. The real capitalist economy is the one we all live in, where entrepreneurs must incessantly arrange and rearrange to make a profit, and provide goods and services we actually want.
In purely academic terms, the belief that you can spend and spend without any consequence would deserve no further analysis. As a political contrivance, with far-Left populism on the rise in Britain and the USA, MMT is presently one of the most dangerous economic ideas out there, and should consequently attract our utmost attention.
The lessons of history are clear: endless spending brought down the Spanish Empire with the inflow of gold and silver from the American colonies. The massive expansion of the money supply during and after the First World War led to the German hyperinflation that wiped out its middle class.
As John Maynard Keynes rightly observed, inflation brings all the dark forces in a society to work. Modern Monetary Theory qualifies as the financial equivalent to weapons of mass destruction. Politicians who believe in liberty must speak out against something that so threatens our way of life.
Reprinted from The Telegraph with permission of the author.
With another Martin Luther King Day come and gone, we were reminded that the views of King are regarded as the model for the "civil rights movement."
Some of this is merited, of course. King stood up to governments that used state force, via Jim Crow laws to mandate segregation and violate property rights.
Unfortunately, not all of King's views on property and economic independence were equally enlightened.
For a start, King was no friend of markets. In 33 Question About American History You’re Not Supposed to Ask, Tom Woods uncovered a speech King gave to his staff revealing his disapproval:
You can’t talk about solving the economic problem of the Negro without talking about billions of dollars…. [W]e are treading in difficult waters, because it really means that we are saying that something is wrong… with capitalism. There must be a better distribution of wealth and maybe America must move toward a democratic socialism.
But King wasn’t working alone in the civil rights movement. While far less remembered and honored today, Malcolm X provided a far different and more radical view of how to achieve more independence and prosperity for historically disadvantaged groups.
Choosing Markets Over Forced Integration
Libertarian rapper Eric July produced an excellent video explaining Malcolm X’s philosophy when contrasted to MLK’s vision of forced integration. Malcolm X recognized the power of capitalism, and saw it as a means of advancing the community.
July highlights an interview with Eleanor Fischer in which Malcolm X called forced integration hypocritical and understood the flaws of its involuntary nature:
Well, any form of integration, forced integration, any effort to force integration upon whites is actually hypocritical. It is a form of hypocrisy involved. If a white man puts his arm around me voluntarily, that’s brotherhood. But if you hold a gun on him and make him embrace me and pretend to be friendly or brotherly toward me, then that’s not brotherhood, that’s hypocrisy. And what America is trying to do is pass laws to force whites to pretend that they want Negroes into their schools or in their places of employment. Well, this is hypocrisy, and this makes a worse relationship between black and white, rather than if this could be brought about on a voluntary basis.
He then expanded on the flaws of MLK’s forced integration strategy when the topic of the Montgomery Bus Boycott came up:
I don’t think having an opportunity to ride either at the front or the back or the middle of someone else’s bus does not dignify you. When you have your own bus, then you have dignity. When you have your own school, you have dignity. When you have own your own country, you have dignity. When you have something of your own, you have dignity.
But whenever you are begging for a chance to participate in that which belongs to someone else, or use that which belongs to someone else, on an equal basis with the owner, that’s not dignity, that’s ignorance.
Malcolm X also critiqued the sit-in strategies civil rights activists employed and insisted that blacks build their own economic institutions instead:
Instead of the negro leaders having the black man begging for a chance to dine in white restaurants, the negro leaders should be showing the black man to do something to strengthen his own economy, to give himself an independent economy, or to provide job opportunities for himself. Not begging for a cup of coffee in a white man’s restaurant.
In sum, Malcolm X was not interested in forced integration and focused his energies toward black economic self-sufficiency. It did not matter to him if blacks had to live separately from whites, as long as each community did not infringe on the rights of others.
He drew examples from the Japanese and Chinese communities in the U.S. to drive this point home:
When you are equal with another person, the problem of integration doesn’t even arise. It doesn’t come up. The Chinese in this country aren’t asking for integration. The Japanese aren’t asking for integration. The only minority in America that’s asking for integration is the so-called Negro, primarily because he is inferior, not inherently inferior, but he’s economically, socially, politically inferior. And this exists because he has never tried to stand on his own two feet and do something for himself. He has filled the role of a beggar.
For these reasons, among others, Murray Rothbard praised Malcolm X describing him as a “great black leader” and acknowledged that Malcolm X’s black nationalism was “a lot more libertarian than the compulsory integration pushed by King, the NAACP, and white liberals.”
It is now commonly recognized that the majority of the economics profession for about four decades held an erroneous view of the nature of the “socialist calculation debate.” In particular, the nature of the arguments put forward by Mises and Hayek were misconstrued.
Revisionism took off in the mid 1980s with the work of Peter Murrell (e.g., here) and Don Lavoie (e.g., here). From a mainstream perspective, Murrell argued that the Austrians had developed sophisticated insights in property rights economics and the agency problem and had applied these insights to the problem of socialist calculation. Lavoie highlighted the distintive Austrian knowledge argument in the calculation debate, in particular emphasizing Hayek’s contribution. A bit later, Salerno and others emphasized the distinctiveness of Mises’ contribution. Thus, whereas Mises stressed the need for a distributed process of entrepreneurial judgment in the context of a private ownership economy characterized by uncertainty, Hayek put more of an emphasis on the impossibility under socialism of harnessing and processing massive amounts of knowledge, particularly under dynamic conditions.
Between the 2nd Wold War and these works, there are four decades in which the dominant opinion held that the Austrians had been thoroughly defeated by the formal demonstration, particularly in Oskar Lange’s work, of the possibility of combining socialism and efficient allocation. A pertinent question is whether there were (non-Austrian) dissenters from this dominant view. To those well steeped in libertarian social theory, names such as Trygve Hoff and G. Warren Nutter come to mind. But apart from these, it would appear that it is not until the mid 1980s that the distinctiveness of the Austrian arguments in the calculation debate concerning knowledge becomes recognized.
However, an early contribution, unknown to most economists, that fully recognized the distinctiveness of the Austrian arguments, is the 1958 book Organizations by James G. March and Herbert A Simon, a book that many would regard as the seminal contribution to organizational theory and a milestone in the evolution of organizational theory (I have heard organization theory scholars remark that all org theory in the last five decades is just variations over March & Simon themes).
The discussion of the socialist calculation debate takes place in the final chapter, “Planning and Innovation in Organizations,” the main purpose of which is to “… contrast the concept of rationality that has been employed in economics and statistics with a theory of rationality that takes account of the limits on the power, speed, and capacity of human cognitive faculties” (1958: 172) — in other words, bounded rationality.
This theme is taken through a number of variations, one of which is the theory of planning, understood as both “national planning and intrafirm planning” (p. 200). March and Simon (1958: 201) argue that even if motivational problems can be solved, there are still planning (coordination) problems remaining. They note, echoing Hayek (1945), that if one person or group of persons possessed “… all the relevant information connecting possible courses of action with the utilities resulting therefrom, he or they could discover which course of action was best for the organization” (p. 201). An alternative is to make use of the price mechanism, for example, through the Barone/Lange idea of consistent marginal cost pricing throughout the organization. March and Simon note a number of difficulties with this proposal, such as the requirement that externalities be absent. More seriously, perhaps, they note that it is not clear how to make a choice between the alternatives of central planning and pricing, since modern welfare economics, including the Lange/Barone proposal, does not give any positive reason for preferring the one to the other.
This is where the Austrian arguments in the socialist calculation debate enter the scene. These are placed under the heading “The principle of bounded rationality” (p. 203), and, accordingly, March and Simon note that the “… argument of von Mises and Hayek (we will use the latter’s version) depends crucially on the limits of information available to humans and their abilities to use information in their computations.” In other words, Hayek argues that “given realistic limits on human planning capacity” (italics removed) a decentralized system will work better than a centralized one.
Thus, March and Simon present a sympathetic reading of the Austrian — mainly Hayekian — positions in the socialist calculation debate. In the context of Organizations, March and Simon also criticize the “Robbinsian” characterization of decision-making in mainstream economics (to use Kirzner’s terms) – that is, the given’ness of means and ends — and they stress that the understanding of behavior should be broadened to include the process of discovering choice alternatives. These two observations are related, for it is arguably exactly because March and Simon are critical of the conceptualization of behavior in mainstream theory that they are so appreciative of the Austrian positions in the calculation debate.
[Reprinted from Organization and Markets.]
Media Accuses Rand Paul of Hypocrisy for Visiting Canadian Hospital: Turns Out It's a Private Hospital
Kentucky Senator Rand Paul recently announced he was receiving hernia surgery as a result of being blindsided in an attack from his neighbor. While a senator undergoing common surgery is of questionable newsworthiness, one may expect that the reminder that the Senator is still suffering from the 2017 incident as cause for sympathy. Instead, major media outlets decided to try to use the news as an example of hypocrisy on the part of Paul due to the fact he is receiving treatment at a Canadian hospital.
As published in USA Today:
Kentucky Sen. Rand Paul, one of the fiercest political critics of socialized medicine, will travel to Canada later this month to get hernia surgery....
He is scheduled to have the outpatient operation at the Shouldice Hernia Hospital in Thornhill, Ontario during the week of Jan. 21, according to documents from Paul's civil lawsuit against Boucher filed in Warren Circuit Court....
Paul, a Republican, often argues for private market solutions to American's health care woes.
In Canada, medical care is publicly funded and universally provided through the country's Provincial Ministry of Health, and everyone receives the same level of care.
Paul has called universal health care and nationalized options "slavery."
Of course, if the author had decided to do a two second internet search for “Shouldice Hernia Hospital,” they would have found that it is one of few private hospitals that were grandfathered in prior to the government’s takeover of Canadian healthcare.
Of course, the same media outlets that jumped to cry "hypocrisy" at Senator Paul are also guilty of ignoring the very real consequences of Canada’s socialist healthcare system. For example, patients dying due to a lack of access to basic medical supplies such as hospital beds.
For more on the disaster of Canada's socialized healthcare system, check out this series by (Canadian author) Lee Friday:
Dr. Mark Thornton joined Glenn Beck for an interview on how Austrian economists have predicted every major crisis of the last century.
The Skyscraper Curse is available now as a hardback, paperback, e-book, and audiobook at the Mises Store.
The book and audiobook are also available for free in the Mises Library.
Momentum in Congress is Building to Decriminalize Marijuana, but Bipartisan Leadership Stands in the Way
Momentum is strongly behind the United States government ending its war on marijuana. From states legalizing medical and recreational marijuana to the increasing majority support among Americans for full marijuana legalization, countrywide legalization is more and more seeming inevitable. Indeed, I would not be surprised to see the US government legalize marijuana within the next four years. But why not this year or even this week? What is delaying congressional action to legalize? A major barrier appears to be resistance by congressional leadership.
Similar to how House leadership last week acted, through the House Rules Committee, to prevent a House floor debate and vote on legislation seeking to end the US military’s involvement in the war on Yemen, the Rules Committee has for years repeatedly blocked any amendments seeking to liberalize US marijuana law from reaching the House floor. And having such a provision included in a bill before the bill reaches the House or Senate floor is just about unheard of, though the passage in both bodies of the farm bill last week containing legalization of farming hemp (cannabis with a very low THC percentage) is a promising sign that Congress may approve more war on marijuana roll backs soon.
Another promising sign could be Democrats taking over the leadership in the House next month. Democratic voters and Democratic House members have overall been more supportive of ending the war on marijuana than their respective Republican counterparts have been. That suggests that roll-back bills and amendments will fare much better under Democratic leadership than they have under Republican leadership. In line with this expectation, incoming House Rules Committee Chairman Jim McGovern (D-MA) has declared that, unlike his Republican predecessor, he will not block marijuana amendments from reaching the House floor for debate and votes. But, a note of caution is in order. Top overall Democratic leaders in the House have been less than enthusiastic about supporting war on marijuana roll back efforts. Also, there can be a failure of the House and Senate to agree on war on marijuana roll-back or elimination legislation if the Democratic-majority House approves only legislation that includes provisions, such as welfare program expansions coupled with race-based preferences, that could prevent the legislation from advancing in the Republican-majority Senate.
Rep. Thomas Massie (R-KY) asserted in an interview this month that legislation leaving marijuana law up to the states would pass in the House if leadership would just allow a House floor vote on it.
Similarly, Sen. Cory Gardner (R-CO) declared in a new Bloomberg interviewthat he believes a majority of Senators would vote in support of the US government deferring to states’ marijuana legalization and war on marijuana roll-back laws. This week, Gardner sought to test this proposition by bypassing the blocking of such marijuana bills from reaching the Senate floor. He offered an amendment on the Senate floor proposing a major roll back of this type in the US government’s war on marijuana, but, that amendment also was blocked.
Why are Senators not being allowed to have Senate floor votes on rolling back or ending the US war on marijuana? As in the House, the reason is leadership.
Hopefully, House and Senate leadership will take a new approach to marijuana in January when both a new year and a new Congress begin. There is no reason to have to wait two to four years, or even longer, for the terminating of the US war on marijuana — along that war’s creation of more bad effects. Senate and House leadership, including Senate Majority Leader Mitch McConnell (R-KY) and expected next House Speaker Nancy Pelosi (D-CA), can help make 2019 the year of ending marijuana prohibition. Accomplishing this goal would likely not require leadership members to do much leading. Instead, it could just require that they get out of the way.
Originally published by the Ron Paul Institute
Mark Thornton recently joined CJ of the Dangerous History podcast to discuss his new book The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century, and his recent article on the government's role in Florida's recent red tide crisis.