Artwork Made from Old Bananas Shows Value Is Subjective

Artwork Made from Old Bananas Shows Value Is Subjective

12/11/2019Ryan McMaken

Last week, Miami art gallery Art Basel sold, for $120,000, a piece of art composed of a banana duct taped to a wall. At least one other identical piece sold for a similar amount. A third piece was priced at $150,000. The banana used in the display is a real banana, and on Saturday, a performance artist named David Datuna ate some of it.

Datuna's stunt merely illustrated what everyone should have already known: the value of the artwork had almost nothing to do with the banana itself. Its value came not from the amount of labor that went into it or from the cost of the physical materials involved. A spokeswoman for the museum summed up the real source of the item's value, noting, “He [Datuna] did not destroy the artwork. The banana is the idea.

In other words, the people who purchased the art weren't actually purchasing a banana and tape. The person who purchased the art was buying the opportunity to communicate to peers that he or she was rich enough to throw around $120,000 on a work of art that would soon cease to exist. This was a transaction that involved purchasing status in exchange for money. The banana was only a tiny part of the exchange.

Moreover, the transaction offered the opportunity for the gallery, the art seller, and the art buyer to all further increase their status by being the topic of discussion in countless news articles and discussions in social media. As was surely anticipated by the artists and everyone else in the banana sale, the media could be counted on to act as if this art was something new, outrageous, or exciting. "Art world gone mad," the New York Post announced on its front page. Hundreds of thousands of commentators in various social media forums chimed in to comment on the matter.

One wonders, however, how many times this shtick can be repeated over and over until people lose interest. Apparently: many times. After all, this sort of art is not a new thing. For decades, avant-garde artists have been using garbage and other found objects to create art. And people with a lot of disposable income have been willing to pay a lot of money for it. It's all basically an inside joke among rich people. And regular people have the same reaction over and over again.

But there's absolutely nothing at all that's shocking, confusing, or incomprehensible from the point of view of sound economics. Transactions like these should only surprise us if we're still in the thrall of faulty theories of value, such as the idea that goods and services are valued based on how much labor and materials went into them. That's not true of any good or service. And it's certainly not true of art.

Is It Garbage or Is It Art?

In fact, two identical items can be valued in two completely different ways simply if the context and description of the objects changes.

According to the Daily Mail, a 2016 study suggests that people value ordinary objects differently depending on what they are told about the objects: "According to the new research, being told that something is art automatically changes our response to it, both on a neural and a behavioural level."

In this case, researchers in Rotterdam, the Netherlands, told subjects to rate how they valued objects in photographs. When told that those objects were "art" people valued them differently. 

In other words, the perceived value of objects could change without any additional labor being added to them, and without any physical changes at all. 

The value, it seems, is determined by the viewer, and we're reminded of Carl Menger's trailblazing observations about value

Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.

One moment the viewer may think he's looking at garbage, which he has likely learned is of little value. When told that said junk is really "art," the entire situation changes. (Of course, we would need to see their preferences put into real action via economic exchange to know their preferences for sure.)

The change, as both Menger and Mises understood it, is brought about not by changes to the object itself, but by changes in context and in the subjective valuation of the viewer. 

A glass of water's value in a parched desert is different from that of a glass next to a clean river. Indeed, a glass of water displayed in a museum as art — as in the case of Michael Craig-Martin's "An Oak Tree" — is different from water found in both deserts and along rivers. Similarly, the value of a urinal displayed in a museum as art — as with Marcel Duchamp's "Fountain" — is different from a physically identical urinal in a restroom. 

The Daily Mail article attempts to tie the researchers' observations to the theories of Immanuel Kant on aesthetics. But, one need know nothing about aesthetics at all to see how this study simply shows us something about economic value: it is, to paraphrase Menger, found in the "consciousness of men." 

And it is largely due to this fact that centrally planning an economy is so impossible. How can a central planner account for enormous changes in perceived value based on little more than being told something is art? 

Is a glass of water best utilized on a shelf in a museum, or is it best used for drinking? Maybe water is best used for hydroelectric power? Exactly how much should be used for each purpose? 

When discussing the problems of economic calculation in socialism, Mises observed that without the price system, there simply is no way to say that a specific amount of water is best used for drinking instead of being used for modern-art displays. Nor is the fact that people need water for drinking the key to determining the value of water. (See the diamond-water paradox.)

In a functioning market, consumers will engage in exchanges involving water in a way that reflects how much they prefer each use of water to other uses. At some moments, some consumers may prefer to drink it. At other moments, they may prefer to water plants with it. At still other moments, they may want to contemplate an art display composed of little more than a glass of water. The price of water at each time and place will reflect these activities. 

Without these price signals, attempting to create a central plan for how each ounce of water should be used is an impossible task.

Do we need to know why people change their views of object when told they are art? We do not. Indeed, were he here, Mises would perhaps be among the first to remind us that economics need not tell us the mental processes that lead to people preferring different uses for different objects, although we can certainly hazard a guess. It's unlikely that the buyer of the taped banana bought it because he or she planned to eat it.

But even if we are wrong about the buyer's motivation, the fact remains that the buyer valued the banana at $120,000 for some reason — and the value was subjective to the buyer.

Similarly, we can't know for sure why each individual values water for drinking over "art water" or vice versa. And a government planner or regulator — it should be noted — can't know this either.

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The Fable of the Bungling Firemen

02/04/2020Gary Galles

From the time I was an undergraduate, I can remember reading many articles by Leonard Read, founder of the Foundation for Economic Education (FEE). I found his insights valuable enough that I eventually wrote a book, The Apostle of Peace, about what I considered were his best sustained arguments. Many of his shorter arguments were not included. But every so often, I go back and read one or two of his books in search of overlooked inspiration. I did this recently with his 1980 book Seeds of Progress, free online at Mises.org, for its fortieth anniversary.

There, I found a fireman analogy I thought was worth sharing.

Bungling Firemen

  • Imagine this fictitious situation—the firemen of a community answering an alarm and rushing to a burning home. Failing to extinguish the fire immediately, they spray the home with kerosene. The fire worsens. The remedy? Spray it with gasoline! Still worse! On and on with “remedies” galore, each more moronic than the former. These imaginary firemen resemble the millions of political bunglers whose actions lead to “the misery and ruin of many thousands and millions of people.”
  • How do our political bunglers resemble the fictitious firemen[?]…First and foremost, they have no more understanding of how freedom works its wonders….Thus blinded to reality, they see what to them appears as a societal flaw, and then employ coercion to correct it. Their remedy does not work. They then double their coercions. Worse than ever: more flaws appear! Deeper into the mire of our present mess! Their cure? More and more of their foolish interventions!
  • Those who do little if any thinking for themselves are inclined to follow the millions of bunglers who loudly proclaim their know-it-all-ness and promise a heaven on earth.

What Do Bungling Firemen Miss?

  • The keynote to the good life is freedom….To pare over-extended government down to its proper role is to maximize liberty…that heavenly power which releases human creativity.
  • When the free and unfettered market prevails, there is a race for excellence.
  • Each of us should do our little creative things and let everyone else—no exceptions—do theirs. These trillions times trillions of little things are, indeed, the seeds of all human progress and are founded on liberty for one and all.

Living with Bungling Firemen

  • We are living under government by unwise men. And the reason is that many of the wise men among us…fail to see what they could and should be doing to limit government to its principled role of keeping the peace with justice to all.
  • The most bothersome, frustrating and destructive of all are the millions of dictocrats who…sincerely believe that it is their duty to solve your and my problems.
  • Ever so many seekers of political office…actually “think” that we know not how to run our lives; but they never doubt that we are wise enough to select them as our masters!
  • Limiting bungling firemen.
  • Individual liberty depends on the general observance of the principle of equality before the law.
  • Liberty and justice are inseparably associated.
  • An ideal government…is where no one “rules” another! Government is an agency of defense…keeping the peace and invoking a common justice. Period!
  • What, in all good conscience, should be inhibited? The moral codes give the answer: fraud, violence, misrepresentation—thou shalt not steal or kill or do any evil. And government cannot perform this role when over-stepping its proper bounds.

In millions of words over many decades, Leonard Read spent his life trying to “advance freedom by an improved phrasing of its truths.” Those efforts yield those of us who wish to advance freedom today much wisdom, in small as well as large ways. Seeds of Progress is just one example of how even a small investment can yield us substantial returns to that project.

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Coronavirus: Is This the Black Swan Many Feared?

02/03/2020Daniel Lacalle

The slump in energy commodities and copper shows the fragility of the global economy and the risks to the consensus’s reflation trade. It is easy to blame the recent fall of commodity prices on the coronavirus outbreak, but the weakness was already evident before the outbreak.

We need to remember that the coronavirus epidemic is, first and foremost, a humanitarian crisis. At the close of this article, the number of affected rose to more than 14,700 and the death toll to 305 citizens. Our thoughts are with the victims and their families.

This epidemic cannot be detached from an event that has not grabbed many headlines last year. The retail price of pork rose last year by more than 80 percent. Food price inflation—despite an official low headline consumer price index (CPI) of 3 percent—and a shortage in the supply of meat and pork generated a rapid increase in consumption of wild animals, including bats and snakes, which led to a rapid deterioration in health controls and a large exposure to diseases like the coronavirus. This is one of the reasons why the death toll and affected headcount are rising so fast. Not only is coronavirus more contagious than previous similar viruses, but the risk is extended to various provinces.

We all hope that the outbreak will be contained quickly, but we also need to make some estimates of economic risk. According to a study by Jong-Wha Lee and Warwick J. McKibbin, the impact on the global economy from the earlier SARS coronavirus epidemic was up to $45 billion. But once the WHO introduced decisive measures and the epidemic was contained, both the stock market and the global economy resumed an upward trend. However, in 2003 China only made up 4 percent of the global GDP, and now it is around 17 percent. The level of trade with China was also much smaller. Nomura expects a 2 percent slump in China’s annualized GDP growth in one quarter, which could cause ripple effects in Japan, with an impact of up to 0.4 percent, and Hong Kong, up to 1.7 percent. The coronavirus is more contagious but less lethal than SARS, hence the economic impact is estimated to be at least four times higher than what the experts estimated from the SARS outbreak, according to Bloomberg, and some studies elevate the economic impact to $500 billion if the epidemic lasts for an entire year.

China’s top trading partners are likely to suffer. The United States has a massive trade deficit, but remains, at 19 percent, China’s largest trading partner. Outside of the US, Hong Kong (12.1 percent), should be the most affected, followed by Japan (5.9 percent), South Korea (4.4 percent), Vietnam (3.4 percent), Germany (3.1 percent), India (3.1 percent) and the Netherlands (2.9 percent): $73.1 billion.

China has closed all commercial activities in at least twenty-one provinces, municipalities, and regions and authorities have told businesses not to resume work until Feb. 10 at the earliest. Last year, those parts of China accounted for more than 80 percent of national GDP, and 90 percent of exports, so the impact on the domestic and global economy cannot be underestimated.

Emerging markets face a double risk. On the one side, collapsing commodity prices and weaker trade growth are likely to have an important impact on exports and growth. However, the other important risk comes from weakening reserves as foreign currency revenues fall, precisely in a year when USD-denominated maturities exceed $1 trillion.

The eurozone is not immune. Its massive trade surplus also relies heavily on markets where China is either the main partner or a key driver of growth and trade.

So far, most of these risks are only assumptions and many come from speculation, because the extent of the outbreak has not been defined in detail. As such, it is logical that markets and economists see a wide range of impacts. One thing, however, is clear: the estimates of global GDP, inflation, and trade growth for 2020 that we saw at the end of last year are going to be slashed, and the likelihood of full normalization of trade and commercial activity in and with China in the short term is small. We all want a rapid resolution, effective containment of the epidemic, and no more deaths, but the economic ramifications cannot be ignored

Originally published at Dlacalle.com
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More on Joe Salerno's Critique of Economism

02/03/2020Jeff Deist

Dr. Joe Salerno recently penned a response to economist Tyler Cowen's call for "State Capacity Libertarianism."  It's a very important essay, and I encourage you to read it. It gets to the heart of a very important and broad question in America today, namely whether what we can call the "managerial capitalism" of the twentieth and early twenty-first centuries is working. 

Embedded in Salerno's broader critique of Cowen, focused on the predatory nature of state power, is this important point about the unsatisfying doctrine of economism:

The bulk of Henderson’s [economist David Henderson, another Cowen critic] article is thus confined to citations of research and anecdotes indicating how the free market and entrepreneurship would solve or alleviate the problems raised by Cowen, including traffic congestion, low-quality K-12 education, and climate change. Near the end of his article Henderson rehearses the venerable public choice argument demonstrating that the perverse incentive structure confronting politicians, bureaucrats, and voters in the political arena produces the inefficient outcomes that Cowen bemoans. This contrasts with the alignment of incentives guiding and coordinating the actions of consumers and producers in the market economy, which would conduce to a more efficient resolution of most of these problems.

Henderson does score cogent points against Cowen. But, in the end, Henderson’s version of libertarianism amounts to little more than economism, the narrow and hollow doctrine of enlisting market forces to improve social efficiency under the existing political regime. Henderson’s economistic approach to libertarianism is epitomized in Milton Friedman’s classic work Capitalism and Freedom.

Economism, an older cousin of public choice theory, is a throwback to the idea of homo economicus. Economism sees individuals as relentless rational actors, always seeking to maximize their (narrowly) economic well-being. Public choice argues for applying this focus to state actors as well, and thus for using policy as a tool for greater economic efficiency. As Salerno puts it, "economism attempts to enlist market forces to improve social efficiency under the existing political regime." It seeks to align the "incentives guiding and coordinating the actions of consumers and producers in the market economy, which would conduce to a more efficient resolution of most of these problems."

But is this wise, or even realistic? Should the state apparatus be charged with nudging humans toward more efficient (read: aggregated) economic outcomes? Does the Austrian tradition counsel economism, and does broader support for laissez-faire policy compel it? 

Of course not, says C. Jay Engel writing at Bastion magazine:

The Viennese students of civilization would never have talked in the way Cowen does. Contrary to the “free market” economic establishment, the Austrians, and especially Misesians, completely deny the neo-classical construct of homo economicus. As conservatives such as Russell Kirk rightly point out the actual unrealistic nature of this construct, the Austrians are forever exempt from the criticisms related to the “economism” of man. It is true that man does not live by bread alone, as Wilhelm Ropke echoed the Biblical phrasing; his sociological needs, fulfilled by his community setting and connection to place and kin, are often more important than a singular emphasis on his material opportunities. The Austrians recognized this more than the typical policy-advising economists of the twentieth century.   

Furthermore, we need not consider man's higher or spiritual motivations to refute such a narrow view of his conduct. As Engel explains, only the rigorously subjectivist perspective of the Austrian school offers a rational critique of economism:

no school of economic thought is as enduringly relevant as the Austrian School. Only they, with their subjective theory of value, can account for the displeasure of those Westerners who are not experiencing the mythical wonders of booming GDP. It was they who derided the absurdity of using formulas of aggregation to pronounce the successes of central economic decision making. It was the Austrians who alone among economists could account for the fact that mankind's wants were so much more complicated and complex than just a cold material prosperity could fulfill.

Subjectivism is what separates "efficiency" from real value. The cold-hearted free market economist, always portrayed as fixated on material wants, cannot win hearts and minds in the arena of social science with this bone-dry approach. On the contrary, Misesian economics is human in orientation, always focused on actors rather than aggregates. Real people act, real people imbue their actions with value knowable only to them.

Ultimately, Cowen and economism turn what ought to be robust social science into a handmaiden for state efficiency. Political liberty becomes nothing more than a mechanism for "better government." But as Dr. Salerno reminds us, this narrow view disregards the inherently predatory nature of the state itself: 

Libertarianism becomes in their hands a recipe for constraining state action in the interest of optimizing social efficiency. This economistic, hollowed-out version of libertarianism may be called “state efficiency libertarianism.”

In contrast, hard-core, muscular libertarianism begins with the insight that the state is fundamentally different in nature from society and economy, and stands wholly apart from them.

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Leonard Read on Violence, Liberty, and Love

02/03/2020Gary Galles

Virtue is widely preached and admired. Most consider themselves virtuous. Yet in our society, virtue is being progressively crowded out by coercion. That suggests a need to give more consideration to the differences between social coordination based on virtue, which is voluntary, and that based on coercion, which actually degrades what we consider good and atrophies the muscles of virtue.

Leonard Read, FEE’s founder, thought long and hard about this distinction. But perhaps his most insightful discussion came in his 1950 Students of Liberty, celebrating its seventieth anniversary this year, which framed the discussion in terms of violence versus love:

  • The principle of violence finds widespread application.
  • A citizen is compelled to give of the fruits of his labor to meet…”needs” of others. Freedom of choice as to what he does with his own capital and income (property) is denied him. Freedom of choice gives way to the dictation of an authority…backed by brute force.
  • The government’s claim becomes the first lien on everything a citizen owns.
  • The reason that most of us do not think of government coercion as meaning obedience under penalty of death is because we…acquiesce before the ultimate meaning of compulsion is realized.
  • Here…government was strictly limited; that there was a minimum of organized violence.
  • Restriction and destruction by government, to be useful, must be confined to that which is bad: fraud, private violence, conspiracy, and theft or other predatory practices…in the original plan, all creative functions were to be carried on by such voluntary, cooperative, and competitive elements as the population contained. Government was to be confined to the protection of personal liberty.
  • I cannot make inspired violence square with ethical concepts. Aggressive coercion…[h]ow this brute force can be used and be considered moral, except to restrain violence otherwise initiated, is beyond my capacities to reason.
  • As a private citizen, the predatory person is only one among millions. As an agent of government he becomes one over millions.
  • I have no faith, whatever, in any “good” that can come from these measures based on violence.
  • The political means…is…communalization by force, or legal thievery. It is simply the political device by which citizens pool their votes to extort the fruits of the labor of others for the purpose of satisfying the desires of themselves, their group, their community, or their industry.
  • Communalization by violence…[can] destroy the society from which it derives its parasitical existence.
  • The cause of our ills is a reliance on the principle of violence.
  • When we as citizens turn over to the state an item in the responsibility for our welfare, the state assumes a proportionate authority over our lives.
  • The alternative to violence is love….the application of the kindly virtues in human relations such as tolerance, charity, good sportsmanship, the right of another to his views, integrity, the practice of not doing to others what you would not have them do to you, and other attributes which result in mutual trust, voluntary cooperation, and justice….Why, then, don’t we be done with violence?
  • Reason will not support the idea of the principle of love as impractical….We practice the principle of love in most of the aspects of our daily lives without recognizing it as such….But where violence once takes the place of love, most of us seem to consider the matter settled, and conclude that love has forever been ruled out as possible of application…aid on a voluntary basis has been all but forgotten as a possibility.
  • This would be a better world if a trend away from violence could be begun and a trend toward love initiated.
  • What are the conditions essential for this needed reversal in form?
  • Love prospers only in liberty. It generates and grows among free men….As violence begets violence so does one personal act of kindness beget another.
  • Authority over one’s own actions is lost precisely in the degree that responsibility is shifted to someone else….Self-improvement [is] the only practical course that there is to a greater liberty.
  • Understanding liberty is knowing how to live in a condition where voluntary efforts will be at the maximum, and the use of force against persons at the minimum.

Present-day talk and writing…for the most part is an argument for the rearrangement of the rules of violence…[But] progress is possible only when human energy is freed of restraint.

Once the reliance on self is removed, once the responsibility for a portion of our being has been assumed by another…we cease to think about or apply our ingenuity to the activities thus transferred….Creative thought is abandoned by man as a free and thus a creative agent, and assumed by man as an agent of coercion.

Understanding liberty requires that we think…of replacing violence with voluntary action.

In Students of Liberty, Leonard Read drew out the superiority of a society whose organizing principle is virtue—love voluntarily acted out in practical terms toward those we interact with—over one whose organizing principle is the threat of violence. Unfortunately, we have been heading down the wrong path. Read’s insights can help us reverse course. And the alternative is not appealing:

The principle of love prospers in a condition of liberty….[T]he principle of violence thrives in the absence of the principle of love….[T]he principle of violence is destructive of ourselves, of civilization, and of mankind.

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The Pretense of Intuition

01/30/2020Peter G. Klein

Joe's excellent critique of "state capacity libertarianism" picks up on something I also noticed when reading Tyler Cowen's piece. As Joe puts it, Cowen's ideal state is "a nonmarginal actor whose task is to achieve certain collective outcomes intuited by Cowen or some other political philosopher." Cowen provides a laundry list of societal challenges he claims only a highly capable state can solve—traffic congestion, secondary education, climate change, etc.—without discussing any in detail. Of course, each issue has been analyzed many times in the libertarian literature, using the standard concepts, theories, and frameworks such as marginal analysis, demonstrated preference, opportunity costs, Austrian price theory, comparative institutional analysis, and so on, and no evidence for "market failure" has surfaced. But Cowen's intuition tells him markets aren't good enough in one area or another. 

This is actually Cowen's long-held view. You may remember his 2014 article "The Lack of  Major Wars May Be Hurting Economic Growth," which echoed the Mariana Mazzucato position that government spending is the main source of technological progress. I remember a friendly argument with Cowen some twenty years ago about NASA, which he insisted was an example of benevolent government intervention. I brought up the standard counterarguments—theoretical (how do you measure benefits and costs, including opportunity costs?), empirical (lots of case study evidence suggesting widespread waste, fraud, and long-term negative effects on the direction of science and technology), and deontological (is it okay to coerce people to support transfer payments that they see as against their self interest?). He wasn't buying it. Space exploration is just so cool that the usual arguments don't apply.

Many influential writers and thinkers are like this, relying on intuition over analysis and evidence. "I can't explain exactly why this case is different (e.g., immune from public choice considerations), it just is." It's a common problem among academics, elite media, government officials, etc. "People are biased and highly irrational, except for me and my friends." "Inequality is wrong and should be addressed through redistribution, except in the case of academic positions at elite universities or slots in the top journals." "Powerful special interests have too much influence on policy, except for antitrust which is apolitical." Watch for this.

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Thanks to the Anti–Gig Economy Craze, Freelance Writers Are Getting Hurt

01/28/2020José Niño

Libby Emmons and David Marcus at the New York Post put a spotlight on the ongoing crusade against the gig economy. They began by citing California Assembly Bill 5, which was designed to put the clamps on the gig economy.

Ostensibly marketed as a bill to reign in rideshare companies like Uber by forcing them to provide independent contractors the same benefits as employees, the law is now poised to harm freelance writers.

This law limits the number of articles a freelancer can sell to a media outlet without occupying a formal employee position to thirty-five. However, a rising number of journalists in the twenty-first century make a living by writing frequently for a few outlets. The damage is already starting to crop up, with news and opinion website Vox cutting two hundred of its California freelancers at one of its outlets.

Such legislation is not just staying in the Golden State. New iterations are being considered in New York and New Jersey. The law might be based in the good intention of protecting gig laborers by providing them with the rights of traditional employees; however, as we’ve repeatedly seen with legislative overreach these days, there are plenty of second- and third-order effects that come about because of these interventions.

Indeed, the gig economy is a transformational advancement in socioeconomic affairs, one that people are still adjusting to as we speak. There will obviously be growing pains as people transition into these work structures. However, politicians who carelessly demagogue these situations make things worse when they scribble legislation that ends up creating unintended consequences.

Ultimately, freelance writing is an enhancement of free speech: dissident voices have the freedom to choose what outlets they write for, often outside of the legacy media’s control. The flexibility that freelance work has given writers could be in jeopardy thanks to such legislation. That extra income that could go to making rent, paying for school, or investing in self-education will now evaporate just because a bunch of politicians supposedly know better and have to save their constituents from the perceived bugaboos of the free market.

New York and New Jersey are now considering their own versions of antigig bills, although the content of such bills remains to be seen. Should these bills target freelance writers like the one in California does, it will only consolidate the legacy media’s power and prevent independent voices from providing a unique perspective in an otherwise stagnant media domain.

Originally published by Advocates for Self-Government.

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Economics: The "Other Side" of Politics

01/24/2020Per Bylund

The realm of politics is to coordinate solutions beyond what decentralized actors and organizations can themselves achieve. This is done through the power of the state (coercion). Thus, the scope and use of politics as a means is strictly limited to where it is the better solution for society and its constituents. 

This means that the boundary of the proper use of politics and the state is identified by what can (and will) be coordinated through decentralized means. In other words, the boundary of politics is composed by our understanding for the mechanisms behind spontaneous orders and their emergence. 

Chief among these is the price mechanism and economic calculation. 

In other words, the "other side" of politics, which suggests where and to what extent the powers of the state should and can be used, is economics and, more broadly, economic literacy.

Economic theory explains how markets, the nondirected and unplanned coordination of decentralized efforts, work. Where markets work, and where the market order does not pose a problem that is unsolvable by market actors themselves, there is no reason for politics—other than as prescribed by the minority normative position that coercion is somehow preferred over voluntarism.

There are of course issues involved with defining the exact boundary of the proper realm of politics, and which issues are actual problems.

There is also a problem of "insiders" in the political system having more or less unlimited interest in expanding their sphere of influence (if not power). But the underlying problem, especially in democracies, is widespread economic illiteracy: if we do not (or will not) understand how markets work and how beneficial orders can arise spontaneously out of the actions of self-interested actors, whether individuals or families or businesses, then we undermine, expand, and will even dissolve the boundary of the proper realm for politics.

In other words, to use Franz Oppenheimer's old but insightful dichotomy, we invite the political means (coercion), along with the inefficiency and unproductive (if not destructive) incentive structures, to take over the proper space of the economic means (voluntarism).

That's problematic for all of us, if not for society overall, and poses an ethical problem, since the vast majority does not hold the position that "coercion is preferable to voluntarism."

A problem that can only be solved by learning how markets work, studying sound economics, and gaining economic literacy. 

As Mises put it:

Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man’s human existence. (Human Action)

The social function of economic science consists precisely in developing sound economic theories and in exploding the fallacies of vicious reasoning. In the pursuit of this task the economist incurs the deadly enmity of all mountebanks and charlatans whose shortcuts to an earthly paradise he debunks. (Economic Freedom and Interventionism)

Formatted from Twitter @PerBylund

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To the Left: Stop Whining About Wyoming's Two Measly Senate Votes

01/22/2020Ryan McMaken

In a January 14 article for Vox, Ian Millhiser discusses a new proposal in the Harvard Law Review designed to accomplish four things:

(1) a transfer of the Senate’s power to a body that represents citizens equally; (2) an expansion of the House so that all citizens are represented in equal-sized districts; (3) a replacement of the Electoral College with a popular vote; and (4) a modification of the Constitution’s amendment process that would ensure future amendments are ratified by states representing most Americans.

 The scheme consists of dividing up the District of Columbia into more than one hundred new tiny states so as to drastically increase the number of leftist-controlled states so as to push through a wide variety of new Constitutional amendments.1 

Milhiser is enthusiastic, since he believes the US electoral system is too "undemocractic" and that the system must be overhauled "so that the United States has an election system 'where every vote counts equally.'" 

[RELATED: Stop Saying "We're a Republic, Not a Democracy" by Ryan McMaken]

Milhiser's concept of "unequal" is illustrated more clearly when he calls the US Senate "ridiculous" because it is a system "where the nearly 40 million people in California have no more Senate representation than the 578,759 people in Wyoming."

So now we have arrived at the heart of the matter. 

Milhiser contends Californians are underrepresented in Washington—or more likely he thinks leftists are underrepresented, given the context of the piece—because Wyoming and California have equal representation in Congress. 

This, we are supposed to believe, somehow leaves millions of Californians disenfranchised. 

Common sense, however, strongly suggests Californians—or at least the politicians who claim to represent them—are quite well represented in Washington and wield quite a bit of power. Let's look at some numbers:

California has fifty-three votes in the US House of Representatives while Wyoming has one. 

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As a percentage of the full House, California's delegation makes up 12 percent of all votes while Wyoming's makes up 0.2 percent. 

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In fact, California's representation in the House is so large that California House members outnumber members from an entire region of the US: namely the Rocky Mountain region. If we add up all eight states of the Mountain West (Nevada, Utah, Arizona, Montana, Idaho, Wyoming, Colorado, and New Mexico) we come up with only thirty-one votes. Moreover, many of these states have split delegations (as with Arizona and Colorado) and rarely vote as a unified group. California, on the other hand, has only seven Republican House members out of fifty-three, meaning that the state's delegation tends to reliably vote together.

California even enjoys a sizable advantage in the electoral college as well. It is true that the electoral college formula evens things up somewhat. California representatives wield more than 10 percent of all electoral college votes, and Wyoming enjoys only 0.6 percent of all votes. Now, if the Rocky Mountain region were to vote together for a certain candidate, it could theoretically, almost equal the power of California. But, the region doesn't vote together, with Colorado, New Mexico, and Nevada often going for one party while the rest of the region goes for another. Thus, California, because its electoral votes are centralized, brings more power to presidential elections than the entire Rocky Mountain region.

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So, while it's true that Wyoming's two votes in the US Senate make it easier for a Wyoming-led coalition to veto legislation that favors California, the same can be said of California in the House. While California and Wyoming theoretically have equal power in the Senate, Wyoming has essentially no power in the House, and could not possibly hope to do much to overcome opposition from California House members. The fact that voters in Wyoming have more US senators per person hardly places people with California-type interests at the mercy of people with Wyoming-type interests.

Essentially, the system as it now functions places significantly more veto power in the hands of California in the House. At best, though, Wyoming has only an equal veto to California in the Senate. Veto power, of course, is one of the most important aspects of US legislative institutions, since it is designed to help minority groups protect their own rights even when lacking a majority. This is the philosophy behind the Senate's filibuster, and the philosophy behind the bicameral legislature. The purpose is to provide numerous opportunities for minorities to veto legislation pushed by more powerful groups. 

The importance of protecting minority rights, of course, is a mainstay of the ideology we used to call "liberalism"—the idea that people ought to enjoy basic human rights even when the majority doesn't like it. 

All that is out the window, however, where progressives and other leftists suspect they are in the majority, in which case the protection of minority groups is null and void. Suddenly, the Democratic majority is the only thing that matters. 

Had rank majoritarianism won the day in the past, Indian tribes, Catholics, Quakers, and Japanese Americans would have all been extirpated or run out of the country a century ago. But the sort of prudence that put some limits on the power of the majority in the is now thoroughly unfashionable on the Left. The Left now strains to grasp the opportunity to rid themselves forever of even what small amount of legislative resistance can be offered by the hayseeds in flyover country. 

The fact that California gets more than fifty times the votes of North Dakotans isn't enough for progressives. They must also stamp out what limited influence North Dakota has in the Senate as well.  

This sort of thinking suggests that in order to make the US more "democratic" large minorities of voters—voters with specific economic and cultural interests that differ from those in other regions—ought to be rendered essentially powerless.

All that said, I endorse the plan from the Harvard Law Review Milhiser is pushing. It undermines the idea that the US's current state boundaries are somehow sacrosanct and that enormous states with millions of people are a perfectly fine thing. The US and its member states are far too large, and could use a thorough dismembering. But Milhiser should be careful what he wishes for.

  • 1. I should note there's nothing wrong with dividing up the US into a large number of small states. It's just that the scheme ought to encompass the entire country rather than just a tiny of part of it with the goal of helping a single political party. Indeed, most US states are far too large and ought to be broken up into far smaller pieces: https://mises.org/wire/if-american-federalism-were-swiss-federalism-there-would-be-1300-states
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How Expansive Is FBI Spying?

01/22/2020Ron Paul

Cato Institute research fellow Patrick Eddington recently filed several Freedom of Information Act (FOIA) requests to find out if the Federal Bureau of Investigation ever conducted surveillance of several organizations dealing with government policy, including my Campaign for Liberty. Based on the FBI’s response, Campaign for Liberty and other organizations, including the Cato institute and the Reason Foundation, may have been subjected to FBI surveillance or other data collection.

I say “may have been,” because the FBI gave Mr. Eddington a “Glomar response” to his FOIA requests pertaining to these organizations. A Glomar response is where an agency says it can “neither confirm nor deny” involvement in a particular activity. Glomar was a salvage ship that the Central Intelligence Agency used to recover a sunken Soviet submarine in the 1970s. In response to a FOIA request by Rolling Stone magazine, the CIA claimed that just confirming or denying the Glomar’s involvement in the salvage operation would somehow damage national security. A federal court agreed with the agency, giving federal bureaucrats, and even local police departments, a new way to avoid giving direct answers.

The Glomar response means these organizations may have been, and may still be, subjected to federal surveillance. As Mr. Eddington told Reason magazine, “We know for a fact that Glomar invocations have been used to conceal actual, ongoing activities, and we also know that they’re not passing out Glomars like candy.”

Protecting the right of individuals to join together in groups to influence government policy is at the very heart of the First Amendment. Therefore, the FBI subjecting such groups to surveillance can violate the constitutional rights of everyone involved with the groups.

The FBI has a long history of targeting Americans whose political beliefs and activities threaten the its power or the power of influential politicians. The then named Bureau of Investigation participated in the crackdown on people suspected of being communists in the post-World War I “Red Scare.” The anticommunist crackdown was headed by a young agent named J. Edgar Hoover, who went on to become FBI director, a position he held until his death. Hoover kept and expanded his power by using the FBI to collect blackmail material on people, including politicians.

In the 1930s and 1940s, the FBI spied on supporters of the America First movement, including several Congress members. Two of the most famous examples of the FBI targeting individuals based on their political activities are the harassment of Martin Luther King Jr. and the COINTELPRO program. COINTELPRO was an organized effort to spy on and actively disrupt “subversive” organizations, including antiwar groups

COINTELPRO officially ended in the 1970s. However, the FBI still targets individuals and organizations it considers “subversive,” including antiwar groups and citizen militias.

Congress must hold hearings to determine if the FBI is currently using unconstitutional methods to “monitor” any organizations based on their beliefs. Congress must then take whatever steps necessary to ensure that no Americans are ever again targeted for surveillance because of their political beliefs and activities.

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What Crypto "Token Velocity Theorists" Can Learn From Austrian Economics

01/21/2020Stephan Livera

In the “crypto” world, there are theorists mistakenly applying Irving Fisher’s equation of exchange without knowledge of Austrian critiques of the idea. Understanding why Austrian economists are critical of MV = PT might help these theorists avoid these errors in reasoning. (These theorists include Kyle Samani, Chris Burniske, and Vitalik Buterin among others, hereafter referred to as "crypto velocity theorists.")

Quick Overview of Terms in the Fisher Equation of Exchange

In the equation, M = ​the money supply, V = ​the velocity of money, or the average number of times a currency unit changes hands per year, ​P = the average price level of goods during the year, and T = an index of the real value of aggregate transactions​. In the MV = PQ formulation, Q = an index of real expenditures and P × Q = nominal GDP.

How Are Crypto Velocity Theorists Misapplying the Theory?

Crypto velocity theorists seem to believe that the current structure of crypto tokens (non-bitcoin ones) has a velocity that is too high. They assert that somehow by using the protocol to force holding or "lock up" periods the velocity of the token can be slowed down, enabling more sustainable value capture for a crypto protocol. There are various "tokenomics" ideas being proposed to achieve this slowdown in velocity, such as profit share mechanisms, staking functions to lock up the token, or gamification to encourage holding.

But are these mechanisms sustainable in the longer term? Distinguished against these ideas is the simple concept of bitcoin, a token and monetary network created to replace fiat money. Bitcoin can justifiably hold a place in a person’s cash balance under a theory of speculative demand based on its monetary characteristics. In this case, the more relevant reference is Carl Menger and the argument around marketability or saleableness, not the quantity theory of money and associated equation of exchange.

How Do Prominent Austrian Economists Critique the Quantity Theory of Money?

Austrian economists reject the quantity theory of money, which is too mechanistically focused on the nominal quantity and not on real subjective valuations by individuals. Murray Rothbard and Joseph Salerno point out many problems.

In Man, Economy, and State, Rothbard points out a serious conceptual flaw:

At any one time there is a given total stock of the money commodity. This stock will, at any time, be owned by someone. It is therefore dangerously misleading to adopt the custom of American economists since Irving Fisher's day of treating money as somehow “circulating,”…There is, actually, no such thing as “circulation,” and there is no mysterious arena where money “moves.” At any one time all the money is owned by someone, i.e., rests in someone's cash balance.

In other words, Rothbard shows that velocity is a rather meaningless idea. Further, he points out that different goods cannot be meaningfully added together, demonstrating the absurdity of doing so:

How can 10 pounds of sugar be added to one hat or to one pound of butter, to arrive at T? Obviously, no such addition can be performed, and therefore Fisher's holistic T, the total physical quantity of all goods exchanged, is a meaningless concept and cannot be used in scientific analysis.

Joseph Salerno levels his own critique against the idea of the quantity theory of money also, identifying where it is vacuous in his article "A Simple Model of The Theory of Money Prices":

Let’s begin with the Quantity Equation as conventionally stated: MV = PQ. Our simple model above reveals that the real action is on the right side of the equation.…The mechanical passing of a specific sum of money from one hand to the next in exchange, that is, “spending,” is completely governed by the money price that has been antecedently established by the exchanging parties. Thus the money spent is merely an outcome of the pricing process and in no sense a causal factor. In other words, the aggregate flow of money spending is determined by the value of money and not the other way around.

Salerno demonstrates that individuals' subjective valuations drive prices all along, not the quantity of money in a mechanistic sense.

So, in the end, "Tokenomics" and attempting to "game" token velocity downward to satisfy an erroneous Fisher equation of exchange is misguided. We should aim to understand bitcoin and cryptocurrencies from an Austrian monetary theory standpoint. Menger's On The Origins of Money and Ammous Saifedean’s The Bitcoin Standard are more relevant places to begin. Saleableness is more important than velocity.

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