Power & Market

The Subjective Theory of Bitcoin

In a recent article on the Mises Institute’s Power and Market blog, Kyle Ward appealed to the subjective theory of value to castigate Peter Schiff for his notorious skepticism of bitcoin:

Schiff is quick to point out that gold has uses outside of being money. It is used in electronics, dentistry, and jewelry, to name a few…. This leads Schiff to claim that bitcoin is unlike gold in that it has no fundamental (or objective) value. His mistake is obvious: there is no such thing as objective value, whether we’re talking about gold or bitcoin. Value is subjective and determined internally by individuals…. Yes, gold can be used to build electronics, but that only has value because consumers subjectively value electronics. (emphasis in the original)

I believe Ward errs in how he relates the subjective theory of value to bitcoin, but his error stems both from an ambiguity in phrases like “objective value” and from an ambivalence in how the founding fathers of Austrian economics themselves considered the relationship between the human agent and the good being valued.

In this article I will argue that the “orthodox” Austrian school position regarding the emergence of sound money from commodities—first proposed by Carl Menger, subsequently developed by Ludwig von Mises, and presumably adopted by Peter Schiff—is the correct one. But I will appeal to a Scholastic notion of the good to defend that view. That notion of the good is also critical to secure the foundation of a sound economic science.

Value vs. Goodness

By focusing solely on the subjective valuation of the consumer to support the legitimacy of bitcoin as potential money, Ward overlooks that not everything is “valuable,” i.e., suitable for valuation by a human actor.

To see this, let us start by noting that before he introduced the subjective theory of value in his Principles of Economics, Carl Menger was careful to first develop a theory of the good in the beginning chapters of the text. Those chapters indicate that the proper object of valuation is “a good,” and that not everything that is—i.e., not every “being”—qualifies as a good.

Valuation does not turn things into “goods.” Valuation is an assignment of importance (or ranking) of one good relative to another, but that assignment must be applied to proper objects of valuation, i.e., to things which are goods to begin with.

In other words, it is true that there is no “objective value” in things, since valuation is subjective. On the other hand, there is such a thing as “objective goodness.”

But what, then, makes a thing be an objective good?

Menger proposed a definition that includes 4 necessary conditions: a good is that which (1) is capable of causing the satisfaction of (2) an existing human need, and this causal capability has to (3) be recognized by a human agent who is able to (4) turn it into an effect, i.e., bring about the satisfaction of the need.

As it turned out, Menger’s conception of the good was overly restrictive. For example, he denied that charms, folk medicines, divining rods, love potions, and other such things could have the status of goods, judging them to be “incapable of actually satisfying the needs they are supposed to serve” (p.53).

More importantly from the standpoint of the causal realism he aimed to be faithful to, Menger’s theory of the good was ambiguous. By demanding that a causal connection to the satisfaction of a need be recognized by the human agent in order for the thing to be a good, Menger placed the goodness of the thing in the relationship between the mind of the human agent and the thing itself (p.52, fn 4).

Menger’s ideas about the good would later be criticized by Mises who, having no strong commitment to realism, declined to place any objective restriction on what could or could not constitute a good. In turn, however, Mises’ ambivalence about realism would set him up for attacks, notably by the positivists who found that his axiom of human action was scientifically meaningless: to say that human beings act purposely in choosing to employ means (goods) in order to satisfy wants is a stipulation or a tautology. According to the positivists, the only objective datum is the action that can be empirically observed. Nothing can be inferred about an alleged teleological choice made by an actor. To argue for the objectivity of purposeful action is “the psychology of a cult,” as Paul Krugman put it a few years ago.

The criticism of the positivists would be addressed by Hans Hermann Hoppe who, in his Economic Science and the Austrian Method, proposed that the category of action itself provides a foothold into reality and avoids the charge of tautology. More recently, the axiom of human action was defended at the Austrian Economics Research Conference by Professor Douglas Rasmussen who employed Aristotelian-Thomist arguments to fulfill Murray Rothbard’s wish that economic science be established on a solid realist foundation.

Indeed, it seems to me that the strongest foundation for Austrian economics has to be an uncompromising realism. The medieval Scholastics offer such a foundation by showing that the good toward which human action is directed is squarely set apart from the mind of the agent. I will now present some aspects of this notion of the good, albeit without its complete philosophical justification.

Real Goods vs. Logical Beings

Building carefully on the metaphysical realism of Aristotle, the Scholastics have demonstrated that the good is a transcendental property of all “real beings” (entia realia), i.e., beings whose principle of existence is extra-mental. Real beings are things that do not depend on an intellect or mind for their existence.

Real beings include human beings, animals, plants, amoebas, minerals and gases, but also artifacts, like cars and computers. Parts of real beings as well as non-physical properties flowing from the nature of real beings (such as health, for living organisms) are also real beings.

Entia realia are all capable of eliciting a desire in another and hence can be called good. That desire, in turn, may provoke a movement in the subject toward the good. The real being eliciting a desire in the subject may either be desired for itself (for example, an apple to be consumed) or be desired as a means to an ulterior end (for example, a tractor). In either case, the desire rests in the good or, to use the language of economists, the want is satisfied in the good.

Of course, this is not meant to imply that all real things actually elicit a desire in all men at all times. That desire may be latent. Consider that, at one time, sticky and smelly petroleum pits were probably considered a nuisance by human beings before the function of the black liquid as fuel was discovered. Nevertheless, petroleum was good even before it was recognized as such by a human mind. Its goodness did not and does not depend on the agent deeming it to be good, although we can agree that its function as an economic good coincides with the discovery of its utility and its entrance in the economy of exchange.

Petroleum is good because it is real. Gold, silver, copper—and even sand or mud, for that matter—are also real things, and therefore things with the property of goodness. But whether this piece of silver, or that grain of sand, or this acre of mud in that corner of the planet is presently “valued” by one or more individuals can only be discovered by letting human choice express itself through free action.

Note also that real beings do not need to be proper human goods to be good. Horse manure is good even if we ignore its use as a fertilizer. It is a proper good for some insects and those insects, in turn, are proper goods for birds or other life forms, all of which sustain the ecology, i.e., the reality of which man is a part and in which he thrives.

In contrast to entia realia are “beings of reason,” or entia rationis, also referred to as “logical beings.” Unlike real beings, logical beings depend on a mind conceiving of them as a principle of their existence.

Logical beings include ideas, concepts, and abstractions as such, including mathematical abstractions, linguistic constructions, conventions, certain logical relations between real things, and “negative” beings, such as holes or tunnels (the existence of the hole depends on an intellect conceiving of it as if it were a positive reality, otherwise it is simply the absence of wall or, at most, just air).

Logical beings do not possess the transcendental properties of real beings and do not necessarily have the property of goodness. If a logical being is said to be good it is always in reference to a real good it is connected to.

For example, the Constitution of the United States does not have the property of goodness intrinsically, but it is good because of the real goodness of the civil peace it brings about for the country (provided that is your view of that founding document!).

In other words, logical beings are not desired in themselves the way real beings (“goods”) are. Logical beings cannot satisfy wants. A desiring agent cannot rest his desire in a mind-dependent logical being.

One might object that some real beings are also not desired in themselves but only as means to other goods.That is true in some sense, but even in such cases those intermediate goods do satisfy a want.

Consider the following psychological experiences as supportive evidence: if I wish to have supplies on hand to cook with my barbecue grill, my desire can rest in the bag of charcoal briquettes that I buy even before I have the need or desire to start grilling hot dogs. But my desire cannot rest, say, in a “good idea” that I have concocted about a fine point of philosophy until that idea is either communicated to others to change them or is put to work in some fashion to bring about a change in real things. An idea kept to myself or rejected by others keeps me restless. The satisfaction of a want must rest in reality, i.e., in real goods outside of a human mind.

A Logical Relation

To return to the subject of bitcoin, we should now ask ourselves what kind of beings are cryptocurrencies? Are they real beings, i.e., “goods” properly capable of being valued or, on the contrary, are they mind-dependent entia rationis?

At their most concrete level, cryptocurrencies are electronic configurations of a computer network that, by convention, are put in a relationship with specific individual users of the network. A bitcoin owes its existence to the agreement between network users that the material configuration from which it emerges be given a special meaning, an agreement without which it would be indistinguishable from the myriad possible electronic configurations of the network.

For this reason, a bitcoin is a logical relation, i.e., a type of logical being that does not exist outside the human mind the way an ounce of copper exists in the world regardless of whether or how it is thought about. A bitcoin is not a real being and therefore cannot have the property of being “a good.” A human desire cannot properly “rest” in a bitcoin.

But how, then, can there be a market for bitcoins and why are millions of real individual human beings so eager to acquire them and even hold on to them? The answer is that human beings can easily mistake a logical being for a real one, an error called “reification” (although this modern term has a somewhat different denotation).

A reifying mistake can be benign, as when we speak of the cavity in the tooth as if it were a positive reality. Not only is there no harm in speaking of the cavity as if it were a real thing, but it may even be useful to conceive of it that way (say, to habituate a child to brush his teeth).

At times, however, a reification may be an act of serious deception, and sometimes a self-deception, as when we say “Don’t confuse your desire for reality!”

For the purpose of this discussion, however, the most pertinent example of reificative deception is the widespread use of fiat money over the last 100+ years. For what is fiat money but an ens rationis conceived as if it had the attributes of gold or silver?

A cryptocurrency, then, is an attempt to replace fiat money—a logical being which we imagine to be real—not with a real good, but with another logical being which we also imagine to be real, albeit with a plausible claim that this act of imagination is socially more advantageous.

Attractive as bitcoin may be to evade our dependence on fiat money, we should at least be mindful that it is not a real good but a mind-dependent being, and therefore one at the whims of human minds. This is evident not only in the necessary dependence that bitcoin has on fiat money (after all, the printing press is its raison d’être), but also in the rapid proliferation of copycat currencies that defangs bitcoin’s claim to be a scarce resource.

Sound Science for Sound Money

The foregoing shouldn’t be construed as predicting the imminent downfall of cryptocurrencies nor as denying the possibility that they may actually play a beneficial role in the economy relative to the current monetary system. But it’s important for bitcoin enthusiasm not to get in the way of sound economic science.

In a recent appearance on The Bob Murphy Show, Vijay Boyapati, the author of The Bullish Case for Bitcoin lamented that Austrian economists have not given sufficient interest to cryptocurrencies and echoed the position advanced by Ward regarding the origins of money:

While the Austrians have the correct methodology to understand something like bitcoin, I don’t think that it has been applied properly…. One of the things the Austrians really got caught up on is [the idea that] money really has to start off as a commodity.

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The Ideology of Victimism

07/01/2021David Gordon

Luke Burgis’s Wanting: The Power of Mimetic Desire in Everyday Life (St. Martin’s Press, 2021) is a popular exposition of the theories of the great French thinker René Girard. The book includes a passage that is of great value in understanding contemporary politics. “Obviously, the defense of victims is a good thing. At the same time, it brings new dangers. In the same way that scapegoating rituals in archaic religions were entirely practical—that is, they were used to achieve practical ends—so too can the defense of victims be used for practical purposes, James G. Williams, in his foreword to one of Girard’s most well-known works, I See Satan Fall Like Lightning, attempted to sum up Girard’s thinking on this point. ‘Victimism uses the ideology of concern for victims to gain political or economic or spiritual power.’ he wrote. ‘One claims victim status as a way of gaining advantage or justifying one’s behavior.’ Victims now have the power to make new scapegoats of their own choosing. An open and honest memory is needed to prevent that power from becoming tyrannical” (pp. 128–29).

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Conspiracy: Theory and Practice

06/30/2021Edward Snowden

The greatest conspiracies are open and notorious—not theories, but practices expressed through law and policy, technology, and finance. Counterintuitively, these conspiracies are more often than not announced in public and with a modicum of pride. They’re dutifully reported in our newspapers; they’re bannered onto the covers of our magazines; updates on their progress are scrolled across our screens—all with such regularity as to render us unable to relate the banality of their methods to the rapacity of their ambitions.

The party in power wants to redraw district lines. The prime interest rate has changed. A free service has been created to host our personal files. These conspiracies order, and disorder, our lives; and yet they can’t compete for attention with digital graffiti about pedophile Satanists in the basement of a DC pizzeria.

This, in sum, is our problem: the truest conspiracies meet with the least opposition.

Or to put it another way, conspiracy practices—the methods by which true conspiracies such as gerrymandering, or the debt industry, or mass surveillance are realized—are almost always overshadowed by conspiracy theories: those malevolent falsehoods that in aggregate can erode civic confidence in the existence of anything certain or verifiable.

In my life, I’ve had enough of both the practice and the theory. In my work for the United States National Security Agency, I was involved with establishing a Top-Secret system intended to access and track the communications of every human being on the planet. And yet after I grew aware of the damage this system was causing—and after I helped to expose that true conspiracy to the press—I couldn’t help but notice that the conspiracies that garnered almost as much attention were those that were demonstrably false: I was, it was claimed, a hand-picked CIA operative sent to infiltrate and embarrass the NSA; my actions were part of an elaborate inter-agency feud. No, said others: my true masters were the Russians, the Chinese, or worse—Facebook. Contrary to what a surprisingly large number of people on Twitter believe, that is very much not me.


As I found myself made vulnerable to all manner of Internet fantasy, and interrogated by journalists about my past, about my family background, and about an array of other issues both entirely personal and entirely irrelevant to the matter at hand, there were moments when I wanted to scream: “What is wrong with you people? All you want is intrigue, but an honest-to-God, globe-spanning apparatus of omnipresent surveillance riding in your pocket is not enough? You have to sauce that up?”

It took years—eight years and counting in exile—for me to realize that I was missing the point: we talk about conspiracy theories in order to avoid talking about conspiracy practices, which are often too daunting, too threatening, too total.

Read the full article.

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New York Can't Run an Election. Why Can't Governments Do Their Most Basic Tasks?

06/30/2021Ryan McMaken

New York City held its Democratic primary for mayor last week, and the initial results favored Brooklyn Borough president Eric Adams by a sizable margin.

But now officials say those results aren’t reliable at all and the Board of Elections botched the vote-counting process.

As the Washington Post now reports:

It turns out that the results the city released also included a number of dummy ballots, used to test the system—ballots that should not have been included in the initial count….

It will still be a few weeks before we know who won the primary, given those absentee ballots (which are likely to aid Garcia) need to be counted. 

This is a primary election in a single city, yet based on the level of competence brought to the operation, one would think this were an incredibly complex affair, unknown in the annals of government operations.

(It’s also reminiscent of the botched primary election in Iowa in February 2020, when the Democratic Party had more trouble counting a small number of votes in one of the smallest states in America.)

In the wake of the New York fiasco, not surprisingly, some Americans began to point out that if New York miscounted its votes in a mayoral election, why should we trust that 2020’s presidential election in New York was “secure”?

Perhaps aware of the fact that last week’s election doesn’t look good for the idea of election integrity, the corporate media sprang into action with a plan: blame everything on New York’s board of elections (BOE). This is a New York problem only, we're told. Elections everywhere else in America are in tip-top shape and run by only the highest-quality, most competent people.

To keep up this narrative, the Washington Post today ran an article with the title “New York’s mayoral election is a mess. This doesn’t somehow prove Donald Trump right.”

Now, I don't know if Donald Trump lost due to election fraud, but the idea that elections and election officials are not exactly paragons of efficiency and virtue is plausible, to say the least. Nonetheless, the Post article makes it clear that the BOE is to be thrown under the bus in order to insist that election systems everywhere else are in great shape:

No observer of New York City politics was surprised to learn that the Board of Elections had messed things up. It’s common knowledge the board is at best inept, as a report from the city’s local paper documented in late October. The city’s politics broadly are byzantine and dishonest, often relying on a system of patronage that those in power—generally the system’s beneficiaries—are loath to challenge. It’s an embarrassing situation, but usually one that does its embarrassing thing out of the spotlight of national attention.

Similarly, CNN featured a story today declaring the New York BOE to be “corrupt and incompetent,” with CNN on-screen personality John Avlon insisting in no uncertain terms that the BOE is worthless.

Needless to say, one rarely hears such thundering condemnation of Democrat-controlled institutions at the WaPo or CNN, yet it’s no holds barred at major news outlets today. But it's all necessary to assure the public that New York is the only place in America where election systems are "corrupt and incompetent." 

Governments Continue to Botch Their Core Functions

But even if we leave Donald Trump and the 2020 election out of this, the New York affair should be regarded as just the latest reminder that government institutions increasingly can’t seem to be able to carry out what we’re told are their most basic functions.

We’re told that governments must be in charge of elections; that governments will “keep us safe” by catching criminals and preventing crime; that governments must be in charge of the justice system; that governments must be in charge of the schools.

Yet in all these cases, the competence and success with which government agencies carry out these “core duties” is questionable at best.

The court system is slow, overloaded, and involves long wait times. The multiyear wait times needed to get a hearing for suspected illegal immigrants is just the latest example. The right to a “speedy trial” is apparently not much of a right at all.

Meanwhile, the homicide rate continues to head up to the multidecade highest. Millions of Americans are buying guns because they don’t trust government officials to “keep us safe.” This is true both at the micro and macro levels. In many cities, police devote almost no resources to investigating homicides. And then, of course, there is the American intelligence “community” (i.e., the FBI and the CIA), which allowed 9/11 to happen right under its nose. And don’t forget the fact the US just lost two more wars.

Public schools are almost as unimpressive. The US ranks forty-eighth in math and science education. The US is only in the middle in terms of science and reading. Ninety percent of American schoolchildren attend public schools.

Yet while governments in America can’t seem to pull off these most ordinary tasks, they seem to have plenty of time and resources for investigating middle-aged women who “stormed” the US Capitol on January 6. Last Sunday, the US government bombed Syria and Iran—for reasons that obviously had nothing to do with defending the borders of the nation or the rights of American citizens. America’s governments have plenty of resources to pour into bailouts for wealthy bankers and other corporate friends.

But crime? Elections? Schools? Well, that’s all just much too complicated and governments insist we shouldn’t expect too much of them. After all, they assure us, we stingy taxpayers aren’t willing to cough up as much money as we should. The data says otherwise.

So when New York announces that it just hasn’t yet gotten the hang of this whole “elections thing,” just chalk it up to yet another example of how governments are awash in cash, yet never seem to be able to actually deliver the promised goods.

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With Inflation Rising, Can the American Right Learn from El Salvador?

06/29/2021Tho Bishop

El Salvador became the center of the bitcoin world recently with the announcement from President Nayib Bukele that the country will embrace a bitcoin standard. While criticisms may exist about details of this specific proposal, a state actor effectively challenging the dollar-based global monetary regime is a cause for celebration. While it remains to be seen if other countries will attempt to replicate Bukele’s handout to the bitcoin community, there are important lessons here for other political leaders trying to respond to the global uncertainty that has resulted from the Federal Reserve’s reckless abuse of the global reserve currency.

Among those who would benefit from seriously engaging with the question “What has government done to our money?” is the American right.

While the reckless fiscal and monetary policy that has eroded the security of the American dollar is unquestionably bipartisan in nature, the Biden administration may end up being the unfortunate winner of inflationary hot potato. With annual inflation reaching 5 percent, the Federal Reserve will face a level of scrutiny it has not faced in a decade—and inflation is a particularly problematic political hurdle given the daily toll it takes on average consumers. The corporate press will do everything it can to try to gaslight the American public about the costs of inflation, but not even the Communist Party of China has the power to prevent average consumers from feeling the pain of rising consumer prices.

While the Republican Party may look forward to the politically advantageous environment an inflationary environment may provide at the ballot box, ultimately policymakers are going to have to seriously deal with the underlying issue: the absolute failure of the modern PhD standard.

Historically, abuses of a country’s currency have typically resulted in some sort of value peg. In America, both FDR and Richard Nixon ordered a deliberate devaluation of the dollar against a weight of gold—an effective default by the Federal Reserve that no Fed chair wants to acknowledge. Some analysts, such as James Rickards, have mentioned this as a potential remedy for the Fed’s current problem.

Another approach has been to embrace the use of another form of currency restraint, such as a currency board, favored by scholars like Steve Hanke. The problem is that a currency board requires the existence of other stable currencies—and the problems that face the dollar are global in nature. It is precisely the fact that almost all other fiat currencies have followed—or surpassed—the monetary hedonism of the Federal Reserve that has helped maintain its global dominance over the past decade.

This does, however, open up one of the most terrifying outcomes that could emerge: the rise of a globalist-imposed currency. The potential for an instrument such as the IMF’s special drawing rights (SDR)—which have increasingly been used by the International Monetary Fund as a means to bailouts and foreign aid—to be used as a new global reserve currency is an idea that has been discussed since the aftermath of the 2008 financial crisis.

In 2009, the Federal Reserve Bank of Cleveland acknowledged that

persistently bad U.S. economic policy could push people into a new international currency. If foreigners suspected that the costs of holding dollars in terms of lost purchasing power would soon exceed the network benefits of transacting in dollars, they would migrate to an alternative international currency.

It's worth noting that US economic policy has been bad enough that some central bankers have voiced concern that the Fed has abused the dollar's position as a global reserve currency—and not only the usual suspects of China, Russia, or Iran. In 2019, former Bank of England president Mark Carney denounced the dollar as "destabilizing" and called for it to be replaced by a global digital currency. Such a move would also fit neatly with various attempts to engage in a war on cash, and would radically increase the ability of authorities to track and control economic behavior. 

As was the case with Treasury secretary Janet Yellen’s call for a global minimum corporate tax, the natural response by our failed technocratic elite is to further consolidate their power over society. What better way to help them solve the Very Big Issues—like climate change—than to give even more power to those we are told are our intellectual superiors?

Doesn't someone like Christine Lagarde deserve her own saint candle?

Ultimately, if the international populist moment is ultimately about a defense of national sovereignty against globalist institutions, then it is inevitable that the monetary issue will become a defining battle. Just as it has been with the EU and the euro. Should a major global financial crisis undermine confidence in fiat currency, the result will either be the consolidation of power within a globalist institution like the IMF, or a revolutionary shift to private money—such as bitcoin or gold.

Those stakes really couldn't be higher.

If the American right recognizes the significance of this issue, there are steps that can be taken immediately to better prepare red America for the future. Just as economic policy—amplified by differences in covid response—has made red states more attractive than Democrat-controlled ones, proactive state action on the dollar dilemma could greatly benefit their citizens in the face of a flailing failing Fed.

Some have already been leading. Texas, for example, opened a state-backed gold depository with the aim to repatriate Texas-owned gold from the vaults of the Federal Reserve. As Ryan McMaken has noted, a US state getting serious about gold would allow it to effectively secede from the Federal Reserve’s monetary regime.

An alternative approach would be for a state to focus on cryptocurrency, such as bitcoin. An early leader is Wyoming, which has created the most crypto-friendly legal environment in the United States, including allowing state-charted banks to legally hold crypto. Imagine if every Republican-led state implemented Caitlin Long’s work at the state level? Not only would it effectively demonstrate a state-by-state “no confidence” vote against the technocratic frauds at the Fed, but it would significantly undermine any attempt to utilize the empire’s levers of power against bitcoin in the future.

After all, what better lobbyist is there than a senator with laser eyes?

Even if Donald Trump rails against bitcoin, the populist movement he has inspired may be more serious about opposing the technocratic class. Given the stark differences in vaccination rates by political party, it is clear that even Trump’s endorsement isn’t enough to overcome red America's awakened hostility to powerful institutions.

The ability of American politicians to avoid facing any serious consequences for reckless debt and spending has allowed a degree of economic nihilism to dominate the political landscape. What happens when that changes will have a profound impact on human civilization going forward.

As was the case with covid, the residents of the states most skeptical of the federal regime will have a major advantage.

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HMS Defender versus the Russian Military: The Danger of Believing Your Own Propaganda

06/29/2021Ron Paul

Less than two weeks after NATO members reaffirmed allegiance to Article 5—that an attack on one member was an attack on all members—the UK nearly put that pledge to the test. In a shockingly provocative move, the UK’s HMS Defender purposely sailed into Crimean territorial waters on its way to Georgia.

Press reports suggest that there was a dispute between the UK defense and foreign ministries over whether to violate Russia’s claimed territorial waters with a heavily armed warship. According to reports, Prime Minister Boris Johnson himself jumped in to over-rule the more cautious Foreign Office in favor of confrontation.

As Johnson later claimed, because the UK (and the US) does not recognize Russian sovereignty over Crimea, the UK was actually sailing through Ukrainian waters. It was an in-your-face move toward Russia just weeks after the US and NATO were forced to back down from a major clash with Russia in eastern Ukraine

This time, as was the case in eastern Ukraine, the Russians took a different view of the situation. Russian coast guard vessels ordered the HMS Defender to exit Russian territorial waters – an order they punctuated with rare live fire of cannon and dropping of bombs.

Having had their bluff called, the UK government did what all governments do best: it lied. The Russians did not shoot at a UK warship, they claimed. It was a previously-scheduled Russian military exercise in the area.

Unfortunately for the UK government, in its haste to create good propaganda about standing up to Russia, they had a BBC reporter on-board the Defender who spilled the beans: Yes, the Russian military did issue several warnings, yes it did buzz the HMS Defender multiple times, and yes there were shots fired in the Defender’s direction.

Similarly, in the spring, Russia rapidly deployed 75,000 troops on the border with Ukraine in response to a US-backed Ukrainian military build-up. The message was clear: Russia would no longer sit by as the US government and its allies intervened next door.

Russia now has demonstrated that it will protect Crimea, which voted in a 2014 referendum to re-join Russia. The Crimean vote was triggered by the US-backed coup in Ukraine. That is called “unintended consequences” of foreign interventionism.

The problem with the UK, the US, and their NATO allies is that they believe their own propaganda and they act accordingly. A famous 2004 quote attributed to George W. Bush advisor Karl Rove, clearly spelled out this line of thinking. Said Rove, “We're an empire now, and when we act, we create our own reality.”

These two recent near-clashes with Russia demonstrate that the “reality” created by an almost religious belief in American or NATO exceptionalism can often crash hard against the reality of 75,000 troops or the Black Sea Fleet

The anti-Russia propaganda endlessly repeated by both political parties in Washington and amplified by the anti-Trump media for more than four years has completely saturated the Beltway and beyond. Even as the Russiagate conspiracy was proven to be a lie, the propaganda it spawned lives on.

Blustering Boris Johnson almost provoked a major war over an infantile desire to continue poking and prodding Russia in its own backyard. This time the war was averted, but what about next time? Will the adults ever be in charge?

Reprinted with permission.

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NGDP Targeting Ends in Absurdity

06/28/2021Matthew Tanous

Among economists following an idea known as “market monetarism”, one of their core proposals is that the central bank should “target” a specific annual rate of increase in the nominal GDP figures, which are not adjusted for inflation. Typically, this involves targeting an NGDP annual growth rate of something like 5%. This, it is promised, will go far to ensure that the central bank responds appropriately in its monetary policy to prevent the economic cycle of booms and busts and ensure prosperity.

It doesn’t take much to see, however, that this can easily lead to some rather absurd scenarios. Naturally, we can imagine a scenario where the NGDP target of 5% is exceeded by measures of annual inflation. If we see a price inflation rate of, say, 7% (a high, but not unheard of, figure), then the NGDP target entails shooting for negative real growth. Rather, not only is one solution to high inflation to intentionally shrink the real economy and make everyone poorer, if we end up with a scenario where the economy is shrinking as inflation in prices is high, the NGDP targeting central bank might not notice a problem at all. Which would be good, insofar as central bank interventions seek to prevent the necessary and natural adjustments by individuals to changing economic conditions, except for the fact that inflation is a product of central bank monetary production. Such a central bank would be compounding the shrinking of the economy with an added dose of the destruction of purchasing power, in a cycle that can easily build to national economic collapse.

It does no good to assume that this sort of “recessionary inflation” can’t occur in practice. Even recent history puts the lie to that suggestion. Real GDP decreased 3.5% in 2020, according to the US government statistics, while the inflation rate of the US CPI ended up at 1.4%. Despite shrinking significantly, the NGDP targets are almost spot on in the “recovery”. In 2021, the CPI has just hit 5% year-over-year for May, implying that the ideal real GDP change is none at all in that timespan: which would essentially demand that no recovery from the lows of the government-imposed lockdown of large swaths of the global economy should have been done. This is patently absurd; the mind is completely boggled even thinking about it.

Yet, this is not the only sort of scenario where NGDP targeting leads to absurd conclusions. Even under a more “normal” situation for an economy with these central bank targets, the result of a recession is to intentionally target massive inflation. Assuming a recession of even a 10% drop in annualized real GDP, the annualized inflation rate to “counter” this decline and still hit the target would have to reach around 15%!

An apparently simple solution can be sought here. A lot of these recessionary drops are short-term drops followed by recovery that mostly averages out. So we can just do NGDP-targeting in the long term, right? Instead of month-by-month, we can look at the average rates over the last year or more. This seems fairly intuitive, but it doesn’t actually solve the problem. NGDP-targeting is purported to be a mechanism that will reduce recessions and smooth out the future, but going off of averages from the recent past slows responses and changes. If, hypothetically, action can be taken to prevent or reduce the severity of recessionary drops in economic output, that action must be timed properly, not adopted after the fact when NGDP targets are being blown.

NGDP targets make no distinction between a high price inflation with low or negative real output growth or low inflation with high output growth. Fundamentally, it must be assumed that “real growth” follows a trend baseline (often assumed to be 2 or 3 percent) in “normal” times for it to seem reasonable at all. And with that assumption, what it essentially comes down to is the conclusion that in a “supply shock” (say, for instance, the government forcibly outlawed the operation of half the economy for most of a year), price increases above a couple percent should be lived with and not countered by the central bank. 

Recently, we have seen that central banks wouldn’t attempt to do that anyway: faced with a “supply shock” of epic proportions created by the governments of the world, central banks the world over are declaring inflation “transitory” after printing massive sums of money to keep financial markets afloat and provide bailouts to companies that were forbidden by executive decree to operate. If and when this inflation proves to not be “transitory”, but rather a long-lasting consequence of large amounts of money being created at the same time production in many industries was slowed, halted, or redirected by government fiat, it will be far too late for any sort of NGDP targeting. The risk, rather, is that a central bank facing a crisis will throw away its targets (whether of price inflation or GDP) and simply dive into “emergency mode”, creating gobs of currency to provide “liquidity”, dropping interest rates to the floor, and working to stymie market processes of adapting to changes in supply and demand.

Originally published at Disinthrallment.com
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What Should Be Prohibited In a Free Society?

06/28/2021Gary Galles

Covid triggered a massive upswing in government prohibitions in America. Many were prohibited from keeping their firms open. Many were forced to stop working. Many of our normal freedoms of association and travel were eliminated. Many rights—such as access to due process or to contract enforcement—were effectively prohibited. And almost everyone can add to the list from their experiences.

That hyperdrive upswing in our “enjoyment” of government dictation in our lives raises a crucial question for Americans. Exactly what should we prohibit in society? It is hardly a new question, but we should re-think it because of the ballooning of what has been prohibited, with little public conversation about central issues.

Leonard Read offers us insight on this issue in his “Find the Wrong, and There’s the Right,” Chapter 4 in his 1968 Accent on the Right. The key is to focus solely on what we agree is wrong, and preventing that, which preserves far more of our rights, liberty and the social cooperation they enable than government imposition and enforcement of what they decide are the “right answers.” His insights are worth remembering.

Those actions which are wrong in social relationships are the ones we should aim to prohibit by personal endeavor, by education and, as a last resort, by society’s formal agency of organized force: government. Thus, to analyze what should be prohibited is a means of opening to our vision the infinite realm of righteousness.

What does Read mean by the “infinite realm of righteousness”? Ask what would be off-limits if we only focused on prohibiting what we agree is wrong. Nothing more than that would be disallowed. That would leave open a far vaster array of possibilities for productive and mutually-agreeable arrangements than the bacchanalia of prohibitions we have just been forced to be part of.

Socialist and libertarian…What really, in the ideological sense, marks the one from the other?...The difference between the socialist and the libertarian thinker is a difference of opinion as to what others should be prohibited from doing.

Man…does not now possess…instinctual do-nots: built-in prohibitions. Instead, he must enjoy or suffer the consequences of his own free will, his own power to choose between what’s right and what’s wrong…more or less at the mercy of his own imperfect understanding and conscious decisions. The upshot of this is that human beings must choose the prohibitions they will observe…conscious selection of the must-nots…by variable, imperfect members.

The most advanced prohibition [is] the Golden Rule. As originally scribed…it reads: “Do not do unto others that which you would not have them do unto you.”

Ever so many people will concede the soundness of the Golden Rule, but only now and then is an individual to be found whose moral nature is elevated to the point where he can observe this do-not in daily living.

Not only does such a person possess a sense of justice but he also possesses its counterpart, a disciplinary conscience. Justice and conscience are two parts of the same emerging moral faculty.

Do not do unto others that which you would not have them do unto you. There is more to this prohibition than first glance reveals. Nearly everyone, for instance, will concede that there is no universal right to kill, to steal, or to enslave--because these practices cannot be universalized, if for no higher reason. But only the person who comprehends this ethic--the Golden Rule--in its wholeness, who has an elevated sense of justice and conscience, will conclude that such a concession denies to him the right to take the life of another, to relieve any person of his livelihood, or to deprive any human being of his liberty.

While there are many who will agree that they, personally, should not kill, steal, enslave, it is only the individual with a first-rate moral nature who will have no hand in encouraging any agency--even government--in doing these things for him or others. Anyone who gets the whole point of the Golden Rule sees that there is no escape from individual responsibility by resort to the popular expedient of collective action.

How does the Golden Rule thus illustrate the dividing line between collectivists and libertarians?

It is the difference of opinion as to what should be denied others that highlights the essential difference between the collectivists—socialists, statists, interventionists, mercantilists—and those of the libertarian faith. Take stock of what you would prohibit others from doing and you will accurately find your own position in the ideological line-up.

[Note] the collectivist philosophy: We--you and I--belong to the state. We are “its” wards!

Where…are the prohibitions? The program [someone] favors would cost X hundred million dollars annually. From where come these millions? The state has nothing except that which it takes from the people. Therefore, this man favors that we be prohibited from using the fruits of our own labor as we choose in order that these fruits be expended as the state chooses…[with] police force as the method of persuasion.

That portion of our incomes is socialized which the state turns to its use by its prohibition of our use. It follows, then, that a person would impose prohibitions on the rest of us to the extent that he supports governmental projects which would socialize our income.

Read then follows with a small part of what is a cornucopia of examples that people have accepted as justifying “prohibiting our freedom of choice.”

There are ever so many who favor prohibiting our freedom of choice in order to: Pay farmers for not growing peanuts, tobacco, and other crops; Support socialist governments all over the world; Put men on the moon; Subsidize below-cost pricing in air, water, and land transportation, education, insurance, loans of countless kinds; Socialize security;

“Renew” downtowns that consumers have deserted, build hospitals and other local facilities; Give Federal aid of this or that variety, endlessly.

Another phase of socialism is the state ownership and/or control of the means of production. Included among the existing prohibitions of this type are: The planting of all of a farmer’s own acreage to wheat, cotton, peanuts, corn, tobacco, rice--even to feed his own stock; The quitting of a business at will; The taking of a job at will; The selling of a citizens own product at his own price, for instance, milk, steel, and others; The free pricing of services (wages); The delivery of first-class mail for pay.

The listing of prohibitions is endless.

Read then asks us a question made even more important by the recent expansions in government prohibitions: “Which of all the prohibitions…implicit in socialism do you or others favor?”

Those among us with a libertarian devotion would, it is true, impose certain prohibitions on others. They quite accurately note that not all individuals have acquired a moral nature sufficient strictly to observe such fundamentally sound taboos as “Thou shalt not kill” and “Thou shalt not steal.” There are those who will take the lives of others, and those who will take the livelihood of others, such as those who will pilfer and those who will get the government to do their pilfering for them. Most libertarian believers would supplement the moral laws with social laws aimed at prohibiting any citizen from doing violence to another’s person (life) or another’s livelihood (extension of life). Thus, they would prohibit or at least penalize murder, theft, fraud, misrepresentation.

In short, they would inhibit or prohibit the destructive actions of any and all, and that is all! Asserts the libertarian, “Freely choose how you act creatively, productively, for this is in the realm of what’s right. I have no desire to prohibit you or others in this respect. I have no prohibitory designs on you of any kind except as you or others would keep me and others from acting creatively, productively ourselves, that is, as we freely choose. I do not classify any creative action as a wrong action.”

The libertarian in his hoped-for prohibition of destructive actions does no violence to anyone else’s liberty…We must not, therefore, think of liberty as being restrained when fraud, violence, and the like are prohibited, for these destructive actions violate the liberty of others and, therefore, they are not in the composition of liberty. Destructive actions are the negations of liberty…An accomplished libertarian would never prohibit the liberty of another.

There we have it: the all-out collectivists at one end of the ideological spectrum who would completely prohibit individual liberty and, at the other end of the spectrum, the libertarians whose prohibitions are not opposed to but are in support of individual liberty. And their prohibitions are few and as simple as the two Commandments against assaults on life and livelihood.

The libertarian…observing that human frailties are universal, balks at halting the evolutionary process which is the ultimate prohibition implicit in authoritarian schemes… how can the human situation improve if the rest of us are prohibited from growing beyond the level of the prohibitionist’s imperfections?

Human faculties can flower, man can move toward his creative destiny, only if he be free to do so; in a word, where liberty prevails.

What should be prohibited? Actions which impair liberty! Let us find these and be rid of them, for they are wrong.

Leonard Read laid out the massive chasm between the few prohibitions –of what we all agree is wrong-- necessary to liberty and the panoply of prohibitions already part and parcel of imposed collectivism over a half-century ago. Added prohibitions since have further constrained our power to make our own decisions. But their exponential expansion under the banner of Covid has multiplied that gap, making the issue even more important. Not only do we need to recognize and oppose further inroads into our self-ownership from where we have been herded, we must also apply our understanding to roll back what should never have rolled over us in the first place.

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The Fed Is Trying to Gaslight the World—It Won’t Work

06/24/2021Tho Bishop

Good news, everyone, the inflation that Americans are witnessing daily is temporary. That is, at least, what our enlightened technocrats at the Federal Reserve are desperately trying to convince the rest of the world of. The latest reassurance that there is nothing to be concerned about comes from Atlanta Federal Reserve Bank president Raphael Bostic, who claimed Wednesday that “much of the data recently has come in stronger than I expected.”

As Reuters reports, Mr. Bostic told reporters:

“GDP is on a strong trajectory. Inflation is higher and has been well above our target,” with the economy growing at 7% and inflation at 3.4% compared to the Fed’s 2% target.

Oh, he also noted that inflation is likely to last longer than he had originally thought. As he explained in an interview with NPR:

Now the one thing you said, which is something that we are looking at, is that when I talk to businesses, they are saying that it's going to be temporary. Still, temporary is going to be a little longer than we had expected initially. So rather than it being a two- to three-month, it may be a six- to nine-month factor. And this is something that we're going to have to pay attention to see if that changes how people approach the economy.

Going even further than Mr. Bostic is his colleague from Dallas, Robert Kaplan, who thinks that the economy is performing so well that the Fed may even need to consider soon “doing some things to take our foot gently off the accelerator sooner rather than later.”

The meaninglessness of these words should be obvious to anyone who has followed the Fed the last decade. Of course, the Fed does not have a monopoly on meaningless words emerging from the mouths of our technocratic class—what may concern Americans is the degree to which the Fed is counting on this PR campaign as a vital tool to prevent the financial crisis 2020 has created.

After all, along with the explicit tools with which it conducts monetary policy—such as open market operations, the discount rate, and reserve requirements—one the Fed takes just as seriously is its communication strategy. Since the 2000s, the Fed has actively viewed “forward guidance” as a tool that can allow it to alter economic behavior. As the Federal Reserve’s website explains:

When central banks provide forward guidance about the future course of monetary policy, individuals and businesses will use this information in making decisions about spending and investments. Thus, forward guidance about future policy can influence financial and economic conditions today.

To those ends, the Fed has created various communication tools—such as its dot plot—to illustrate the various forecasts for future economic performance from a variety of Federal Reserve governors and regional bank presidents. While the central bank sold this as an act of “transparency,” it is better understood as deliberate propaganda. In an age where an army of bots move markets based on financial Twitter, every future projection shared by a Fed official instantly has an immediate impact on economic behavior in the real world.

As such, the goal of public comments from Federal Reserve officials is always to convince the public that there is nothing to fear—the experts have things covered. Inflation is temporary. Growth is coming. All is well—no matter the economic struggles you yourself may be feeling. To do otherwise would may itself spark the very sort of crisis that the Fed fears.

This does not necessarily mean that either Mr. Bostic or Mr. Kaplan are cynical in their public statements. It is quite possible that both men sincerely believe their rose-colored forecasts and believe that America’s central bank is well positioned to steer the economy out of choppy waters. After all, government propaganda is most effective when it comes out of the mouths of those who truly believe it.

Unfortunately, the Fed’s biggest problem has been getting results to match their optimism.

Since 2010, the Fed has habitually overestimated future economic growth. Even more concerning, the Federal Reserve has repeatedly failed to follow policy timeframes it has set for itself in the past to reverse previous emergency policies.

As Jeff Deist noted in 2016:

Fed critics, again mostly Austrians, have argued since 2008 that "normal" monetary policy would never return, that QE would never be unwound and that artificially low (or even negative) interest rates were here to stay. In other words, that the Fed and its 300 Ivy League economists don't know what to do other than kick the can down the road another few months while hoping for a miraculous economic recovery.

Fast forward to today, and the recovery hasn't materialized. And Fed officials, current and former, are singing a different tune about ever restoring the balance sheet to pre-2008 levels.

The closest the Fed has come since was a slight bump in interest rates—still historically low—at the peak of the economic performance of the Trump administration, which provided policy relief in the form of regulatory and tax cuts. Even then, however, Jerome Powell’s modest attempts to leverage this meaningful economic growth to unwind the Fed’s intervention had to be reversed in early 2019 due to the adverse reaction in financial markets.

So, again, even prior to global economic shutdowns that massively disrupted supply chains, eviscerated small businesses, and put millions out of work, the Fed was lying through their teeth about the tools at their disposal to appropriately handle economic distress.

The question then is, what happens if we face an economic crisis at a time when the Fed is out of ammo for its current arsenal of policy tools?

Well, we can count on them giving themselves even more power—which has always been the primary justification for trying to replace cash with central bank digital currency (and why we should expect escalation from central banks against private cryptocurrencies.)

We can also be assured that they will promise they know exactly what they are doing.

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06/24/2021Robert Aro

An important milestone has recently been passed. To be exact, the latest Fed balance sheet update on June 17, 2021, shows the figure at $8.064 trillion.

To help visualize this, the Fed provides a graph of total assets, known as the balance sheet on a weekly basis:


Assets were under 1 trillion dollars at the start of the last recession, with the following decade seeing just a minor “tapering” or shrinking of the balance sheet just prior to this new recession.

For more details, beyond the headline number, the Fed provides notes to its financial statements including comprehensive details of the components of their assets:


The two largest holdings of the Fed continue to be approximately $5 trillion in U.S Treasury securities (i.e., US debt) and Mortgage-backed securities (i.e., mortgage debt). Nothing else on the balance sheet comes anywhere close to these amounts.

For comparative purposes, the US National Debt stands at $28.4 trillion dollars, the M1 money stock is just over $19 trillion and currency in circulation is only $2.2 trillion dollars. As for the average American, according to CNBC, they are currently $90,640 in debt.

Perhaps the best way to understand the balance sheet is to consider it beyond simply a number. When the actions of the Federal Reserve are compared to the actions of the rest of the population, the difference between “us” versus “them” becomes staggering. It’s fair to say most people must “do something,” such as produce a good or service in exchange for money. However, the Fed, with a legal monopoly on the creation of US Dollars, follows a different path. Its work involves the very creation of US dollars, an act which is illegal for anyone else to do.

$8 trillion represents the number of digital dollars the Fed effectively unleashed across the globe. The majority of this money went to debt; but the story doesn’t end there. We cannot think of this money as confined in a vacuum where it’s easily contained between the Fed and whichever counterparty. Once created, this money enters the banking system, changes people’s risk tolerance, investment decisions, interest rates, asset prices and ultimately the prices of goods and services themselves.

Unfortunately, no one can adequately measure the effects, dollar for dollar, this $8 trillion has on society, nor can each dollar be adequately traced. But we can reasonably consider its impact if the Fed reduced its balance sheet to pre-pandemic levels, when it was a mere $4 trillion. Whether in one fell swoop or drawn out over several years, it would not be difficult to hypothesize that stock market and housing prices would be impacted, interest rates would be higher and various prices on assets, goods and services would be affected. If there was no effect, the Fed would have no concern shrinking the balance sheet. It would not be subject to deep contemplation.

Powell’s hesitation in tapering is normally on display, exemplified in his recent press conference. When cornered, he typically responds with non-answers, such as:

I expect that we'll be able to say more about timing as we see more data. Basically, there's not a lot of more light I can shed on that.

If there is a silver lining, Powell will give us the official notice prior to tapering… when the time comes:

where the balance sheet's concerned, a lot of notice, as much transparency as we can give and as far in advance as we can to give people a chance to adjust their expectations... Again, I have nothing further on time. It wouldn't be appropriate to say. We're going to have to see more data.

$8 trillion has a way of altering the market in the strangest of ways. If and when a multi-trillion dollar tapering comes, we should expect prices, rates, and investment decisions to change in a manner few can hardly imagine. For their efforts, the operators of the Fed enjoy well paying jobs, pensions, and the prestige of helming a legal money-making apparatus.

As for everyone else, those average American’s who are $90k+ in debt, who must produce goods or services someone values in order to survive, not much more can be said… but someone must pay for the $8 trillion balance sheet. Who else if not them?


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