Professor Ben Powell on Mises's Migration Conundrum

Professor Ben Powell on Mises's Migration Conundrum

08/27/2019Jeff Deist

Was Mises for open borders, as the term currently is used?

The short answer is "No," as Professor Ben Powell from Texas Tech University explains in a new academic paper titled "Solving the Misesean Migration Conundrum."  But Powell goes further than merely explaining Mises's view— he also proposes a solution to the problem of immigrants dramatically altering the liberal institutions of destination nations and failing to assimilate (two problems open borders advocates generally deny). The resulting policy prescription takes the form of "unrestricted immigration with selective restrictions," designed to achieve economic gains from immigration while addressing such concerns. Powell's own work on immigration is well known, as is his strong support for completely open borders—so it is noteworthy that he does not attempt to distort Mises to fit his own policy preference.

Unfortunately the paper is behind a paywall imposed by its publisher, the Review of Austrian Economics, so we can only excerpt here. (We can only lament the absurd and stubborn refusal to put all academic journals online, free of charge. Academics struggle to generate interest in their work, and this is especially true for Austrian-friendly economists and others with minority viewpoints. In our age of on-demand content, paywalls are laughably out of touch). 

Powell starts by examining two primary sources for Mises's views on immigration, namely Nation, State, and Economy (1919) and Liberalism (1927). Both were written during Mises's prolific interwar period, before the rise of Nazism and his flight from Vienna to Geneva and ultimately New York City. But neither book gives us a thorough treatment of the matter. As Powell points out, "in his voluminous writings Ludwig von Mises dedicated relatively few pages to the topic of immigration." In fact, as pointed out early in our Immigration Roundtable series at mises.org, Human Action contains only a few small references to the issue. We can only wish he had written more later in his career, with the hindsight of World War II and the reordering of national boundaries it caused.

Powell recognizes, as did our article linked above, that Mises primarily saw immigration as a matter of international labor mobility. Thus any restrictions on migration have the same destructive effects of protective tariffs on goods:

The economic theory underlying the trade of goods, capital, and labor is fundamentally the same. On narrowly economic grounds, for anyone concerned with maximizing economic output, or in Misesian terms “the commonwheel,” unrestricted migration is optimal. Mises recognizes this point when discussing Ricardo in Nation, State, and Economy, writing that “the tendency inheres in free trade to draw labor forces and capital to the locations of most favorable natural conditions of production without regard to political and national boundaries.  

But "in Mises we find a tension that prevents him from unequivocally advocating for unrestricted migration," Powell tells us. Nation, language, and culture exist independent of government, an obvious point Mises took pains to allow for. Powell quotes Mises from Nation, State, and Economy:

When “immigration takes place into a country whose inhabitants, because of their numbers and their cultural and political organization, are superior to the immigrants. Then it is the immigrants who sooner or later must take on the nationality of the majority” The process of assimilation “proceeds the faster the closer are the contacts of the minority with the majority and the weaker the contacts within the minority itself and the weaker its contacts with fellow nationals living at a distance” Furthermore, assimilation is “furthered if the immigrants come not all at once but little by little, so that the assimilation process among the early immigrants is already completed or at least already underway when the newcomers arrive."

Language and culture evolve, of course, but for Mises the problem is illiberal states and the potential weaponization of state apparatus by newcomers:

The problem, for Mises, lies in the fact that states, in his time and ours, are not liberal. They are interventionist. Once states interfere with economic activity, some people are able to use the state to secure economic gains for themselves at the expense of others living under that same government. Once different nations are living under the same government, they come into conflict with each or, as Mises put it, “Migrations thus bring members of some nations into the territories of other nations. That gives rise to particularly characteristic conflicts between people.” 

 And Powell provides this uneasy quote from Liberalism:

The entire nation, however, is in unanimous in fearing inundation by foreigners. The present inhabitants of these favored lands fear that some day they could be reduced to a minority in their own country and that they would then have to suffer all the horrors of national persecution…. It cannot be denied that these fears are justified. Because of the enormous power that today stands at the command of the state, a national minority must expect the worst from a majority of a different nationality. As long as the state is granted the vast powers which it has today and which public opinion considers to be its right, the thought of having to live in a state whose government is in the hands of members of a foreign nationality is positively terrifying.

Powell then lays out his summary of Mises's objections, i.e. the "conundrum":

However, the institutions of freedom are not exogenously given. Among other factors,they depend on the ideology, political beliefs, and culture of the population controlling the state. Immigrants often migrate from origin countries with dysfunctional institutional environments that lack economic freedom. If the immigrants’ own belief system, was, in part, responsible for that dysfunctional system, and they bring those beliefs with them to the destination country in too great of numbers, too rapidly, to assimilate to the beliefs in the destination country, they could erode the very institutions responsible for the high productivity that attracted them in the first place. Thus, immigration itself could, in principle, turn a relatively free destination country, where Mises wouldn’t see immigrants as a problem, into a more interventionist state where immigration does create the problems Mises fears.

Powell's solution? Start with a "baseline presumption of free trade and unrestricted immigration," given the strong economic case for labor mobility and free trade. Then target narrow exceptions from the optimal policy for war, national defense, and fears of institutional deterioration.

A plausible deviation from the optimality of free trade can be found in the “national defense” exemption. If a particular good is vital to national defense, and a particular country is geographically situated such that potential adversaries would be able to cut off the supply of this good, in the event that they go to war with each other, then, in times of peace, the country in question may find it optimal to protect (or subsidize) the industry producing the vital good, so that a domestic supply would be available in the event that the countries go to war with each other. Note how specific this deviation from free trade is. General protection against imports of many goods is not justified. Protection is justified in only the one specific good. Also note, that even if this specific protection is justified in one country, that does not imply that it is justified in another. If protection is justified in land-locked and surrounded Lesotho, that does not imply that the United States, with large coasts on both the Atlantic and Pacific oceans, could justify the same protection.

Fears of institutional deterioration, and Mises’ specific fears that large sudden flows of immigrants could lead the immigrants to become the majority and turn an interventionist state against the native born, should be similarly thought of as “national defense” exceptions to the baseline of unrestricted immigration. As with the trade example, these exceptions need to specific and well identified, and any deviation from unrestricted migration should be as narrow as possible to only target the problem, while leaving in place as much of the gains from unrestricted immigration as possible. Also, as with trade, just because one country can identify a specific exception, that does not mean that the same exception is justified in other countries.

Powell applies this institutional lens to the controversial issue of Muslim immigrants in Europe:

...in the European Union there are roughly 13 million predominantly Muslim immigrants who originated in the Middle East or North Africa. 4 This too is clearly below the threshold of them becoming the majority “nation” that Mises fears. Absent any concrete evidence of these immigrants decreasing European economic freedoms, or otherwise harming European institutions, the presumption of unrestricted migration should remain. But it’s conceivable that, after a period of unrestricted migration, the stock and continued flow of Middle Eastern and North African immigration could reach a level that one of these two fears become justified. If it does, then the appropriate immigration policy response is to put a quantitative limit on Middle Eastern and North African immigration, while leaving immigration from all other regions of the world unrestricted. 

Another example of the institutional principle? Israel, which Powell states "would soon cease to be Israel" if it allowed unrestricted immigration from surrounding Middle East countries. But does allow unrestricted immigration for Jews worldwide, and thus represents a "case of selective unrestricted immigration."

This is a fascinating paper, and worthy of greater attention. We only wish it were available online.

As an addendum, critics of the Mises Institute sometimes claim our writers fail to "follow" Mises on immigration (when they are not claiming we follow Mises cultishly). This paper refutes that argument. But Mises's views are not dispositive on immigration or any other issue, and nobody truly knows what he would say about current conditions were he alive today. And more importantly, mises.org and our academic journals offer a variety of perspectives on this thorny issue: from Walter Block's homesteading of government property to Hans-Hermann Hoppe's "full cost principle" to Ryan McMaken's call for wholly local, decentralized immigration policy. The term for this is "diversity of thought."

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Google Mobility Data Suggests Sweden "Socially Distanced" Less than Other Countries

3 hours agoRyan McMaken

As is often pointed out by pro-lockdown publications like The New York Times, Sweden has experienced Covid-19 deaths at a rate above some of it's neighbors that imposed relatively strict lockdowns, such as Denmark.

What is rarely mentioned, however, is that Sweden's deaths per million are also similar to or lower than many countries that did impose harsh lockdowns. For example, as of October 18, the deaths-permillion in the United Kingdom were 643 in the UK, for only 585 in Sweden. Meanwhile, Belgium's death rate was 897 per million, and Italy's rate was 606. Moreover, while cases and deaths are increasing in the UK, Spain, Italy, and Belgium, deaths are apparently flatlining in Sweden. Sweden has reported fewer than ten deaths in the past week.

Clearly, this trend calls into question the official narrative which is that any country without harsh lockdowns will experience far higher death rates than the countries that lock down.

That narrative having failed in the case of Sweden, pro-lockdown critics have attempted other explanations. One is that population density is lower in Sweden, so therefore, it will have lower deaths per million. This claim leaves much to be desired. New research suggests the data is, at best, inconclusive on that matter. While density is like a factor of some kind, there's no evidence it is a factor to the extent that would be necessary to explain why Sweden has performed better than the UK and Spain, for instance.

Another theory is that the Swedes have voluntarily practiced social distancing so studiously, that this explains away the apparent failure of the "forced lockdown or die" narrative.

As one reporter at Quartz claimed: "Citizens seems to be taking their responsibility seriously. Residents point out that they are practicing social distancing, with the elderly isolated, and families mostly staying home, apart from kids in school."

Or in an article at MedPageToday:  "Swedes in general have changed their behavior to a great extent during the pandemic and the practice of social distancing as well as physical distancing in public places and at work has been widespread," said Maria Furberg, MD, PhD, an infectious diseases expert at Umea University Hospital in northeastern Sweden."

But, again, the data doesn't show this.

Using the Google community mobility trends data, we find that the Sweden practiced social distancing far less than countries that had strict lockdowns in place.

For example, the amount of time spent at home surged 30 percent in the UK, Spain, and Italy during the harshes lockdown period. Yet during this same period, the Swedes's amount of time spent at home never exceeded 15 percent.

Meanwhile, the decline in workplace visitors has tended to be relatively small compared to countries with stricter lockdowns and with higher death rates.

We find similar trends in recreation and retail:

And in the use of transit:

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What Is the Purpose of the Fed?

6 hours agoRobert Aro

With all the history, lore and media spotlight the Federal Reserve receives, how many people stopped to ask: What is the Fed’s purpose?

According to their website’s FAQs, the Federal Reserve system exists to:

provide the nation with a safer, more flexible, and more stable monetary and financial system.

It aims to carry this out through free market intervention including:

influencing money and credit conditions in the economy in pursuit of full employment and stable prices.

While the method of operations may leave some questioning the efficacy of its ability to reach its goals, it’s still much different than what San Francisco Fed president Mary Daly told the Wall Street Journal, in a one-on-one interview on Thursday:

If you go back to our forefathers, in 1913 they created the Federal Reserve and created clear roles. The Federal Reserve’s job is to use the short-term interest rate and its asset-buying capabilities to stimulate the economy, accommodate and stimulate the economy, through the interest-rate channel, making it cheaper for households and businesses to buy and sell goods.

The problem with “stimulate the economy” is that it signifies very little, as all platitudes do. How much stimulation does an economy need? And whether they may over- or understimulate can hardly be articulated. Concluding the Fed makes goods cheaper is an untenable position to hold considering they seek to fight deflation. What is possible to explain are interest rates and asset buying. Once understood, the redundancy of the Fed is exposed.

The first tool is interest rates, in which there is either an ideal rate or not. If the position of an “ideal rate” is believed, the question to follow is: How is this calculated? With over a hundred years of experience, we still have yet to find a verifiable method. No one can prove why a 0.25 percent rate is preferred to 0 or 0.50 percent.

If there is no ideal interest rate, we must come to terms with understanding that the Fed has no business in setting benchmark rates for an entire nation, if not the entire world.

The second key tool is the “asset-buying capabilities,” the act of money creation for the purpose of buying real assets. This is an act that, if done by anyone except the Fed, would lead to lengthy prison sentences.

Similar to the notion of an ideal interest rate, there is no such thing as the “optimal money supply.” Like interest rates, if such a number exists, it still has yet to be proven. Money creation comes with side effects such as rising inequality, as those who receive the new money first have an advantage over those who receive it late, while allowing central planners to pick favorites. At $18.7 trillion, the M2 money supply has increased by over $3 trillion since the start of 2020. It appears to be on a path to growing exponentially!

Once understood there exists no ideal interest rate or optimal money supply, the Fed’s value to society gets called into question. Of course, there may be value to some members of society as Vice Chair for Supervision Randal K. Quarles said in a Q&A on Wednesday about the Treasury market:

It could be that “the sheer volume there may have outpaced the ability of the private market infrastructure to support stress of any sort there.”

In other words, the private market for treasuries can no longer function without the help (asset buying) of the Fed. Hardly shocking, considering the mortgage crisis was over a decade ago. Yet the Fed still buys mortgage-backed securities. And, like the Bank of Japan, which cannot exit the stock market, or the European Central Bank, which can never exit the corporate bond market, in 2020 the Fed entered territory it will never be able to leave, while simultaneously advancing in areas it never belonged in in the first place.

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Searching for the Creature on Jekyll Island

10 hours agoMichael Maharrey

I spent a little time at Jekyll Island, Georgia, the weekend before last. I looked hard, but I didn’t find the mythical creature from Jekyll Island. From what I hear, it’s taken up permanent residence in Washington, DC. But I did locate its birthplace.

If you don’t get the reference, I’m referring to the Federal Reserve.

The central bank was conceived during a secret meeting at a private club on Jekyll Island. According to an NPR article, Sen. Nelson Aldrich, chairman of the Senate Finance Committee, organized the clandestine meeting.

“He told a handful of New York bankers to go on a given night, one by one, to a train station in New Jersey. There they would find a private rail car hitched to the back of a southbound train. To conceal their identities, Aldrich told the bankers to come dressed as duck hunters and to address each other only by first name.”

No. That’s not sketchy at all.

Anyway, the rest, as they say, is history. The plan drawn up during that secret meeting was put into action and today the Fed is running off dollar bills at a dizzying pace in the basement of the Eccles Building.

OK. Not literally. But basically, that’s what’s happening.

At any rate, I wasn’t at a secret meeting on Jekyll Island to hatch a plan to control the world’s financial system. I was hanging out with a bunch of libertarians who would prefer to concoct a plan just to leave you alone.

The Mises Institute held its annual supporters’ summit there.

Given the location, you won’t be shocked to know that there was a lot of discussion about the central bank and its pernicious effects. As I have written, the Fed is the engine that powers the most powerful government in the history of the world.

But the event wasn’t just about the Fed. The broader theme was the danger of centralizing government.

Historian and author Amity Shlaes kicked things off with a talk about Arthur Burns. He was the Federal Reserve chairman appointed by President Richard Nixon. He was supposed to be one of the “good guys.” He was an advocate for free markets, sound money, and the gold standard. But over time, Nixon badgered and bullied him into artificially lowering interest rates and signing off on economic “reforms” that included severing the dollar from its last connection to the gold standard. Burns cared more about maintaining his reputation and popularity among the ruling elite than his principles. His position went to his head.

The lesson here is that we aren’t going to fix things by putting “good people” in positions of power. Power corrupts. The problem is a system that places too much power in the hands of corruptible individuals. The solution is to decentralize and limit the power, not vain attempts to find the right guy to fill certain positions.

That theme carried over through the rest of the event and a number of speakers touched on this subject. Peter Klein talked about the expansion of government during crises, noting that, “The New Deal is a logical extension of policies that came about in World War I.” Tom Woods carried that idea forward in his talk about government shutdowns of the economy in response to covid-19. Judge Napolitano talked about the constitutionality of a central bank, taking the discussion all the way back to the establishment of the First Bank of the United States over the constitutional objections of James Madison and Thomas Jefferson. His narrative reinforced the sad reality that power often corrupts even those with the best of intentions.

Mises Institute president Jeff Deist tied everything together in his talk about decentralization. He noted that centralized authority leads to never-ending fights over control of the power levers, pointing out that “politically vanquished people never really go away.” The only real solution is to split into smaller units and let different groups of people do their own thing. As Deist said, “Political arrangements exist to serve us, not the other way around.”

This captures the essence of the American constitutional system. It was intended to be decentralized with very little power vested in the general government. Most decision-making was intended to happen at the state and local level.

The Constitution serves as a starting point for decentralization.

This post originally appeared here.

Image source:
Getty
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The Fed Says the Federal Budget Is Unsustainable

10/16/2020Robert Aro

Tuesday’s speech by Fed Chair Jerome Powell began with the usual nod to the pandemic for making life difficult for the masses, followed by the various pats on the back for the central bankers and what they have done in fighting the problems caused by COVID. Powell even praised the government, noting “the fiscal response was truly extraordinary,” thanks to the $3 Trillion of “economic support” under the CARES Act as well as several other lesser known bills.

The Paycheck Protection Program (PPP), was also mentioned, which, according to the Chair, “partly forestalled an expected wave of bankruptcies and lessened permanent layoffs.”

A few weeks ago the cost was noted by Randal Quarles, Vice Chair for Supervision:

The PPP disbursed $525 billion in loans to businesses through August 8, most of which will be forgiven…

As of August 8, there was still another $134 Billion of forgivable loans remaining in the program.

Powell continued, explaining that the market appeared to be normal again and praised “highly accommodative” monetary policy. Yet despite the self-congratulations, things took a bit of a turn when he re-visited the fiscal side of central planning, saying the “expansion is still far from complete,” and that :

Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.

He concluded that both monetary and fiscal policy should be used “side by side” until, again, in his own words, the economy is “clearly out of the woods.” Yet it’s difficult to know just how long getting out of the woods will take. Whether it requires a forced vaccination or an inflation rate sufficient to satisfy central bankers remains to be seen.

While the continual push for fiscal support from the Fed is concerning, it was the Q and A which delivered the final blow:

So at least I guess I would start by saying that the U.S. Federal budget is on an unsustainable path, has been for some time.

It appears Powell read the Congressional Budget Office (CBO) on September 2, the budget outlook to 2030 which predicts a:

federal budget deficit of $3.3 trillion in 2020, more than triple the shortfall recorded in 2019, mostly because of the economic disruption caused by the 2020 coronavirus pandemic and the enactment of legislation in response.

But it gets worse:

CBO now projects a cumulative deficit over the 2021–2030 period of $13.0 trillion…

Keep in mind the US National Debt has recently passed the $27 Trillion mark, which puts the 2030 National Debt prediction closer to $40 Trillion by 2030. Of course, the kneejerk response should be that this 10-year budget projection is well off the mark.

Consider that in March of this year, the CBO underestimated the 2020 budget by $2.2 Trillion. Now we’re being asked to believe they can project a decade into the future, with the assumption that for the next 10 years the deficit will “only” amount to a little over $1 Trillion a year. That’s a tough sell!

Concerned citizens should begin to wonder how well the CBO can predict the outcome of COVID-19, future pandemics, wars, market downturns, unfunded liabilities, and all the other unforeseen events which cannot be reasonably factored into a decade long budget model. Additionally, we’ve been given little to no assurance that the Fed or the US Government ever intend to stop these short-term lending programs and stimulus checks, ever again.

A reporter summed it up the best with one question:

If we look back 10 years from now at the policy that has just been implemented, what would be signs of success?

Powell addressed the issues of providing stability and relief, supporting the expansion, and avoiding long run damage to the economy; however, we know that looking back 10 years from now, if nothing is done to limit the powers of the Federal Reserve and the US Government, we will be in a world of pain. The US Debt will be much higher than $40 Trillion. Stocks, bonds and real estate prices will be making new highs. Yet, most people will find they are no better off than they were a decade ago.

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An IMF Official Describes the "Long Ascent" Ahead

10/16/2020Robert Aro

The ascent refers to the difficult climb nations face as they “come back from the depths of crisis.” It promises to be “long, uneven and uncertain,” as explained by the International Monetary Fund (IMF) Managing Director Kristalina Georgieva, at an event hosted by the London School of Economics (LSE). This “path forward” for the 189 member countries serves as a precursor to the IMF’s 2020 Annual Meetings which commenced this week. A great deal of effort has gone into these economic plans, yet the question remains: Is this actually economics?

According to the director, the “whatever it takes” approach by advanced economies greatly helped the situation and “put a floor under the world economy.” As she tells it :

We have reached this point, largely because of extraordinary policy measures that put a floor under the world economy. Governments have provided around $12 trillion in fiscal support to households and firms.

A $12 trillion “floor” laid by government cannot be substantiated. We don’t know whether the floor would have been there if the government support did not take place. Nor can the various pernicious effects, such as loss in purchasing power, increase in cost of living, and greater world reliance on debt can be factored into the cost of said floor.

Even though she praises the increase to the money supply, she notes that risk remains high due to rising bankruptcies and stretched valuations in financial markets. She goes on to say many countries have become vulnerable and:

We estimate that global public debt will reach a record-high of about 100 percent of GDP in 2020.

While implied world debt levels are concerning, debt levels have long taken a back seat to central planners, especially in times of crisis. This is fortunate because heavy debt-laden/ inflationist policies underline the IMF’s four priorities:

First, defend people’s health.

This includes coordinated vaccine efforts, distribution and contact tracing. It seems out of scope for the IMF considering it’s an economic, not a health organization. This would be akin to the World Health Organization discussing the need for central banks to reign in their balance sheet!

Second, avoid premature withdrawal.

They agree “tax deferrals, credit guarantees, cash transfers, and wage subsidies,” should be given to firms and workers. This may sound promising but the sheer allocation of resources is beyond comprehension. These interventions could initially help, yet the government would never know if the positive effects of the program outweighs the negatives. If a wage subsidy, for example, leads to higher consumer prices and a higher national debt level, the government would have no basis to know if the effort and various trade-offs were worthwhile.

But it doesn’t stop on the fiscal side as the IMF notes the equal importance of “continued monetary accommodation and liquidity measures to ensure the flow of credit, especially to small and medium-sized firms.” Unfortunately, this too is problematic. Any notion of the optimal level of liquidity cannot be measured and immeasurable goals are normally difficult to achieve.

Third, flexible and forward-leaning fiscal policy.

This explicitly calls for governments to reallocate capital and labor to support the transition, requiring both “stimuli for job creation, especially in green investment,” as well as measures such as expanded unemployment insurance. This follows the pattern of governments using money to take action which cannot be reasonably calculated or justified, but acceptable since it’s perceived preferable than to “do nothing.”

Fourth, deal with debt.

For low-income countries especially, the goal is to create “more grants, concessional credit and debt relief, combined with better debt management and transparency.” This includes restructuring of sovereign debt. As many countries continually struggle with national bankruptcy because of debt, it’s ironic more debt would be a solution.

Piecing it together, we find there may be a long ascent after all; not the struggle of having the IMF corral the world to embrace more anti-capitalist policies, but the struggle required to build a future where the IMF ceases to exist. While a tall order, it seems justified considering the economic methods employed by the IMF appear devoid of economic explanation.

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Can the Fed End Racism?

10/15/2020Ron Paul

House financial services chair Maxine Waters and Senator Elizabeth Warren have introduced the Federal Reserve Racial and Economic Equity Act. This legislation directs the Federal Reserve to eliminate racial disparities in income, employment, wealth, and access to credit.

Eliminating racial disparities in access to credit is code for forcing banks and other financial institutions to approve loans based on the applicants’ race, instead of based on their income and credit history. Overlooking poor credit history or income below what would normally be required to qualify for a loan results in individuals ending up with ruinous debt. These individuals will end up losing their homes, cars, or businesses, because banks disregarded sound lending practices in an effort to show they are meeting race-based requirements.

Forcing banks to make loans based on political considerations damages the economy by misallocating resources. This reduces economic growth and inflicts more pain on lower-income Americans.

The Carter-era Community Reinvestment Act has already shown what happens when the government forces banks to give loans to unqualified borrowers. This law played a significant role in the housing boom and subsequent economic meltdown. The Federal Reserve Racial and Economic Equity Act will be the Community Reinvestment Act on steroids.

This legislation also requires the Fed to shape monetary policy with an eye toward eliminating racial disparities. This adds a third mandate to the Fed’s current “dual mandate” of promoting a stable dollar and full employment.

Federal Reserve chair Jerome Powell has already publicly committed to using racial disparities as an excuse to continue the Fed’s current policy of perpetual money creation. Since inflation occurs whenever the Fed creates new money, Powell and his supporters want a policy of never-ending inflation.

Supporters of this scheme say that inflation raises wages and creates new job opportunities for those at the bottom of the economic ladder. However, these wage gains are illusory, as wages rarely, if ever, increase as much as prices. So, workers’ real standard of living declines even as their nominal income increases. By contrast, those at the top of the income ladder tend to benefit from inflation, as they receive the new money—and thus an increase in purchasing power—before the Fed’s actions cause a general rise in the price level. The damage done by inflation is hidden and regressive, which is part of why the inflation tax is the most insidious of all taxes.

When the Fed creates new money, it distorts the market signals sent by interest rates, which are the price of money. This leads to a bubble. Many people who find well-paying jobs in bubble industries will lose those jobs when the bubble inevitably bursts. Many of these workers, and others, will struggle because of debt they incurred because they listened to “experts” who said the boom would never end.

The Federal Reserve’s manipulation of the money supply lowers the dollar’s value, creates a boom-and-bust business cycle, facilitates the rise of the welfare-warfare state, and enriches the elites, while impoverishing people in the middle and lower classes. Progressives who want to advance the well-being of people in the middle and lower classes should stop attacking free markets and join libertarians in seeking to restore a sound monetary policy, The first step is to let the people know the full truth about the central bank by passing the Audit the Fed Bill. Once the truth about the Fed is exposed, a critical mass of people will join the liberty movement and force Congress to end the Fed’s money monopoly.

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Three Cheers for the Mises Institute

10/13/2020Trevor Daher

Austrian economics puts forth the axiom of human action—a nonfalsifiable, self-evident truth. From this axiom, it derives logical conclusions—truths—about individual human behavior, social order, and cooperation, i.e., markets. The conclusions drawn by this logical analysis are such that the optimal allocation of resources, the optimal modes of production and consumption, etc. each can only emerge—and therefore only be known—as the result of the free choice and voluntary actions of individuals. In fact, the only meaningful definition of “optimal” market conditions or outcomes in this framework are those that would best serve to satisfy the wants and preferences of individuals under conditions of scarcity. These wants and preferences themselves can only be known as they are demonstrated through free choice and voluntary action.

The Austrian conception of economic science, and its adherents, commits an egregious heresy against the modern religion—whatever it may be called in any particular time or place—for they so often embrace a political and legal philosophy which permits this free exercise of choice and voluntary action on the part of the individual, constrained only by the rights of other individuals.

Is it any wonder, then, why this great liberal intellectual tradition emerged in the time and the place that it did? Some argue that it was an accident of history, a coincidence. I, like so many others before me, believe that these ideas emerged in the West precisely because they are accordant with the Judeo-Christian understanding of the inherent value and dignity of the human person. Our ideological opponents, in more ways than one, seek to replace the invisible hand with the iron fist.

The Mises Institute is one of precious few institutions where scholars still possess the knowledge necessary to teach the principles of the free market, and the political and legal philosophy which engendered it. Fewer still possess the courage to profess and defend these ideas in our Jacobin age.

I myself have been a great beneficiary of the immense wealth of educational materials which the Mises Institute has provided to the public for free. The Institute counts among its scholars the very man who first introduced me (impersonally, of course) to the true histories of the United States, the Catholic Church, and Western civilization. It counts among its board members the greatest living American statesman and champion of liberty.

It is for this reason that I write this article: to express my profound gratitude to the Mises Institute, its board, its faculty, its supporters, and all of the individuals who have contributed to its mission of scholarship and education. The contributions and the individuals number too many to list them all. It is nigh time that I made a small contribution of my own.

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A Note on 2020 Conferences

10/13/2020Jeff Deist

The Mises Institute continues to hold live, in-person events this year. We did cancel our March research conference, because so many faculty presenters were forbidden to travel by their respective universities. Since then, however, we have held our summer Mises University in Auburn with a great group of kids, events in Birmingham and Orlando, and our annual gala this past weekend on Jekyll Island (which was remarkable). Next month we return to Texas for a postelection symposium with Dr. Ron Paul, which is sure to draw a great crowd. You can join us in Texas and wish Dr. Paul well after his recent (minor) health issue by registering here.

All of these events have been safe, social, and more meaningful than ever in a time of government lockdowns and deep economic malaise.

As always, our goal is to lead people to a deeper understanding of economics and the peaceful organization of society. Commentary on the news of the day is mostly useless unless it sparks an interest in real learning and reading. Clickbait, listicles, millennial pandering, and craven submission to the zeitgeist won't produce what the US desperately needs, which is smart and responsible young people ready to rebuild some semblance of a lawful society. The future requires unwavering, principled, cerebral leaders who understand markets, property, and peace. This is a long-term project.

As an aside, most conferences are "pay to play," which explains why you see the same old tired Beltway speakers and organizations year after year—they pay to sponsor events and effectively buy speaking slots. It also explains why there are so many "students" at some conferences—their flights and hotels are paid for by the conference organizer. Mises Institute events are not artificial; our attendees want to be there.

Politicians and bureaucrats get more aggressive by the day, while young people riot in the street in support of socialism. We cannot shrink from this battle if we hope to leave our children and grandchildren any semblance of a free society. Please attend our events, support the Mises Institute, and stay engaged with us via mises.org, Facebook, YouTube, and Twitter.

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Trump or Biden: Who Will Be Better for the US Economy?

Here are my thoughts on which presidential candidate will do less harm to the US economy and why Dwight D. Eisenhower was the best president of the postwar era.

 

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Don't Confuse Gold Futures with Gold

10/06/2020Robert Aro

The gold price manipulation conspiracy received validation in August when Reuters reported:

Scotiabank to pay over $127 million for precious metals price manipulation.

One of Canada’s largest banks earned itself a proverbial black eye for “spoofing” the gold price, something precious metal traders have cried foul on for years.

Spoofing involves placing trade orders with an intent to cancel them before they are executed, typically in connection with an effort to manipulate prices.

And just how long has this manipulation persisted?

Authorities said that over more than eight years, four Scotiabank traders placed thousands of unlawful orders for gold, silver and other metals futures contracts to deceive other traders and benefit their employer.

Almost a decade of practice, and it was only four rogue traders who managed to manipulate the price of precious metals? Doubtful.

But wait, there’s more! Reuters reported on September 23:

JP Morgan set to pay nearly $1 billion in spoofing penalty.

Three JP Morgan employees as well as eight unnamed coconspirators were involved. CNBC noted that this is a record fine for spoofing, which was made illegal in 2008. “Gold price manipulation” can no longer be relegated to conspiracy theory. But were these just instances of traders behaving badly, or is there a global effort to distort gold’s price? Perhaps it’s best to share several key facets of the gold industry and allow readers to decide:

A 1974 cable published by WikiLeaks reveals a message from London gold dealers to the US secretary of state explaining how the futures market controls supply and demand:

TO THE DEALERS' EXPECTATIONS, WILL BE THE FORMATION OF A SIZABLE GOLD FUTURES MARKET. EACH OF THE DEALERS EXPRESSED THE BELIEF THAT THE FUTURES MARKET WOULD BE OF SIGNIFICANT PROPORTION AND PHYSICAL TRADING WOULD BE MINISCULE BY COMPARISON. ALSO EXPRESSED WAS THE EXPECTATION THAT LARGE VOLUME FUTURES DEALING WOULD CREATE A HIGHLY VOLATILE MARKET. IN TURN, THE VOLATILE PRICE MOVEMENTS WOULD DIMINISH THE INITIAL DEMAND FOR PHYSICAL HOLDING AND MOST LIKELY NEGATE LONG-TERM HOARDING BY U.S. CITIZENS.

The gold futures market remains one of the most volatile markets due to the use of leveraged “contracts,” as explained by the Chicago Mercantile Exchange (CME). For example, if you have $10,000 and you want exposure, you can buy one

Gold futures contract, which represents 100 oz. If initial margins are $4,400 you can buy two Gold futures contracts. You will have exposure to the equivalent of 200 oz. of gold.

With gold at $1,900 per ounce, one could have trading exposure of $380,000! And that is no secret, per the CME:

It is clear that the amount of precious metal traded on the world’s markets is many times the amount produced from mining and recycling activities.

On August 11 the exchange reported a record trading day of 1.55 million contracts for all precious metals. This supports the leaked report, because “physical trading would be miniscule” in comparison to what can be traded on the futures market. Now imagine price discovery when the world’s bullion banks use highly leveraged contracts to spoof gold’s price!

Beyond futures, there are exchange-traded funds (ETFs) like SPDR Gold Shares (ticker GLD, approximately $180 per share), which claims to hold 1,275 tons of gold, more than most central banks in the world. If a trader wanted to redeem shares for physical gold, the prospectus states that they need a minimum requirement of 100,000 shares or nearly $20 million! Needless to say, most people redeem with dollars instead of gold.

As for Fort Knox, CNN released grainy black and white photos of Secretary Mnuchin in what appears to be a small room, surrounded by a pile of bars in the background. After the visit he declared: “Glad the gold is safe!”

Other than Mnuchin, few, if any, have ever claimed to even have seen the gold at Fort Knox.

To add one last wrinkle, where there appears to be tons of gold located in a safe, how can we know it’s not “fake”?

Reuters recently reported that China’s largest 24-karat gold jewelry company, Kingold Jewelry, secured $2.83 billion dollars on 83 tons of gold, some of which was actually tungsten-filled bars. For every ton of gold held in a large vault, how much could be tungsten?

Between the futures market, ETFs, and mammoth-sized vaults, we see peculiar traits to this market. Through the futures, we’ve seen bullion banks manipulate prices in the very market that sets the spot price. The world’s largest vaults can hardly be accessed, and the gold in them is not exactly being audited by reliable third parties. 

At best, the paper market could seem unfair, at worst, highly fraudulent. On the other hand, if people demand paper gold instead of physical, then paper demand will continually be met with paper supply.

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