Uncovered Audio of Eugen von Böhm-Bawerk from 1905

Uncovered Audio of Eugen von Böhm-Bawerk from 1905

05/18/2020Tho Bishop

The Österreichische Mediathek, an Austrian archive for sound recordings and videos on cultural and contemporary history, has published a very short clip titled "Vienna Economics" featuring the voice of Eugen von Böhm-Bawerk. The 26-second clip, dated 1905, is in German, but it allows listeners the rare treat of listening to one of the greatest economists of the twentieth century.

A translation of the page offers this description of the clip:

Unfortunately, the great economist, Professor Eugen von Böhm-Bawerk (1851 to 1914), does not speak about his subject in this sound recording, which was recorded in the Vienna Phonogram Archive on December 20, 1905, but rather mentally talks about the then quite new recording machine, the phonograph. - Böhm-Bawerk, who was also twice Minister of Finance (in the Gautsch and Koerber cabinets), along with Carl Menger, Eugen von Philippovich and Friedrich von Wieser, is one of the main representatives of the Viennese School of Economics, which extends well beyond Austria and beyond.

Transcript: I don't know what future ages would like to learn from us. I would know what I would like to learn from future ages. Unfortunately, the phonogram post, to which I could entrust my curious questions, does not provide a response.

As Guido Hülsmann notes in the magnificent Mises: The Last Knight of Liberalism, 1905 was the year Böhm-Bawerk was the year he obtained a full chair as a professor at the University of Vienna, a victory of profound importance for the history of the Austrian school.

[Carl] Menger was successful not only in developing the continental  tradition  of  economic  science,  but  also  in  establishing  a network of like-minded young thinkers within the confines of Austria-Hungary. He only failed to get Böhm-Bawerk a chair at the University of Vienna. His favorite disciple applied twice,in  1887  and  1889,  but  each  time  the  Ministry  of  Education chose  a  different  candidate.  They  argued  that  Böhm-Bawerk represented the same abstract and purely theoretical school as the  other  chairholder  (Menger)  and  that  it  was  necessary  to also  have  a  representative  of  the  new  historical  school  fromGermany. Even this did not prove to be a decisive obstacle. In the fall of 1889, Böhm-Bawerk went to Vienna to join the Ministry  of  Finance  and  became  an  adjunct  professor  at  the  University  of  Vienna;  in  1905  he  obtained  a  full  chair.  Hence,  in distinct  contrast  to  all  other  modern  (marginalist)  schools  of economic thought, the Austrian School quickly reached a position of power, protected by intellectual tradition and political patronage.  Under  the  leadership  of  the  next  generation,  it would obtain a position of unparalleled influence.

Böhm-Bawerk would end up being publishing important works advancing the Austrian theory of capital and interest, as well one of the most potent takedowns of Karl Marx ever written. His students at the University of Vienna included Ludwig von Mises and Joseph Schumpeter.

In a 2002 Quarterly Journal of Austrian Economics article, George Reisman, a student of Mises himself, noted that it's "entirely conceivable to me that Mises might have described Böhm Bawerk as the most important Austrian economist."

For readers who are excited to find this neat historical gem, consider checking out the Ludwig von Mises (Audio) Archives available here on the site.

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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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The Road to Authoritarianism is Paved with Fiat Currency

06/22/2021Ron Paul

Last week, the Federal Reserve announced it will maintain an interest rate target of zero to 0.25 percent for the rest of 2021. The Fed said it will also continue its monthly purchase of 120 billion dollars of Treasury and mortgage-backed securities.

Some Fed board members are forecasting a rate increase by late 2022 or 2023, though with the rate still not reaching one percent. The Fed will neither allow interest rates to rise to market levels nor reduce its purchase of Treasury securities. A significant increase in interest rates would make the government’s borrowing costs unsustainable.

The Fed also raised its projected rate of inflation to three percent, although it still insists the rise in prices is a transitory effect of the end of the lockdowns. There is some truth to this, as it will take some time for businesses to get back to full capacity. However, the Fed began taking extraordinary measures to prop up the economy in September of 2019, when it started pumping billions of dollars a day into the repo market that banks use to make short-term loans to each other. The lockdowns only postponed and deepened the forthcoming Fed-caused meltdown.

Germany’s Deutsche Bank recently released a paper warning about the Federal Reserve continuing to disregard the inflation risk caused by easy money policies designed to “stimulate” the economy and facilitate massive government spending. Germans have reason to be sensitive to the consequences of inflation, including hyperinflation. Out-of-control inflation played a major role in the collapse of the German economy in the 1920s, which led to the rise of the National Socialists.

This pattern could repeat itself in America where we have already witnessed the rise of authoritarian movements. Last summer, groups exploited legitimate concerns about police misconduct to foment violence across the country. Can anyone doubt that an economic crisis that leads to mass unemployment, foreclosures, and maybe even shortages will result in large-scale violence? Or that the violence will be exploited by power-hungry politicians? Or that many people will once again fall for the big lie that preserving safety requires giving up their liberty?

The apparatus of repression already exists in the form of a surveillance state, police militarization, and big tech’s cooperation with big government to stamp out dissent. Now, President Biden and his congressional allies want to use the January 6 US Capitol turmoil to justify expanding government powers in the name of stopping “domestic terrorists.” Part of this new campaign is expanding censorship of “extremism,” defined as any views that threaten the status quo. The Biden administration has taken a page from the Communist playbook in suggesting people report their friends and family who are becoming “radicalized.”

We may still have time to prevent collapse in America, or at least to make sure the collapse leads to a transition to a free society. The key to success is spreading the ideas of liberty until we have the ability to force the politicians to dismantle the welfare-warfare state and the fiat money system that is the lifeblood of authoritarian government.

Reprinted with permission.

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An Antidote to Political Correctness in Schools: Just Walk Away

06/22/2021Patrick Barron

We've all heard about the newest insult to our lives and our children. I refer, of course, to the growing adoption of "critical race theory" as part of public school curriculums. Why should we be surprised? Many of our top colleges have been adopting what can only be called Marxist indoctrination of their students for many years. A friend recently sent me a letter written by a North Korean immigrant who attended Columbia University in New York City. This courageous young woman had escaped North Korea into China at great risk, crossed the Gobi Desert to Mongolia with the help of Christian missionaries, and eventually made her way to South Korea. She then came to America to attend what she thought was a great, prestigious school (Columbia University), only to discover that Columbia's political correctness was perhaps even worse than that of North Korea!

Her story of escape from brutal, communist repression is not unusual. Others have done the same. I did not find as unusual her shock at discovering the same soul-destroying repression on the campus of one of America's supposedly premier institutes of higher learning. What I did find as unusual was her acquiescence to the many insults she suffered at the hands of the administration, teachers, and some of their student sycophants. She admitted that she learned to keep her head down, not offer an opinion, and not fight back! I admire this young lady a lot, so I'm perplexed at her reaction. If she crossed the Gobi Desert in search of freedom, surely she can cross a Columbia University classroom and walk out the door.

The answer for combating political correctness and other insults in our public schools is to refuse to attend them. There is nothing more important than inculcating the proper values in the minds of our children at such an impressionable age. If your actions to stop political correctness and other insults in our schools fails, then all you have to do is leave. Yes! Pull your child from school and send him to another that does not teach this filth. If it's a university, all the easier! Don't send them your children and your money. There are thousands of colleges in America. Find one that teaches values that are important to you. If your child is still in the public school system, you may have to sacrifice, but the rewards are worth it. Pay for your child to attend a private school. If you can't find one, then homeschool your child. Yes, I know that may mean that you may have to alter your work hours or even quit your current job. But this should be easier now. Perhaps the one good thing that has come out of the covid-19 pandemic is that employees and employers have found that many jobs can be done from home.

Find a way. Do not feel that you have no choice but to subject your child to racism, Marxism, or anti-Americanism. WALK!

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Auberon Herbert : "Reject Compulsion in Every Form"

06/18/2021Gary Galles

Voluntaryism. It is an awkward term. Yet that was what political philosopher Auberon Herbert called the only social arrangement that respected people’s self-ownership—mutually voluntary, noncoercive cooperation. Government compulsion, on the other hand, inherently violates it. Herbert saw that preventing violations of others’ self-ownership was the core of the moral case for liberty.

At a time when the practical philosophy of governments is that they own as much of any individual as they choose, it is worth commemorating Herbert’s June 18 birthday by reconsidering his challenge to the idea that others have “a commission to decide what [their] brother-man shall do or not do.” 

  • This is the question…. Do you believe in force and authority, or do you believe in liberty?
  • The weight of argument is strongly on the side of liberty of action and unrestricted competition.
  • Rights of self-ownership are … supreme moral rights…. All social and political arrangements, all employments of force, are subordinate to these universal rights.
  • Force may be employed on behalf of these rights, but not in opposition to them.
  • Force rests on no moral foundations … [because] without freedom of choice … there are no such things as true moral qualities.
  • Each man must be left free … with one most important limitation. His freedom … must not interfere with the exactly corresponding freedom of others.
  • Reject compulsion in every form.
  • Private property [is] inseparably connected with liberty or self‑ownership…. It is idle to say in one breath that each man has the right to the free use of his own faculties, and in the next breath propose to deal by the power of the State with what he acquires by means of those faculties, as if both the faculties and what they produced belonged to the State and not to himself.
  • The fullest recognition of property [provides] both the material and the moral foundations of liberty.
  • To all … belong their own faculties, and as a consequence, equally belongs to them all that they can honestly gain in free competition, through the exercise of those faculties.
  • If we are self-owners, neither an individual, nor a majority, nor a government, can have rights of ownership in other men.
  • Justice requires that you should not place the burdens of one man on the shoulders of another man.
  • Voluntaryism … denies that any good or lasting work can be built upon the compulsion of others…. It invites all men to abandon the barren problems of force, and to give themselves up to the happy problems of liberty and friendly co‑operation; to join in thinking out … how we can do all these things, without at any point touching … the hateful instrument of an aggressive and unjustifiable compulsion. 
  • Under voluntaryism the state would defend the rights of liberty, never aggress upon them.
  • [Groups], without any exception … exist for the sake of the individual…. If they did not minister to his use, if they do not profit him, they would have no plea to exist.
  • No man can have rights over another man unless he first have rights over himself. He cannot possess the rights to direct the happiness of another man, unless he possess rights to direct his own happiness: if we grant him the latter right, this is at once fatal to the former.
  • If you lose your belief in liberty … what can all the gifts of politicians give you in return?
  • There is only one result you can get out of the suppression of the individual, and that is the organized dominant faction triumphing over the defeated faction.
  • You will gain far more by clinging faithfully to the methods of peace and respect for the rights of others than by allowing yourselves to use the force that always calls out force in reply.
  • Far the larger amount of intolerance that exists in the world is the result of … political arrangements, by which we compel ourselves to struggle, man against man.

In our era, where myriad government bodies tax and regulate away our self-ownership in many ways, either ignorant or uncaring about “the odiousness of compelling men to act against their own wishes,” we need to reflect on, and act on, Auberon Herbert’s compelling case for liberty and voluntary arrangements as the only morally defensible organizing principle of society. Only that allows us to cooperate with one another “without at any point touching with the least of our fingers the hateful instrument of an aggressive and unjustifiable compulsion.” As he recognized, the alternative involves the widespread abuse of people’s rights in themselves and is ultimately futile, because “all the methods of restriction … are wrong and will only end in disappointment.”

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Fed June Meeting: Misunderstanding Economics

06/18/2021Robert Aro

The June Federal Open Market Committee Meeting (FOMC) presented more of the same problem, the continual purchase of $120 billion in bonds a month and near zero interest rates. Only this time, the Fed increased the interest it pays on bank reserves from 0.10 to 0.15 percent. The stated purpose, per Chair Jerome Powell, was

in order to keep the federal funds rate well within the target range and to support smooth functioning in money markets.

This “smooth functioning” market explanation endorses the same proverbial green-light to all central bank interventions. If it wasn’t for the Fed, markets wouldn’t function properly, or at least that is the basis for all inflationist policies put forward by the Fed.

He goes beyond routine talking points, this time illustrating the complete disconnect between the central bank and reality. When discussing long-term (price) inflation expectations, he says:

They moved down during the beginning of the pandemic, you know, sort of further exacerbating concerns that we might find ourselves where, for example, the ECB and the Bank of Japan [have] been where you have expectations and inflation itself sliding down, and you have a really hard time stopping that process once it begins. So that was a concern.

Stated simply, there exists a belief that if prices of goods and services decrease, bad things happen. Indirectly, he is saying that in Europe and Japan, there was some sort of failure which led to prices decreasing. How bad it is there versus how bad it could be here is never articulated. The Fed aims to do things differently, intervening to make sure prices don’t “slide” down.

He continues:

So, it's good actually to see longer-term inflation expectations move back up to a range—it's a range that's consistent with what our objectives are.

Literally saying it’s good prices are expected to go higher in the foreseeable future.

His elation over inflation expectations ensues:

It's gratifying to see them having moved up off of their pandemic lows. And, you know, as you know, it's fundamental in our framework …

In a world ravaged by a government shutdown, where millions are rendered without jobs, claiming the cost of everything should increase in prices will make one’s life better remains without merit.

Often people say things like “it’s good for business,” or something only half thought out. They will only see the seller who has sold at a higher price and think this is beneficial, failing to consider the inputs the seller must pay to bring his product to production. Also there is the failure to realize the same seller must then go out and live in this world, consuming products, also now higher in price.

There is an unhealthy affixation to the perpetual increase in prices, as measured by a price index. That has been the cause for generational loss of purchasing power of our dollars, increase in debt levels and overall hardship for the masses.

The misunderstanding of economics doesn’t stop at prices. Listen to Powell as he shares a concern over the “full employment” mandate:

And I think during the last cycle, there were waves of concern that we were reaching full employment as early, you know, as 2012 when I arrived at the Fed …

There were “waves of concern” that full employment was coming earlier than anticipated, the supposed dreaded scenario of living in a nation where too many people are all working at once, creating businesses, manufacturing goods or providing services for the needs and wants of others. The America of 2012 must have been so bad with all these people working, according to the chair.

Ultimately, it doesn't matter whether the Fed is a clandestine force operating nefariously against public interest, or whether they are so high in their ivory tower really believing they are a force for positive change; we may never know what is said behind closed doors. What we can say for certainty is that not only are they not taking us in a direction towards prosperity, liberty and freedom, but they are steering us, with all of their might in the exact opposite direction.

Until this becomes both proverbial and literal front page news, “they” will continue to win, and everyone not closely tied to them will continue to lose.

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Why Didn't China Industrialize First?

06/17/2021Lipton Matthews

Historians still ponder why, despite its dominance in prior centuries, China failed to industrialize before Europe. Some contend that the culture of conformity engendered by Confucianism prevented the influx of disruptive ideas able to spark an economic revolution. Meanwhile, there are those who posit that the Chinese preferred employment in the government service, instead of pursuing commercial activities. Although there is a kernel of truth in these arguments such assumptions are insufficient to explain the sluggishness of China, relative to Western Europe.

For example, notwithstanding the perceived conformity of medieval Europe there were pockets of intellectual dissent. Eminent medievalist Edward Grant posits that contrary to the stereotype of medieval Europe being mired in ignorance - the academy was characterized by lively debates. It is also largely unknown that during this era most students studied law and natural philosophy, since theology was a graduate degree requiring mature students. Moreover, Aristotle was the undisputed king of medieval philosophy and his arguments were frequently applied to the study of religion. Medieval scholars were never slaves to the scriptures as some would have us believe. Neither were they unwilling to engage with scientific experimentation. Let us not forget that the monk Theodoric provided scientific explanations of rainbows in the 14th century, using experiments with a water-filled spherical flask designed to imitate a raindrop.

However, compared to contemporary societies medieval Europe may seem conformist, but critics forget that the character of conformity is equally important. Whereas students in China were encouraged to regurgitate classical philosophers, the medieval scholar Bernard of Chartres promoted the view that one ought to enhance learning by refining the ideas of his intellectual ancestors, this outlook is expressed by the metaphor “Standing on the shoulders of Giants.” Hence the substance of conformity can positively impact creative output. By this account both medieval Europe and China were conformist, but they differed in their concept of conformity.

Furthermore, like in China, some scholars in Europe avoided technical professions, yet their ideas nonetheless revolutionized society. For example, the Protestant reformers placed a high value on literacy. Because people were becoming literate, they acquired an interest in books other than the bible, so indirectly the Protestant Reformation resulted in the secularization of society. Essentially the individualistic ethos of the Reformation implored people to seek knowledge on their own. As such, with the diminished importance of religion, men were primed to pursue science, economics, and other non-religious affairs.

Therefore, the Reformation indicates that ideas are crucial to revolutionary changes. Hence the paucity of highly intelligent men working in technical professions is an inept explanation for the failure of China to industrialize, because gifted people do not need to be industrialists for their ideas to promote growth. We have explored theories proffered by academics to describe China’s inability to industrialize before Europe, so we will now discuss possibilities offered by economic studies.

According to economist Mark Elvin, China suffered from a high-level equilibrium trap meaning that the efficiency of production processes limited the demand for innovations. Yet Jan Luiten Van Zanden and Bozhong Li in a 2010 paper note that lower labor costs in China did not stimulate the adoption of machines to minimize labor expenses. Based on these findings and those of Stephen Broadberry, it is apparent that economists exaggerated the productivity of pre-industrial China.

Another intriguing theory is proposed by scholars who argue that the clannish nature of Chinese society obstructed the formation of institutions facilitating large-scale partnerships. Avner Greif and Guido Tabellini write: ‘Clan loyalty and the absence of formal impartial enforcement limited inter-clan cooperation. There were, obviously cities in China. Yet, intra-clan loyalty and interactions limited urbanization, city size and self-governance. Considering large cities, China’s urbanization rate remained between three and four percent from the eleventh to the nineteenth century, while the initially lower urbanization rate in Europe rose to about ten percent. Including small cities, urbanization rates were comparable, but China’s small cities were venues for cooperation among members of local clans rather than their melting polt. While the European cities gained self-governance, this did not happen in China until the modern period.”

Unfortunately, kinship structures in China hindered institutional transfers across cities since they precluded the formation of associations independent of tribal ties. By impeding the creation of widescale trust kinship groups deterred the networks required to create successful innovations and boost growth.

Evidently, examining the failure of China to industrialize is a complicated task. Though it appears that this is due to an intricate interplay of factors ranging from economics to culture. Therefore, it is prudent for economists to adopt a multi-faceted approach by exploring how dynamic interactions between cultural beliefs and institutions aided in delaying the rise of an industrial China.

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The Intangible Benefits of Economic Freedom

06/17/2021Lipton Matthews

Societies are more prosperous when citizens produce and innovate without government intervention. Undoubtedly, regulations can slow the progress of innovation and by extension economic  growth. Because economically free societies enable the efficient creation of wealth it is unsurprising that the Fraser Institute and the Heritage Foundation have documented a positive relationship between economic freedom and income growth.

However, less appreciated is that economic freedom improves well-being in ways not easily calculated on any ledger. Higher incomes afford people the opportunity to purchase high-quality amenities thereby enriching their quality of life. When increasing affluence allows people to secure better health care and superior schools they can expect to live longer and acquire lucrative jobs.  Freed from worrying about the bare necessities of life makes it easier for people to pursue leisure and invest in building quality relationships.

As expected, Belasen and Hafer (2012) argue that across American states improvements in economic freedom led to higher levels of well-being even after controlling for other factors.  Economic freedom gives people a sense of control over their affairs by ensuring the pursuit of entrepreneurial projects unfettered by government regulations.  As such, economically free societies breed optimism.  In a 2017 paper Boris Nikolaev and Daniel L. Bennett contend that people residing in economically free societies are more likely to report positive feelings. The authors further note that such people are also inclined to report feelings of excitement, success, and jubilation. Interestingly, those living in these societies are also less likely to feel restless, bored, or lonely.

Indeed, by boosting incomes, economic freedom avails us of new opportunities beyond mere material possessions. The truth is that having money increases our propensity to purchase worthwhile experiences. In fact, related research indicates that the degree of economic freedom in US states has a positive effect on both individual reported happiness and state average happiness. These findings are predictable since economic freedom boosts life satisfaction by directing people to chart their own course.

Another channel through which economic freedom improves society is tolerance. Open markets permit people to socialize and conduct business with outsiders thus engendering trust and respect for cultural differences. Nicolas Berggren and Therese Nilsson in the research article “Economic Freedom as a Driver of Trust,” posit that  in economically free societies people are motivated to be trustworthy and entertain connections with outsiders in order to succeed in the marketplace. Moreover, doing business with outsiders forces us to become appreciative of diversity and embrace our universal humanity.  Furthermore, it must be noted that the absence of government regulations ensures that people interact with each other as individuals with unique preferences and not as impersonal agents. In general, government regulations create barriers to commercial interactions.

Similarly, research by Thomas Coyle, Heiner Rindermann, and Dale Hancock shows that in free and open economies, innovative people are more productive with the human resources available.

Obviously, when government regulations do not hinder innovation, people are more likely to embark on risky ventures.  Adam Thierer in Permissionless Innovation opines that the American start-up Free World Dialup (FWD) failed, because it sought approval from the FCC to operate whereas the founders of Skype bypassed U.S. regulatory approvals; therefore enabling the company to build a user base, so in the long-term it was able to outperform FWD.

But economic freedom is not only useful in the economic realm. Research reveals that it mitigates the effects of pandemics.  Vincent Geloso and Jamie Pavlik in a fascinating paper exploring the effects of economic freedom on the Pandemic of 1918 submit that countries with higher levels of economic freedom tempered the damage induced by the pandemic because they were allowed to recover faster than regulated economies whose policies dampened recovery. Intriguingly, more recent research has confirmed the findings of Geloso and Pavlik by arguing that open economies in Europe demonstrate greater resilience in adjusting to the crisis of Covid-19.

Despite the rantings of regulators and politicians economic freedom is an ideal strategy for creating prosperous and resilient societies.  Our failure to remained wedded to the principles of economic freedom will redound to our detriment, because it is the solution to ensuring a strong society, not the problem.

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Frank Buckley on Secession

06/16/2021David Gordon

Because of the deep division in America between red states and blue states, there has been much talk of secession. Is the United States too big? Would people be happier in smaller communities? Frank Buckley, a distinguished professor at the Scalia Law School, breaks with most of his fellow legal academics by taking these questions seriously. In a recent article in the American Mind, he suggests that secession today would be difficult but not impossible. “As I argued in  American Secession (2020), a civil war would be unlikely, and we’d be more likely to see a pacific James Buchanan in the White House than an indominable Abraham Lincoln.”

Against those who argue that secession is unconstitutional, Buckley offers some strong arguments: “Finally, the legal barriers to secession are weaker than most think. Originalists on the Court would recognize that the framers had thought secession permissible, while its more liberal members would find it difficult to ignore the expressed wishes of voters in a state. Is an indissoluble union a more fundamental constitutional norm than democracy? Canada and Great Britain posed that question, and answered no. While the Supreme Court held that secession was unconstitutional in Texas v. White, that was a decision of a unionist Court right after the Civil War. Moreover, the decision assumed that the 1781 Articles of Confederation, which spoke of a “perpetual” union, had survived when the Constitution was adopted. Had that been the case, however, the Constitution would not have been ratified until the last state signed on in 1790, and George Washington’s election two years earlier would have been a nullity.”

Buckley is someone who “thinks outside the box,” and we badly need this quality today.

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Wall Street Journal Remembers the Great Inflation

06/16/2021Robert Aro

The Wall Street Journal (WSJ) joined the chorus of headlines about rising prices by recounting price inflation with the article: When Americans Took to the Street Over Inflation, warning readers:

Today, after decades of nearly invisible inflation in the U.S., many Americans have little idea what it looks like... But America’s long inflation holiday shows signs of ending…

Ringing the alarm after the Labor Department’s Consumer Price Index (CPI) reading showed 5% in May, the author tells us:

History provides some useful lessons.

This is precisely the problem. How can any supposed solution of the 1970’s be applied to today?

The author begins the narrative:

The nagging inflation of the late 1960s and 1970s didn’t happen overnight. It took root over years, building through a cascade of policy missteps and misfortunes… It would take two deep recessions and new ways of thinking about economics to tame the inflation of that period.

Going back to as early as 1966, protests began to sweep the nation:

Fed up with the increasing cost of living, they marched outside of supermarkets with placards demanding lower prices...

Ironically, the CPI data illustrates the limitation of trying to understand price increases through the use of CPI data. Per the chart below, the mid-1960’s rise in the index doesn’t look anymore remarkable than the periods before:


The stated resolution of this inflation problem is the concerning point. It took two recessions and new economic ideas to somehow “tame” inflation.

This alleged taming remains stated but not proven. Suspension of belief is required to accept (price) inflation was defeated without prices ever decreasing. Two recessions being the cure is a grandiose claim! However, it’s difficult to disprove, as this commonly accepted thesis cannot be proven to begin with. Like a nod to Keynes himself, victory is declared through the declaration of victory itself.

Tidbits of history are provided, explaining various government failures in fighting price increases. There was LBJ’s Vietnam War effort and “Great Society” social programs which did nothing to lower prices. Nixon severed the international exchange of dollars for gold and the USD exchange rate went tumbling, while he also imposed price caps on meat. His administration famously urged housewives to try “shopping wisely.” Jimmy Carter had the Council on Wage and Price Stability, described by one director of the program as a “complete failure.”

The Fed gave into government, acquiescing to LBJ and Nixon’s urges to keep pumping money into the system to maintain low rates obliterating the strength of the dollar. As for mainstream economists, their models of the Phillips-Curve proved disastrous:

Some economists had thought that when unemployment rose, inflation would fall. Instead, both went up, giving rise to yet another new term, “stagflation.”

And to no surprise, women took some blame for the various missteps:

A flood of women into the labor force also made it harder to decipher a stable rate of unemployment. 

Perhaps when “too many” women go to work it ruins the Fed’s predictive models?

Last but not least, Fed Chair (1979-1987) Paul Volcker continues to play the role of hero, the Chair who raised interest rates and, per the author, restricted growth of the money supply. How higher rates fixed the problem is peculiar. The restrictive money supply idea is curious as well. The M2 Money supply from 1960 to 2000 table below shows that under Volker, the money supply saw a steeper increase than the decades before, never decreasing.


We should learn from the past. But this becomes difficult when the method in which these problems were resolved was never made clear. Between government, the Fed and economists, it seems no one had an adequate solution, save for the legend of Paul Volker who apparently fought inflation. At least that is the prevailing story.

Few people want to say the obvious, that the Fed did nothing to stop price increases; society simply managed to live through hardship caused by government and central planners. Unfortunately, the most honest and consistent pattern over the decades is perpetual decline of the dollar, unaffordability of life for the masses, and ever-increasing debt levels showing no signs of letting up anytime soon. Society continues to not be capable of “taming” inflation as much as simply finding ways to “live through” inflation, made easier when we ascribe great feats to leaders said to have carried us through such trying times. 

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