This page has been archived and commenting is disabled.
The Austrian Case Against Economic Intervention
Submitted by Patrick Barron via Mises Canada,
The basic unit of all economic activity is the un-coerced, free exchange of one economic good for another based upon the ordinally ranked subjective preferences of each party to the exchange. To achieve maximum satisfaction from the exchange each party must have full ownership and control of the good that he wishes to exchange and may dispose of his property without interference from a third party, such as government. The exchange will take place when each party values the good to be received higher than the good that he gives up. The expected, but by no means guaranteed, result is a total higher satisfaction for both parties. Any subsequent satisfaction or dissatisfaction with the exchange must accrue completely to the parties involved. The expected higher satisfaction that one or each expects may not be dependent upon harming a third party in the process.
Several observations can be deduced from the above explanation. It is not possible for a third party to direct this exchange in order to create a more satisfactory outcome. No third party has ownership of the goods to be exchanged; therefore, no third party can hold a legitimate subjective preference upon which to base an evaluation as to the higher satisfaction to be gained. Furthermore, the higher satisfaction of any exchange cannot be quantified in any cardinal way, for each party’s subjective preference is ordinal only. This rules out all utilitarian measurements of satisfaction upon which interventions may be based. Each exchange is an economic world unto itself. Compiling statistics of the number and dollar amounts of many exchanges is meaningless for other than historical purposes, both because the dollars involved are not representative of the preferences and satisfactions of others not involved in the exchange and because the volume and dollar amounts of future exchanges are independent of past exchanges.
Let us examine a recent, typical exchange that violates our definition of a true exchange yet is justified by government interventionists today–subsidized, protected, and mandated use of ethanol. Number one, the use of ethanol is coerced; i.e., the government requires its mixture into gasoline. Government does not own the ethanol, so it cannot possibly hold a valid subjective preference. The parties forced to buy ethanol actually receive some dissatisfaction. Had they desired to purchase ethanol, no mandate would have been required. Therefore, including the dollar value of ethanol sales in statistics purporting to measure the societal value of goods exchanged in our economy is meaningless. This is just one egregious example of many such measurements that are included in our GDP statistics purporting to convince us that we have “never had it so good”.
Our flawed view that governments can improve satisfaction caused us to misjudge the military threat of the Soviet Union for decades. Our CIA placed western dollar values on Soviet production data to arrive at the conclusion that its economy was growing faster than that of the US and would surpass US GDP at some point in the not too distant future. Except for very small exceptions, all economic production resources in the Soviet Union were owned by the state. This does not necessarily mean that it was possible for the state to hold a valid subjective preferences, for those who occupied important offices in the state held them at the sufferance of what can only be described as gang lords, who themselves held office very tentatively. State ownership is not real ownership. Those in positions of power with responsibility over resources hold their offices for a given period of time and have little or no ability to pass their office on to their heirs. Thus, the resources eventually succumb to the law of the tragedy of the commons and are plundered to extinction. Nevertheless the squandering of the Soviet Union’s commonly held resources was tallied by our CIA as meeting legitimate demand.
Professor Yuri Maltsev saw first-hand the total destruction of the Soviet economy. In Requiem for Marx he gives a heartbreaking portrayal of the suffering of the Russian populace through state directed, irrational central planning that did not come close to meeting the people’s legitimate needs, while our CIA continued to crank out bogus statistics of the supposed strength of the Soviet economy upon which the Reagan administration based its unprecedented peacetime military expansion. Maltsev, an Austrian economist, was unable to convince Gorbachev’s government to allow private ownership of the nation’s resources. Without private ownership of production resources, there could be no true ordinally held subjective preferences for their rational allocation. Gorbachev’s other reforms were half-hearted and mis-implemented. They were insufficient to prevent the imminent collapse of the Soviet economy.
With the proviso that no exchange may harm another, as explained so well in Dr. Thomas Patrick Burke’s book No Harm: Ethical Principles for a Free Market, we are led to the conclusion that no outside agency can create greater economic satisfaction than can a free and un-coerced exchange. The statistics that support such interventions are meaningless, because they cannot reflect the satisfaction obtained from true ordinally held subjective preferences. Once this understanding is acknowledged and embraced, the consequences for the improvement of our total satisfaction are tremendous. Our economy can be unshackled from government directed economic exchanges and regulations. The “no harm” principle can be enforced by normal commercial and criminal law. For example, since one may not pollute the waters that are used by others, normal tort law, which is based primarily upon precedence, would replace costly EPA compliance regulations, which are based primarily upon statute law and bureaucratic regulation. All labor laws can be scrapped, which would reduce the cost that businesses must bear to support extensive human resources departments, which have become little more than arms of government agencies. Freedom to engage in any economic exchange that causes “no harm” would extend internationally, too. All trade restrictions would be seen to be illogical and unnecessary. Satisfaction increases with greater opportunities for un-coerced exchanges; therefore, international trade restrictions are counter-productive. The revival of the free trade movement would benefit world peace and result in fewer scarce resources directed to national defense.
In conclusion we see the consequences that can accrue from a better understanding of the true nature of economic exchange. Be on your guard for those who claim to be able to improve our satisfaction and protect us from harm through expansion of government coercion in the market.
»
- 12780 reads
- Printer-friendly version
- Send to friend
- advertisements -
"I'm from the government and I'm here to improve your satisfaction." That'll be the day.
they already "protect and serve" the SHIT out of you.... might as well add 'improving your satisfaction' to it
But first comes the creation of DSI, the Department of Satisfaction Improvement, an orgy of bureaucracy. A small fee (tax) snatched from each check. "So that future generations may be satisfied."
Scares me when a central banker hands me a jar of vaseline
The Austrian School:
"All these theories enhanced the beliefs of some economists like F. A. Hayek, whose economic models were totally excluding altruism and were totally dependent on personal interest. Another economist, James M. Buchanan, disputes the concept of 'public interest' and supports that organizations should be managed by people whose motive is money. Concepts like 'feeling of personal fulfilment' or 'sense of duty', are not included in their theories."
http://failedevolution.blogspot.gr/2014/01/how-western-societies-lost-th...
I don't think anyone cares. They made this mess for a reason.
WIN. Whip Inflation Now
Better than later
Great thoughts but there is a legion of sociopaths voted in by an army of idiots that might take issue with it.
Austrians want a unit that holds value despite the fact that the world is in flux. Gold and other metals are not money. Money's highest nature is as a division of the law. If we want law based money that channels properly, it must be by system design, not some fantastical magical properties imputed by imagination, and overturned by the verdict of history.
Silver or Gold coins that stay in the supply and are spun back out constantly, say as what happened in Ancient Venice could work, but once again that is by law. If you want commodity money, it needs to be an international third currency, that then anchors national currencies, such as what Keynes wanted, but was thwarted by White and desire for dollar hegemony. You might as well use real commodities rather than gold then.
Private bank credit riding on top of Gold is a no no and rent seeking method history has rejected. Usury on credit loans, sucks in available gold out of supply.
All markets are a device invented by man to do price discovery and transaction. There cannot be price discovery if the money itself is gamed with hidden rents.
Here are some things we can do to fix the problems using hybrid money supply somewhat similar to what we had in the past. Money supply is NOT all banker credit, as in today. At this point we need to try things and stop being afraid.
-------------------------
1)
Sovereign money can be issued by Treasury or New Monetary Authority. It is issued in accordance with the law, into channels of production, or the commons. It could also be issued into households as a dividend. This dividend represents increment of association all American/Europeans are whoever inherits as a birthright given to them both by God and their ancestors.
2)
Federal Reserve nationalized during transition and comes under Treasury control. It is no longer a profit seeking corporation and instead transforms to being an agent of the people.
3)
Volume (Quantity) of money must be controlled, and usury laws enacted. This would keep private banks from jacking up interest rates to then suck up the debt free money issued by Treasury. This would put M0 back into the money supply as savings and as a transaction medium. This money is highly efficient as it settles transactions without usury, and it doesn’t disappear from existence.
4)
State banks take over the regional FED structures. In this case State Banks issue loans in accordance with their State’s needs. State banks already exist, such as in North Dakota so this would not be too much for most people to understand – as there is a ready example already performing.
5)
Banks go into legal bankruptcy proceeding to draw down debts. This changes the ratio of debt instruments to money in the supply down to where it is more in alignment with a natural economy.
6)
Derivatives are systematically cleared out. Most derivatives are bets, and said bets are related to credit as money which needs insurance from an unstable future – ironically made unstable by the very nature of private banking usury system. This new credit system is better at making loans, as they are local and in the states (and their peoples) interests, so the insurance as bets is no longer needed. The state banks can themselves decide on their risks.
7)
Wall Street Banks broken up with some Glass Stegall firewalls, so no more TBTF.
Or, Go to a full sovereign system, and as such there are no more reserve loops, and private bankers work for fees instead of interest income.
www.sovereignmoney.eu
Repeal the 17’th amendment so as to reassert Political Federalism. Individual States will have both money power and political freedom from the Washington Consensus Democracy.
"Gold and other metals are not money."
Gold and silver have been money for the last 6,000 years so I suspect that you don't have a clue what money is.
Other things can be money, for example cigarets in German prison camps during WW2.
Salt, pearls, diamonds, cattle, shells.
All independent of any government.
Money is a human discovery which made barter obsolete. No government is needed for money
Evidence of debt are talleys. This is not money, but a mark that allows credits and debts to be canceled.
Todays banker credit is evidence of debt. When you go to the bank to get a loan, you are really borrowing your own credit, and then spending it into the supply.
Once in the supply, your former credit is used by others to consumate transactions. Your former credit is now a commons. DO YOU HAVE THE RIGHT TO CHANGE VOLUME IN THE COMMONS? By your action of making bank credit you can take rents from others.
Hypothecation is really your credit, but the banker claims it as his own by making government change law.
A real money system is fully law and the money is issued or channeled properly and volume is controlled. Usury is kept to a minimum or fluxes back out into productive channels. A real money system takes a high level of law. So, NO marks and cigarettes and stones and beads are not money - they are talleys and evidence of debt. A fully law system is fiat, where the numbers are controlled to allow contracts be extinguished without rents.
It is impossible to have legal proper money in a private system. Therefore money creation and the law, which are inextricably linked, are the most fundamental perogatives of government.
Now, creating a government that doesn't steal and abuse its power is another matter. I submit to you that sovereign money issued by government circulates in the economy, and can only be recalled by taxes. Once released, the money is yours to use as it circulates over and over. This mechansims does not give government much power.
Metal money is a terrible form of money and is not the answer to the ravages of private banker credit fiat. In fact it was metal money powers that invented private banker fiat "credit as money." They are one and the same, and most people are caught up in this false dialectic.
"It is impossible to have legal proper money in a private system."
Bullshit, All your beliefs are based on how viable things are in a government created, government run system. It's the government way or no way.
No choice and no creativity and you assume no possibility.
What part of spending your credit into the commons don't you understand? The market is of three types: Elastic, Inelastic and Mixed.
Elastic markets have ready competition, and hence prices can be controlled. For example, if your local store is out of bayer aspirin, you could by the store brand. Inelastic markets, by contrast, have NO ready competition
Inelastic markets would be sewer, power lines, ports, the air force. You cannot have two ports competing, it is natural land mass. You cannot have two air forces as it is redundant costs.
Inelastic markets require government ownership or regulations. THIS IS A LAW LIKE GRAVITY. I'm sorry you fell down due to gravity and bumped your head. I DID NOT MAKE THESE NATURAL LAWS UP. Get with the program, there are forces in the world that are natural and you go with them, or get run over.
THE COMMONS are a perogative of government. It cannot be construed any other way, and if anybody says so, they need to be locked up as being insane. Money is a commons because we all use it. SORRY ABOUT THAT ... it is just how it is, despite all of the Austrian nonsense you've been hypnotized with. You may wish it wasn't so, but I cannot help emotional reactions to pure logic.
You and I... We.. need our commons to deliver goods and services at the lowest cost. IN THIS SECTOR, government is the most efficient producer.
When the commons are privatized, they become tolled to make rents for a perpetual oligarchy. How would you like to have former paid for roads turned into toll roads, to then pay rents to your betters forever.
We need government constrained and in its proper sphere. Only this power can restrain the money power. The money power in turn is constantly spewing propaganda and perverting your mind with demonstrably false constructs. Nobody thinks rents are OK. Nobody reasonable at least.
Austrianism is a pure rent seeking mind control construct. Gold is inflexible in volume, and all economies are S shaped and hence require flesxibilty. This is the verdict of history. Austrians, please shake your head and wake up, take the pill and get out of the matrix.
"A real money system is fully law and the money is issued or channeled properly and volume is controlled."
I'll repeat my charge, you don't have a clue about what money is.
I further charge that your claim that fiat money volume can be properly "controlled" is absurd.
It just depends on who is "controlling" or who is "channeling properly"
Right now the Federal Reserve is "properly channeling a volume" of trillions of Dollars to their master: the banking "industry, more properly referred as the US banking monopoly. And they are using taxpayers as collateral.
Fiat money is a SCAM!!!
Fiddling while Rome burns. There are no viable solutions to corruption without violence and or destruction.
PUBLIC: "We're going to invalidate your ZBucks. Oh, by the way, you're going to have to start working for a living."
ZBANKERS: HAHAHAHAHAHAHAHAHAHAHAHAHAHAHA! Oy!
Choice.
Freedom to choose what you want for money.
“…law based money that channels properly, it must be by system design, not some fantastical magical properties …”
Try looking at economics through the “lenses” of capital and it’ll make more sense.
Capital = Production - Consumption
This is a “truism”, there is NO other way to CREATE Capital.
You can barrow capital, you can steal it (not recommended), you can find it or you can receive it as a gift.
Corollary: The cost of capital is it’s interest rate.
Corollary: The interest rate goes up as the amount of available capital goes down and down if the amount of available capital goes up.
The confusion arises from how to store capital until you decide to use it.
A time proven way to store capital is to convert it into gold or silver. BECAUSE IT IS MONEY!!
You don’t want to store it in the form of fiat money, for example US Dollars, because you are depending on whoever issued the fiat money to keep it valuable.
For example, if you were storing your capital in Russian currency, the Ruble, you would have lost half of your capital in the last two weeks.
The problem with Central Banks, such as the Federal Reserve, is that they are able to counterfeit capital by “printing” fiat money. We just saw how the only way to create capital is to produce more than you consume. Then it is easy to see how “printing” capital is fraud.
It is also easily seen how charging interest rate on nonexistent capital (fiat money) is a fraud. And how lowering interest rates by “increasing” the amount of “available” capital with counterfeited money (fiat money) is also a fraud.
Fractional reserve is another way of creating fraudulent capital, but that’s a story for another day.
Nothing wrong with the Gov, IF they did only what they're supposed to, i.e. build common infrastructure, ensure a level and honest playing field... to make sure that "Organized Scumbags" don't take over.
Oh, wait...
Nothing right with government.
Money versus wealth.
Wealth is what people want: nice house (paid for), skills (that people will offer you other wealth for), items of value (art that people appreciate and are willing to trade other wealth for, for example), sometimes just attributes (successful sex-workers have wealth through nothing more than the body they were born to). All these are examples of actual wealth, and they will always hold their "value".
Money is just a place holder. The biggest con ever played on the majority of the world's population is that they think they are "working for money". The day the majority learn to work to acquire wealth - not money, our species will have evolved a step higher.
I don't see it happening soon, though...
"The biggest con ever played on the majority of the world's population is that they think they are "working for money"."
They get paid with debt to go further in debt by borrowing.
I agree with you except that you should change "money" for "fiat money"
If not your post just turns into a very old Spaniards saying:
"You can't take away from me what I have already danced"
Why has no one school of economics become dominant and surpassed all others?
It is not always right and does not predict all major events.
Why are there so many schools of economics?
Each is right some of the time; nearly right some of the time and wrong the rest of the time.
i.e. Economic thinking is still in the dark ages.
Why are there so many schools of economics? Seriously?
Think it through, I'll help you with the start. Why are there so many people?
Ok, I think you can take it from there ..... maybe.
e = mc2
Just one - this is real science.
Advanced economic thinking is usually thwarted by money/religous powers. The chairs at economic departments are bought up or funded by banks who in turn have tremendous inflows due to usury. You pay 200K in interest on a 150K home ove 30 years. That extra 200K is earned for simple keyboard entries. This usury funnels into a pyramid, then into elites of the bond markets. It is a world government that has operated for millenia, the God of money. Usually only truly independent economic thinkers (some economists) will tell you the truth.
So, there are some of us that do have a pretty good grasp on money and history, but it is a very small crowd. Most economic theory have underlying ideas that are demonstrably false. When exposed, the adherents to these theories do not let go. Maybe it is pride, but I think they have a vested power relationship - they are paid shills.
Austrians in particular, at the top of pyramid are one and the same as usury seeking private bankers. In history, the usury crowd used Gold to induce depressions to take their rents, or they used the exchange rate differential between gold/silver. This mechanism was in turn backed up by the relgion as a shield and cover. I do not go easy on Kabbalah and Talmudic Jews as this is part and parcel of the grand deception, which in turn makes proper monetary theory so difficult to get across to the unwashed masses.
Across the world it took Governments to ban slavery and child labour.
Free markets and the business community would have seen these as good for profits.
Except in those cases in which governments promoted/promote slavery and child labor because the individuals running those governments also profited/profit from slavery and child labor.
Only the crony community sees these kinds of things as good for profits, free markets and the business community would not have seen these things as good for profits, as they only profit them that are in power.
Free markets left to their own devices cause wild swings between mania and depression.
Governments did not intervene to create Tulip mania (Holland 1600's) and every wild boom up until recently, this is human greed and the prospect of easy money.
Government intervention started recently after the markets got carried away with a mania over the new internet leading up to 1999, just as those 1600s markets in Holland got so over excited about the new tulips.
Markets are not rational because human beings are not rational.
All advertisers know this and use adverts to appeal to much more primitive sub-conscious desires, it works.
Government and Central Bank intervention has been a disaster recently but free un-regulated markets are not an ideal either.
There does need to be some control and some biasing to make markets look long term, which they do not naturally (human nature).
See how naturally Batman flys in circles.
"There does need to be some control and some biasing to make markets look long term, which they do not naturally (human nature)."
The problem with your idea is that the cure will inevitably lead to something worse than the original problem. The original problem, as you state it, is that there are manias and crashes. Absolutely. And I would far prefer that problem to the problem of a small group of people exercising absolute control to "protect" us from ourselves. Let the cycles go, however scary it may be. Unfortunately, my vision will never be reality, because scared people so easily believe (because they desperately want to believe) the lies they are told by power-hungry men during bad times, and just as bad, sometimes the power-hungry genuinely believe they are helping. They are convinced of this for entirely self-centered reasons, however. They are sure that what is good for them must be good for everyone. Humans can't see beyond our own noses. :(
If there was no Government, the US would be run by Wall Street.
At least you can vote Governments out.
The real question is why does everyone vote Democrat / Republican (Wall Street)?
New parties are needed.
The average american has been force fed anti-Government / pro-business bull shit since birth and is almost a lost cause with no idea how democracy should actually work.
Not that the UK is much better - but new parties are starting to appear across Europe and real democracy could make an appearance.
"At least you can vote Governments out.
The real question is why does everyone vote Democrat / Republican (Wall Street)?
New parties are needed."
You and I agree on the principles here, but disagree on practicability. Based on what you say here, it sounds like you agree that Democrats and Republicans are the same thing marketed differently. So far, so good.
The problem, however, is that in order to put new ideas (i.e. new parties) in place, people would need to hear about them. And the people in charge of the media are the same people in charge of Wall Street. Which means that in our current model, Wall Street owns the government (or at least the mechanism for electing them, which is another way of saying the same thing). You are correct that Democrats and Republicans are the same thing. I suggest you consider the idea that Wall Street, Madison Avenue, and K Street are also the same thing. Therein lies the crux of our problems.
I suppose things need to get pretty bad before people start to work out that the elite are not working in their interests and even the best PR needs some truth behind it.
This is probably why Spain has seen a new party gain general recognition - Podermos.
Here in the UK things have not got that bad yet and on the whole the electorate slumbers and the MSM still calls the tune.
In the UK we have LibLabCon - three parties that are essentially the same.
More choice but no choice.
Of course what you say is true. But then, why is it my responsibility to give up money or freedoms that belong to me because some folks don't know what a tulip bulb is worth?
In the current capitalist state of "bubble-o-nomics" there is no other game in town apart from government intervention and CB printing.
Krugman is chief Shaman of the world. Get over it you Austrian Yetis (abominable snowmen).
Until the Himalayas melt, we are likely to stay in this conundrum of print, print and think debt is ASSET.
And, to make matters worse, nobody winks as they are all pHDs, as serious as the Popes of old, who take their own vision akin a game of the Fellowship of the Ring of Illuminati, fighting Mordor's austerity and despondency, "doom n gloom" brigade (along with the spooks and gooks of Nork troglodytes and Putin leaning bratva).
Anybody for Quidditch in this neo-gothic world full of fairy tales, Witches and Wizards ?
What happened to truth and transparency, burden of proof and accountability. Lost in NSAese translation?
Who needs another tribe of Shaman who worships the God of invisible hand?
We need the truth, simple as burden of proof.
But for the truth to surface the Oligarchy rug has to get cleaned out!
In the world of Harry Potter, Gold Galleons, Silver Sickles, and Copper Knuts are money.
It would seem that even fantasy fiction contains more reality than the Phd Peyote-Brigade.
Be on your guard for those who claim to be able to improve our satisfaction and protect us from harm through expansion of government coercion in the market.
There's a lemming "sucker" born every minute...
And why
no outside agency can create greater economic satisfaction than can a free and un-coerced exchange
is so hard to put back into existence once the lemming "believes" that he or she has everything they need and are provided for to the greatest extent possible by that outside agency!
People like government or otherwise coercive intervention because, while it can't increase net satisfaction, it is very satisfying to the lucky loot-recipient to get something for nothing.
And people with high time-preference will never think far enough ahead to analyze how their theft will affect their victim's production plans.
Reasoning is irrelevant. Economics, monetary policy, and fiat currency are essential tools for getting and keeping power for the politicians who control the Regime. The politicians will do whatever is necessary for them to buy votes to get into office including unlimited spending on vote-buying entitlement programs, AND crush interest rates and push up inflation to keep the government debt payments manageable.
The Regime will stay in power unless and until the people reach the point of rage and overthrow the Regime by force. That point is generations away.