Radio Free Market

By Dr. Yuri Maltsev

Carthage College

Paper delivered to the Austrian Scholars Conference March 12, 2011, Ludwig von Mises Institute Auburn, Alabama.

“If we wish to save the world from barbarism we have to refute socialism, but we cannot thrust it carelessly aside”, – Ludwig von Mises

Good Morning Ladies and Gentlemen.

My Name is Michael McKay and I have the privilege of delivering this paper by Dr Yuri Maltsev titled “Unbreakable Union: Lessons Learned from the Demise of the Soviet Union.”

Why did Dr. Maltsev choose this title?

Because of its irony.

The opening lines of the State Anthem of the USSR went as such:

“An unbreakable union of free republics,
Great Rus’ has united forever!
Long live the created-by-the-will-of-the-peoples,
The united, the mighty Soviet Union.

But indeed it was not Unbreakable – twenty years ago it broke apart spectacularly.  I would refer you to Dr. Maltsev’s other Scholarship where he talks about how the USSR was “Too Big NOT To Fail”.

In those lectures Dr Maltsev outlines how the USSR had 1/6^th of the landmass of the entire planet, covered 11 time zones, was blessed with vast and abundant natural resources – yet failed.

In this lecture Dr Maltsev asks ‘Why are ALL of these Empires which look so formidable and insurmountable – even eternal – SO FRAGILE?’

Indeed, How Fragile ALL empires have been – and are yet today.

There are many lessons the World can learn from this. Here are some of the lessons that the wreckage of Soviet Russia leaves us to learn, ponder and appreciate.

Lesson #1  REAL Property Rights Matter

Please notice the word ‘Real’. There are many ways to trick people about Property Rights. But before we examine these tricks let us remember that TRUE Property Rights mean that I can:

a)    Acquire,

b)    Use,

c)    Develop

d)    Profit From, and

e)    Dispose of my property as I see fit.

But Socialists have learned that they can creep up on people.

The tragedy of the Bolshevik Revolution of 1917 was not an isolated event in Russian history. The beginning of the 20th century was marked by ‘encroaching’ Socialism through the increasing of regulations as well as social and ethnic engineering.

The huge bureaucratic regulatory state created by the government of Nicholas II in Russia was the direct predecessor of socialism. The First World War led to further militarization and centralization of Russia.

Socialist leaders: Lenin, Bukharin and Larin with great sympathy were watching how the German military-economic machine was replacing the market mechanism. They argued that the combination of this type of economic organization with the socialist party in power is socialism. “Here we have the last word in modern large-scale capitalist technology and planned organization”, wrote Lenin.

Ludwig Von Mises analyzed “two patterns for the realization of socialism”: Russian with wholesale socialization and German or Nazi with property rights subjugated by the State and its central planners. In summary, the fascist economic model is related to property rights in the following ways:

·        Incrementally Regulated and Restricted, which is ‘Gradual Confiscation’,

·        Arbitrarily imposed to apply to one class or group and not another

·        Total State Control of Private Property and the creation of a New type of ‘property right holder’ …..the Bureaucrat.

It was and still is common in academia to identify the Communists as the Left and the Nazis as the extreme Right, as if they stood on opposite ends of the ideological spectrum. These definitions were first coined by Stalin himself at the 7^th Congress of the Communist International in 1935. To put these regimes in their true perspective we should point out that they are varying versions of the same socialist ideology. The economic policies of Mussolini’s Italy and Hitler’s Germany resembled the “state socialism” which Lenin wanted to institute in Soviet Russia upon coming to power, under which private enterprise would work for the government – an idea Lenin was forced to abandon under the pressure of the “Left Communists”. Under both fascist and communist regimes government bureaucracy completely controls the production. It decides what shall be produced, how much, for whom and how.

The difference between the systems is that the German and Italian patterns did indeed allow – or, more accurately, tolerated – private property. However, it was “property” in a peculiar and very restricted sense – not the virtually untrammeled private ownership of Roman law and nineteen-century Europe, but rather conditional possession, under which the state, the owner of last resort, reserved to itself the right to interfere with and even confiscate assets which, in its judgment, were unsatisfactorily used. But in fact the governments of fascist Italy and Nazi Germany directed production decisions, curbed entrepreneurship and the labor market, and determined wages and interest rates by centralized authority similar to that in the communist states.

Communist Russia was the first country to completely officially abolish property rights, which were declared “a sanctification of capitalist oppression and exploitation”. “Lenin pursued the expropriation of private property with fanatical zeal and unhesitating brutality… When the massive expropriation was completed, the state sector of the USSR was officially reported to account for 99.3 percent of the country’s national income’[1]The results of this action can be considered as the worse tragedy experienced by humanity.

Lesson #2 Sound Money and Free Banking Matters

Ludwig von Mises has explained that Social Cooperation REQUIRES a Division of Labor since no one person can do, make, refine, grow, cultivate, gather, foster, raise, process, enhance, and deliver EVERYTHING that they need and want in their life.

AND there are Several KEYS that are required for the Division of Labor, and therefore Social Cooperation, to work at an optimum level.

At the individual interaction level it is the MONEY that is the Blood That Moves Throughout The Body Of Mankind that makes the Inter-Action work – and Workable.

Without Money – as the Interactive Medium of Exchange – the Division of Labor cannot function beyond a subsistence level.

In fact it is the SOUNDNESS of Money that allows the Division of Labor – of people that want different things in life at different times (and that is all of us) – to EXPAND and for Social Cooperation to have a chance.

Lesson #3 Freedom of Speech, Mobility and Information Dissemination & Acquisition Matters

Lesson #4 Rule of Law must mean that Nobody is above the Law

Socialist tyranny is incompatible with the rule of law.

Lesson #5 Non Centrally Controlled Education Matters

Central Control of Education leads to people learning what suits and serves those who want greater control over people.

Decentralization of Education is no guarantee that proper education – learning and discerning Truths that are useful and necessary in Life – but it at least makes better education possible.

The ideal goal of Education is learning valuable truths such as:

·        Life Principles – Eg Economic Laws that are true regardless of Time and Place

·        History – Understanding the Important Lessons that True History Teaches us.

·        Methodologies – People must know HOW to learn and how to filter information.

Lesson #6 There is a Direct Relationship between Coercive Central Control and Suffering and Death

…and the Greater the Coercive Central Control, the greater the Suffering and Death.

This system was based on destruction of markets: rationing was introduced on everything from means of production to consumer goods), and the creation of non-economic institutions of compulsion to work: mass murder, mass incarceration of millions providing cheap labor, and a ban on peasants leaving collective farms, supplemented later by a similar ban on jobs and residency changes for urban residents.

Most Western historians believe that Stalin’s terror took place mainly in the cities, against intellectuals and political opponents. But the great purges were really an assault on the countryside. Over half of all executions took place in rural areas. The liquidation of the kulaks ended up in ten million of them deported to Siberia where most of them died. In Ukraine alone Stalin starved to death over 7 million peasants. Bloodthirsty communist leaders ended up deporting women, children, and crippled people who were no threat to the government. Often authorities had a different agenda, like clearing out people they might have to feed.

What else have we learned? For those who are committed to Coercive Central Control:

1.    Tactics will change but all will involve ‘Force’

2.    “Incrementalization” will be used.

3.    Propaganda starts early and must be pervasive – from Education to Media to Entertainment.

4.    Choices in all areas of life must be limited.

5.    Central Controllers never can have enough control over others.

6.    Fear is their best tool.

7.    War Works….it is, as stated by Randolph Bourne, “The Health of the State”.

Some will say that History teaches us one thing: that we never learn anything.

But this is not totally true.

Some of us learn. To be sure, not enough of us learn – yet.

There are those, and they are many, that still believe that Socialism is fixable – that it is like a guitar that only needs to be ‘tuned’ correctly and that all the Socialists – so far – were merely imbeciles and that ‘WE NEW SOCIALISTS’ can fix that.

The biggest lesson is that Socialism is Not Fixable – why?

In “The Essential Von Mises” Murray Rothbard wrote:

”In an environment of accelerating statism and socialism, Ludwig von Mises…turned his powerful attention to analyzing the economics of government intervention and planning. His journal article of 1920, “Economic Calculation in the Socialist Commonwealth”, was a blockbuster: demonstrating for the first time that socialism was an unviable system for an industrial economy; for Mises showed that a socialist economy totally deprived of a free market price system, could not rationally calculate costs or allocate factors of production efficiently to their most needed tasks” [2].

Social Cooperation requires the Division of Labor – as Mises tells us. This, in turn, is built on the bedrock of Private Property, Sound Money, Rule of Law and the other integrated Principles of Peace, Prosperity and Freedom.

The linkage between human effort, the resulting product, and well-being must be secure and stable for economic activity to flourish.

Economic and political systems of different nations differ in the amount of planning they do and in the extent to which they restrict private ownership of property. Wherever you see shifting, arbitrary or unstable property rights, you see poor decimated societies like in Belarus, Moldova, and Turkmenistan.

The absence of the property rights being “the Mother” of human rights inevitably leads to negation of every other right starting with the first right – a right to life. 

The utmost importance of property rights for human dignity and prosperity cannot be overestimated. Unfortunately it is still far from being understood by the majority of people.

Supplement

Here is the Slavery Formula which you can easily contrast with the Peace, Prosperity and Freedom Formula

SLAVERY FORMULA or ‘How to make Coercive Central Control Work’

·        State Owned Property, Means of Production and Transportation

·        Fiat Money & Legal Tender Laws

·        Central Banking

·        Controlled Competition or Non-Competition

·        Licensing, Awarded Monopolies, Subsidies, Tariffs & Protection

·        Political/Arbitrary Law

·        Censorships and Restrictions on Associations and Mobility

·        Centrally Controlled Education System

·        Central Redress System (Govt. Courts)

THE ONE THING THAT TIES ALL OF THIS TOGETHER IS THE MONOPOLY USE OF FORCE.

Here is the Peace, Prosperity and Freedom Formula

·        Private Property

·        Sound Money and Competing Currencies

·        Free Banking

·        Freely Competitive Certification Systems

·        Rule of Law

·        Freedoms of Speech, Press, Association and Movement/Mobility

·        Non-Centrally Controlled Education & Free Competition in Education

·        Freely Competitive Risk Management, Conflict Resolution and Redress/Recompense Systems

·        Freedom FROM Monopoly in all of the above areas

·        And most of all: Abolition of any Monopoly Use of Force

THE ONE THING THAT TIES THIS ALL TOGETHER IS PEACEFUL COOPERATION.

Note that all of these are in consonant with each other.

All Slavery elements support one another.

All Peace, Prosperity and Freedom elements support one another

This important essay was written by Radio Free Market Special Commentator and Guest Host, Mr Aaron Brown.
I highly recommend you share it with everyone you care about.
MM

The Muddled Economics of Ellen Brown and the Greenbackers

by Aaron Brown

Ever since 2008 and the explosion of public interest in the Federal Reserve and monetarysystem, I have kept track (in my noggin) of different ideological and theoretical objections to the Fed. One of the most common objections I have seen to the Fed is that it is private, as if the so-called privacy of the Fed is what makes it such a destabilizing and evil institution; those individuals who hold this point of view more often than not are in favor of public control over money as a remedy to the “private” Federal Reserve. If you are one of those who are of this mind, that the Fed is private and that it is this characteristic that makes it so insidious, I have news for you- the Fed is not private. It is a creature of government through and through^[1].

One of the most entertaining Fed-watchers to read is Ellen Brown, author of Web of Debt. Full disclosure, I have not read her book. I have however read many of her articles and understand her arguments. I’d like to point out first off that the website for Web of Debt has the subheading “How Banks and the Federal Reserve are Bankrupting the Planet”. Her most recent article was published today (1/13/2011) in globalresearch.ca. Slowly but surely however, I have seen her objection to the Fed go from red-hot around the financial crisis of 2008, to apparently being in favor of empowering the Fed to do more. Let’s read her latest article.

It’s the Corporations, Man!

“The Federal Reserve was set up by bankers for bankers, and it has served them well. Out of the blue, it came up with $12.3 trillion in nearly interest-free credit to bail the banks out of a credit crunch they created. That same credit crisis has plunged state and local governments into insolvency, but the Fed has now delivered its ultimatum: there will be no “quantitative easing” for municipal governments.”^[2]

In regards to her first sentence, she needs to read the first link. The Federal Reserve was not set up by bankers for bankers; at least, that is not the only party for which the Federal Reserve was set up and is not the only party that benefits from its existence. The Fed was created for the benefit of two parties: the banks, as she correctly points out, and the government^[3], as she neglects to highlight or even mention. This is not in my opinion an accidental slipup and even if it is its importance is such that I have to point it out. Sadly, because of authors like Dr. Brown, the public is led to a false understanding that the Fed and the government are engaged in some sort of heroic struggle, the private Fed greedy for profits and control, and the government powerless to stop them and/or negligent of their duties, when in truth the Fed is at its core a partnership between banks and government. To harp on the obscene profits the Fed confers on the banks and special interest groups and forget to mention that the Fed does so with the blessing of the State and that the State greatly benefits by having a central bank is a transparent “mistake”, as Dr. Brown’s remedy is to hand over the money power from the Fed to the Treasury; if the point were driven home that with a central bank, the State can obtain instant access to as much money as it desires at any time, no one would pay any attention to the nonsensical solution that transferring control of the henhouse from the Fox’s agent to the Fox itself will solve our economic ills.

Why do I continue to hammer this point? Is there really such a problem with leaving out

this characteristic of the Fed, i.e. that it is not just a banking cartel, but a government-sponsored banking cartel? To answer that you have to ask yourself this: if the Fed is bad, private or not, why not just abolish it and be done with it? It is at this juncture that the real battle begins as to the question of what the Fed should be replaced with. For those who ignore the statism inherent in centralized monetary control, the answer seems to be to follow the actual law laid forth in the Constitution and “Give the power of the purse back to the Treasury where it belonged in the first place!”

I can see how this could appear to be a good solution, as most people continue to believe that the government is us, and we are the government. At least monetary control in the hands of the government means we the people can hold our elected officials accountable. If the above describes your place on the free-market vs. government intervention spectrum, a full rebuttal of this point of view is handled by Rothbard^[4], but in short: the government is not you, we are not the government, and frankly, the individuals in government, for the most part, wouldn’t help you if they could, and even if they genuinely wanted to help can’t comprehend that it is their interventionism that causes crises in the first place (Ron Paul notwithstanding…because he understands economics and thus says no to everything).

Whole Lotta (question) Beggin’ Goin’ On

It only takes about 100 words for Brown’s article to begin to get interesting- and very peculiar. Remember that Dr. Brown claims to be an opponent of the Fed, the cover of her own book an (awesome) photoshopped picture of the Fed with spider legs and Earth tangled in its web.

“The Fed’s low-interest facilities could have been used to restore local government credit, just as it was used to restore the credit of the banks…Why? It can hardly be argued that the Fed doesn’t have the money… According to data recently released, the central bank provided roughly $3.3 trillion in liquidity and $9 trillion in short-term loans and other financial arrangements to banks, multinational corporations, and foreign financial institutions following the credit crisis of 2008. ”

1.                  Her first sentence just begs the question. The Fed used low-interest facilities to restore bank credit. But is this desirable? It is a fallacy that low interest rates are just the thing for an ailing economy. A cursory study of Austrian economics and the Mises-Hayek business cycle^[5] reveals that this is the last thing the Fed should be doing.

2.                  Whatever her definition of “restore” is with regards to the first sentence, it certainly isn’t the commonly accepted meaning, as in to bring back to good health. “Restore” in this sense is a custom definition that means counterfeiting money to enable banks to pay back their contractual obligations, i.e. cover up their insolvency/fractional-reserve fraud.

3.                  This paragraph just begs the question (a frequent fault of hers), is “restoring” local government credit, bank credit, and that of municipal and state governments a good thing? Readers of her article are just supposed to take on faith that the Fed’s ultra-easy monetary policy has made the situation better. Has it? Unemployment is over 20%[6], inflation is heating up^[7], nations are abandoning the dollar^[8].  If you have some positive indicators I’m all ears.

4.                  Aside from those who spend all day reading Maynard, most would agree that creating trillions out of thin air and loaning it to some of the most reckless economic actors of the day in the name of “protecting the people” sounds insane and fraudulent, and rightly so. But instead of condemning the bailouts and stimulus on the basis of principle and economic logic, Dr. Brown turns around and says, “So yeah, Wall Street and the corporate cronies got a bailout. So where’s ours?” Wrong question; unsurprisingly her solutions are also wrong. The problem is that the bailouts were implemented in the first place and the principle of a bailout in general. Additional bailouts of municipal and state governments will do naught but cause higher prices, further institutionalize moral hazard, and further the economic discoordination. If she got her wish, it would probably destroy the dollar…that is, more quickly.

5.                  To finish off, it’s interesting to note how a staunch opponent of the Fed now appears to be begging for its assistance. She goes through all the trouble of demonizing the Fed and then does a 180 and calls on it to be even more activist than it has been, this time by bailing out state and local governments.

I Hate the Fed…But Think it Should Bailout Everyone

“If the Fed could so easily come up with 12.3 trillion dollars to save the banks, why can’t it find a few hundred billion under the mattress to save the states? Obviously it could, if Congress were inclined to put non-bank lending back into the Fed’s job description. Then why isn’t that being done? The cynical view is that the states are purposely being kept on the edge of bankruptcy, because the banks that hold Congress hostage want the interest income and the control.”

Here’s the argument. The banks got money from the Fed, why doesn’t the Fed lend to the states? Just because it’s against the law? This is Congress’s fault for being so lazy. Funny how a self-proclaimed opponent of the Fed is blatantly calling for Congress to bestow on it the power to bailout any economic actor including states and municipalities.

More question-begging. Even if the state and local governments could get money from the Fed, is this actually desirable? He who frames the question wins the debate, right? The first sentence limits the entire debate, as Brown demands, “…why can’t it find a few hundred billion dollars to save the states? (emphasis mine).”

The real question is would a gift of a few hundred billion dollars (created out of thin air of course) actually do what she says, i.e. “save the states”? Implicitly the reader is supposed to believe that bailing out the banks “saved” the economy and by that logic a bailout of the states would “save” the states, which is patently false. Go back and read that sentence again. The idea that the bailout helped anything is false, false, false. If AIG, Merrill, Bank of America, et al were allowed to go the way of Lehman the earth would not have broken free of its orbit and the economy would not have collapsed. In truth, we would have endured a brief, sharp period of depression followed by a real recovery^[9]. Also, are the state and local governments in their current conditions worth saving? No. They are bloated, bureaucratized nightmares. The governments don’t need a bailout- they need to get out of the way and cease their cost-concealing command-and-control methods to allow the price-revealing free market to operate unhampered.

She then, knowingly or unknowingly (at this point it’s hard to believe the latter), perpetuates the false government vs. business paradigm, when in fact they are partners, pals, buddies, amigos. The government and big business are NOT enemies. They are friends. Just as a side note, this government-corporate arrangement constitutes economic fascism of the Mussolini-Hitler variety^[10].

Pretentious, Incalculable, Not Its Business

“Congress must summon the courage to take needed action; and that action is not to impose ‘austerity’ by cutting services, at a time when an already-squeezed populace most needs them. Rather, it is to create the jobs that will generate real productivity.”

The land, labor, and capital going towards the “services” that the government provides are not conjured out of thin air. The government is not some sort of philanthropist with an exogenous source of wealth that it graciously showers down upon the people. Government only has the resources that it steals through taxes, inflation, and outright expropriation. Those resources that the government allocates to itself by fiat are resources that the private sector now can NOT use. I fail to see the rationale behind expanding the government at a time when the private sector is shedding jobs like…well, like it’s its job. The populace does not need services from the government, which by definition are of lower quality and higher cost than services provided by the private sector, i.e. it takes the government more resources to make a worse product. The populace does not need Congress to have courage. The populace needs Congress to abolish their own positions and get a job, a real job where they are subject to the rigors of the market. Their current occupation, like a parasite,deprives its host of the essential nutrients required for good health.

Dr. Brown seems to be, in my opinion, extremely naïve about the government and the individuals who run it. Private sector greed is always emphasized, but government greed? Never. Why this inconsistency? The individuals who run the government are not any more moral, any more honorable, or any more capable of directing economic activities than any of the rest of us. Even if, notwithstanding the Hayekian pretense of knowledge^[11] and calculation problem^[12], the individuals in government could “create the jobs that will generate real productivity”, that is not in their job description. The role of the government in the United States (used to be at least) is this and only this: to protect your life, your liberty, and your property, NOT to be an activist, egalitarian force with arbitrary and constantly morphing responsibilities.

For More on This Story

This concludes my take on Dr. Brown’s position in this article. For some far more entertaining and informed Austrian rejoinders to her theories and proposed solutions, see Gary North’s section entirely devoted to her regurgitated brand of Greenbackism[13].

[1] Oberholster, Sarel. “The Independence of the Fed?” Ludwig von Mises Institute. 19 Mar. 2010. Web. 13 Jan. 2011. <http://mises.org/daily/4171>.

[2] Brown, Ellen. “America’s Economic and Social Crisis: The Fed Has Spoken: No Bailout for Main Street.” GlobalResearch.ca. Web. 13 Jan. 2011. <http://globalresearch.ca/index.php?context=va&aid=22768>.

[3] “It then became clear to these big-business interests that the only way to establish a cartelized economy, an economy that would ensure their continued economic dominance and high profits, would be to use the powers of government to establish and maintain cartels by coercion, in other words, to transform the economy from roughly laissez-faire to centralized, coordinated statism.” Rothbard, Murray N. “Origins of the Federal Reserve.” Ludwig von Mises Institute. Web. 13 Jan. 2011. <http://mises.org/daily/3823>.

[4] Rothbard, Murray. “The Anatomy of the State.” LewRockwell.com. Web. 13 Jan. 2011. <http://lewrockwell.com/rothbard/rothbard62.html>.

[5] Brown, Aaron. “Austrian Economics & The Austrian Theory of the Business Cycle by Austrian Economics on Prezi.” Prezi. Web. 13 Jan. 2011. <http://prezi.com/zrfujceodidd/austrian-economics-the-austrian-theory-of-the-business-cycle/>.

[6] “Alternate Unemployment Charts.” Shadow Government Statistics. Web. 14 Jan. 2011. <http://www.shadowstats.com/alternate_data/unemployment-charts>.

[7]“Alternate Inflation Charts.” Shadow Government Statistics: Home Page. Web. 13 Jan. 2011. <http://www.shadowstats.com/alternate_data/inflation-charts>.

[8] “Russia, China Lift Restrictions on Trade in Ruble and Yuan | Business.” RIA Novosti. Web. 14 Jan. 2011. <http://en.rian.ru/business/20101123/161462980.html>.

[9] Murphy, Robert P. “The Depression You’ve Never Heard Of: 1920-21.” The Moral Liberal. Web. 13 Jan. 2011. <http://www.themoralliberal.com/2009/12/15/the-depression-youve-never-heard-of-1920-21-robert-murphy/>.

[10] Flynn, John T. “What Is Fascism?” Ludwig von Mises Institute. Web. 13 Jan. 2011. <http://mises.org/daily/2903>.

[11] Hayek, Friedrich A. “The Pretence of Knowledge – Friedrich A. Hayek – Mises Daily.” Ludwig von Mises Institute. Web. 13 Jan. 2011. <http://mises.org/daily/3229>.

[12] Mises, Ludwig Von. “Economic Calculation in the Socialist Commonwealth.” Ludwig von Mises Institute. Web. 13 Jan. 2011. <http://mises.org/econcalc.asp>.

[13] North, Gary. “Ellen Browns Web of Debt Is an Anti-Gold Currency, Pro-Fiat Money, Greenback, Keynesian Tract.” Gary North. Web. 13 Jan. 2011. <http://www.garynorth.com/public/department141.cfm>.