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A Reader’s Guide to Liberalism | The Libertarian Institute

Posted by M. C. on January 10, 2021

Some historians such as the paleoconservative scholar Paul Gottfried make the case that old school liberalism transitioned into a more progressive statism centered on social engineering and behavioral control starting in the 1900s. In his book, After Liberalism, Gottfried documents how the restrained liberalism of the 19th century gradually vanished, to be later replaced by its modern-day successor.

https://libertarianinstitute.org/articles/a-readers-guide-to-liberalism/

After Liberalism

Has the definition of “liberal” changed over time?

One of the more compelling debates in American intellectual circles concerns classical liberalism vs modern liberalism.

In American parlance, the word liberal is used reflexively, often without much deep thought about its origin. It usually refers to individuals associated with the contemporary left and loosely connected to the Democratic Party. However, liberal did not always have that connotation in American politics.

To understand these changes, let’s take a stroll down memory lane to learn how its meaning has evolved over time.

Classical Liberalism vs. Modern Liberalism

Originally, liberalism was associated with a political philosophy of governance that protected individual rights, called for checks on government, encouraged economic freedom, and was centered around individualism.

In the present, we see liberalism generally associated with the modern-day political Left which is more focused on using the state to proactively promote egalitarianism and purge society of perceived blights such as racism, oppression, and patriarchal institutions.

The proactive role for the state to modify behavior would seem foreign to the liberals of yore, who generally believed in a restrained state. Crucial historical developments such as the Progressive Era, World War I, the Great Depression, and World War II forever changed American politics, and by extension, politics in the West.

One of the more profound changes was the way the word “liberal” would be used in political speech.

What Changed

Some historians such as the paleoconservative scholar Paul Gottfried make the case that old school liberalism transitioned into a more progressive statism centered on social engineering and behavioral control starting in the 1900s. In his book, After Liberalism, Gottfried documents how the restrained liberalism of the 19th century gradually vanished, to be later replaced by its modern-day successor.

Gottfried argued that “Liberalism is increasingly adrift. Having gone over to social planning earlier in the century, it had to jettison its nineteenth-century heritage in return for humanitarian and ‘scientific’ goals.” The rise of the Progressive Movement at the end of the 19th century, which came about in response to the perceived injustices of the Gilded Age, started to plant the seeds of 19th century liberalism’s destruction.

From Laissez-Faire Capitalism to Welfare Capitalism

Welfare capitalism was a reasonable compromise for those skeptical of both the market and totalitarian economic systems such as Communism. This contemporary political economy generally features a system of progressive taxation, national wage standards, state-run pension systems, and welfare programs for the poor.

On the behavioral front, liberal states in the past century frequently turned to anti-discrimination laws and administrative edicts to purge society of undesirable behavior such as racism, sexism, and homophobia. Top-down state activism was justified under the banner of promoting social justice.

How Progressivism Grew

Many progressive reformers started out locally, but this was only one step in their quest for power. Their vision was to make their way to the top and use the levers of state power to mold American society along scientific lines. Although Progressives had an elitist outlook, they saw mass democracy as one tool to overthrow the previous political order.

The Impact of War on Liberalism

World War I was a major catalyst for governments across the West to assume greater powers than previously imagined. It is often forgotten that a battery of commissions set up during this period inspired a number of New Deal era agencies. Progressives did not see war-time measures as temporary, but rather stepping stones for even larger interventions that would become permanent in times of peace.

Education as a Tool to Socialize the Masses

Progressives were busy on the education front as well. They recognized the power of public education as a tool to socialize the masses. So they did not waste any time to impose their beliefs on the malleable minds of America’s youth.

Educators such as Thomas Dewey were energetic about using public education to spread progressive liberal ideas and socialize the American public. Dewey originally championed progressivism, but grew tired of the term over time.

Gottfried observed that other ideological currents taking root in the early 1900s, compelled reformers like Dewey to describe their approach as “liberal” by default:

“When Dewey decided to characterize his proposed social reforms as ‘liberal,’ he had already tried out ‘progressive,’ ‘corporate,’ and ‘organic.’ The rise of fascism may have rendered rhetorically problematic the last two alternatives to “liberal.” And since there were competitors for ‘progressive’ associated with the reform wings of the two major national parties, Dewey and his confreres may have become ‘liberals’ faute de mieux.”

The Transformational Era of the New Deal

Once the New Deal rolled around, the word “liberal” took on a whole different meaning in American parlance. In Gottfried’s view, the rise of the managerial state — a technocratic state that occupies itself with modifying people’s behavior — during the Progressive Era and its subsequent consolidation during the interventionist period of the New Deal is what put an end to the liberal current of the 19th century.

The economist John Maynard Keynes played an integral role throughout the New Deal in normalizing government intervention in the economy. His public policy prescriptions of massive government spending and bureaucratic administration were a radical departure from the previous laissez-faire paradigm of divided powers, bourgeois morality, and a robust civil society to keep the state in check.

The Civil Rights Revolution’s Knockout Punch

The Great Society reforms of the 1960s further accelerated the ascent of modern-day liberalism after anti-discrimination laws and welfare became the norm. Once the 1960s ended, American liberalism became a force for social reconstruction that made the liberalism of the previous century look even quainter.

Gottfried contended that “Liberalism now survives as a series of social programs informed by a vague egalitarian spirit, and it maintains its power by pointing its finger accusingly at antiliberals.” The constant desire to reshape society is part and parcel of the modern-day liberal experiment.

What is Modern Liberalism

Modern-day liberalism mostly refers to the mass democratic philosophy that center-Left political parties across the West — from liberal internationalists to social democrats — have thoroughly embraced. The way one can define modern liberalism is by characterizing it as a system which features a mixed economy with an activist state that is involved in molding people’s behaviors.

Classical liberals believed in the protection of private property, free speech, and a robust civil society. Modern liberals were more in favor of using the state as a vehicle of promoting social change. They are by no means communists. Modern liberals still believe in private property and civil society outside of the state.

But for the modern-day liberal, these institutions could be exploited and co-opted to serve managerial elites’ ends. Modern liberals ultimately conceded that a functioning market was necessary for funding a welfare state.

What is Classical Liberalism

Figuring out the difference between classical liberalism and modern liberalism requires us to go back to the origins of liberalism itself. English philosopher John Locke is largely credited as the founder of classical liberalism and his example serves as a good starting point for any classical liberal vs modern liberal analysis.

His famous Two Treatises of Civil Government functioned as the definitive text for liberal governance in a time when Europe was largely marked by absolutist monarchies. Locke did not believe in the divine right of kings but was rather of the view that governments needed the consent of the governed in order to have legitimacy.

Locke’s emphasis on “pre-political” rights was revolutionary in that it placed the individual at the forefront of any political order. In addition, individuals could set up their own governments and disband them if they felt that they no longer protected their rights.

For Locke, the government’s only legitimate function was to protect life and property. His ideas would play integral roles during the Glorious Revolution and the American Revolution.

The American Revolution’s Liberal Origins

In the case of the American Revolution, a number of the signatories of the Declaration of Independence drew heavily from Locke. They used his ideology as a basis of rebelling against the British government, which they perceived as a government that usurped its legitimate functions and violated traditional English liberties.

America’s Liberal Experiment in Action

Subsequently, the founding generation drew from Lockean principles to codify a number of civil liberties and limited government functions in the U.S. constitution.  These included a separation of powers between the Executive, Legislative, and Judicial branches and the protection of liberties such as the freedom of religion, free speech, freedom to peacefully assemble, freedom of religion, the right to bear arms, and due process.

The French’s Role in Influencing American Governance

The separation of powers was largely inspired by liberal thinkers such as the French political philosopher Baron de Montesquieu and his Enlightenment counterparts who championed a social contract of sorts between individuals and the state. Under this political order, the rule of law, equal rights among rulers and the ruled, and the ability for citizens to petition their government would be safeguarded.

How Classical Liberalism Provided the Intellectual Backbone for Capitalism

Classical liberalism wasn’t just confined to the political sphere. Economists such as Adam Smith took the logic of liberalism and applied it to economic policy. Smith became a firm believer in a capitalist economy that promoted free commerce between nations, as opposed to the prevailing mercantilist model that European preferred at the time.

Similar to Locke’s political works, Smith’s Wealth of Nations became one of the most influential pieces of economic literature in human history and put the field of economics on the map.

Classical Liberalism’s Peak in the 19th Century

By the mid-19th century, liberalism reached a turning point after the British Empire embraced global free trade through its repeal of the Corn Laws. From that point until World War I, Britain and most of the West enjoyed unprecedented economic prosperity, relative peace, and a gradual transition to constitutional democratic rule.

For many historians of liberalism, the Gilded Age or Belle Epoque (Beautiful Era) was the height of personal freedom in the West combined with a level of economic growth that was never seen before thanks to the Industrial Revolution.

Given these historical contrasts, it’s no surprise why many historians like to participate in the classical liberal vs modern liberal discussion. Upon deep inspection, there are clear differences in these ideological strands, which merit considerable analysis.

Classical Liberalism vs Modern Liberalism on the Nolan Chart

Nolan Chart

The Nolan chart was named after David Nolan, a respected activist who was heavily involved in the liberty movement. This chart has helped determine how Americans identify themselves on the political spectrum. It went beyond the typical liberalism vs. conservatism debates of the 1900s and added a twist by including criteria that was generally associated with libertarianism.

The chart is divided into four quadrants that list political viewpoints along two axes, which highlight economic and personal freedom.

The classical liberal respect for individual liberties and a restrained state has lived on in modern-day libertarianism. Most classical liberals would likely score in the lower part of the libertarian quadrant closer towards the centrist bloc.

Liberals in the present, on the other hand, would probably land more on the left hand progressive quadrant, with some sliding downwards towards statism. Their economic views put them well to the left of all free-market liberals.

That said, there are some progressives and contemporary liberals who share similar views with free-market liberals regarding civil liberties.

Liberalism’s Comeback

19th century liberal ideas have witnessed somewhat of a comeback but with a slightly more radical twist after World War II. Economists such as Friedrich A. Hayek and Milton Friedman helped supply the intellectual ammo that sparked a resurgence in liberal thought and the subsequent entrance of libertarianism in American politics.

The Differences Between Classical Liberals and Libertarians

Although there are considerable degrees of overlap between classical liberals and libertarians, the latter tend to be more radical in their views of the role the state plays in society and how much government intervention should be tolerated.

For many sects of libertarianism, the state should only be limited to the provision of defense, the court system, and law enforcement. The more anarchist wings of this movement tend to believe that the private sector and civil society can assume all competencies of the state.

Where Liberalism Stands Now

As much as some would like to deny it, the definition of words matter. They can have different meanings depending on the country, time, or place. In the rest of the Anglosphere, liberal is generally associated with the free-market Right.

The same is the case in Spanish-speaking countries. However, this has not been the case in the American context. Political movements tend to come and go throughout history.

The Percieved Triumph of Liberalism Against Communism

The 20th century largely saw the demise of 19th century liberalism and ushered in a completely different paradigm. The waning years of the Cold War witnessed the demise of Soviet-style totalitarianism and the perceived triumph of liberal democracy.

Political leaders such as Margaret Thatcher and Ronald Reagan provided the public policies and political leadership that allowed for market-based liberalism to thrive and set itself apart from central planning.

The New Liberal Consensus

By the 1990s, market-based economies were generally accepted by elites and became the order of the day. This became embodied in “neoliberalism”, a resurgence of economic liberalism in the form of lower tariffs, multilateral trade, less stringent migration, moves towards privatization of state enterprises, and slightly sleeker welfare states.

Neoliberal Dominance 

In contrast to its distant 19th century ancestor, neoliberalism was not as pro-liberty and still maintained the managerial state and the concomitant social engineering measures that were established in the 1960s. Regardless, the ideological dominance of neoliberalism cannot be denied as most of the globe has embraced some form of market economy and has largely rejected Soviet-style central planning.

Although the New Deal saw a leftist shift on economics issues, “neoliberals” of the post-Cold War era started taking more market-based positions on multilateral free trade and immigration.

The Fragile Nature of the Post-Cold War Order 

At a glance, post-Cold War liberals have appeared to engage in a form of “fusionism”, wherein they blend free-market positions on immigration and trade, with more left collectivist positions on education, healthcare, free speech, gender relations, and freedom of association.

The emergence of “wokism” has further perverted liberalism, as its collectivism has now become more racialized and has taken on an iconoclastic form now that basic gender relations, appreciation for a nation’s history, and free speech are all being called into question.

Many liberals have grudgingly moved along with this new trend of leftism. Indeed, a 90s neoliberal would likely shudder at the prospect of any member of the woke generation coming into power.

The Challenge of Resurrecting Liberal Ideas

Several public intellectuals such as American political commentator Dave Rubin and psychology professor Jordan Peterson have made attempts to resurrect old liberalism in a time when political discourse is threatened by cancel culture and anti-free speech forces on the Left.

Based on the new political challenges of the 21st century, classically liberal ideas have a tall task in front of them in trying to become relevant again in political movements on the Right. Nationalism and conservatism are the most influential movements on the Right at the moment and they have generally become less liberal over time.

Regardless of the changing political ecosystem, it would still benefit people to understand the classical liberalism vs. modern liberalism debate in order to make sense of our ever-changing political environment.

This article was originally featured at the Libertas Bella blog

Be seeing you

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The First Socialists: The Saint-Simonians and the Utopians | Mises Wire

Posted by M. C. on July 14, 2020

https://mises.org/wire/first-socialists-saint-simonians-and-utopians?utm_source=Mises+Institute+Subscriptions&utm_campaign=bdca1e02ca-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-bdca1e02ca-228343965

At the turn of the nineteenth century, classical economics—as represented by Adam Smith in Britain and Jean-Baptiste Say in France—seemed unassailable. The American Revolution, to many people, demonstrated the failures of the old economic order of mercantilism and colonialism. The flourishing trade after the war proved protective tariffs useless, and the rise of industrial production encouraged the expansion of trade networks. Smith and his acolytes seemed proven right in their calls for free trade and economic competition.

Industrialization ushered in rapid increases in national productivity and, with it, the uncomfortable disruption of traditional ways of life. In 1815, English manufacturers had a surplus of stockpiled goods that they could not export during the War of 1812, forcing them to reduce production and lay off workers. The concept of unemployment was effectively unknown at this time, and displaced workers—following the 1811 example of Ned Lud and his Luddites—rioted and destroyed the industrial machines they blamed for their misery. In 1825, following a period of significant credit expansion, the market crashed, leading to the collapse of dozens of provincial banks. People began to question whether there were yet undiscovered flaws in the new economic system of industrialization and free trade.

Among the thinkers who developed an interest in these “commercial crises,” as he called them, was Simonde de Sismondi, a follower of Smith and Say. After observing the early economic crises in Europe, Sismondi began to question the prevailing economic doctrine. Although he did not become a socialist, strictly speaking, his critiques of laissez-faire laid the foundation for various socialist doctrines that would be developed later.

Sismondi began with a critique of the classical method. He offered the earliest criticism of David Ricardo’s abstract deductive method. Anticipating the German historical school, Sismondi argued that economics should be studied in historical and political context, that the consequences of government policies may vary according to time and place. Rejecting Ricardo’s use of Robinson Crusoe to derive the laws of human nature (a theoretical and pedagogical tool that survives today exclusively in Austrian economics), Sismondi believed that the study of isolated man was inadequate for understanding a complex industrial society.

With his new methodological approach, Sismondi took shots at two sacred concepts of classical theory: individual self-interest and free competition. “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner,” Adam Smith famously wrote, “but from their regard to their own interest.” Sismondi agreed, but he believed Smith erred in only applying the concept of self-interest to production, without considering the distribution of property. Industrialization produced new economic classes, the proletariat (those who work) and the capitalist (those who possess). Free competition compelled capitalists to produce cheaper goods, but it also required workers to compete with each other for employment. Because lower labor costs meant cheaper goods, the interests of the capitalist and the wage worker were in conflict.

The classical economists celebrated the increase in production that self-interest and competition engendered, but Sismondi argued that the conflict between individual interests and the “general interest” of society yielded overproduction, which was the cause of economic crises. Free competition encouraged constant downward pressure on wages, as workers underbid each other for employment and producers constantly worked to lower the cost of production. As some capitalists drove their competitors out of business, former capitalists would join the ranks of the nonpropertied proletariat, and capital would concentrate in the hands of a dwindling number of property owners. To cure these ills, Sismondi called for state intervention—anathema to advocates of laissez-faire—to constrain competition and regulate labor.

Although Sismondi did not call for the abolition of private property, and therefore was not a socialist, his ideas offer the first expression of several concepts that would prove integral to socialist thinkers later in the century. The first is his notion that society had a collective, or “general,” interest that differed from the individual interests of its members. Second, he is the first expositor of the fallacy eventually named the “iron law of wages”—the idea that free competition will suppress wages to subsistence levels. He also formulated a class theory of the proletariat and the capitalist. Related to this was the “law of concentration” that would prove so integral to Marxism. Finally, Sismondi introduced the idea of labor legislation, which was the first modern reaction against laissez-faire absolutism. Although Sismondi’s proposed interventions were modest by modern standards, he opened the door for new ideas about the state’s function and duties that could logically be extended ad infinitum.

In addition to Sismondi, another thinker working at roughly the same time gave birth to other key elements of socialist theory. Henri de Saint-Simon is often considered the father of socialism, though it was his followers who truly produced the first formal socialist doctrine. One of them, Pierre Leroux, apparently even coined the term “socialism” to describe their system.

Saint-Simon had something of a messiah complex, and what he founded was less of an economic theory than a religious cult. A child of the Enlightenment, he was fascinated by Newton’s law of gravity, which Saint-Simon held as the single “universal law” from which all truths—material and spiritual—could be deduced. If God is the center of the universe, gravity was the “law of God,” that governed all phenomena. Saint-Simon believed that the purpose of religion was to direct the masses toward the improvement of society. Christian leadership had served this function before industrialization, but Saint-Simon—after God spoke to him in a vision—called for replacing the antiquated Christian clergy with a “Council of Newton,” consisting of experts from various fields of science.

If Newton was God’s prophet for physics, Saint-Simon was the prophet for the social sciences. Anticipating the positivists, he thought that the empirical method of physics should be adopted for the study of man. By observing the past, social scientists should be able to anticipate the future, thus allowing them to scientifically derive the best political policies. Saint-Simon also theorized that society would progress through specific stages of development. Although a predictive philosophy of history was nothing new—the Christian philosophy of history had long held such a view in anticipation of the return of Christ—Marx, among other socialists, would adopt a similar stages doctrine of history to argue the inevitability of socialism.

Unlike Sismondi, Saint-Simon was an apologist for industrialization. As industrialization expanded, all classes would disappear until society was left with only workers and idlers. Although this seems similar to Sismondi’s proletariat-capitalist distinction, Saint-Simon’s “idlers” were not the capitalists but the landowners of the feudal past. Eventually, they would disappear, and the world would consist only of workers. Related to this, Saint-Simon criticized property, by which he specifically meant landed property. Society under the new system should be modeled after the factory, operating as a “national association,” and the state’s function should be limited to protecting workers from the indolent and securing the freedom of producers.

The genuine socialism of Saint-Simonianism came from the modified doctrine espoused by his acolytes. Saint-Simon criticized the privilege of feudal landlords—his idlers—but his followers extended this logic to the owners of capital. Private property in capital, even more than land, privileged capitalists at the expense of the workers. Land and capital are both tools of production, so there was no need to distinguish between the landlord and the capitalist; both were idlers, the Saint-Simonians said: the capitalist earned interest just as the landlord earned rent. Thus, the new worker-idler dichotomy more closely resembled the proletariat-capitalist model of Sismondi. With industrialization, workers were exploited by the capitalists just as serfs were exploited by landlords.

The Saint-Simonians thus established the first formal doctrine of socialism (though socialistic ideas have existed since at least the ancient Greeks).

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The Rise, Fall, and Renaissance of Classical Liberalism | Mises Institute

Posted by M. C. on June 24, 2020

And yet, in Western countries, the state keeps on relentlessly expanding, colonizing one area of social life after the other. In America, the Republic is fast becoming a fading memory, as federal bureaucrats and global planners divert more and more power to the center. So the struggle continues, as it must. Two centuries ago, when liberalism was young, Jefferson had already informed us of the price of liberty.

https://mises.org/library/rise-fall-and-renaissance-classical-liberalism

Ralph Raico

[This article appeared in the Future of Freedom Foundation’s Freedom Daily, August 1992]

Classical liberalism—or simply liberalism, as it was called until around the turn of the century—is the signature political philosophy of Western civilization. Hints and suggestions of the liberal idea can be found in other great cultures. But it was the distinctive society produced in Europe—and in the outposts of Europe, and above all America—that served as the seedbed of liberalism. In turn, that society was decisively shaped by the liberal movement.

Decentralization and the division of power have been the hallmarks of the history of Europe. After the fall of Rome, no empire was ever able to dominate the continent. Instead, Europe became a complex mosaic of competing nations, principalities, and city-states. The various rulers found themselves in competition with each other. If one of them indulged in predatory taxation or arbitrary confiscations of property, he might well lose his most productive citizens, who could “exit,” together with their capital. The kings also found powerful rivals in ambitious barons and in religious authorities that were backed by an international Church. Parliaments emerged that limited the taxing power of kings, and free cities arose with special charters that put the merchant elite in charge.

By the Middle Ages, many parts of Europe, especially in the west, had developed a culture friendly to property rights and trade. On the philosophical level, the doctrine of natural law—deriving from the Stoic philosophers of Greece and Rome—taught that the natural order was independent of human design and that rulers were subordinate to the eternal laws of justice. Natural-law doctrine was upheld by the Church and promulgated in the great universities, from Oxford and Salamanca to Prague and Krakow.

As the modern age began, rulers started to shake free of age-old customary constraints on their power. Royal absolutism became the main tendency of the time. The kings of Europe raised a novel claim: they declared that they were appointed by God to be the fountainhead of all life and activity in society. Accordingly, they sought to direct religion, culture, politics, and, especially, the economic life of the people. To support their burgeoning bureaucracies and constant wars, the rulers required ever-increasing quantities of taxes, which they tried to squeeze out of their subjects in ways that were contrary to precedent and custom.

The first people to revolt against this system were the Dutch. After a struggle that lasted for decades, they won their independence from Spain and proceeded to set up a unique polity. The United Provinces, as the radically decentralized state was called, had no king and little power at the federal level. Making money was the passion of these busy manufacturers and traders; they had no time for hunting heretics or suppressing new ideas. Thus de facto religious toleration and a wide-ranging freedom of the press came to prevail. Devoted to industry and trade, the Dutch established a legal system based solidly on the rule of law and the sanctity of property and contract. Taxes were low, and everyone worked. The Dutch “economic miracle” was the wonder of the age. Thoughtful observers throughout Europe noted the Dutch success with great interest.

A society in many ways similar to Holland had developed across the North Sea. In the seventeenth century, England, too, was threatened by royal absolutism, in the form of the House of Stuart. The response was revolution, civil war, the beheading of one king and the booting out of another. In the course of this tumultuous century, the first movements and thinkers appeared that can be unequivocally identified as liberal.

With the king gone, a group of middle-class radicals emerged called the Levellers. They protested that not even Parliament had the authority to usurp the natural, God-given rights of the people. Religion, they declared, was a matter of individual conscience; it should have no connection with the state. State-granted monopolies were likewise an infringement of natural liberty.

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Why Deflation Can Be a Good Thing | Mises Wire

Posted by M. C. on March 7, 2020

The supply of money determines the price level in the long run. Whether prices will rise or fall depends on the relative variation of the money in circulation…

What sense does it make to expand the money supply and then try to control it by raising the interest rate? The result of such a policy is market turmoil and confusion.

Yet if central banks had left the system alone, such a deflation would be very gradual and not only be not harmful but beneficial for the economy.

https://mises.org/wire/why-deflation-can-be-good-thing?utm_source=Mises+Institute+Subscriptions&utm_campaign=ed8fcb5bf8-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-ed8fcb5bf8-228343965

[André de Godoy, a Brazilian journalist from the Mackenzie University of São Paulo, interviews economics professor and Mises scholar Antony Mueller about the causes and consequences of credit expansion and the relations between credit, money, and price inflation.]

André de Godoy: Please explain the relationship between the money supply, the price level, and economic activity.

Antony Mueller: The supply of money determines the price level in the long run. Whether prices will rise or fall depends on the relative variation of the money in circulation compared to the relative variation of the supply of goods. However, one must take into account that the process from the creation of money by the central bank, the so-called monetary base, and the impact on the economy in terms of demand is long and contains a series of variables. These transmitters of the monetary impulse can work in tandem and strengthen the original impulse or, say, may counteract each other. Let me give you an example: over the past fifteen years, the main central banks have practiced the policy of “quantitative easing,” which has expanded their balance sheet by a factor of over five. In the United States, the monetary base rose from $830 billion in January 2008 to over $4 trillion in September 2014 and stands as of now, in January 2020, at $3.4 trillion. Yet this drastic increase has not led to a price inflation and has stimulated economic activity only moderately. The reason for this is that the commercial banking sector did only transform a part of this base money into money in circulation and that the economic agents reduced the transaction velocity. For the monetary aggregate M1, the velocity halved from 10.6 in early 2008 to 5.5 in the fourth quarter of 2019.

Godoy: Authors like Ludwig von Mises and Milton Friedman hold that inflation is a monetary phenomenon. However, I have heard that it is possible to expand the amount of money in circulation without causing negative effects for the economy because inflationary effects could be controlled by the adjustment of the interest rate. Is this true or just a remedy?

Mueller: This is a very confused view. What sense does it make to expand the money supply and then try to control it by raising the interest rate? The result of such a policy is market turmoil and confusion. It is interventionism of the worst kind. Why should the money supply increase anyway? If the supply remains fixed, and productivity rises, prices will fall. That is beneficial deflation. Why should one complain when the goods become cheaper for the consumers? The point is whether price deflation happens slowly according to productivity increases in the economy or abruptly as a hefty liquidity contraction due to a financial market crisis.

Godoy: Why do central banks try to manipulate the money supply?

Mueller: Central bankers have a deep-seated fear of deflation. They presume that a price deflation will lead to an economic contraction. Yet if central banks had left the system alone, such a deflation would be very gradual and not only be not harmful but beneficial for the economy. If the central banks intervene and expand the money supply and implement, as it is the case today, a “zero interest rate policy“ (ZIRP), or even a “negative interest rate policy” (NIRP), a tension builds up between the natural tendency of the prices to fall because of productivity increases and the inflationary money supply. A deep discrepancy builds up between the human time preference and the monetary rate of interest which would converge in a free market without central bank interventions.

Godoy: Would a stable money supply not be too rigid for the economy?

Mueller: One must remember that a falling or rising price level is the result of the difference between the rate of variation of the supply of goods and the rate of variation of the money stock and the velocity of economic transactions. The monetary system has a natural elasticity. Even when the money supply is linked to a fixed supply of central bank money, expansions and contractions of nominal spending will take place. Money has loose joints, but when the monetary base is stable, the system has a definite anchor. There is elasticity of money under a gold standard even when the stock of gold is constant. Different from what we observe today, no long-term and extreme divergences were possible. We must change our present monetary system which is highly dysfunctional.

Godoy: Some prominent Brazilian economists mention the post-Keynesian theory as a counterpoint to the classical quantity theory of money and claim that the so-called modern monetary theory would provide a better model for the present.

Mueller: As I explained above, even when the money supply stays fixed the use of money is volatile, and thus even a gold standard has monetary elasticity. It is wrong to claim that only fiduciary money would provide financial flexibility. The point, rather, is that with an anchored monetary system, the degree of deviation is limited, while under the current fiat money regime there is no constraint. That is the problem with the modern monetary theory. Its adherents praise an anchorless system, because it would allow unlimited funding of government expenditure. Even these theorists, however, recognize the problem of price inflation when the money supply is excessive. In this case, they believe, the government could control price inflation through taxation and then siphon off the excess money. Yet while the adherents of this “new” monetary theory praise anchorless money as a boon because they live under the illusion that the economy is in permanent need of macroeconomic management, the truth is that it is not the free market that produces booms and busts but the intervention of the governments and their central bankers.

Godoy: Could you cite a few examples of how inflation comes about in our day because of the monetary policies that governments have recently pursued?

Mueller: Venezuela is currently a sad example along with the very tragic case of Zimbabwe. Let’s concentrate on Brazil’s neighbor country. Massive government spending, foolish interventionism, and the expansion of the money supply are behind the gigantic price inflation in Venezuela. These policies form part of the grander plan of implementing a “Socialism of the Twenty-First Century.” But what they got was not prosperity and equality but even sharper social divisions, a brutal hyperinflation, and mass misery. Venezuela is the empirical verification of what we have discussed: the process begins with the false promises of social justice and comprehensive welfare. Private property is no longer secure, government intervention is on the rise, and business investment falls. Yet instead of the deteriorating economy inducing the political leadership to change course, government expenditures, based on credit expansion, increase even more and with them rises the money supply. While more regulation and interventionism suffocate the supply side, inflationary demand is on the rise. The country enters a deadly spiral of economic, political, and social crises that reinforce each other. At the very beginning of this process, some illusionary benefits appear, yet after a short while the poorest people are those who suffer most until it also brings down the whole rest of the society in a cataclysmic collapse.

Godoy: From what I’ve gathered, monetary inflation itself is not the problem that causes a raise in the price levels. The problems are people’s expectations and the speed with which transactions happen, is that correct?

Mueller: Well, let us put it this way: the reason for obesity is not the food but how much one eats. The expansion of the money supply is the food. Whether the economic actors take the offer is another question. In this decision expectations play a major role. Here, however, we must consider that expectations do not come from nowhere. They have a point of reference in the economic reality and in the public discourse, including the media. The laissez-faire approach to money does not mean the absence of control. It is rather the present monetary system, with constant central bank intervention and the craving of governments for deficit spending, that is out of control. In contrast to a fiat money system, a gold standard or a similar system with a strong anchor would combine short-term flexibility with long-term stability.

Godoy: The mechanism that uses interest rates to control inflation is actually a way to try and contain price raises in a fiat money system, right?

Mueller: For the policymakers, interest rates are an instrument of intervention while for Austrian economics they should reflect time preference and as such would be the natural rate. Policymakers can only manipulate the monetary rate of interest. What matters is the money supply and the expectations. A higher interest rate makes borrowing more expensive and thus may stop the expansion of the circulation of money in the economy. Furthermore, higher interest rates may change expectations about future price inflation and thus reduce the velocity of circulation. The main point, however, about raising the interest rate is that the central bank has to reduce the monetary base in order to obtain higher interest rates. Central banks cannot just raise the interest rate and leave the monetary base as it was. When central banks target a certain level as their policy rate of interest, they must manage the monetary base accordingly.

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How the World Views Libertarianism | Mises Wire

Posted by M. C. on September 12, 2019

https://mises.org/wire/how-world-views-libertarianism

Ask ten libertarians for a definition of libertarianism, and one is likely to receive about ten different answers.

Indeed, libertarians have something of a reputation for internecine battles over who the “real” libertarians are.

Most of the world, however, couldn’t possibly care less about these battles over how to correctly slice and dice the different types of libertarians.

When it comes to use of the term libertarian out “in the wild” among mainstream, non-libertarian pundits, the use of the term is surprisingly consistent. It nearly always refers to an ideology that pushes for greater economic freedom in the form of less regulation of economic life, lower taxes, and freedom in trade.

Most writers on political and public policy matters, however, are not friendly to this sort of ideology so the term “libertarian” is also often expressed with an air of disapproval.

A Sampling of Media Coverage

This definition of libertarianism was made more clear than usual in the wake of the death of industrialist David Koch. Koch was known to support a number of libertarian political initiatives around taxation and government regulation.

To say that Koch was savaged for these views in the press and in social media would be an understatement. But the criticism also helped to bring out how mainstream media organs view libertarianism, and how they define it.

After Koch’s death, Salon declared we “live in the brothers’ libertarian utopia” thanks in part to the political machinations of Koch and his brother Charles.

What does this utopia look like? According to Christopher Leonard, a reporter known to have written a “secret history” of the Koch brothers, the assumed victory of libertarians has led to a world in which environmental regulations have been eviscerated, social programs are impoverished, and wealthy corporations wield vast power over workers. Indeed, according to Leonard, this Kochian libertarian program seeks a return to the days before the New Deal, allegedly a “capitalistic free-fire zone” characterized by starving workers lorded over by corrupt plutocrats.

But thanks to libertarians like Koch, the progress forged by the New Deal has largely been brought crashing down.

Similarly, the Washington Post refers to Koch’s “libertarian” empire responsible for pushing the Republican party further in the direction of low taxes, fewer government programs, and what the author refers to as anti-government extremism.

Needless to say, we don’t actually live in a “libertarian utopia” and its unclear if Koch did the things attributed to him. But for our purposes in this article what matters is that the mainstream view of libertarianism is clear: libertarianism is an extreme pro-capitalist ideology.

This view extends well beyond a handful of articles about the Kochs.

For example, Darren Dochuk at Politico writes this month on the now-forgotten Pew brothers who were influential political operators behind the scenes in the mid-twentieth century. The brothers, Dochuk notes, “spent their oil fortune remaking the GOP in their libertarian and conservative Christian image.”

Both the Christianity and the libertarianism are apparently meant by the author to be seen as nefarious aspects of the brothers’ agenda. The nature of the libertarian side of their agenda is consistent with what we see said about libertarians elsewhere: the Pews’ libertarianism impelled them to oppose the beloved New Deal, especially its “encroachment on their corporate sector.” Capitalist dystopia allegedly ensued.

From Guns to Free Trade

The title “libertarian” can also be used to encompass those who take an excessive view of the freedom to own firearms. For example, Georgetown historian Robert Curran writes “Our scandalous gun policy is the inevitable consequence of libertarian ideology.” Libertarian laissez-faire, we’re told, doesn’t just encourage oppression of hapless workers. It encourages murderers as well.

Other writers have claimed to be appalled by the callousness of libertarian ideology. For instance, consider David Masciotra’s confession about once being libertarian, but eventually coming to his senses. Masciotra describes libertarians as “individuals myopically pursuing their own interests have no solution to ecological catastrophe, thousands dying for lack of health insurance, lethal disparities in the public education system, and the unending terror and devastation of racism.”

The context makes it clear that these are problems government regulation and control could solve, but libertarians dogmatically insist on their idiosyncratic views of how government regulation and funding in areas such as health care and education are a bad thing.

Other references make it clear that the term “libertarian” can be generally used to describe any organization that, on the whole, favors even a marginally pro-market political economy. This often involves applying the term to a variety of organizations that are also often just regarded as mainstream “conservative” organizations. As Max Moran writes at the American Prospect:

Democrats, if you’re reading, here’s a shot of reality: Google doesn’t just donate to think tanks on the center-left of the political spectrum. It also funds libertarian and right-wing institutions like the American Enterprise Institute, the Cato Institute, and the Heritage Foundation.

To many libertarians, organization like the Heritage Foundation may hardly qualify as libertarian. But from the outside looking in, Heritage is libertarian because it takes a low-tax anti-regulatory view on some issues. What may seem milquetoast to a libertarian appears as extreme pro-market superstition to the average writer at The Washington Post.

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Why Most People Embrace the State — And Why Some Will Always Reject It | Mises Wire

Posted by M. C. on June 19, 2019

On deeper reflection, then, the strategy for the achievement of liberty is not so simple; for even though mass civil disobedience is the master key, how is the public to be brought to such an action, blinded as they are by a network of habit, propaganda, and special privilege?

https://mises.org/wire/why-most-people-embrace-state-%E2%80%94-and-why-some-will-always-reject-it

[From “Concepts of the Role of Intellectuals In Social Change Toward Laissez Faire” in The Journal of Libertarian Studies, Fall 1990]

Why, La Boétie cries out in anguish, why, when reason teaches us the justice of natural rights and equal liberty for all, why, when even animals display a natural instinct to be free, is man, “the only creature really born to be free, [lacking] the memory of his original condition and the desire to return to it?”7 Why, in short, are people steeped in such a “vile” and “monstrous vice” as consenting to their own subjection?

La Boétie answers, first, that the difficult act of initially establishing tyrannical State power is accomplished through some form of conquest, either by a foreign power, an internal coup, or by the use of a wartime emergency as an excuse to fasten a permanent despotism upon the public. And why then do people continue to consent?

In the first place, explains La Boétie, there is the insidious power of habit, which quickly accustoms and inures the public to any institution, including its own enslavement.

It is true that in the beginning men submit under constraint and by force; but those who come after them obey without regret and perform willingly what their predecessors had done because they had to. This is why men born under the yoke and then nourished and reared in slavery are content, without further effort, to live in their native circumstance, unaware of any other state or right, and considering as quite natural the condition into which they are born. …

Thus humanity’s natural drive for liberty is overpowered by the force of custom, “for the reason that native endowment, no matter how good, is dissipated unless encouraged, whereas environment always shapes us in its own way. …” Hence, people will

grow accustomed to the idea that they have always been in subjection, that their fathers lived in the same way; they will think they are obliged to suffer this evil, and will persuade themselves by example and imitation of others, finally investing those who order them around with proprietary rights, based on the idea that it has always been that way.8

And so consent of the public need not be eager or enthusiastic, but rather of the resigned “death and taxes” variety. But second, the State apparatus need not wait for the slow workings of custom; consent can also be engineered. La Boétie proceeds to discuss the various devices by which rulers engineer such consent. One time-honored device is circuses, for the entertainment of the masses:

Plays, farces, spectacles, gladiators, strange beasts, medals, pictures and other such opiates, these were for ancient peoples the bait toward slavery, the price of their liberty, the instruments of tyranny. By these practices and enticements the ancient dictators so successfully lulled their subjects … that the stupified peoples, fascinated by the pastimes and vain pleasures, … learned subservience as naively, bit not so creditably, as little children learn to read by looking at bright picture books.9

Another important device for gaining the consent of the public is duping them into believing that the rule of the tyrant is wise, just, and benevolent…

the fools did not realize that they were merely recovering a portion of their own property, and that their ruler could not have given them what they were receiving without having first taken it from them. … The mob has always behaved in this way — eagerly open to bribes…

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How College Profs Push Students to Socialism | Mises Wire

Posted by M. C. on May 11, 2019

The true aim of these “scholar activists,” as many academics have begun calling themselves, is to propagate socialism by redefining capitalism to encompass every evil of human history.

https://mises.org/wire/how-college-profs-push-students-socialism

After the collapse of the housing market in 2008, professional historians gave birth to a new sub-field of history usually referred to as “the new history of capitalism.” Economic history is hardly novel, but the new history of capitalism takes the approach that capitalism is the “thing” that needs to be explained. In the past decade, this field has become one of the most fashionable trends in the history profession, with centers for the study of capitalism being established at Cornell and the University of Georgia.

Predictably, the scholarship that falls under this label is replete with problems. Most self-described “historians of capitalism” know nothing of economic theory even as they try to incorporate it into their writings. Seth Rockman, from Brown University, for instance, supports his analysis of antebellum Baltimore by quoting Adam Smith’s exposition of the labor theory of value. Rockman seems to be taking a sly shot at proponents of capitalism—“even your precious Adam Smith believes labor is the source of value”—but he appears to be entirely unaware that economists abandoned the labor theory of value more than a century ago.1

These historians have also uniformly accepted that slavery and capitalism are inextricably linked. This idea has been around since at least 1944, when the Marxist historian Eric Williams published Capitalism and Slavery, arguing that British industrialization depended on the slave economy of Barbados.2 But the idea has evolved to the point that historians have established a consensus on claims that defy empirical substantiation… Read the rest of this entry »

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Ayn Rand’s Political Philosophy | Mises Institute

Posted by M. C. on April 25, 2019

Good article if one is of a philsophical bent.

Me…I have to open my Wikipedia before I start.

https://mises.org/power-market/ayn-rands-political-philosophy

David Gordon

Foundations of a Free Society: Reflections on Ayn Rand’s Political Philosophy. Gregory Salmieri and Robert Mayhew, Eds.  University of Pittsburgh Press. Xi + 460 pages.1

This excellent book mirrors in its choice of contributors the odd relationship between Ayn Rand and libertarianism. On the one hand, her own proposals for the political organization of society are a version of minimal state libertarianism, and her novels and essays have had an enormous impact on many libertarians. On the other hand, she not only denied she was a libertarian but denounced libertarianism in characteristically fierce fashion. The anarchist position of Murray Rothbard especially aroused her opposition.

Many of the contributors to the book are members of the “official” Objectivist organization of philosophers, the Ayn Rand Society, but others, including Matt Zwolinski, Peter Boettke, and Michael Huemer, are not Objectivists. The “official” Objectivists are more inclined than was Rand herself to acknowledge the similarity between her political thought and libertarianism, but, like her, they criticize libertarianism and denounce Rothbard’s anarchism.

In what follows, I shall address the criticisms of Rothbard’s anarchism, as these are likely to be of most interest to readers of mises.org. Before turning to this, though, I should like to examine the more general criticism of libertarianism raised by the Objectivists, as this has considerable philosophical value.

Given the manifest similarity between Rand’s political proposals and minimal state libertarianism, why are Objectivists so critical of libertarianism? One is tempted to ask them, “All right, you don’t like anarchism, but why isn’t support for a minimal state that has no power to tax and for laissez-faire capitalism enough for you? What more do you want?” Their answer is that non-Objectivist libertarianism lacks proper philosophical foundations. In the absence of these foundations, libertarians are unable adequately to support their political conclusions.

As an example, Darryl Wright, a philosophy professor at Harvey Mudd College and a rising star among Objectivist philosophers, criticizes Rothbard for not grounding his non-aggression principle in normative ethics. Although Rothbard accepted an ethics of natural law, he also held that political philosophy was autonomous, and this was his fatal error: “The source of the difficulties with Rothbard’s conception of aggression. . .lies in a particular way of understanding self-ownership, which in turn proceeds from Rothbard’s commitment to what I will call the autonomy of political philosophy. By this I mean the view that political philosophy should be independent of normative ethics—that is, independent of any substantive ethical theory applicable to the whole of one’s life.” (p.107). More generally, Wright says, “Since Rand’s approach to philosophy is holistic, a proper understanding of the[non-initiation of force] principle requires us to see how it grows out of her more fundamental positions in ethics and epistemology. . .” (p.16)…

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What Is Classical Liberalism? | Mises Institute

Posted by M. C. on November 4, 2018

Today’s “conservatives” aren’t even close.

https://mises.org/library/what-classical-liberalism

Ralph Raico

“Classical liberalism” is the term used to designate the ideology advocating private property, an unhampered market economy, the rule of law, constitutional guarantees of freedom of religion and of the press, and international peace based on free trade. Up until around 1900, this ideology was generally known simply as liberalism. The qualifying “classical” is now usually necessary, in English-speaking countries at least (but not, for instance, in France), because liberalism has come to be associated with wide-ranging interferences with private property and the market on behalf of egalitarian goals. This version of liberalism — if such it can still be called — is sometimes designated as “social,” or (erroneously) “modern” or the “new,” liberalism. Here we shall use liberalism to signify the classical variety… Read the rest of this entry »

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The Deregulation Bogeyman – LewRockwell

Posted by M. C. on October 12, 2018

On the eve of the crisis there were 115 state and federal institutions whose job it was to regulate the financial sector. We are to believe that if only we’d had 116, things would have been better?

https://www.lewrockwell.com/2018/10/thomas-woods/deregulation/

By 

Ten years after the financial crisis of 2008, your friends are still saying the same thing:

“Don’t you libertarians know the financial crisis was caused by deregulation?”

It was not in any way caused by deregulation. We have to get this right, and we can’t let it pass.

F.A. Hayek once noted how important history was to current events: if we misunderstand history, we’re going to do the wrong things in the present. So if we think the late nineteenth century was characterized by “monopolies” from which wise government officials rescued us (and, unfortunately, this is indeed what most people believe), we’ll have different views on antitrust law than we otherwise would. Likewise, if we think the Great Depression was caused by “laissez faire,” that will influence the kind of economic policy we advocate today… Read the rest of this entry »

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