tag:blogger.com,1999:blog-57830419001316221742024-03-14T07:43:34.407-07:00Alpha & Omega Financial Services | Becoming Your Own Banker | The Infinite Banking ConceptAlpha and Omega Financial Services. Ray Poteet. Becoming Your Own Banker - The Infinite Banking Concept.Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.comBlogger23125tag:blogger.com,1999:blog-5783041900131622174.post-33769351470450780382011-05-17T15:54:00.000-07:002011-05-17T15:57:27.289-07:00Monetary Policy, the Federal Reserve, and the National Debt Problem<h3 class="post-title entry-title"> by Richard M. Ebeling </h3> <div class="post-header"> </div> <p class="MsoNormal"><span style="font-size: 11pt;">(<i style="mso-bidi-font-style:normal">The following testimony was delivered before the House of Representatives Subcommittee on Domestic Monetary Policy and Technology, chaired by Congressman Ron Paul (R-Texas), on “Monetary Policy and the Debt Ceiling: Examining the Relationship between the Federal Reserve and Government Debt,” in Washington, D.C. on May 11, 2011</i>)</span></p><p class="MsoNormal"><br /><span style="font-size: 11pt;"></span></p><p class="MsoNormal"> </p><p class="MsoNormal" style="margin-top:0in;margin-right:.5in;margin-bottom:0in; margin-left:.5in;margin-bottom:.0001pt"><span style="font-size:11.0pt; mso-bidi-font-size:12.0pt">“I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared . . . To preserve our independence, we must not let our rulers load us with public debt . . . we must make our choice between economy and liberty or confusion and servitude . . . If we run into such debts, we must be taxed in our meat and drink, in our necessities and comforts, in our labor and in our amusements . . . If we can prevent the government from wasting the labor of the people, under the pretense of caring for them, they will be happy.”</span></p> <p class="MsoNormal" style="margin-top:0in;margin-right:.5in; margin-bottom:0in;margin-left:.5in;margin-bottom:.0001pt;text-align:right" align="right"><span style="font-size:11.0pt;mso-bidi-font-size:12.0pt">Thomas Jefferson</span></p> <p class="MsoNormal"><span style="font-size:11.0pt;mso-bidi-font-size:12.0pt"> </span></p> <br /> <p class="MsoNormal"><b style="mso-bidi-font-weight:normal"><u>Government Debt and Deficits</u></b></p> <p class="MsoNormal">The current economic crisis through which the United States is passing has given a heightened awareness to the country’s national debt. After a declining trend in the 1990s, the national debt has dramatically increased from $5.7 trillion in January 2001 to $10.7 trillion at the end of 2008, to over $14.3 trillion through April of 2011. The debt has reached 98 percent of 2010 U.S. Gross Domestic Product.<br /></p> <p class="MsoNormal"> </p> <p class="MsoNormal">The approximately $3.6 trillion that has been added to the national debt since the end of 2008 is more than double the market value of all private sector manufacturing in 2009 ($1.56 trillion), more than three times the market value of spending on professional, scientific, and technical services in 2009 ($1.07 trillion), and nearly five times the amount spent on non-durable goods in 2009 ($722 billion). Just the interest paid on the government’s debt over the first six months of the current fiscal (October 2010-April 2011), nearly $245 billion, is equal to more than 40 percent of the total market value of all private sector construction spending in 2009 ($578 billion).<span style="text-decoration: underline;"></span><a style="" href="http://defenseofcapitalism.blogspot.com/2011/05/monetary-policy-federal-reserve-and.html#_edn1" name="_ednref" title=""><span class="MsoEndnoteReference"><span style=""></span></span></a><br /></p><p class="MsoNormal">This highlights the social cost of deficit spending, and the resulting addition to the national debt. Every dollar borrowed by the United States government, and the real resources that dollar represents in the market place, is a dollar of real resources not available for use in private sector investment, capital formation, consumer spending, and therefore increases and improvements in the quality and standard of living of the American people.</p><p class="MsoNormal">In this sense, the government’s deficit spending that cumulatively has been increasing the national debt has made the United States that much poorer than it otherwise could have and would have been, if the dollar value of these real resources had not been siphoned off and out of use in the productive private sectors of the American economy.</p><p class="MsoNormal">What has made this less visible and less obvious to the American citizenry is precisely because it has been financed through government borrowing rather than government taxation.<span style="mso-spacerun: yes"> </span>Deficit spending easily creates the illusion that something can be had for nothing. The government borrows “today” and can provide “benefits” to various groups in the society in the present with the appearance of no immediate “cost” or “burden” upon the citizenry.<span style=""></span><br /></p><p class="MsoNormal">Yet, whether acquired by taxing or borrowing, the resulting total government expenditures represent the real resources and the private sector consumption or investment spending those resources could have financed that must be foregone. There are no “free lunches,” as it has often been pointed out, and that applies to both what government borrows as much as what it more directly taxes to cover its outlays.<br /></p><p class="MsoNormal">What makes deficit spending an attractive “path of least resistance” in the political process is precisely the fact that it enables deferring the decision of telling voter constituents by how much taxes would otherwise have to be increased, and upon whom they would fall, in the “here and now” to generate the additional revenue to pay for the spending that is financed through borrowing.<a style="mso-endnote-id:edn" href="http://defenseofcapitalism.blogspot.com/2011/05/monetary-policy-federal-reserve-and.html#_edn2" name="_ednref" title=""><span class="MsoEndnoteReference"><span style="mso-special-character: footnote"></span></span></a><br /></p><p class="MsoNormal">But as the recent fiscal problems in a number of member nations of the European Union have highlighted, eventually there are limits to how far a government can try to hide or defer the real costs of all that it is providing or promising through its total expenditures to various voter constituent groups. Standard & Poor’s recent decision to downgrade the U.S. government’s prospective credit rating to “negative” shows clearly that what is happening in parts of Europe <i style="mso-bidi-font-style:normal">can happen here</i>.</p><p class="MsoNormal"><br /></p><p class="MsoNormal"><a href="http://defenseofcapitalism.blogspot.com/2011/05/monetary-policy-federal-reserve-and.html">Click here to read the rest of the article</a></p><p class="MsoNormal"><br /></p><p class="MsoNormal"><br /></p><p class="MsoNormal"><br /></p>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-12057400566314765142011-05-11T10:44:00.000-07:002011-05-11T10:49:41.098-07:00The Gold Standard and Monetary Freedom<span style="Trebuchet MS","sans-serif";font-family:";" >by Richard M. Ebeling - via Carlos Lara (<a href="http://www.usatrustonline.com/">www.usatrustonline.com</a>)<br /></span><p class="MsoNormal"><span style="Trebuchet MS","sans-serif";font-family:";" >(This talk was delivered at a debate on whether "American Should Adopt the Gold Standard," sponsored by the Atlas Economic Research Foundation and the Forum for Citizenship and Enterprise, held at Northwood University on March 29, 2011)<br /><br />The severity of the current economic crisis has been serving as a catalyst for reconsideration of some fundamental questions about economic policy. This has included the size and role of government in society, the national debt burden and the unsustainability of various entitlement programs, and the relevancy of fiscal "stimulus" for economic recovery.</span></p><span style="Trebuchet MS","sans-serif";font-family:";" >It has also thrown up into sharp relief some crucial flaws in the nature and workings of the prevailing monetary system. The central question, I would argue, is whether or not we should continue to leave monetary and banking policy in the discretionary hands of central banks and the monetary central planners who manage them.</span><br /><br /><b><span style=" Trebuchet MS","sans-serif";font-family:";font-size:11pt;" ><strong><span style="Trebuchet MS","sans-serif";font-family:";" >Central Banking as Monetary Central Planning</span></strong></span></b><span style="Trebuchet MS","sans-serif";font-family:";" ><br /><br />And make no mistake about it. Central banking is monetary central planning. The United States and, indeed, virtually the entire world operate under a regime of monetary socialism. Historically, socialism has meant an economic system in which the government owned, managed, and planned the use of the factors of production.<br /><br />Modern central banking is a system in which the government, either directly or through some appointed agency such as the Federal Reserve in the United States, has monopoly ownership and control of the medium of exchange. Through this control the government and its agency has predominant influence over the value, or purchasing power, of the monetary unit, and can significantly influence a variety of market relationships. These include the rates of interest as which borrowing and lending goes on in the banking and financial sectors of the economy, and therefore the patterns of savings and investment in the market.<br /><br />If there is one lesson to be learned from the history of the last one hundred years -- during which the world and the United States moved off the gold standard and onto a government-managed fiat, or paper, money system -- is the fundamental disaster of placing control of the money supply in the hands of governments.<br /><br /><br /></span><strong><span style=" Trebuchet MS","sans-serif";font-family:";font-size:11pt;" >Government Abuse of Money and the Benefits of the Gold Standard</span></strong><span style="Trebuchet MS","sans-serif";font-family:";" ><br /><br />If is worth recalling that money did not originate in the laws or decrees of kings and princes. Money, as the most widely used and generally accepted medium of exchange emerged out of the market transactions of a growing number of buyers and sellers in an expanding arena of trade. Commodities such as gold and silver were selected over generations of market participants as the monies of free choice, due to their useful characteristics to better facilitate the exchange of goods in the market place.<br /><br />And for almost all of recorded history, governments have attempted to gain control of the production and manipulation of money to serve their seemingly insatiable appetite to extract more and more of the wealth produced by the ordinary members of society. Ancient rulers would clip and debase the gold and silver coins of their subjects. More modern rulers -- whether despotically self-appointed through force or democratically elected by voting majorities -- have taken advantage of the monetary printing press to churn out paper money to fund their expenditures and redistributive largess in excess of the taxes they impose on the citizenry. Today the process has become even easier through the mere click of a "mouse" on a computer screen, which in the blink of an eye can create tens of billions of dollars out of thin air.<br /><br />Thus, monetary debasement and the price inflation that normally accompanies it have served as a method for imposing a "hidden taxation" on the wealth of the citizenry. As John Maynard Keynes insightfully observed in 1919:<br /><br />By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.<br /><br />It is the corrosive, distortive, and destructive effects from monetary manipulation by governments that led virtually all of the leading economists of the nineteenth century to endorse the "anchoring" of the monetary system in a commodity such as gold, to prevent governments from using their powers over the creation of paper monies to cover their budgetary extravagance. John Stuart Mill's words from the middle of the nineteenth century are worth recalling:<br /><br />No doctrine in political economy rests on more obvious grounds than the mischief of a paper currency not maintained at the same value with a metallic, either by convertibility, or by some principle of limitation equivalent to it . . . All variations in the value of the circulating medium are mischievous; they disturb existing contracts and expectations, and the liability to such changes renders every pecuniary engagement of long date entirely precarious . . .<br /><br />Great as this evil would be if it [the supply of money] depended on [the] accident [of gold production], it is still greater when placed at the arbitrary disposal of an individual or a body of individuals; who may have any kind or degree of interest to be served by an artificial fluctuation in fortunes; and who have at any rate a strong interest in issuing as much [inconvertible paper money] as possible, each issue being itself a source of profit. Not to add, that the issuers have, and in the case of government paper, always have, a direct interest in lowering the value of the currency because it is the medium in which their own debts are computed . . . Such power, in whomsoever vested, is an intolerable evil.<br /><br />Under a gold standard, it is gold that is the actual money. Paper currency and various forms of checking and other deposit accounts that may be used in market transactions in exchange for goods and services are money substitutes, representing a fixed quantity of the gold-money on deposit with a banking or other financial institution that are redeemable on demand.<br /><br />Any net increases in the quantity of currency and checking and related deposits are dependent upon increases in the quantity of gold that depositors with banking and financial institutions add to their individual accounts. And any withdrawal of gold from their accounts through redemption requires that the quantity of currency notes and checking and related accounts in circulation be reduced by the same amount. Under a gold standard, a central bank is relieved of all authority and power to arbitrarily "manage" the monetary order.<br /><br />Many critics of the gold standard consider this a rigid and inflexible "rule" about how the monetary system and the quantity of money in the society is to be determined and constrained. Yet, the advocates of the gold standard have long argued that this relative inflexibility is essential to discipline governments within the confines of a "hard budget."<br /><br />Without the "escape hatch" of the monetary printing press, governments either must tax the citizenry or borrow a part of the savings of the private sector to cover its expenditures. Those proposing government spending must either justify it by explaining where the tax dollars will come from and upon whom the taxes will fall; or make the case for borrowing a part of the savings of the society to cover those expenditures -- but at market rates of interest that tell the truth about what it will cost to attract lenders to lend that sum to the government rather than to private sector borrowers, and therefore, at the social cost of private sector investment and future growth that will have to be foregone.<br /><br />In other words, it prevents the government from "monetizing the debt" to cover all or part of its budget deficits. The borrowed sums cannot be created out of thin air through central bank monetary expansion. The government, under a gold standard, can no longer create the illusion that something can be had for nothing.<br /><br />As Austrian economist, Ludwig von Mises, expressed it:<br /><br />Why have a monetary system based on gold? Because, as conditions are today and for the time that can be foreseen today, the gold standard alone makes the determination of money's purchasing power independent of the ambitions and machinations of governments, of dictators, and political parties, and pressure groups. The gold standard alone is what the nineteenth-century freedom-loving leaders (who championed representative government, civil liberties, and prosperity for all) called "sound money."<br /><br /><br /></span><strong><span style=" Trebuchet MS","sans-serif";font-family:";font-size:11pt;" >Milton Friedman's "Second Thoughts" About the Benefits of Paper Money</span></strong><span style="Trebuchet MS","sans-serif";font-family:";" ><br /><br />It must be admitted that even some advocates of economic freedom and limited government have been advocates of paper money. The most notable one in the second half of the twentieth century was Milton Friedman. Over most of his professional career he argued that maintaining a gold standard was a waste of society's resources. Why squander the men, material and machinery digging gold out of the ground to then simply store it away in the vaults of banks? It is better to use those scarce resources to produce more of the ordinary goods and services that can enhance the standard and quality of people's lives. Control the potential arbitrary recklessness of central banks, Friedman proposed, by setting up a monetary "rule" that says: Increase the paper money supply by some small annual percent, with no discretion left in the hands of the monetary managers.<br /><br />But it less well known is that in the years after Friedman won the Nobel Prize in Economics in 1976, he had second thoughts about this monetary prescription. In a 1986 article on, "The Resource Costs of Irredeemable Paper Money," he argued that when looking over the monetary mismanagement and mischief caused by governments and central banks during the twentieth century, it was "crystal clear" that the costs of mining, minting and storing gold as the basis of a monetary system would have been far less than the disruptive and destabilizing costs imposed on society due to paper money inflations and the booms and busts of the business cycle brought about by central bank manipulations of money and interest rates.<br /><br />In his 1985 presidential address before the Western Economic Association on "Economists and Public Policy," he said that Public Choice theory had persuaded him that it would never be in the long-run self-interest of governments or central bankers to manage the monetary system according to some hypothetical "public interest." Those in government or holding the levers of the monetary printing press will always be susceptible to the temptations and pressures of short-run political gains that monetary expansion can fund. He admitted that it had been a "waste of time" on his part to try to get governments and central banks to follow his idea for a monetary rule.<br /><br />And in another article in 1986 (co-authored with Anna Schwartz) on, "Has Government Any Role in Money?" Friedman said that while he was not ready at that time to advocate a return to the gold standard, he did conclude that "that leaving monetary and banking arrangements to the market would have produced a more satisfactory outcome than was actually achieved through government involvement."<br /><br /><br /></span><strong><span style=" Trebuchet MS","sans-serif";font-family:";font-size:11pt;" >Monetary Mismanagement versus Markets and Gold</span></strong><br /><span style="Trebuchet MS","sans-serif";font-family:";" >But it is not only the political dangers arising from government mismanagement of paper money that justifies the establishment of a gold standard. It is also and equally the fact that monetary central planning is unworkable as a means to maintain economy-wide stability, full employment, and growth.<br /><br />Especially since the 1930s, many economists and policy makers influenced by Keynes and the Keynesian Revolution have believed markets are potentially unstable and susceptible to wide and prolonged fluctuations in employment and output that only can be prevented or reduced in severity through "activist" monetary and fiscal policy.<br /><br />But in reality, the causation runs the in the opposite direction. It is central bank manipulations of money, credit and interest rates that have generated the instability and periodic swings in economy-wide production and employment.<br /><br />The fact is financial institutions and interest rates have important work to do in the market economy. Banks and other financial intermediaries are supposed to serve as the "middlemen" who bring together those who wish to save portions of their earned income with others who desire to borrow and invest that savings in profit-oriented productive ways that generate capital formation, technological improvements, and cost-efficient production of new, better and more goods and services to satisfy consumer demands in the future.<br /><br />Market-determined interest rates are meant to bring those savings and investment plans into coordination with each other, so the amount of invested capital and the time-shape of the investment horizons undertaken are consistent with the available real savings to support them to maintainable completion. </span><p class="MsoNormal"><span style="Trebuchet MS","sans-serif";font-family:";" > </span></p><p><span style="Trebuchet MS","sans-serif";font-family:";" >Monetary expansion by central banks creates the illusion that there is more actual investable savings in the economy than really exists. And the false interest rate signals generated in the banking system by the monetary expansion not only misinforms potential investment borrowers about the amount of real savings available for capital projects, but creates an incorrect basis for determining the present value calculations that influence the time horizons for the investments undertaken.<br /><br />It is these false monetary and interest rate signals that induces the misdirection of resources, the mal-investment of capital, and the incorrect allocation of labor among employments in the economy that sets the stage for an inevitable and inescapable "correction" and readjustment that represents the recession stage of the business cycle that follows the collapse of the artificial boom.<br /><br />The monetary central planners can never be more successful in determining a "optimal" quantity of money or the "right" interest rates to assure savings-investment coordination than all other socialist planners were when they tried to centrally plan agricultural production or investment output for an entire society. All such attempts at monetary planning and management by central bankers are instances of what Friedrich A. Hayek called in his Nobel Lecture a, "pretense of knowledge," that they can know better and do better than the outcomes generated by competitive interactions of the market participants, themselves. And as Adam Smith warned, nowhere is such regulatory power "so dangerous as in the hands of a man who had the folly and presumption enough to fancy himself fit to exercise it."<br /><br />There is no way of knowing the optimal amount of money in the economy other than allowing market participants in the competitive exchange process to decide what they want to use as money -- which has historically been a commodity such as gold or silver. And there is no way of knowing what interest rates should be other than allowing the market forces of supply and demand for lending and borrowing to determine those interest rates through the process of private sector financial intermediation, without government or central bank interference or manipulation.<br /><br /><br /></span><strong><span style=" Trebuchet MS","sans-serif";font-family:";font-size:11pt;" >The Return to the Gold Standard as a Monetary Constitution</span></strong><span style="Trebuchet MS","sans-serif";font-family:";" ><br /><br />Finally, how do we return to a functioning and workable gold standard? Under the current government and central bank-controlled monetary system the simplest method might be for the monetary authority to stop creating and printing money and credit. Over a short period of time a fairly reasonable estimate could be made about the actual quantity of a nation's currency and checking and related deposits that are in existence and in circulation. A new legal redemption ratio could be established by dividing the estimated total quantity of all forms of these money-substitutes into the quantity of gold possessed by the government and the central bank.<br /><br />A country following this procedure would then, once again, be on the gold standard. Its long-run maintainability, of course, would require the government and the central bank to follow those "rules of the game" that no increase in the quantity of money-substitutes may be created and brought into circulation unless there have been net deposits of gold in people's accounts with banking and other financial institutions.<br /><br />Can we trust governments and central banks to abide by these rules of the game? The temptations to violate them will still remain strong in a political environment dominated by ideologies of wealth redistribution, special interest favoritism, and numerous "entitlement" demands.<br /><br />It is why the real long-run goal of monetary reform should be the denationalization of money. That is, the separation of money from the state by ending of central banking, altogether. In its place would emerge private, competitive free banking -- a truly market-based money and banking system.<br /><br />But nevertheless, in the meantime, a gold standard can serve as a form of a "monetary constitution" setting formal limits and imposing restraints on those in government who would want to abuse the monetary printing press, similar to the way political constitutions, however imperfectly, are meant to limit the abuses of power-lusting monarchs and the plundering majorities in functioning democracies.<br /><br />If it fails, it should not be for want of trying. And a gold standard can be one of the positive institutional reforms in the attempt and on the way to a fully free market monetary system.</span></p>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-21287543899437407822011-02-15T13:23:00.000-08:002011-02-15T13:25:38.412-08:00The $5 Million Tax Break<span style="font-weight: bold;">Congress has set sweet new terms for the gift tax, and families are tearing up their estate plans to take advantage. Here's what you need to know.<br /><br /></span><span style="font-style: italic;">By Anne Tergesen and Laura Saunders</span><span style="font-style: italic;"> (WSJ Online)</span><span style="font-weight: bold;"><br /></span><p>Largely lost amid all the political drama surrounding December's historic tax legislation was a sweet deal for families.</p> <p>For the next two years, the gift-tax exemption jumps to $5 million from $1 million for individuals and to $10 million from $2 million for couples—meaning people can give away that much without paying a penny in taxes. </p> <p>What's more, the tax rate on gifts above those amounts fell to 35% from a scheduled 55%, a boon to ultrawealthy people who want to give away even more money. </p> <p>Washington's unexpected largess is prompting many taxpayers to throw away their estate plans and craft new ones before the favorable terms expire. But while anyone with significant assets should consider retooling their strategies, there are many important considerations, financial and emotional alike.<br /></p><p><a href="http://online.wsj.com/article_email/SB10001424052748704062604576106171136583088-lMyQjAxMTAxMDAwODEwNDgyWj.html" target="_blank">Click here to read the rest of the article on WSJ.com</a></p><p><br /></p>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-12922121086637622352011-01-12T12:30:00.001-08:002011-01-12T12:35:02.138-08:00Austrian Economics Gaining Ground<div style="text-align: center;"><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.youtube.com/watch?v=wEhzMqTkn4Q&feature=related" target="_blank"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 241px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjx6UnpKPf9vlt_yfjjBH2Uxd2z0n6jb6nltt1Pld_Qtxqf7l6H4y9Z_87hvR6KbIVhFLaJ3IvJ-C9Jl4sbIiE6kly-x_w0hSy09ckC-ivP0lOk__UuNkU9ZGFEGsDRSQeglsgZyBMYUyho/s400/Paul.jpg" alt="" id="BLOGGER_PHOTO_ID_5561399609647534354" border="0" /></a><a href="http://www.youtube.com/watch?v=wEhzMqTkn4Q&feature=related" target="_blank">Fed-fighter Ron Paul thinks Paul Krugman<br />should debate an Austrian economist... </a><br /></div><br /><br /><a href="http://www.foxbusiness.com/on-air/freedom-watch/index.html#/v/4489626/big-government-fact--fiction/?playlist_id=157991" target="_blank"><br /><br /></a><div style="text-align: center;"><a href="http://www.foxbusiness.com/on-air/freedom-watch/index.html#/v/4489626/big-government-fact--fiction/?playlist_id=157991" target="_blank"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 228px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_kbgpOl0R9eEx2huZe71d3G7RFnl3_Jm6pDS6LvK5OKfpZ046SVd1xvjEORGhwSr6K7qdXrYf6P5O9IplDL7l5MY2ozcVwepbKaZ_5xC82-8jTlE2criV1I8gPZl9FX0DDKXqBDcLPyKa/s400/MurphyandNap.jpg" alt="" id="BLOGGER_PHOTO_ID_5561399848677734802" border="0" /></a><a href="http://www.foxbusiness.com/on-air/freedom-watch/index.html#/v/4489626/big-government-fact--fiction/?playlist_id=157991" target="_blank"><span style="font-weight: bold;font-size:130%;" >Big Government Fact & Fiction</span></a><br /><br />Mises Institute Adjunct Scholar Robert Murphy<br />discusses whether big government under President Obama is a myth.<br /><br /><br /><br /><br /><br /><br /></div>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-90881987894812697322010-11-08T08:26:00.000-08:002010-11-08T08:27:06.741-08:00My Debate Challenge to Paul Krugman!<div style="margin-bottom: 15pt;"> <p style="text-align: center;" class="MsoNormal" align="center"><span style="font-size: 24pt;"><br /></span><span></span></p></div> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-size: 9pt;"> <strong><span>B</span></strong>y: <strong><span>Robert P. Murphy </span></strong>| Thursday, October 28, 2010 </span></p> <p style="text-align: left;" class="MsoNormal"><span> <a href="http://app.expressemailmarketing.com/get.link?linkid=2445169&subscriberid=97897523&campaignid=630047&linkurl=http%3a%2f%2fwww.usatrustonline.com%2f" target="_blank">Purchase the Lara-Murphy Report<br /></a></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span><br /></span></p><p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>As many readers already know, last week I <a href="http://app.expressemailmarketing.com/get.link?linkid=2445171&subscriberid=97897523&campaignid=630047&linkurl=http%3a%2f%2fwww.thepoint.com%2fcampaigns%2fcampaign-0-1240" target="_blank">launched a campaign</a> to pressure <a href="http://app.expressemailmarketing.com/get.link?linkid=2445172&subscriberid=97897523&campaignid=630047&linkurl=http%3a%2f%2fen.wikipedia.org%2fwiki%2fPaul_Krugman" target="_blank">Paul Krugman</a> into debating me. In just the first week, this <a href="http://app.expressemailmarketing.com/get.link?linkid=2445173&subscriberid=97897523&campaignid=630047&linkurl=http%3a%2f%2fwww.youtube.com%2fwatch%3fv%3d6cFXRFlvE3s" target="_blank">sophomoric 7-minute YouTube video</a> has generated $35,000 in pledges. At this point, I don't see how Krugman will ever live this down until he debates me on Austrian versus Keynesian business-cycle theory. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>In the present article, I'll give a little background of how I came up with the idea. Then I'll point out the broader implications of this episode, which go well beyond my jousting with Krugman. </span></p> <p><strong><span>The Point, Xtranormal, and Facebook </span></strong><span></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>The first ingredient for our story is a website called <a href="http://app.expressemailmarketing.com/get.link?linkid=2445174&subscriberid=97897523&campaignid=630047&linkurl=http%3a%2f%2fwww.thepoint.com%2f" target="_blank">ThePoint</a>. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>A couple of months ago my wife explained to me how "Groupon" works. (A business will offer an amazing coupon, but only if a critical number of people opt for the deal. It is a coupon that only works if adopted by a group, hence the name.) Not only is Groupon a brilliant idea — made possible through the Internet — but it shows how real-world markets are far more adaptive than they are modeled to be in mainstream economics. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>I decided to write up a Mises Daily article on all this. But while doing research, I discovered that Groupon was itself the byproduct of a more general website, ThePoint. After watching its short video tutorial, I realized that ThePoint offers libertarians a very effective way to coordinate their efforts. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>At the time, I tried brainstorming, but the best I could come up with was a campaign to buy a Superbowl ad related to liberty. This type of project would be perfect for ThePoint — there would be lots of people willing to chip in $5 or $10, but they wouldn't want to waste their money if not enough people joined the cause. ThePoint's conditional framework — where your credit card is not billed until the specified objective is met — avoids this stumbling block. But since the Superbowl ad idea was not particularly earth-shattering, I moved on. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>The next piece of the puzzle was the website <a href="http://app.expressemailmarketing.com/get.link?linkid=2445175&subscriberid=97897523&campaignid=630047&linkurl=http%3a%2f%2fwww.xtranormal.com%2f" target="_blank">Xtranormal</a>, which offers a very convenient platform for quickly generating animated movies. I was vaguely aware of this site because I saw a short clip mocking Christine O'Donnell, but I assumed it took a huge investment of time. Then when Jeffrey Tucker created this cute video promoting the Mises Academy, he told me it was actually a piece of cake. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>"Aha!" I thought. "If anybody can put off productive work in order to generate videos with amusing dialog, then surely it is me!" But as with ThePoint, here too I couldn't think of anything really great. So I went back to my usual routine of writing articles and blog posts. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>Unbeknownst to me, these two seemingly independent ideas must have been germinating in my subconscious. For, a short while later, I watched <em><u><span>The Social Network</span></u></em>, the film describing the founding of Facebook. Watching young guys pursue their passion and become obscenely wealthy galvanized my inner entrepreneur. I wanted to come up with a big idea. But what? </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>Literally on the drive home from the theater, I conceived of my debate challenge to Paul Krugman. By soliciting pledges through <u>ThePoint</u>, donors would be reassured that they weren't throwing away their money. And by choosing soup kitchens across the country as the main beneficiaries (this was my original version, until I realized <u>ThePoint</u> could only designate one recipient of the check), what could Krugman possibly say? If we offered to pay him half the prize money, he could "be above it all." But soup kitchens?[1] </span></p> <p><span>"<u>ThePoint</u> offers libertarians a very effective way to coordinate their efforts." </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>Even though I could see the potential of the campaign, I knew the mere launch wouldn't be enough. I had to explain the strategy behind it, to make sure everyone understood just what an awkward position Krugman would be in if the numbers rose above $100,000. I also knew a lot of people wouldn't understand why I wanted Ezra Klein as the moderator. (If you're curious, I settled on Klein because he had recently emailed Krugman, asking for an explanation of the various schools of thought and their prescriptions for a recession.) </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>At first, I thought I would have to write up an article explaining the overall strategy and answering objections. But no, that wasn't going to cut it. Nobody wants to read through a long commercial, especially a commercial with several different clauses. That's when I realized I could have two people hash it out in an <u>Xtranormal</u> video. It would be a much easier way to raise objections and answer them. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>The rest, as they say, is history. I did some checking to make sure that <u>ThePoint</u> had actually handled big campaigns — unless they are complete frauds, they apparently sent a check for $10,000 to the Crohn's and Colitis Foundation of America after this guy started a campaign and sailed across the Atlantic. I also checked with the director of philanthropy at <u>FoodBankNYC</u> to make sure they had no objections to my plans. </span></p> <p><strong><span>Instant Success </span></strong><span></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>To be honest, I didn't know if the campaign would catch on or not. It's so hard to tell which YouTube videos will "go viral" and which will fade into obscurity. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>Needless to say, the success of the campaign exceeded my wildest expectations. Within the first 24 hours, it raised some $3,000, which totally shocked me. Within the first 37 hours, it had broken the $5,000 mark. Then because of this <a href="http://app.expressemailmarketing.com/get.link?linkid=2445176&subscriberid=97897523&campaignid=630047&linkurl=http%3a%2f%2fwww.lewrockwell.com%2fblog%2flewrw%2farchives%2f67683.html" target="_blank">Tom Woods plug</a>, the thing really took off, smashing through $10,000 a few hours later. The campaign broke outside standard Austrolibertarian circles, into the financial blogs, through Robert Wenzel, then Jeff Harding at Zerohedge (which also was reprinted at LRC), and most recently (as of this writing) John Carney at <a href="http://app.expressemailmarketing.com/get.link?linkid=2445177&subscriberid=97897523&campaignid=630047&linkurl=http%3a%2f%2fwww.cnbc.com%2fid%2f39832879" target="_blank">CNBC</a>. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>As I wrote on my blog to the readers who were excitedly watching the pledges roll in, "This isn't going to my head. I understand full well that the $5,000 raised in 37 hours is not a reflection of your love for me, but your hatred for Krugman." </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>Hundreds of fans of the Austrian School were joining the campaign, because they realized the wonderful corner into which Krugman would be painted. He would either have to debate someone well-versed in Austrian business-cycle theory or explain why a New York City food bank would miss out on $100,000+ in "right-wing" money. I wonder if Krugman is surprised at the intensity of the animosity? I was, so I'm betting he is too. </span></p> <p><strong><span>Broader Lessons </span></strong><span></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>Besides the fun of the campaign — and the great teaching opportunity that should arise if and when Krugman breaks down and debates — there are broader lessons from this experience. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>First, I want to stress the brilliant business plan of <u>ThePoint</u> and <u>Xtranormal</u>. I didn't have to pay anything to set up the campaign or to create my promotional video. These services were provided free, because their creators understand full well the importance of network effects. </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span>Consider <u>ThePoint</u>. They don't really have too much overhead, except the server(s) to host the various campaigns. I didn't have to talk or even email with anyone in order to launch the campaign; the process was automated and took about 20 minutes. </span></p> <p><span>As far as I can tell, <u>ThePoint</u> doesn't have advertisements yet. It has "Featured Campaigns," which may be a source of revenue. But as far as the Krugman debate is concerned, the only fees ThePoint will earn are the 5 percent of the pot once the money is collected. This sounds like a tidy sum, until you realize that credit cards (especially American Express) charge servicing fees that may very well average 3 percent to 4 percent, depending on the size of the individual donation. So I will be curious to see if ThePoint — like Facebook — tries to become the dominant website of its genre, and then implement "tasteful" ads. </span></p> <p><u><span>Xtranormal</span></u><span>'s business model is even more clever. It is quite simple to get a video up and running; as their slogan says, "If you can type, you can make movies." They came up with a very user-friendly interface to control the characters' behavior. (For example, the male office worker in my video throws his hands up when he says, "It's in Alabama, for crying out loud!") </span></p> <p><span>Now, one component of <u>Xtranormal</u>'s strategy is obvious enough: they insert a commercial at the end of each freebie movie, pointing people to their site. But how do they actually make money? What pays for the computing power necessary to process the user instructions and generate animated movies? </span></p> <p><span>As it turns out, <u>Xtranormal</u> sells "xtra-points" that can be used in the movie-making process. A moviemaker can use these points to access "sets" that are unavailable to the nonpaying customers, to choose from a wider variety of costumed characters, and to have greater flexibility in the movements of the characters. </span></p> <p><u><span>Xtranormal</span></u><span>'s overall strategy is to attract large numbers of users by making the initial process free. Then, once people are hooked and everybody has already seen various videos using the freebie material, movie makers will be inclined to actually start paying. </span></p> <p><b><span>Intellectual Property and Funding Ideas </span></b><span></span></p> <p class="MsoNormal"><span>The most relevant lesson for Austrian economists is that we are seeing the transformation of funding mechanisms for those in the business of creating ideas. Before the rise of modern capitalism, artists and writers needed the support of wealthy patrons. But with capitalism and its "mass production for the needs of the masses," this dependence on the philanthropy of the rich receded. </span></p> <p><span>The innovators of today are taking advantage of the new frontier of the Internet. Recognizing the obsolescence of "intellectual-property" laws, they are dreaming up new ways to earn a living from the production of ideas. </span></p> <p><span>Yes, if the state suddenly stopped enforcing ownership claims on intangible, nonscarce things, we can imagine all sorts of potential problems. But surely these budding entrepreneurs — and thousands more rising from the ranks — are just the people to solve them. </span></p> <p class="MsoNormal"><u><span>Notes </span></u><span></span></p> <p><span>[1] </span></p> <p><span>Originally, I had also conceived of giving 10 percent of the pot to Krugman and Klein, another 10 percent to the Mises Institute and myself, and the remaining 80 percent to be distributed to food kitchens. I thought this made sense in order to help cover the monetary expenses and opportunity costs of putting on the debate. But ThePoint's setup page only wanted one named recipient of the check, and I realized it would just be cleaner if we sent it all to charity. Obviously if the debate happens, there will be revenue potential from selling tickets to people who want to see it live. </span></p> <p class="MsoNormal"><span> </span><br /></p><span></span><span style="font-size: 10pt;">Robert Murphy is co-author of <em><u><span>How Privatized Banking Really Works</span></u></em> and is an adjunct scholar of the Mises Institute, where he will be teaching "Anatomy of the Fed" at the Mises Academy this winter. He runs the blog Free Advice and is the author of <em><u><span>The Politically Incorrect Guide to Capitalism</span></u></em>, the <em><u><span>Study Guide to Man</span></u></em>, <em><u><span>Economy, and State with Power and Market</span></u></em>, the <em><u><span>Human Action Study Guide</span></u></em>, and <em><u><span>The Politically Incorrect Guide to the Great Depression and the New Deal</span></u></em>. </span>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-23279279172012384122010-09-29T12:04:00.000-07:002010-09-29T12:05:57.164-07:00Hooray, the Recession is Over!<p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><strong><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 9pt;">B</span></strong><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 9pt;">y: <strong><span style="font-family: 'Trebuchet MS','sans-serif';">Robert P. Murphy</span></strong> | Monday, September 27, 2010 </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Some days, it's embarrassing to be a professional economist. On Monday, the National Bureau of Economic Research (NBER) officially declared that our recession had ended — 15 months ago. Yes, that's right, just as more and more analysts are worried about the economy imploding again, the NBER announces that the recession ended back in June 2009. The whole episode underscores the crudity of mainstream economics. </span></p> <p><strong><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 13.5pt;">The NBER's Announcement</span></strong><span style="font-family: 'Trebuchet MS','sans-serif';"></span></p> <p><span style="font-family: 'Trebuchet MS','sans-serif';">To be fair, let's quote from the actual statement:</span></p> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">CAMBRIDGE, September 20, 2010 — The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. ...</span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month.</span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.</span></p></blockquote> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">If nothing else, the NBER's announcement should give serious pause to those who chastise the Austrians for their "unscientific" approach to economics. Ludwig von Mises famously argued that the <a href="http://app.expressemailmarketing.com/get.link?linkid=2383603&subscriberid=97897523&campaignid=628366&linkurl=http%3a%2f%2fmises.org%2fdaily%2f1304">economist should proceed by logical deduction</a>, rather than by aping the method of the physicists.</span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Naturally, many mainstream economists mocked Mises for these ostensibly Neanderthal views; Paul Samuelson wrote, "I tremble for the reputation of my subject." It's funny, because I have a similar reaction to the opinion from our macroeconomic wizards at the NBER.</span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Just stop and think about what has happened: According to the NBER, the US economy went through a severe recession from December 2007 to June 2009. Now it took the NBER until December 1, 2008 to announce that the economy was in a recession — a full year after it began (according to the same NBER). And then, with this week's announcement, the NBER announced that the economy had exited the recession, a full 15 months after the fact.</span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">The NBER Business Cycle Dating Committee is composed of some pretty prestigious names (see the list at the <a href="http://app.expressemailmarketing.com/get.link?linkid=2383604&subscriberid=97897523&campaignid=628366&linkurl=http%3a%2f%2fwww.nber.org%2fcycles%2fsept2010.html">bottom of this article</a>). I certainly am not suggesting that these guys are a bunch of idiots.</span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Rather, I am pointing out the virtual uselessness of the empirical approach when it comes to "fine-tuning" the macroeconomy. Even if we had reason to believe that government policies could overcome the failings of the free market, such interventions would be as hopeless as those of an Earth surgeon operating on a Martian patient with a remote-controlled scalpel. The information lag would be enormous.</span></p> <p><strong><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 13.5pt;">Besides the Lags, the Definitions Are Crazy</span></strong><span style="font-family: 'Trebuchet MS','sans-serif';"></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">The problem isn't simply one of delayed information. The very approach of mainstream macroeconomics — with its focus on aggregates such as "Gross Domestic Product" and "Gross Domestic Income" — is misguided, and tends to support the same interventionist policies that prolong crises.</span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">For example, most readers probably think that the US economy was in one heck of a funk throughout the 1930s. After all, people refer to this period as "the Great Depression." And sure enough, from 1931 to 1940, the <a href="http://app.expressemailmarketing.com/get.link?linkid=2383605&subscriberid=97897523&campaignid=628366&linkurl=http%3a%2f%2fbls.gov%2fopub%2fcwc%2fcm20030124ar03p1.htm">official annual unemployment rate</a> never dropped below 14.3 percent. So the average American would no doubt have felt as if the economy were really awful for this entire period.</span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">And yet, if you go to the NBER's chronology of business cycles, you'll see that "the Great Depression" is apparently a misnomer. There was a recession from August, 1929 through March, 1933, and then another (short) one from May, 1937 through June, 1938.</span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">In particular, the NBER says the US economy was in a recovery from March, 1933 through May, 1937, even though the annual unemployment rates for the intervening three years were 21.7 percent, 20.1 percent, and 17.0 percent. That's a rather anemic recovery, wouldn't you say?</span></p> <p class="MsoNormal"><span style="font-family: 'Trebuchet MS','sans-serif';">Let's say you are running and then break a leg. You have to crawl now, but you develop that skill and are able to get from here to there. Are you in recovery from the accident? According to the NBER, yes — so long as you are crawling faster than when you first hit the ground in agony.</span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">The problem isn't simply one of technical economic definitions differing from those of the layperson. No, the problem is that the reliance on (fairly ambiguous) aggregates gives false credit to harmful policies. For example, what happened in March, 1933 that "ended" the awful recession under Herbert Hoover? Why, that was the exact month that FDR was inaugurated.</span></p> <p style="text-align: justify; margin-bottom: 12pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Among other things, when FDR came into office he immediately declared a "bank holiday" and — oh yes — seized everybody's gold. By taking the United States off the gold standard, he gave the Fed the green light to deliver a quick burst of monetary inflation followed by a more general expansion:<br /><img id="_x0000_i1026" src="http://app.expressemailmarketing.com/images/gallery/54258/Adjusted_monetary_base.png" border="0" vspace="25" hspace="25" /></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Of course, there are plenty of macroeconomists who think that FDR's new policies really did fix the economy, and that it was only Fed tightness (combined with FDR's misguided attempts at budget austerity) that led to a relapse in 1937.</span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">I have dealt with such empirical claims <a href="http://app.expressemailmarketing.com/get.link?linkid=2383606&subscriberid=97897523&campaignid=628366&linkurl=http%3a%2f%2fmises.org%2fdaily%2f3534">here</a>. In the present article, I just want to point out that the NBER's techniques implicitly justify big government. For example, suppose the Austrians are right, and that the Fed's massive interventions — coupled with the federal government's absurd "stimulus" programs and other power grabs — at best will postpone the economic correction, and in fact they will make the crash that much worse.</span></p> <p><span style="font-family: 'Trebuchet MS','sans-serif';">Well, according to the way the NBER works, nobody would ever know this. Instead, "history" will record that Bernanke and Obama did indeed manage to end the awful Great Recession — specifically, in June of 2009 — but then something else came along and inexplicably wrecked things. Maybe Christine O'Donnell.</span></p> <p class="MsoNormal"><span style="font-family: 'Trebuchet MS','sans-serif';"> </span></p> <p style="text-align: right;" class="MsoNormal" align="right"><span style="font-family: 'Trebuchet MS','sans-serif';"><a href="http://app.expressemailmarketing.com/get.link?linkid=2383607&subscriberid=97897523&campaignid=628366&linkurl=http%3a%2f%2fwww.usatrustonline.com%2fstore%3fpage%3dshop.product_details%26amp%3bflypage%3dflypage.tpl%26amp%3bproduct_id%3d1%26amp%3bcategory_id%3d1">Click here to purchase book</a> </span></p> <p class="MsoNormal"><span style="font-family: 'Trebuchet MS','sans-serif';"> </span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><a href="http://app.expressemailmarketing.com/get.link?linkid=2383608&subscriberid=97897523&campaignid=628366&linkurl=http%3a%2f%2fwww.usatrustonline.com%2fstore%3fpage%3dshop.product_details%26amp%3bflypage%3dflypage.tpl%26amp%3bproduct_id%3d1%26amp%3bcategory_id%3d1"><img src="http://app.expressemailmarketing.com/images/gallery/54258/PrivatizedFront3.jpg" align="right" border="0" vspace="20" width="206" height="319" hspace="20" /></a><span style="font-family: 'Trebuchet MS','sans-serif';"><br /></span><strong><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 13.5pt;">Conclusion</span></strong><span style="font-family: 'Trebuchet MS','sans-serif';"></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">The NBER's delayed calls on the start and end of business cycles are fodder for late-night comedians. The average American knew full well the economy was in trouble well before the NBER announced it, and the average American knows full well that our economy is still in serious trouble.</span></p> <span style="font-family: 'Trebuchet MS','sans-serif';">Worse yet, the NBER's approach justifies massive central-bank and government interventions into the economy. The "scientific" approach to macroeconomics will never yield positive results unless the diagnostic technique takes some lessons from Austrian economics.<br /><br /></span><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 10pt;">Robert Murphy is an adjunct scholar of the Mises Institute, where he will be teaching "Principles of Economics" at the Mises Academy this fall. He runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to Man, Economy, and State with Power and Market, the Human Action Study Guide, and The Politically Incorrect Guide to the Great Depression and the New Deal. </span>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-8726889541843786262010-09-03T09:36:00.000-07:002010-09-03T09:37:25.102-07:00Price, Profits, and Planning<p style="text-align: center;" class="MsoNormal" align="center"><strong><span style="font-family: 'Trebuchet MS','sans-serif';">By</span></strong><span style="font-family: 'Trebuchet MS','sans-serif';">: <strong><span style="font-family: 'Trebuchet MS','sans-serif';">L. Carlos Lara</span></strong> <strong><span style="font-family: 'Trebuchet MS','sans-serif';">and Robert P. Murphy</span></strong><o:p></o:p></span></p> <p style="text-align: center;" class="MsoNormal" align="center"><strong><span style="font-family: 'Trebuchet MS','sans-serif';">Friday, August 20, 2010 </span></strong><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p></o:p></span></p> <p style="text-align: center;" align="center"><em><b><span style="font-family: 'Trebuchet MS','sans-serif';">"A bureaucrat differs from a non-bureaucrat precisely because he is working in a field in which it is impossible to appraise the result of a man's effort in terms of money.</span></b></em><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p></o:p></span><em><b><span style="font-family: 'Trebuchet MS','sans-serif';"><br /></span></b></em></p><p style="text-align: center;" align="center"><em><b><span style="font-family: 'Trebuchet MS','sans-serif';">Ludwig von Mises <sup>(1)</sup></span></b></em><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p></o:p></span></p> <br /> <p style="text-align: justify;"><!--[if gte vml 1]><v:shapetype id="_x0000_t75" coordsize="21600,21600" spt="75" preferrelative="t" path="m@4@5l@4@11@9@11@9@5xe" filled="f" stroked="f"> <v:stroke joinstyle="miter"> <v:formulas> <v:f eqn="if lineDrawn pixelLineWidth 0"> <v:f eqn="sum @0 1 0"> <v:f eqn="sum 0 0 @1"> <v:f eqn="prod @2 1 2"> <v:f eqn="prod @3 21600 pixelWidth"> <v:f eqn="prod @3 21600 pixelHeight"> <v:f eqn="sum @0 0 1"> <v:f eqn="prod @6 1 2"> <v:f eqn="prod @7 21600 pixelWidth"> <v:f eqn="sum @8 21600 0"> <v:f eqn="prod @7 21600 pixelHeight"> <v:f eqn="sum @10 21600 0"> </v:formulas> <v:path extrusionok="f" gradientshapeok="t" connecttype="rect"> <o:lock ext="edit" aspectratio="t"> </v:shapetype><v:shape id="_x0000_s1026" type="#_x0000_t75" alt="" href="http://app.expressemailmarketing.com/get.link?linkid=2312709&subscriberid=97897523&campaignid=609356&linkurl=http%3a%2f%2fusatrustonline.com%2f" style="'position:absolute;left:0;text-align:left;margin-left:317.6pt;" allowoverlap="f" button="t"> <v:imagedata src="http://app.expressemailmarketing.com/images/gallery/54258/PrivatizedFront3.jpg"> <w:wrap type="square"> </v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span style="font-family: 'Trebuchet MS','sans-serif';">Once a market develops the use of money, entire new vistas open up for economic development. Because the money commodity exists on one side of every transaction, merchants and consumers can quickly grasp the relative scarcity of various goods and services. In other words, the use of money allows people to reduce economic operations down to a common denominator.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">As in so many other areas, Hayek was one of the few economists to grasp the significance of this fact. Hayek viewed the price system in a market economy as a type of communication network, in which people "on the ground" in one area transmitted relevant information to everyone else through their buying and selling decisions. In a famous 1945 journal article Hayek wrote:<o:p></o:p></span></p> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">We must look at the price system as such a mechanism for communicating information if we want to understand its real function....The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">But I fear that [economists'] theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism...The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction....<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">I have deliberately used the word "marvel" to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.<sup>(2)</sup><o:p></o:p></span></p></blockquote> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">We are now beginning to see how social institutions help humans cope with the all-pervading problem of scarcity. The reason it took scholars of the caliber of Friedrich Hayek to understand the true function (and hence importance) of private property and market prices, is that these indispensable tools were not designed by anyone. Since no single person invented money, many intellectuals take its services for granted and indeed imagine a utopia which abolishes money altogether. In this context, Ludwig von Mises' famous critique of socialism is an excellent illustration of the fatal conceit.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><strong><span style="font-family: 'Trebuchet MS','sans-serif';">Mises on Economic Calculation: The Fundamental Problem With Socialism</span></strong><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">In the chronology of Austrian economists, Mises actually predates Hayek. Indeed, Hayek credits Mises' 1922 book <em><span style="font-family: 'Trebuchet MS','sans-serif';">Socialism</span></em> with converting <em><span style="font-family: 'Trebuchet MS','sans-serif';">Hayek</span></em> from being a socialist! In a Foreword (written in 1978) to the book, Hayek explains how he came to know Mises, and the effect he had:<o:p></o:p></span></p> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p class="MsoNormal"><span style="font-family: 'Trebuchet MS','sans-serif';">When <em><span style="font-family: 'Trebuchet MS','sans-serif';">Socialism</span></em> first appeared in 1922, its impact was profound. It gradually but fundamentally altered the outlook of many of the young idealists returning to their university studies after World War I. I know, for I was one of them.<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">We felt that the civilization in which we had grown up had collapsed. We were determined to build a better world, and it was this desire to reconstruct society that led many of us to the study of economics. Socialism promised to fulfill our hopes for a more rational, more just world. And then came this book. Our hopes were dashed. Socialism told us that we had been looking for improvement in the wrong direction.<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">A number of my contemporaries, who later became well known but who were then unknown to each other, went through the same experience: Wilhelm Röpke in Germany and Lionel Robbins in England are but two examples. None of us had initially been Mises' pupils. I had come to know him while working for a temporary Austrian government office which was entrusted with the implementation of certain clauses of the Treaty of Versailles. He was my superior, the director of the department.<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Mises was then best known as a fighter against inflation. He had gained the ear of the government and...was immensely busy urging the government to take the only path by which a complete collapse of the currency could still be prevented. (During the first eight months I served under him, my nominal salary rose to two hundred times the initial amount.)<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">...Socialism shocked our generation, and only slowly and painfully did we become persuaded of its central thesis.<sup>(3)</sup><o:p></o:p></span></p></blockquote> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">What was Mises' "central thesis" concerning socialism, that had so shocked Hayek and his peers? In a nutshell, Mises argued that the socialist planners would find it impossible to rationally allocate society's scarce resources. Even if they had the best intentions, and even if they had at their fingertips all of the relevant knowledge from various experts, Mises argued that the socialist planners would have no way of determining whether their plans for industry were a good idea, or whether an alternative set of instructions would be better.<o:p></o:p></span></p> <p><span style="font-family: 'Trebuchet MS','sans-serif';">The market economy solves this problem through the profit-and-loss test. In a capitalist society, every scarce resource—including capital goods such as tractors and factories—is subject to private ownership. This allows the formation of market prices for every unit of every resource. When an entrepreneur in a market economy wants to know if he is running a successful business, he has a simple and objective criterion: He can see if the revenues from his customers are greater than his expenses. If they're not, that means the entrepreneur is losing money, and in a market economy an unprofitable operation is soon shut down.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Now the socialists looked upon this practice with scorn. After all, money isn't everything! Who is to say that a particular firm making diapers, for example, shouldn't continue turning scarce resources into more boxes of diapers, even past the point of profitability, in order to help struggling mothers with infants? The socialists thought the accountant's "bottom line" was an arbitrary quirk of a market economy, and that it didn't correspond to anything "real" that would exist in a socialist world.<o:p></o:p></span></p> <p><span style="font-family: 'Trebuchet MS','sans-serif';">Yet Mises demonstrated that the socialists were simply wrong. Although there are limits to the guidance given by monetary accounting, Mises pointed out that it gives people some guidance. Think about it: When a particular enterprise is unprofitable, it means that the owner is spending more money on inputs than his customers are willing to spend on the outputs. Loosely speaking, we can say that the owner is destroying wealth, because he is transforming resources of a high market value into finished products of a lower value.<o:p></o:p></span></p> <p><span style="font-family: 'Trebuchet MS','sans-serif';">Mises explained that the market prices of the "means of production" were not arbitrary, but instead reflected their relative scarcities. For example, a pound of copper (as of this writing) fetches a higher market price than a pound of aluminum. This isn't some irrelevant factoid of capitalist countries, but instead refers to a genuine relationship between the difficulty in producing copper vs. aluminum, compared to the uses people have of the two different materials. The reason entrepreneurs can afford to pay so much more for a pound of copper, is that there are some products that can be made with copper and not aluminum, and consumers are willing to pay for these products.<o:p></o:p></span></p> <p><span style="font-family: 'Trebuchet MS','sans-serif';">In Mises' view, the entrepreneur in a market economy acts as a "mandatary of the consumer," meaning that he acts as the consumer's agent or representative. Armed with a knowledge of how much money consumers will spend on various goods and services, the entrepreneurs enter the markets for raw materials, labor, and other resources and engage in a bidding war with each other. A high price for a pound of copper, compared to a low price for a pound of aluminum, is the market's way of signaling that copper is more important for pleasing consumers, and that entrepreneurs should exercise more care when using it in their operations.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">It is this framework that led Mises to trumpet the notion of "consumer sovereignty," which claims that the real power in a capitalist system does not lie with the capitalists, as the Marxists believed:<o:p></o:p></span></p> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">The capitalists, the enterprisers, and the farmers are instrumental in the conduct of economic affairs. They are at the helm and steer the ship. But they are not free to shape its course. They are not supreme, they are steersmen only, bound to obey unconditionally the captain's orders. The captain is the consumer.<sup>(4) </sup><o:p></o:p></span></p></blockquote> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Mises went on to say that not only was the consumer the one in charge, but that he was a <em><span style="font-family: 'Trebuchet MS','sans-serif';">fickle </span></em>commander at that:<o:p></o:p></span></p> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">The real bosses [under capitalism] are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or is cheaper, they desert their old purveyors.<sup>(5)</sup><o:p></o:p></span></p></blockquote> <p><span style="font-family: 'Trebuchet MS','sans-serif';">Now that we understand Mises' conception of the profit-and-loss system, and how it leads entrepreneurs in a capitalist economy to cater to the desires of the public, we can grasp his critique of socialism. In a socialist society, the State nationalizes all of the "means of production," including the capital goods and natural resources such as farmland and coal mines.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Because the State is the sole owner of the means of production, there can be no market prices for them. Yet this means there can be no monetary calculation, and consequently no way of determining whether the resources being used up in a particular operation could be better deployed elsewhere in the system.<o:p></o:p></span></p> <p><span style="font-family: 'Trebuchet MS','sans-serif';">For example, the socialist planners might order a group of comrades to take a certain amount of rubber, steel, electricity, and so forth, in order to produce 500 automobiles. After the fact, there is simply no way for the planners to know whether the output was "worth it." So long as the cars were suitably engineered, the planners would know that the subjects were better off with the cars than without them; in other words, the cars would be valuable. But the true question was whether the cars would be more valuable <em><span style="font-family: 'Trebuchet MS','sans-serif';">than other potential goods that could have been produced with the resources that were used up while making the cars.</span></em><o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Thus we see the fundamental problem with socialism. Before Mises, the debate over the "planned economy" had centered on incentives. To wit, in a system that followed the communist principle, "From each according to his ability, to each according to his needs," would the workers actually push themselves as hard as they do under capitalism? In other words, if the State took all the production and threw it into one giant pie, to be distributed in a way that didn't depend on each person's contribution, then wouldn't the overall pie shrink?<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Compelling though this objection may have been, the socialist theorists claimed that the greed and self-centeredness of the average man was due to his growing up in a capitalist system. Once socialism had swept the world, they claimed, a new "Socialist Man" would emerge who enjoyed producing for his strangers as much as for his own family.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">In this context, we see how powerful Mises' critique was. Mises concedes for the sake of argument that every worker and factory manager faithfully obeys the orders of the central planners. He also concedes for the sake of argument that the planners have all the relevant technical and practical knowledge in every single industry in the economy. Even so, because they lack market prices, the socialist planners have no means of feedback, no means of determining whether their grand plans are using resources efficiently. As Mises summarizes in his grand treatise <em><span style="font-family: 'Trebuchet MS','sans-serif';">Human Action</span></em>:<o:p></o:p></span></p> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">The paradox of "planning" is that it cannot plan, because of the absence of economic calculation. What is called a planned economy is no economy at all. It is just a system of groping about in the dark. There is no question of a rational choice of means for the best possible attainment of the ultimate ends sought. What is called conscious planning is precisely the elimination of conscious purposive action.<sup>(6)</sup><o:p></o:p></span></p></blockquote> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">More than any other school of economists, the Austrians recognize the social function of market prices and profit-and-loss calculations. Despite its flaws, the capitalist society—in which private individuals buy and sell the means of production in an open market—is the only one that can possibly yield an efficient use of scarce resources. Of course entrepreneurs in a market economy make mistakes all the time. But the crucial point is that their mistakes are registered as such by the suffering of losses. There is no such feedback in a socialist system of outright central planning, and thus no mechanism to bring the planners' decisions into alignment with the ever changing conditions of production and the tastes of the consumers.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p> </o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">_____________________________________<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><sup><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 10pt;">1</span></sup><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 10pt;">Ludwig von Mises, Bureaucracy, p. 53, available at: </span><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 12pt; margin-left: 0in; margin-right: 0in;"><u><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 10pt;">http://mises.org/etexts/mises/bureaucracy/section1.asp</span></u><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 10pt;">. Accessed June 4, 2010.<br /><sup>2</sup> Friedrich A. Hayek, "The Use of Knowledge in Society" (1945), <em><span style="font-family: 'Trebuchet MS','sans-serif';">American Economic Review</span></em>, XXXV, No. 4, pp. 519-530, available at: <u>http://www.econlib.org/library/Essays/hykKnw1.html</u>. Accessed June 4, 2010.<br /><sup>3</sup>Hayek, Foreword to Ludwig von Mises, Socialism (Indianapolis: Liberty Fund, 1981), pp. xix and xxi.<br /><sup>4</sup>Mises, <em><span style="font-family: 'Trebuchet MS','sans-serif';">Bureaucracy</span></em>, p. 226.<br /><sup>5</sup>Mises, <em><span style="font-family: 'Trebuchet MS','sans-serif';">Bureaucracy</span></em>, p. 227.<br /><sup>6</sup>Mises, <em><span style="font-family: 'Trebuchet MS','sans-serif';">Human Action </span></em>(Auburn, AL: The Ludwig von Mises Institute, 1998), p. 696.</span><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p> </o:p></span></p> <p style="text-align: justify; margin-bottom: 22.5pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 10pt;">L. Carlos Lara is President of United services and Trust Corporation, a Management Consulting Firm specializing in Business Consulting, Corporate Trust Services, Corporate and Private Seminars and Speaking Engagements. Visit him or contact him at <a href="http://app.expressemailmarketing.com/get.link?linkid=2312710&subscriberid=97897523&campaignid=609356&linkurl=http%3a%2f%2fusatrustonlne.com%2f"><b><span style="color: rgb(19, 34, 16);">www.usatrustonline.com</span></b>.</a><o:p></o:p></span></p> <span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 10pt;">Robert P. "Bob" Murphy runs his own consulting business and maintains an economics blog at <a href="http://app.expressemailmarketing.com/get.link?linkid=2312711&subscriberid=97897523&campaignid=609356&linkurl=http%3a%2f%2fwww.consultingbyrpm.com%2f">ConsultingByRPM.com</a>. He is the author of several economics books for the layperson, including The Politically Incorrect Guide to the Great Depression and the New Deal (Regnery, 2009). Murphy is an adjunct scholar with the Ludwig von Mises Institute.<br /><br /><br /><br /><br /></span>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-55792321964278386042010-08-17T09:44:00.001-07:002010-08-30T13:54:32.010-07:00No Business Starting a Business: Overcoming the Road Blocks to Starting IBC<!--[if IE]> <?XML:NAMESPACE PREFIX = GDOC /> <![endif]--> <div style="text-align: center;"><div style="text-align: left;">by M.Z. from Kansas.<br /></div><br /><div style="text-align: left;"> We really had no business starting a business! The following story is the reality of how my family had no business starting a business, the road blocks we faced in starting it, and how behind each road block was blessing after blessing that resulted in greater determination to continue in what we started. In reality this is the Zimmer family IBC (Infinite Banking Concept) story.<br /> Back in April 2004 my wife, Jeni, and I found ourselves on a road we didn't want to go down. In short, I had been laid off from my job and in August 2004 we transitioned back to Kansas City from Oklahoma City to make a fresh start. I had no jobs lined up and Jeni had nothing lined up either. As God ordained I was able to land a job in Kansas City in October 2004. You do the math - I had nothing for eleven weeks after arriving in KC while Jeni had the income of a school crossing guard supervisor. Those were challenging days! The next two years were spent in a rental duplex and then eventually a bigger duplex in the neighborhood that we really wanted to be in. We were able to buy that half duplex with no money down. Still, by July 2008 we found ourselves nearly $17K in credit card debt and getting no where with minimum payments. We needed a plan. But before we instituted any plan - we prayed.<br /> After prayer and hitting reality we first decided - no more credit cards and we thought of the quickest route to repayment. We settled on consultation with Consumer Credit Counseling Service (CCCS). They assessed our income and ability to pay back the debt to our creditors and we were quickly on the road to no credit card usage and doable monthly payments to CCCS (now Apprisen Financial Services). After this we knew it would be a long road to just be debt free of the credit card payments. CCCS told us it would be a little over four years. Not real encouraging, but we were on the right track. The very next month, September 2004, I would have THE MOST fortuitous, I believe most Divine, connection with another piece to our financial freedom puzzle.<br /> I'm sitting at KCI Airport around 6:45 AM headed to somewhere. I decided it was time to read my "devotional for busy dads" daily reading. As I get half way through a guy sits down next to me and he begins reading, what I perceived to be, his Bible. We struck up a conversation about the Bibles were reading and so forth. The conversation led to what our vocation was and where we were headed and why. A short 30 minutes later the world of Infinite Baking Concept had unfolded in my heart and mind and was I jazzed! You see, I hadn't met just any ordinary business man shucking a sweet pie-in-the-sky financial pitch. I met a man that I knew in my heart was a follower of Christ and I knew, yes I knew, he was speaking some financial truth into my life. Jeni and I had been praying for more to the financial freedom puzzle than simply debt elimination and after 30-40 minutes with Mr. Mike Everett of Alpha and Omega Financial Services, Inc. I was on my way to a different universe in terms of my families financial dreams!<br /> Yet, the questions and challenges seemed plentiful. As I watched the video that Mike gave me in the airport and as I did read the book (<i>Becoming Your Own Banker</i> by Nelson Nash) that he recommended I buy, I was wondering about IF my wife agreed to even listen to me about IBC and allow Mike to make his in-home presentation, could we do this IBC thing? Could we do it? Would we even have the funds to start such a venture? Would my wife, a daughter of a traditional bank board member, go for those "out of the box" idea? Could we sustain debt reduction and funding IBC simultaneously? why would my pastor say, "Don't do it?" And what about our growing kids and their needs and two cars that pretty much suck the financial life right out of a guy (and they did in the summer of 2009)?<br /> Well, Mike came into our home and about 15 minutes into his presentation light bulbs were flashing, truth was unfolding, doubts were being erased and when Mike excused himself Jeni and I were utterly convinced that God had indeed sent Mike into our lives to reveal financial truth to us. Now for the hard part. We had committed to this road, but the money, what about the money to start? Amazingly we did gather the necessary funds we needed to start my $10,000 annual policy, and with very little borrowing I would add. We found funds in places we didn't know we had money and in the following tax season only paid about $340 of taxes on the funds we had secured to start our IBC.<br /> Year one came and went with way too much money being spent on car repairs and things looked spooky going into our November annual premium payment. With the very little we paid into the premium and a conventional unsecured loan from our local bank, we paid year one! What a relief! We felt so excited to meet this goal and at this point be down to nearly $6K in credit card debt due to a second season of using our IBC funds to pay off debt. Then a day I'll never forget came into play that would affect our lives and our son's life for as long as we will live. On December 21, 2009 we found ourselves in Children's Mercy Hospital in Kansas City in a room with doctors around us explaining that our son indeed has Diabetes Type 1. What a shock to us. This was a huge road block in so many ways, but we are people of trust in our God. And so, after all bills have been processed and now we know what we need to pay, we again, continue with our focus of staying on the IBC path, knowing that not even diabetes is going to stop us from reaching our financial goals. In addition, God provided both my wife and I second jobs in the evenings (beginning May 2010) that pay very well so we can quickly pay off medical bills, and then with great hope, we desire to also use this money to fund IBC in year three beginning in November (which is also the dates we will have eliminated our entire $17,000 of credit card debt)!<br /> So, life in it's ups and downs, with ill children, broken down cars, parents who seem skeptical that their kids have gone on some crazy wild financial goose chase, and two people who don't make a lot of money, but put it to good use, has afforded us a hopeful financial future. We hope to pay for college tuitions and fees, additional cars, vacations, and house repairs through IBC. I know we have no business thinking like that right now, but because we started our IBC, one day we'll say we had no business starting a business, but we're so glad we did!<br /><br /><br /></div></div>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-29702114078703437892010-08-17T09:42:00.000-07:002010-08-17T09:43:12.025-07:00The Role of Social Institutions<div style="margin-bottom: 15pt;"> <p style="text-align: center;" class="MsoNormal" align="center"><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 24pt;">The Role of Social Institutions<br /></span><span style="font-family: 'Trebuchet MS','sans-serif';">(Excerpt from book: How <em><span style="font-family: 'Trebuchet MS','sans-serif';">Privatized</span></em> Banking Really Works)<o:p></o:p></span></p></div> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><em><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 9pt;">To understand our civilization, one must appreciate that the extended order resulted not from human design or intention but spontaneously: it arose from unintentionally conforming to certain traditional and largely moral practices...</span></em><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 9pt;"><o:p></o:p><br /></span></p><p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 9pt;">—Friedrich Hayek<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"><blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> </blockquote></blockquote></blockquote></blockquote></blockquote></blockquote></blockquote></blockquote> <p style="margin-bottom: 12pt;" class="MsoNormal"><span style="font-family: 'Trebuchet MS','sans-serif';">Social <i>institutions</i> are relationships and behavioral practices that allow humans to better cope with the problems of life in this world. At the most general level, institutions can include staples of society such as the family and the moral code, but institutions can also include fairly trivial examples such as the practice of tipping or giving gifts on birthdays.</span><!--[if gte vml 1]><v:shapetype id="_x0000_t75" coordsize="21600,21600" spt="75" preferrelative="t" path="m@4@5l@4@11@9@11@9@5xe" filled="f" stroked="f"> <v:stroke joinstyle="miter"> <v:formulas> <v:f eqn="if lineDrawn pixelLineWidth 0"> <v:f eqn="sum @0 1 0"> <v:f eqn="sum 0 0 @1"> <v:f eqn="prod @2 1 2"> <v:f eqn="prod @3 21600 pixelWidth"> <v:f eqn="prod @3 21600 pixelHeight"> <v:f eqn="sum @0 0 1"> <v:f eqn="prod @6 1 2"> <v:f eqn="prod @7 21600 pixelWidth"> <v:f eqn="sum @8 21600 0"> <v:f eqn="prod @7 21600 pixelHeight"> <v:f eqn="sum @10 21600 0"> </v:formulas> <v:path extrusionok="f" gradientshapeok="t" connecttype="rect"> <o:lock ext="edit" aspectratio="t"> </v:shapetype><v:shape id="_x0000_s1026" type="#_x0000_t75" alt="" href="http://app.expressemailmarketing.com/get.link?linkid=2191930&subscriberid=97897523&campaignid=581549&linkurl=http%3a%2f%2fusatrustonline.com%2f" style="'position:absolute;margin-left:233.8pt;margin-top:0;width:285pt;" allowoverlap="f" button="t"> <v:imagedata src="http://app.expressemailmarketing.com/images/gallery/54258/NOC-for-GodaddyA.jpg"> <w:wrap type="square"> </v:shape><![endif]--><!--[endif]--><span style="font-family: 'Trebuchet MS','sans-serif';"></span><span style="font-family: 'Trebuchet MS','sans-serif';"><br /></span></p><p style="margin-bottom: 12pt;" class="MsoNormal"><br /><span style="font-family: 'Trebuchet MS','sans-serif';"><a href="http://app.expressemailmarketing.com/get.link?linkid=2191931&subscriberid=97897523&campaignid=581549&linkurl=http%3a%2f%2fusatrustonline.com%2f"></a><o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 12pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Institutions provide a framework of continuity and predictability that allows people to more accurately plan their activities. In particular, institutions help us interact with each other by imposing a sense of stability and order onto the initially chaotic jumble of life. We all understand that parents and teachers need to provide a "routine" for young children, but ironically we adults need routines ourselves for modern civilization to be possible. We go through our routines of going to work, buying items from the store, going home to live with our family members (or roommates), and of course we directly communicate with each other with the institution of language—complete with its rules of grammar and definitions that everyone in the community shares.<br /><br /></span><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 13.5pt;">The Fatal Conceit</span><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p></o:p></span></p> <p><span style="font-family: 'Trebuchet MS','sans-serif';">One of the scourges of the 20th century was the arrogant belief by many intellectuals that they could overturn the inherited social order and remake society from scratch. In their view, if the existing customs and social practices couldn't be justified on a purely "rationalist" basis, then they were obviously obsolete and should be jettisoned in favor of new, "scientific" principles.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">We have put these terms in quotation marks because in reality, it was incredibly <i>irrational</i> to try to revamp society from scratch, and it was very <i>unscientific</i> to try to substitute the time-tested traditions with new practices dreamed up by idealistic revolutionaries. Friedrich Hayek, one of the most celebrated Austrian economists and winner of the 1974 Nobel Prize, termed this hubris the fatal conceit. In his book <i>The Fatal Conceit: The Errors of Socialism</i>, Hayek writes:<br /><br />[The socialists] assume that, since people had been able to generate some system of rules [in society] coordinating their efforts, they must also be able to design an even better and more gratifying system. But if humankind owes its very existence to one particular rule-guided form of conduct of proven effectiveness, it simply does not have the option of choosing another merely for the sake of the apparent pleasantness of its immediately visible effects. The dispute between the market order and socialism is no less than a matter of survival. To follow socialist morality would destroy much of present humankind and impoverish much of the rest.<br /><br />The tragic mistake of the socialist reformers of the 20th century was in thinking that they could retain the bounty of free-market capitalism, while correcting its alleged faults such as inequalities in wealth or periods of high unemployment. But by overturning the traditional rules of property rights, the socialists did not create a utopia. Instead they unwittingly paved the way for the most murderous regimes in human history, whether on the "left" (Stalinist Russia and Maoist China) or the "right" (Hitler's Germany, where the Nazi Party was the National <i>Socialist</i> Party).<br /><br /></span><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 13.5pt;">The Results of Human Action, But Not of Human Design</span><span style="font-family: 'Trebuchet MS','sans-serif';"><br /><br />One of Hayek' major insights was that the fatal conceit of the socialist intellectuals led them to believe that simply because a social institution was <i>created</i> by humans, that it was therefore designed by them and could, in principle, be <i>redesigned</i> as a new and improved institution. Especially before witnessing the horrors of totalitarianism, many "good men" believed that a better world could be created if only the smartest, most humane men put their heads together and crafted a better plan for society. Instead of the anarchic market system, in which goods and services were produced on the basis of profit, the socialists wanted the State to organize all production in the service of <i>people.</i> It was simply the reincarnation of Plato's vision of rule by the philosopher kings.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Besides their naïve trust in those who would seize power in a socialist State, the intellectuals committed a basic mistake in their analysis. As Hayek repeatedly argued, these intellectuals overlooked the capacity of social institutions to tap the <i>dispersed knowledge</i> of the entire community. So rather than relying on a few of the "smartest guys in the room" to design a new society from the top-down, the inherited social institutions effectively solicited input from <i>everyone,</i> both brilliant and dull. The combined knowledge and experience of the entire community was always better than that of any small sample of individuals, even if those individuals were the best and the brightest.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">It was understandable that the socialist reformers overlooked this key insight; it took a scholar of Hayek's brilliance to flesh out the point during his long career. Hayek devoted articles and books to the study of <i>spontaneous orders</i>, referring to self-organizing systems that exhibited predictable patterns, even though nobody deliberately set about to <i>create</i> such an orderly pattern. Borrowing a phrase from the Scottish moral philosopher Adam Ferguson, Hayek said that in a social context, spontaneous orders were "the product of human action, but not of human design."<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">What did Hayek mean by this odd phrase? He was underscoring the crucial fact that some of our most important institutions—including spoken language, our rules of morality, and the market economy itself—are obviously not "natural" creations, but instead are clearly the result of human beings. On the other hand, we can't scour the history books to find out which wise king, or group of scholars, <i>invented</i> the English language, or rules of morality, or the operation of the capitalist system. The earliest economists saw the hand of God behind these orderly outcomes, but both theist and skeptical writers understood that human beings on their own did not design such institutions.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Before tackling the more complex spontaneous order of the modern market economy, let's start with a simple example: a path through a forest. When a newcomer begins a hike in the forest, he will likely take the path of least resistance, meaning he will follow the well-worn trail that others have already created. Now this path or trail is clearly the result of human action; the branches were not removed by beavers, and the foliage on the ground was not eaten away by cows. Even so, we don't need to assume that the first human to stumble into the virgin woods, deliberately set out to create a path to serve subsequent travelers.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">On the contrary, it's almost certainly the case that the first person to wander into the forest picked his way through it, looking for the most advantageous route. He obviously would walk around large trees, would avoid prickly bushes, and wouldn't walk into a deep river. But what the pioneer would be doing, quite unwittingly, was make it easier for the <i>next</i> person to follow in his footsteps. Perhaps he would carry a machete and hack away the branches as he stumbled along this maiden voyage; this would make it much easier for the next person to take the same route.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Gradually, over the decades, and especially if hundreds of people had to walk through this particular forest, a "good" route would be discovered. Its excellence would be enhanced every time another person walked along it, for each such passage would stamp down any weeds attempting to grow in the dirt trail, and would snap any small branches that had ventured into the corridor.<br />This hypothetical path through the forest would thus clearly be the result of human action, and yet not of human design. All of the hikers <i>collectively</i> contributed to its creation, over the course of decades, even though each individual hiker was acting in his own interest and in fact probably had no idea he was assisting all subsequent hikers.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Now it's true, the path might not be "optimal" from the viewpoint of a park ranger who conducts a helicopter survey of the entire forest. The ranger might lament the fact that the path goes a certain way, rather than another. Even so, <i>taking the world as it is</i>, the ranger realizes that it would be too confusing to try to "fix" the path. It would take a lot of manpower (with machetes and axes) to clear the "better" path, and then the ranger would have to set up fences or other obstacles to induce people to stop using the original, convenient path.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family: 'Trebuchet MS','sans-serif';">Our simple example of a path through a forest is a good metaphor for the Austrians' insights on the institutions of a market economy. We will outline some of the most important ones in the following chapters. But it is important to keep in mind that even though we will discuss the role or "function" of each institution, and how it helps humans deal with the economic problem of scarcity, that even so these institutions were not consciously invented by any human being.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family: 'Trebuchet MS','sans-serif';"><o:p></o:p></span><strong><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 9pt;">By Robert P. Murphy, Ph.D.</span></strong><span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 9pt;"> | Monday, June 21, 2010</span></p> <span style="font-family: 'Trebuchet MS','sans-serif'; font-size: 9pt;">Notes: <br />(1) Friedrich A. Hayek (ed. W.W. Bartley III), <em><span style="font-family: 'Trebuchet MS','sans-serif';">The fatal Conceit: The Errors of Socialism</span></em> (Chicago: The University of Chicago Press, 1988) p. 6.<br />(2) Hayek, <em><span style="font-family: 'Trebuchet MS','sans-serif';">The Fatal Conceit</span></em>, P. 7.</span>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-59046361424524199622010-08-17T09:39:00.001-07:002010-08-17T09:41:19.605-07:00Money<div style="margin: 15pt;"> <div style="margin-bottom: 15pt;"> <p style="text-align: center;" class="MsoNormal" align="center"><span style=";font-family:'Trebuchet MS','sans-serif';font-size:24pt;" >Money<br /></span><span style="font-family:'Trebuchet MS','sans-serif';">(Excerpt from new book: How <em><span style="font-family:'Trebuchet MS','sans-serif';">Privatized</span></em> Banking Really Works)</span></p></div> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p><em><span style="font-family:'Trebuchet MS','sans-serif';">"Money is such a routine part of everyday living that its existence and acceptance ordinarily are taken for granted. A user may sense that money must come into being either automatically as a result of economic activity or as an outgrowth of some government operation. But just how this happens all too often remains a mystery."</span></em><span style="font-family:'Trebuchet MS','sans-serif';"><o:p></o:p></span></p></blockquote> <p style="text-align: right;" class="MsoNormal" align="right"><span style="font-family:'Trebuchet MS','sans-serif';">—Federal Reserve Bank of Chicago<sup>1</sup><o:p></o:p> <o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';"><br /></span></p><p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">It is an error to think that everybody in society truly understands money, how it originates, how it functions, or even the concept that it is simply a medium of exchange. When we take the time to seriously consider the subject of money and ask ourselves the same kind of questions the young child asked in the opening chapter of this book, we come full circle to realize that money is the common denominator of virtually everything on this planet. Virtually everything is expressed within the terms of this one system. Most, if not all, of our relationships with other entities and other humans involve money. Even time is expressed in terms of money. If the goal of this text is to help bring clarity to all of the hidden aspects of the money problem, then we must start with the more basic facts about money and move along a deliberate line of thought that eventually addresses our concern. The idea is to make sure we inform everyone, because everyone's full understanding is important to our cause.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 12pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">A good place to begin our basic study of money is by physically examining it. It is true that in our current times money in one sense has become invisible. Often moving electronically at the speed of light it does not even posses a physical body. Typically it is most often seen as numbers on a ledger on some account balance, your account or theirs. Nevertheless, all forms of our current money must convert back to our paper currency and coins. An economist would refer to our money as <i>fiat</i> money, electronic or otherwise. Our first query will be, "Why fiat money?" <br /><br /><o:p></o:p></span></p> <p style="text-align: center;" class="MsoNormal" align="center"><span style="font-family:'Trebuchet MS','sans-serif';"><img id="_x0000_i1026" src="http://app.expressemailmarketing.com/images/gallery/54258/fedreservenote.jpg" nosend="1" border="0" height="293" width="504" /><o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 12pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';"><o:p> </o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">First of all, the word <i>fiat</i> is defined as a <i>"declaration by supreme law or a formal authorization, a command." </i> By fiat, the supreme law of this land has declared this paper note to be <i>legal tender for all debts public and private</i>. Study the small print at the top left hand corner of this familiar piece of green paper. Simply put, this is officially our medium of exchange, the only money we can use—<i>period</i>! We may use a check, online banking or even credit cards to pay for things, but ultimately all payment transactions are denominated in reference to these paper dollars. To clarify further, if a creditor owes you money and you refuse to accept this currency in payment, that creditor's debt to you, by law, is simply canceled.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">Notice also at the very top of our dollar bill the wording <i>Federal Reserve Note</i>. Again, very simply, the note indicates clearly that it was made and distributed by the Federal Reserve, our country's central bank. Obviously, we know that this is printed money because it is paper and ink. We also determine by observation that it certainly appears official. It is elaborately adorned with authoritative images that express the full faith and strength of the U.S. government. However, we shall soon see that there is nothing <i>federal</i> about it and there is no reserve.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">Now compare the first dollar bill with the one below.<o:p></o:p></span></p> <p style="text-align: center;" class="MsoNormal" align="center"><span style="font-family:'Trebuchet MS','sans-serif';"><img id="_x0000_i1027" src="http://app.expressemailmarketing.com/images/gallery/54258/silvercertificate.jpg" nosend="1" border="0" height="259" width="514" /><o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';"><o:p> </o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">This dollar, which circulated in 1957, looks exactly like the dollar on the previous page except for this one very important distinction. At the very top we see that this dollar has written across it <i>SILVER CERTIFICATE.</i> We also read the following: <i>"This certifies that there is on deposit with the Treasury of the United States of America, one silver dollar, <u>payable to the bearer on demand</u>."</i><o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">That is quite a distinction. In case the reader isn't sure, let us be crystal clear: <i>There is nothing backing our current currency.</i> By that we mean that its precious metal convertibility has been removed, gradually at first, but over time permanently. This process actually began when President Franklin D. Roosevelt, in one of his first acts in office, declared as illegal the use of gold as money in 1933. It was pronounced a crime for any citizen to continue using gold as money, a law that was strictly enforced by a stiff fine, even imprisonment. Furthermore, President Roosevelt demanded that all gold be turned over to the government, to be stored and locked in a vault under armed military protection. The gold vault is known as Fort Knox and is located in the state of Kentucky.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">Our coins were at one time made of 97% pure silver. Today they are merely tokens made of cheap metal. When we say that our money has lost 95% of it value since the early 1900s, we are speaking of its loss of purchasing power, but also of the fact that it has been un-linked from precious metals—<i>real money.</i><o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">One other significant point needs mentioning. The U.S. once owned a large share of all the gold in the world, but today the amount actually in U.S. possession is unknown. No outside agency has been allowed inside Fort Knox in many decades to audit the gold bullion held there. Obviously none of this is good news. Understanding how and why we have wound up in this situation is of supreme importance to us today. We will learn more specifics later, but for now these facts should not be forgotten.<br /><br /><strong><span style="font-family:'Trebuchet MS','sans-serif';">A Brief Tour of America's Early Monetary History</span></strong><br /><br />There were two large-scale experiments with fiat money in our country's early history. Both times illustrated the danger of giving politicians control of the printing press. The first episode occurred during our country's infancy. During the War of Independence, the desperate Continental Congress began paying its debts in fiat money called <i>Continentals</i>. At one point, General Washington complained to Congress that it took a wheelbarrow of Continentals in order to buy bread for his starving soldiers. People would not readily accept Continentals as money, simply because they knew it was not real money. (The reader may have heard the phrase "not worth a Continental.") They knew it was paper fiat money whose convertibility to a precious metal was questionable.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">Indeed this early disaster with fiat money greatly influenced the Founding Fathers. G. Edward Griffin describes some of the commentary at the Constitutional Convention:<o:p></o:p></span></p><span style=";font-family:'Trebuchet MS','sans-serif';font-size:12pt;" ><br /></span> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">Oliver Ellsworth from Connecticut, who later was to become our third Chief Justice of the Supreme Court, said, "This is a favorable moment to shut and bar the door against paper money. The mischief of the various experiments which have been made are now fresh in the public mind and have excited the disgust of all the respectable parts of America."<o:p></o:p></span></p></div> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">George Mason from Virginia told the delegates he had a "mortal hatred to paper money." Previously he had written to George Washington: "They may pass a law to issue paper money, but twenty laws will not make the people receive it. Paper money is founded upon fraud and knavery."<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">James Wilson of Pennsylvania said: "It will have the most salutary influence on the credit of the United States to remove the possibility of paper money."<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">John Langdon from New Hampshire warned that he would rather reject the whole plan of federation than to grant the new government the right to issue fiat money.<o:p></o:p></span></p></blockquote> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">George Reed from Delaware declared that a provision in the Constitution granting the new government the right to issue fiat money "would be as alarming as the mark of the beast in Revelation.<sup>2</sup><o:p></o:p></span></p></blockquote> <p style="text-align: justify; margin-bottom: 12pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';"><br />Needless to say, the original signers of the Constitution did <i>not</i> think they were creating a federal government that had the right to give green pieces of paper the force of legal tender. The clause granting Congress the power to "coin money" and "regulate the value thereof" has been as heroically strained (in order to justify the government's debasement of the dollar) as the other modern misinterpretations of the obvious intentions of the signatories. Griffin explains:<o:p></o:p></span></p> <div style="margin-left: 30pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">In view of the fact that gold and silver coin was specifically defined as the only kind of money to be allowed, there can be no doubt of what was meant...To coin money meant to mint precious-metal coins. Period.<o:p></o:p></span></p></div> <div style="margin-left: 30pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">The second half [of the clause] is equally clear. Both in the Constitution and in the discussions among the delegates, the power to regulate the value of gold and silver coin was closely tied to the power to determine weights and measures. They are, in fact, one and the same. To regulate the value of coin is exactly the same as to set the nationally accepted value of a mile or a pound or a quart. It is to create a standard against which a thing may be measured....<o:p></o:p></span></p></div> <div style="margin-left: 30pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">The intent, therefore, was simply for Congress to determine the exact weight of a precious metal that would constitute the national monetary unit.<sup>3</sup><o:p></o:p></span></p></div> <p style="text-align: center;" class="MsoNormal" align="center"><span style="font-family:'Trebuchet MS','sans-serif';"><o:p> </o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">To drive home the point that the Founders did not think the new Constitution gave the federal government the power to issue fiat money, consider the following thoughts that George Washington wrote in 1789:<o:p></o:p></span></p> <div style="margin-left: 30pt;"> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">We may one day become a great commercial and flourishing nation. But if in the pursuit of the means we should unfortunately stumble again on unfunded paper money or any similar species of fraud, we shall assuredly give a fatal stab to our national credit in its infancy.<sup>4</sup><o:p></o:p></span></p></div> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">During Washington's first term as president, his Secretary of the Treasury Alexander Hamilton proposed the creation of a central bank (the First Bank of the United States). This raised the fierce ire of Secretary of State Thomas Jefferson, who declared: "A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army." We see that the Founding Fathers, were they to view present-day America, would be shocked on <i>many</i> levels.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">Despite the awful experience with Continentals during the War for Independence, both sides in the Civil War (or what is also known as the War Between the States) succumbed to the temptation to rely on unbacked fiat money to pay their expenses. The price inflation in the Confederate states was appalling, and even in the North the public became disillusioned with the rapidly deteriorating "Greenbacks" until they were once again linked to precious metals after the war.<br />Anytime sound money, as in gold, circulates alongside paper money not backed by a precious metal, the people tend to hoard the sound money and spend the bad money. This phenomenon was first discovered in the 1500s and is known as Gresham's Law: <i>"Bad money drives out good under legal tender laws." </i>When the government forces merchants and creditors to accept debased money as if it were equivalent to the genuine article, everyone trades away the inferior version. No one wants the paper money. No one saves the paper money. The people will hoard the good money each and every time. This partly explains FDR's confiscation of citizens' holdings of gold in 1933.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 12pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">Once again, our nation is using a paper money not redeemable in precious metals. Federal Reserve Notes now circulate in our economy totally free from its main competitors, gold and silver. It is officially legal tender and it is the only money we can use. Even more noteworthy, today all countries in the world use fiat money. Here and abroad we are completely off the gold standard. Universally it is all nothing more than paper and ink.<br /><br /><b>The Bretton Woods Agreement 1944</b><o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">After World War II, the United States emerged as a world superpower. Using this powerful influence the U.S. formulated and drove into acceptance a new global monetary system at the conference in Bretton Woods, New Hampshire in 1944. In contrast to the classical gold standard, in which every nation's currency was convertible by anyone into a specified weight of gold, the new system enshrined the <i>U.S. dollar</i> as the anchor upon which all other fiat currencies were based. Rather than stockpiling bars of gold in their vaults as reserves, foreign central banks were encouraged to use U.S. dollars as their "reserves."<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">Under the Bretton Woods agreement, the U.S. dollar itself was still backed up by gold, at the official exchange rate of $35 an ounce, thus providing a firm foundation to the entire system. However, unlike the practice during the classical gold standard, in the new arrangement only <i>central banks</i> had the right to turn in their paper dollars for gold bullion. American citizens would never again regain the ability—stripped from them by FDR—to turn their dollars in for gold. Thus one of the most potent checks on inflation had been removed.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">As stated earlier, the United States had a huge stock of gold reserves after World War II and began pursuing a highly inflationary course much to the dismay of foreign countries. As the dollar weakened because of these monetary activities, gold started flowing out of the country in large amounts as foreign governments cashed in their dollars for gold. It reached a crisis point by 1968, and in 1971 President Richard Nixon took our dollar totally off gold and declared the Bretton Woods agreement null and void. At this point, the U.S. dollar—and by extension, the currencies of other world powers—was an asset unto itself, having no link to the precious metals. At this point, the only restraint on the printing of new paper dollars was the discretion of Federal Reserve officials. There were no formal checks left on their appetite for inflation.<o:p></o:p></span></p> <p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><span style="font-family:'Trebuchet MS','sans-serif';">Many people expected that the entire international monetary system would collapse after the breakup of Bretton Woods. Surprisingly it didn't. Some historians speculate that U.S. military might and fears of an outbreak of World War III kept other governments in check, continuing to use the U.S. dollar as the world's reserve currency even though they never would have agreed to the arrangement originally without the dollar's backing by gold. In any event, the U.S. experience of "stagflation" during the 1970s showed that the tie to gold—weak though it was under Bretton Woods—had restrained inflation. After Nixon removed the last shackles, the U.S. suffered from an orgy of dollar printing.<br /></span></p><p style="text-align: justify; margin-bottom: 15pt; margin-left: 0in; margin-right: 0in;"><br /><span style="font-family:'Trebuchet MS','sans-serif';"><o:p></o:p></span></p> <p style="text-align: center;" class="MsoNormal" align="center"><strong><span style=";font-family:'Trebuchet MS','sans-serif';font-size:9pt;" >L. Carlos Lara</span></strong><span style=";font-family:'Trebuchet MS','sans-serif';font-size:9pt;" > | Tuesday, July 6th, 2010 </span><span style="font-family:'Trebuchet MS','sans-serif';"><o:p><br /></o:p></span></p> <p style="text-align: justify; margin-bottom: 22.5pt; margin-left: 0in; margin-right: 0in;"><span style=";font-family:'Trebuchet MS','sans-serif';font-size:10pt;" >L. Carlos Lara is President of United services and Trust Corporation, a Management Consulting Firm specializing in Business Consulting, Corporate Trust Services, Corporate and Private Seminars and Speaking Engagements. Visit him or contact him at <a href="http://app.expressemailmarketing.com/get.link?linkid=2222209&subscriberid=97897523&campaignid=588302&linkurl=http%3a%2f%2fwww.usatrustonline.com"><b><span style="color: rgb(19, 34, 16);">www.usatrustonline.com</span></b></a>.<o:p></o:p></span></p> <u><span style=";font-family:'Trebuchet MS','sans-serif';font-size:9pt;" >Notes: </span></u><span style=";font-family:'Trebuchet MS','sans-serif';font-size:9pt;" ><br />(1) Federal Reserve Bank of Chicago, Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion (1994), p. 1. Available at: http://www.rayservers.com/images/ModernMoneyMechanics.pdf. Accessed June 3, 2010.<br />(2) G. Edward Griffin, The Creature From Jekyll Island (Westlake Village, CA: American Media, 2002), p. 315.<br />(3) G. Edward Griffin, The Creature From Jekyll Island, pp. 317-318.<br />(4) Quoted in Griffin, p. 323.</span>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-46715316977957273182010-05-25T12:11:00.000-07:002010-05-25T12:13:31.426-07:00Scarcity Not Abundanceby L. Carlos Lara | Thursday, April 29, 2010 <br /><br /><br /><span style="font-style: italic;">(This Article is a modified excerpt from Chapter 2 of How Privatized Banking Really Works by L. Carlos Lara and Robert P. Murphy, PhD. Click this link to download Introduction)</span><br /><br />Mankind lives in a world of scarcity not abundance. Resources, in all places and in all times, are scarce. This is a fact of human existence here on planet earth. It is the primary reason why we must all learn to be frugal and economize. In essence we must save -- put something back from what we have produced to contend with the uncertainty of the future.<br /><br />Scarcity, however, can be a confusing concept for people to understand in this day and time, especially here in the United States. After all, look around—do we not see abundance everywhere? This obvious fact is pointed out to us on any given day by simply walking through any local supermarket. Everywhere we look, the shelves in any aisle are filled to the brim with food products of every type and description. There are also fruits and vegetables piled high on all the counters and shopping bins. Meats, dairy products, breads, the list goes on and on. Abundance everywhere!<br /><br /><br />The same is true in shopping malls. There are retail shops and department stores filled with apparel, footwear and all types of accessories for men, women and children. Hundreds, sometimes thousands, of different designers and manufacturers have produced these goods. Most of them are manufactured in different parts of the world and imported here especially for our consumption.<br /><br />We also see cars everywhere; in parking lots and on the roads. When we travel in our own cars, going in any direction, we can drive by apartment houses, condos and manicured neighborhoods with beautiful homes. The high rises, office buildings and even skyscrapers make clear what we see. It is not scarcity, but rather the opposite...abundance!<br /><br />What we are seeing, however, is the perception of abundance—an illusion of a sort. Yes, the items are there and do exist, but we must go behind these products to see the undeniable economic principle of scarcity of which we speak; for if we were to stop producing for any length of time, all of this abundance would quickly disappear. What we find behind all of these products, and the services associated with them, is the production that goes into making them and replacing them when they are consumed. Under closer inspection we discover what ancient thinkers and economists have always pointed out---that human wants are endless and man sets out to acquire his wants, yet the means for acquiring them are themselves scarce.<br /><br /><br /><div style="text-align: center;"><span style="font-style: italic;">"All human life must take place in time. A man's time is always scarce. He is not immortal; his time on earth is limited. Each day of his life has only twenty-four hours in which he can attain his ends. Time is a means...all means are scarce" (1.) <br />- Murray N. Rothbard</span><br /></div><br /><br /><span style="font-weight: bold;font-size:130%;" >The Means of Production</span><br /><br />The means of production are land, labor and capital. Land, if nothing more than a place to stand, is scarce. The resources in the land, from the top soil used to grow food products to the oil or gold we can extract from it, are also scarce. We do not need to be environmentalists to recognize this fact. But, surprisingly, so is labor. The scarcity of labor can be even more difficult to fathom than consumer goods, especially in an economic environment where so many seem to be out of work and we are being bombarded with unemployment statistics everyday.<br /><br />To see that labor is scarce we need to look behind the statistics and study ourselves as individuals. What we find is that we all have a great many more things that need doing or those we want to get done, but we have neither the time, energy, nor initiative to do them. Some of these tasks obviously require materials, but all of them require labor. If one merely extrapolates this fact in one's mind to extend beyond his own small world of activities, to the activities of his city, his state, his nation, his world, one quickly begins to see that the potential demand for labor is indeed endless. In the end, this is precisely why labor is scarce. Unemployment is actually voluntary!<br /><br />Finally, there is no great argument needed to realize that capital is scarce. This is especially true if we are thinking of capital in terms of money and credit. But actually, capital is the equipment or tools we use in production. Capital goods are what allow us to produce even more consumer goods and the primary requirement for obtaining capital is savings. When we restrict our consumption, we save. When we transfer our labor and our land to the formation of capital goods, we are investing in production for the future. Savings, therefore, is an essential part of a thriving economy, even if it is the economy of one person.<br /><br /><div style="text-align: center;"> <span style="font-style: italic;">"In order to illuminate clearly the nature of capital formation and the position of capital in production, let us start with the hypothetical example of Robinson Crusoe stranded on a desert island. Robinson, on landing, we assume finds himself without the aid of capital goods of any kind. All that is available is his own labor and the elements of production given him by nature" (2.)</span><br /><span style="font-style: italic;">- Murray N. Rothbard</span><br /></div><br /><span style="font-size:130%;"><span style="font-weight: bold;">Private Property</span></span><br /><br />"Property is a necessary consequence of the nature of man" (3.) wrote the French economist Frederic Bastiat, in the middle of the 19th century. This is like saying that ownership of ourselves and our faculties is primal, but then so are all of the scarce natural resources we find all around us.<br /><br />Economist Murray Rothbard, in his great thesis Man, Economy and State, makes clear that "...the origin of all property is ultimately traceable to the appropriation of an unused nature-given factor by a man and his 'mixing' his labor with this natural factor to produce a capital good or a consumers' good. For when we trace back through gifts and through exchanges, we must reach a man and an unowned natural resource. In a free society, any piece of nature that has never been used is unowned and is subject to a man's ownership through his first use or mixing of his labor with this resource." (4.)<br /><br />Furthermore, deductive reasoning tells us that without ownership of our own private property we would not be able to exercise the frugal use of scarce resources to achieve as many ends as possible. Even the ability to exchange our property in a market place would be impossible, for we must first own it outright. Ultimately, without property ownership there would be no such thing as a market or even an economy. Therefore, if we are to have an economy at all, ownership or control over property by the individual is imperative.<br /><br />These very important economic principles are classical and carefully reasoned deductions made by great thinkers of the past as they observed man and the world about him. There is, however, a growing assault on these established premises and especially on property, not only in this country, but throughout the world. This intrusion began in the 19th century and has continued to increase during our time. The idea of communal ownership as promoted under social reforms threatens our most fundamental human rights of private property and is putting our civilization in great danger. The need to turn back to these traditional standards is greater now than it has ever been in the history of the world. But how does one do this? This, and other questions like this, can best be answered by the study of Austrian Economics. Not only is the Austrian school of economic thought able to explain the why and how we have gotten to this point, it shows us a way out. By studying Austrian economics we can end our frustration and cease our scattered ranting and raving. Instead, we can be exact and precise with regards to the problems and their solutions. And, when there are enough of us thinking like this, we can actually get something done before it is too late!<br /><br />L. Carlos Lara manages a consulting firm specializing in trust services, business consulting, and debtor-creditor relations. The firm's primary service is working with companies in financial crisis. Lara is the co-author of How Privatized Banking really Works.<br /><br /><br /><span style="font-weight: bold;font-size:130%;" >Message of Hope</span><br /><br />Each one of us must do our part, yet it all seems too big to fix. Here we must remind ourselves the starting point for change is in our individual education. A great place to begin this education is at our annual "Night of Clarity" event coming up this July 16th & 17th in Nashville, Tennessee. Here, all of your unanswerable economic questions can be answered. You will not want to miss this exciting event with nationally known speakers and Austrian economists. This event is open to the general public and student discounts are available. Go to this link to obtain event details and registration information. Hope to see you this summer!<br /><br /><br /><br /><br />Notes<br />_______________________________________________________________<br /><br />1. Murray N. Rothbard, Man, Economy and State, pages 3 and 4, Published by Ludwig Von Mises Institute 518 West magnolia Avenue, Auburn, Alabama, 36832, www.mises.org<br />2. Murray N. Rothbard, Man, Economy and State, pages 40 and 41<br />3. Frederic Bastiat, The Law, published by Foundation for Economic Education, Irvington, New York, 10533, www.fee.org<br />4. Murray N. Rothbard, Man, Economy and State, pages 147Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-12182797196043842262010-04-14T13:45:00.000-07:002010-04-14T13:48:38.460-07:00Economic ThinkingIn-Depth by: L. Carlos Lara | Wednesday, April 14, 2010 <br /><br /><br />This Article is excerpted from Chapter 2 of How Privatized Banking Really Works by L. Carlos Lara and Robert P. Murphy, PhD<br /><br />The most important fact behind the "new idea" unveiled in the previous chapter is that our efforts to help ourselves, our families, our businesses, and ultimately our country, rests entirely on our ability to see the nature of our problem with complete clarity. Without this understanding as a primary step, it is impossible to take the needed actions toward correcting the problem. Therefore, the problem must be fully exposed and made comprehensible to as many people as possible, and as quickly as possible.<br /><br />So let us begin to decipher this mystery and point to some obvious observations. First of all, we must make a rather bold statement which we will set out to prove in the chapters ahead. What we are dealing with is a deeply hidden and cleverly designed scheme crafted by the few in political power, past and present, to systematically defraud the nation of its wealth. It is a direct assault on private property. This is our bottom line. It is the crux of the matter. Absolute power always resides with those who control the money. Over the course of history great families, kingdoms, and institutions have struggled with one another to gain this control. Today, in virtually every major country across our globe, governments lay claim to this centralized this power.<br /><br />In our own American experience, our federal government has an exclusive and absolute monopoly on our money. Once it was made possible to tap directly into our pocket books with the passing of the 16th Amendment (the Federal Income Tax Law) in 1913 and the establishment of a Central Bank (The Federal Reserve System) in the very same year, the challenges of making a living and accumulating wealth changed forever for all citizens of the United States. The search to find a way of escape from this bondage has become the hard struggle of every individual citizen since then.<br /><br />Over the past several decades, the results of these two significant laws have led to widespread economic frustration and confusion to society. The need for financial assistance to create strategies for the protection of one's wealth, or just to be able to process the endless forms and filings which are mandated by government, has grown exponentially. Today there are approximately 746,000 licensed financial representatives in this country representing over 7,000 banks, nearly 1,000 brokerage firms, and 2,300 insurance companies. The numbers of public accountants and lawyers are legion. Yet with all the benefits of professional assistance in navigating through a maze of tax laws, the fine print of financial products, and investment prospectuses, the individual person, more than ever before, feels betrayed and vulnerable. Dreams of financial security and prosperity evade U.S. citizens at every turn. The tax and debt burden has become unbearable. Eventually all this takes its toll and causes the individual to lose hope and forces him to succumb to even more dependency and subservience to government.<br /><br />Clearly, advice offered by many in the financial services industry is not providing the help that is most needed because it merely scratches the surface of the real problem. A person's undisciplined money management or lack of time to expertly research every aspect of money decisions may be the culprit in many cases. However, the real problem stems from a completely different source.--It is Government Intervention and, especially, Current Monetary Policy, which is at the core of this money problem. Every individual, especially the financial advisor, has the responsibility to know specifically why and how the 1913 tax and banking laws are systematically stripping away the value of our dollar, creating boom and bust business cycles, and keeping the individual citizen in bondage.<br /><br />Only by being armed with this truth is the individual able to properly assess the root of the evil and not fall prey to misinformation touted by leading financial experts, media financial personalities and especially our leaders in Washington. It is in knowing exactly how they do it that solves the riddle. Without this proper knowledge the individual is left with perpetual confusion. <br /><br />Obviously this mystery needs to be uncovered and disclosed. More importantly, the problem needs a solution and that will necessarily involve a certain degree of deliberate thinking in order for it to be solved. However, here lays the first huge obstacle. Unbelievable as it may seem, the overwhelming majority of people here in our United States simply do not think. It's true! There are unfortunately numerous statistics that prove this sad point every day. The underlying facts reveal that over half the American population is dependent on some form of government support. Therefore, the power and sway of the voice of government has made real thinking virtually unnecessary for many. For others, thinking is simply inconvenient. It requires time and effort. Of course, we are referencing "sound thinking," independent thinking requiring concentration and contemplation. A person thinking soundly does not easily jump to conclusions about what pours out of the media, and especially out of Capitol Hill. In a society such as ours, sound thinking has become extremely rare, even in the information age when real knowledge has grown more accessible to the layman than ever before in history.<br /><br />We must, therefore, reverse this trend and take up this discipline in small doses of course; otherwise we will never do it. Like any other discipline, a certain amount of time must be set aside each day for this practice until it becomes habitual and the starting point is reading a book. Yes, you read correctly, reading! In his great book, "Thinking as a Science", Austrian Economist, Henry Hazlitt makes it clear that our thinking is mostly formed by our reading so that we should select and read only the most informative books on the most enlightening subjects. Additionally, he stressed that "the great thinkers of the past improved their innate powers, not by the study of rules for thinking, but by reading the works of other great thinkers, and unconsciously imitating their habitual method and caution." (1.) Likewise we also must read and hone our thinking by selecting the subjects most worth our thinking time. And, since our primary subject matter is "economic man," we strongly suggest to the reader that he can do no better than selecting the subject of economics.<br /><br />Why economics? Unlike any other subject, economics deals with an essential and pressing aspect of life, which is man's need to make a living. No subject of the 21st century seems to occupy more of the political limelight than economic questions and their answers. The present financial crisis is of course a major incentive for the serious study of economics. A more daunting reason is the understanding that governments and rulers are also very much involved with these same questions; however, their decisions regarding economic policy can be a matter of life and death---liberty or serfdom. For self-preservation, we should be knowledgeable in the basics of this very important subject. The Mises Institute and the Foundation for Economic Education are excellent sources for obtaining a valuable reading list, and both are absolutely free of charge on the internet. There is even a Mises University on iTunes. They are great places to begin this basic discipline.<br /><br />The reader, however, must understand clearly that an academic approach to economics is not essential in order to understand our current economic turmoil. Nor is scholarly status necessary for learning how we should go about fixing it. It is not necessary to delve into the complexities of economics at the more sophisticated levels of the science. There is no need to become enthralled with statistics, confusing graphs, charts, models or complicated accounting calculations. These all certainly have a place in the study of economics, but not for the requirement we speak of. It is rather to suggest that the study of economics be undertaken in order to gain a firm grasp of certain key "economic principles" that are universal in their application. The subject of economics deals principally with the production and distribution of goods. Questions follow having to do with the motivations to produce those goods, what goes into their production, and even why goods are referred to as "goods." Additionally, the study of economics answers questions as to who gets what, how prices are determined, and how the market operates. It is a broad and all encompassing science which by default presents questions and answers pertaining to public policy. This unique characteristic is one of the main reasons why very early in its historical development, economics became entangled with socialists' ideas. In fact, it can be said that socialist ideas have greatly altered what is often taught today as economics. Our reading, therefore, must be selective and deliberate.<br /><br />The study and understanding of economic principles is of primary importance, an effort not to be taken lightly. These underlying economic principles can be said to be indisputable regardless of "school" or persuasion because they are derived from fundamental conditions, which are universal. In this respect they can be said to resemble the laws of physics and chemistry. They are foundational concepts and have been made known to all peoples, in all places and at all times. However, given the state of what we may refer to as our "national ignorance," these economic principles have never been given much thought by our present generation--they either have been forgotten or altogether abandoned.<br /><br />Message of Hope<br /><br />"No one can find a safe way out for himself if society is sweeping towards destruction. Therefore, everyone, in his own interests must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the results."<br /> <br /><br />Ludwig von Mises<br /><br />(1881-1973)<br /><br /><br />For this reason, you should mark your calendar for July 16 & 17, and join us in Nashville, Tennessee for "A Night of Clarity."<br /><br /> <br /><br />Featured Speakers<br /> <br />Thomas E. Woods, PhD, holds a Bachelor's degree in history from Harvard and a Doctorate from Columbia. He is a resident scholar at the Mises Institute and the author of nine books. His most popular book to date was the 2004 New York Times best seller, The Politically Incorrect Guide to American History. He is also the author of the 2009 New York Times best seller, Meltdown. His newest book on Nullification will be released in June.<br /><br />Richard M. Ebeling, PhD, is professor of economics at Northwood University. Recognized as one of the leading members of the Austrian School of Economics, Dr. Ebling is a past President of the Foundation for Economic Education and the Ludwig von Mises Professor of Economics at Hillsdale College. He is the author of several books including Political Economy, Public Policy, and Monetary Economics: Ludwig von Mises and the Austrian Tradition, and Austrian Economics and the political Economy of Freedom. He is presently finishing an intellectual biography of Ludwig von Mises that will be published autumn 2010.<br /><br />Paul A. Cleveland, PhD, is adjunct scholar at the Mises Institute, Professor of Economics at Birmingham Southern and author of several books including Understanding the Modern Culture Wars and the newly released Unmasking The Sacred Lies.<br /><br />Robert P. Murphy, PhD, Economist and adjunct scholar at the Mises Institute, is the author of several books, including The Politically Incorrect Guide to Capitalism. The Politically Incorrect Guide to the Great Depression and the New Deal, study guides to Ludwig von Mises' Human Action and Murray Rothbard's Man, Economy and State, and co-author of the soon to be released How Privatized Banking Really Works.<br /><br />R. Nelson Nash is a Consultant and best selling author of Becoming Your Own Banker: The Infinite Banking Concept, one of the most creative financial strategies of this century.<br /><br />You will not want to miss this exciting two day event in Nashville, Music City U.S.A. The hosts and invited speakers of "A Night of Clarity" are devoted to exploring these economic relationships and providing a path for us toward liberty. In addition to these known Austrian speakers and economists, there will be a book signing, cocktail reception and dinner (with Q & A with all the Economists) all to take place on Friday July 16th. The following day, Saturday July 17th, features an Austrian Theory Workshop based entirely on the new book How Privatized Banking Really Works and covers the famous Hayek-Mises Business Cycle Theory. This event is open to the general public and student discounts are available. Hope to see you this summer at "A Night of Clarity." Finally...all of your unanswerable questions ANSWERED!<br /><br /><br /><br />L. Carlos Lara, Manages a Consulting firm specializing in trust services, business consulting and debtor-creditor relations. The firm's primary service is working with companies in financial crisis. Lara is the co-author of the soon to be released book How Privatized Banking Really Works.<br /><br /><br />Notes____________________________________________________<br /><br />1. Henry Hazlitt, Thinking As A Science, E.P. Dutton & Co. New York, NY 1916, Re published by The Mises Institute<br /><br />2. Frank Chodorov, The Rise and Fall of Society, 1959 Thomas Nelson & Sons, Toronto, Canada, Re-published by The Mises Institute<br /><br />3. Ludwig von Mises, Human Action, The Liberty Fund Translated from the German by H.E. Batson The Mises InstituteRay Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-63320215213848692062010-03-30T20:10:00.000-07:002010-03-30T20:17:32.966-07:00Planned Economy or Planned Destruction?This cartoon appeared in the Chicago Tribune in 1934. Look carefully at the plan of action in the lower left hand corner.<br /><p align="center"><img src="http://www.alphaomega-fs.com/images/1934.jpg"></p>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-8758374786883258792010-02-23T08:43:00.000-08:002010-06-28T14:33:32.482-07:00Sound Money by Carlos Lara<p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">My th</span><span style="font-size:100%;">oughts on the subject of sound money, of course, are not original. They have been guided here by my own private study of writers of a unique school of economic thought. These great thinkers, to whom I refer, can be traced to Salamanca, Spain as early as the 15th century. Later they were found in Austria, but now are centrally located here in the United States.</span></span></span></p><p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">These economic theorists have at their core of thinking the principles of scarcity and choice. More importantly, they believe that economic value is subjective to the individual. These concepts, when used in the thinking process, provide the ability to see the world and especially the market economy in a uniquely different way from all other schools of thought. What becomes apparent by utilizing this way of thinking is that an idea has crept into our world that is destructive. Ludwig von Mises, one of the greatest of these economists, believed that this idea was evil and that no one should give in to it. He felt, as most Austrian economists do now, that fighting against this idea was a responsibility each one of us had to society because the stakes are extremely high. They are nothing less than the future of human freedom. (1.)</span></span></span></p> <p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">Young or old, our own education is where our fight must originate. However, learning how the world works according to this manner of thinking is a different type of education not earned in the classroom. In fact, this type of education is an individual endeavor and each of us must decide when we really want to take it up in earnest. What most disappoints us is that even after we decide to take up this intellectual battle sometimes our understanding comes slowly. Painful experiences, for example, can be some of our greatest teachers, however, it is not until these experiences are combined with a sound body of knowledge and historical evidence that an epiphany occurs. As for me, I am "<em><i><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >too soon old, too late smart." </span></span></i></em>(2.) Nevertheless, it is never too late to begin.</span></span></span></p> <p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">To understand what is meant by sound money, we need to examine a bit of history. There are a few unique characteristics about money that I suggest we revisit in order to obtain a full perspective on this matter especially in light of our current economic environment.</span><br /><br /></span></span><span style="font-size:130%;"><strong><b><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >The Genesis of Money</span></span></b></strong></span></p> <p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">First of all, money did not come into being by some sort of agreement, or social contract. Money comes into being freely in the market place by trial and error. This happens as individuals begin to facilitate the process of exchanging goods with one another.</span></span></span></p><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">In the days of bartering (what economists refer to as "direct exchange"), problems arose when people attempted to exchange two different commodities. For example, if you had butter to exchange for beef, but no one wanted your butter, then you obviously had a problem without a solution. This exchange problem, because it came up quite frequently, forced society to search for a commodity to serve as a temporary exchange, or what economists refer to as an "indirect exchange." Obviously, the commodity society ultimately selected for the indirect exchange had to be highly marketable. It may have been eggs, milk or bread, but, whatever it was, society eventually employed it as money.</span></span></span> <p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">Over the course of time the one medium of exchange that won over all other forms of money has been gold. Why gold? Because it has features no other commodity has. For example, it is <em><i><u><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >divisible</span></span></u></i></em>. Imagine trying to divide butter to pay for something. Gold, on the other hand, can be cut up into tiny pieces while retaining its <em><i><u><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >prorata</span></span></u></i></em> value so that money calculations can be made. By making gold in either bullion bars or coins, it becomes very <em><i><u><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >portable</span></span></u></i></em><em><i><span style="font-family:Trebuchet MS;"><span style=";font-family:";" > </span></span></i></em>and very convenient to use.</span></span></span></p> <p style="margin-right: 0in; margin-bottom: 12pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">There is also the fact that from time immemorial gold has been <em><i><u><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >valuable as jewelry</span></span></u></i></em> principally because of its decorative beauty. In addition to this, we must not forget that gold is <em><i><u><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >limited in its supply</span></span></u></i></em>. It is mined from the ground at great expense in order to get more of it. But that is not all; gold is extremely <em><i><u><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >durable </span></span></u></i></em>and non-perishable. It can last for centuries. And finally, gold is <em><i><u><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >homogeneous</span></span></u></i></em>. It can be made to look exactly like another of its kind, as in gold coins. For these reasons it is not surprising why historically gold has been the money of choice. No doubt, gold is sound money.</span><br /><br /><span style="font-size:100%;">This brings up two extremely relevant questions.</span><br /><br /></span></span><span style="font-size:100%;"><strong><b><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >What is the right quantity of money? How much should it grow?</span></span></b></strong></span></p> <p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">These questions have been asked by economists for centuries. The struggle continues. As we well know, there has been an astronomical increase of the money supply by the Federal Reserve Bank during the last four decades and especially last year. The general public, I believe, innately knows that all this new money creation is not a good thing for society. I also am also convinced that only one man in a million knows how it is done and why. To help understand this and know for certain what the right answers to these two questions are, we need to try asking ourselves this question: What should the optimum amount of canned peas be in society? Or, what is the optimum amount of fresh turkeys, or watermelons, or cattle, or whatever commodity comes to mind. The point is that the more consumable goods we have in society the better it is for everyone. In fact, more goods in the market help bring down prices and our standard of living goes up. However, this is not the case with more money. An increase of money provides no social benefit whatsoever.</span></span></span></p><p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">Why no benefit? Because money cannot be eaten or consumed. Money, remember, is used for exchange purposes only. Once a commodity is in sufficient supply as money, no further increases are needed. Any quantity of money is optimal. The more mining of gold for uses other than money, such as jewelry, is perfectly fine, but more gold as money is not needed. An increase in money only dilutes its value. And, it is this last point--dilution--that represents the sum total of our money problems today.</span></span></span><span style="font-size:100%;"><strong><b><span style="font-family:Trebuchet MS;"><span style=";font-family:";" ><br /></span></span></b></strong></span></p><p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style="font-size:100%;"><strong><b><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >Legalized Counterfeiting</span></span></b></strong></span></p> <p style="margin-right: 0in; margin-bottom: 12pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">To put my points into perspective, imagine a free market economy where gold is the money. In such a society one can acquire the gold in one of three ways-- mining, selling, or as a gift. In each one of these methods of acquiring gold, the principle of private property is strictly honored. However, let's suppose an individual decides to take advantage of gold's homogenous feature and creates an enormous amount of counterfeit gold coins for himself. This act will create a permanent destructive rippling effect throughout society. In addition to its fraudulent method of acquiring the gold and undermining the foundations of morality and private property, the counterfeiter will also increase the money supply substantially when he spends the money in the marketplace. With more money in supply, its value will necessarily decrease and drive up prices on all goods. This, of course, is price inflation. It is very destructive because it impoverishes the whole of society, while the counterfeiting continues. The counterfeiter obviously benefits immediately by getting the money first, as opposed to the later recipients of the money, or those who never get the money at all...usually the average hard working citizen. These good people wind up paying dearly because they are left to deal only with the increased prices on all the goods in the market place. For them the cost of living simply rises year after year, and no one can provide an explanation as to why it happens. For this reason, Austrian Economists have always said that the inflation process (the increase of the money supply), is a form of indirect or <em><i><u><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >invisible</span></span></u></i></em><em><i><span style="font-family:Trebuchet MS;"><span style=";font-family:";" > </span></span></i></em>tax on society. This entire counterfeiting scheme is cleverly hidden.</span></span></span></p> <p style="margin-right: 0in; margin-bottom: 12pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">We are fortunate that private counterfeiting has really never been much of a problem in modern times. The shaving of the edges of gold coins, the customary method of counterfeiting, ceased when milling was developed. However, when counterfeiting is mandated by government, when it is legalized, we have a serious economic and moral problem for all of society. Historically, there have been two major kinds of government mandated counterfeiting—(a) Government paper money and (b) Fractional Reserve Banking. This is precisely what we have today in our United States, but not just here—now it is all over the world.</span></span></span></p> <blockquote style="margin-top: 5pt; margin-bottom: 5pt;"> <p class="MsoNormal"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;"> "</span><em><i><span style="font-family:Trebuchet MS;"><span style=";font-family:";" ><span style="font-size:100%;">There is in all of us a strong disposition to believe that anything lawful is legitimate. Thus, in order to make plunder appear just and sacred to many consciences, it is only necessary for the law to decree and sanction it." (3.)</span></span></span></i></em></span></span></p> </blockquote> <p class="MsoNormal" style="text-align: right;" align="right"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" > <span style="font-size:100%;">Frederic Bastiat <br /> 1801-1850 </span></span></span></p> <p class="MsoNormal"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" > </span></span></p> <p style="margin-right: 0in; margin-bottom: 12pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">The American public, in just this past year, has become increasingly more informed in the absurd concept of printing dollars on a printing press, and then spending them as a solution to stimulating the economy. They realize that a flood of dollars into the market only devalues the currency. However, a much more insidious and camouflaged feature of our banking system is Fractional Reserve Banking. If you have the time, you can learn how that works by watching this educational video <a href="http://app.expressemailmarketing.com/get.link?linkid=1902644&subscriberid=97897523&campaignid=507051&linkurl=http%3a%2f%2fusatrustonline.com%2findex.php%2farticles-videos%2f9-teaching-videos%2f27-the-mystery-of-banking" target="_blank"><span style="color: rgb(19, 34, 16);"><span style="color: rgb(19, 34, 16);">"The Mystery of Banking.</span></span></a>" In the meantime, the most important thing to comprehend and remember is that so long as government paper money is redeemable in gold, it is as "good as gold" and can be said to be sound money. Our paper money, however, has not been linked to gold since President Roosevelt made that linkage illegal in 1933. Since that time, the continuous expansion of the money supply, mandated by government through its Federal Reserve Bank, has devalued our money by 97%. There seems to be no end in sight.</span></span></span><span style="font-size:100%;"><strong><b><span style="font-family:Trebuchet MS;"><span style=";font-family:";" ><br /></span></span></b></strong></span></p><p style="margin-right: 0in; margin-bottom: 12pt; margin-left: 0in; text-align: justify;"><span style="font-size:100%;"><strong><b><span style="font-family:Trebuchet MS;"><span style=";font-family:";" ><br /></span></span></b></strong></span></p><p style="margin-right: 0in; margin-bottom: 12pt; margin-left: 0in; text-align: justify;"><span style="font-size:100%;"><strong><b><span style="font-family:Trebuchet MS;"><span style=";font-family:";" >Message of Hope</span></span></b></strong></span></p> <p style="margin-right: 0in; margin-bottom: 12pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">Obviously, we must re-link our dollar back to gold. By doing so, we would all own, by assignment, property rights to a unit weight of gold. If our dollars are redeemable in gold, all banks would automatically be 100% reserve banks. More importantly, inflation would stop because gold cannot be inflated.</span></span></span></p> <p style="margin-right: 0in; margin-bottom: 12pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">Next, we must privatize all banking, thereby abolishing government's monopoly over our money. If step one and two can be accomplished, then there would be no need for the Federal Reserve. Step three would be to close it down. If that happened, the size and expense of government would decrease immensely; our taxes would go way down, our savings—which fuel investment—would go up.</span></span></span></p> <p style="margin-right: 0in; margin-bottom: 12pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";font-size:12pt;" ><span style="font-size:100%;">Think this is too big to accomplish? You would be amazed at the literally hundreds of thousands who support this solution. This support has been fueled in large part by the Mises Institute, the Foundation for Economic Education and other such private institutes, funded with no connection to powerful elites. These centers of education have become the places for learning the economic principles that our children and grandchildren need to be taught. They continue to fan the flame of liberty by publishing articles, scholarly journals, books, by holding conferences, and teaching students. Because of their efforts spanning more than 60 years here in America, there is faith, hope and expectancy at these independent scholarly institutions that a dramatic change in the political and social landscape is right around the corner, a belief that a great change can take place overnight when the ideological conditions are right. These institutions continue to provide the educational fuel to keep the fire burning. Every conscientious citizen should join and become a member of one. </span></span></span></p> <p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";" ><span style="font-size:100%;">Remember, we do not need to convince the entirety of the United States. With only 10% of the population supporting this solution, public policy can actually change. In the end, all economic policies are ultimately dependent on the views of the general public and our choice is final! America was founded on the principle that the masses, the people, determine the course of our history, but this movement for change must start with the individual--that means you and me.</span></span></span></p><p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><br /></p><p style="margin-right: 0in; margin-bottom: 15pt; margin-left: 0in; text-align: justify;"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";" >L. Carlos Lara is President of United Services and Trust Corporation, a Management Consulting Firm specializing in Business Consulting, Corporate Trust Services, Corporate and Private Seminars including Speaking Engagements.<br /></span></span><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";" ><br /><br /><br /><br /></span></span><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";" >Notes: ______________________________<wbr>_____________________<br /></span></span><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";" ></span></span></p> <p class="MsoNormal"><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";" >1. Special credit to Ludwig von Mises, Austrian Economist born 1881 Lemberg, Austria-Hungary, died 1973 New York City, NY. Noted for Praxeology. The Science of Human Action. Also, special credit given to Murray N. Rothbard, Austrian Economist, 1926-1995, student of Mises, for all information in this article.</span></span><span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";" ></span></span></p> <span style=";font-family:Trebuchet MS;font-size:100%;" ><span style=";font-family:";" ><br />2. From the title of the national best selling book Too Soon Old, Too Late Smart, Thirty True Things You Need To Know , by Gordon Livingston, M.D. Copyright 2004 by Gordon Livingston published by Da Capo Press<br /><br />3. Frederic Bastiat 1801-1850, The Law-the classic blueprint for a just society. Republished by the Foundation for Economic Education, Irvington-on-Hudson, New York</span></span>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.comtag:blogger.com,1999:blog-5783041900131622174.post-76442356461132910992009-12-31T12:09:00.000-08:002010-06-29T09:14:06.639-07:00What Happens When You Apply the IBCDear brother Ray,<br /><br />At this end of year, I want to wish you a very Merry Christmas and the Lord's continuous blessings in 2010.<br /><br />I also so want to give you an update on the results of your efforts to educate me financially. You will recall that it took you 12 years (1994-2006) of persistence and prayers to make me understand and apply the IBC. I am very happy to report that in the 3 years since I understood and and started applying the concept, your efforts have yielded big dividends:<br /><br />We have paid off the house, owe no credit card debt, and currently owe a manageable amount in an equity line of credit. Our plan is to finish paying off the equity line in the next 10 months and then start paying back the money we owe to our personal banks. If my calculations are correct, in 5 years we would have bought out the house simply by capturing the interest payments that used to go the mortgage company! Thank you and Nelson Nash for the IBC.<br /><br />Merry Christmas and Happy New Year 2010.<br /><br />__________________________________________<br /><br />Jeremiah (Last Name Deleted for Privacy)<br />Director & ProfessorRay Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-63710083139855048522009-10-22T12:05:00.002-07:002009-10-22T12:11:59.913-07:00An Open Letter to President ObamaDear President Obama:<br /><br />You are the thirteenth President under whom I have lived and unlike any of the others, you truly scare me.<br />You scare me because after months of exposure, I know nothing about you.<br /><br />You scare me because I do not know how you paid for your expensive Ivy League education and your upscale lifestyle and housing with no visible signs of support.<br />You scare me because you did not spend the formative years of youth growing up in America and culturally you are not an American.<br /><br />You scare me because you have never run a company or met a payroll.<br /><br />You scare me because you have never had military experience, thus don't understand it at its core.<br /><br />You scare me because you lack humility and 'class', always blaming others.<br />You scare me because for over half your life you have aligned yourself with radical extremists who hate America and you refuse to publicly denounce these radicals who wish to see America fail.<br /><br />You scare me because you are a cheerleader for the 'blame America ' crowd and deliver this message abroad.<br /><br />You scare me because you want to change America to a European style country where the government sector dominates instead of the private sector.<br />You scare me because you want to replace our health care system with a government controlled one.<br /><br />You scare me because you prefer 'wind mills' to responsibly capitalizing on our own vast oil, coal and shale reserves.<br /><br />You scare me because you want to kill the American capitalist goose that lays the golden egg which provides the highest standard of living in the world.<br /><br />You scare me because you have begun to use 'extortion' tactics against certain banks and corporations.<br /><br />You scare me because your own political party shrinks from challenging you on your wild and irresponsible spending proposals.<br /><br />You scare me because you will not openly listen to or even consider opposing points of view from intelligent people.<br /><br />You scare me because you falsely believe that you are both omnipotent and omniscient.<br /><br />You scare me because the media gives you a free pass on everything you do.<br /><br />You scare me because you demonize and want to silence the Limbaughs, Hannitys, O'Relllys and Becks who offer opposing, conservative points of view.<br /><br />You scare me because you prefer controlling over governing.<br /><br />Finally, you scare me because if you serve a second term I will probably not feel safe in writing a similar letter in 8 years.<br /><br />Lou Pritchett<br />U.S. Department of Commerce<br /><br />Lou Pritchett is one of corporate America 's true living legends- an acclaimed author, dynamic teacher and one of the world's highest rated speakers. Successful corporate executives everywhere recognize him as the foremost leader in change management. Lou changed the way America does business by creating an audacious concept that came to be known as "partnering." Pritchett rose from soap salesman to Vice-President, Sales and Customer Development for Procter and Gamble and over the course of 36 years, made corporate history.<br /><br />TRUE - CHECK: <a href="http://www.snopes.com/politics/soapbox/youscareme.asp">http://www.snopes.com/politics/soapbox/youscareme.asp</a><br /><br /><br />This letter was sent to the NY Times but they never acknowledged it. Big surprise. Since it hit the internet, however, it has had over 500,000 hits.Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-80835633752634457382009-10-22T12:05:00.001-07:002009-10-22T12:05:46.058-07:00You Cannot Multiply Wealth by Dividing It"You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation. You cannot multiply wealth by dividing it."<br /><br />Adrian Pierce Rogers (1931–2005)<br /><span style="font-size:78%;">Dr. Rogers was an American pastor, conservative, author, and a three-term president of the Southern Baptist Convention (1979-1980 and 1986-1988).</span>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-16971415210582792222009-10-22T11:59:00.000-07:002009-10-22T12:01:37.904-07:00The Foolishness of Joining a Robber BandIn-Depth by: Paul A. Cleveland | September 14, 2009<br /><br />Today we are living in trying times and our leaders are telling us that if we would depend upon them our futures would be secure. However, Scripture warns us in Proverbs 1:10-19 against joining any group that aims to make its living by robbing others and sharing a common purse. This proverb suggests that every scheme aimed at eliminating human hardship by creating a common pool of sacrifices among people is foolish. The reason that it is foolish is that sinful people are motivated to contribute as little as possible to the pool while taking as much as possible from it. In addition, the members of the group are constantly looking for outsiders whom they might rob of their economic wherewithal.<br /><br />In the case of using government force to extract tax revenues from the general populace in order to establish special benefit programs, a determination must be made regarding who will pay the taxes and how will the resulting funds be used. The process of determining these two issues will actually prove detrimental to the vast majority of the people, especially the poor. In the long-run, even those who initially benefit will be harmed as well. An examination of the history of current state of U.S. tax laws and spending programs should show why this is true. <br /><br />The federal income tax code was established in 1913. Although the initial tax was small, it increased steadily throughout the twentieth century. The increase in federal income taxation has been used to fund benefit programs for numerous special interests. It also created a sort of political battleground over who will ultimately pay for these benefits and who will receive them. Over the years the political battles have resulted in a tax code that is incomprehensible even for the most astute. Each successive reform of the tax code has resulted in the imposition of tax penalties on some individuals while establishing privileges for others. Increasingly, the tax code discriminates between citizens and is used to steal private property from some people for the benefit of others.<br /><br />It should not surprise anyone that the people who have been the most adept at gaining and using political power have been the biggest beneficiaries of the programs the government has created. Moreover, the rising tide of redistribution has not benefited the poor in our society even though many in Washington falsely claim to care about these people. Instead, the escalation in taxes has resulted in the destruction of marginal business activities which are the ones most likely engaged in by the poorest segments of populace. What has been happening is that our government has been punishing the poor and the middle class by restricting their economic opportunities in order to enhance the well-being of the politically connected people of our land. As a result, these politically connected people are living like leaches off the backs of others. However, such parasites themselves must die if they kill their host.<br /><br />On the spending side, numerous government programs such as corporate and agricultural subsidies, the funding of the arts, the erection of trade barriers, and a whole host of other expenditures provide benefits for special interests many of whom are people of considerable means. In addition to spending programs, the government has set up a vast array of regulations which limit an individual's ability to participate in certain business enterprises. The combination of these factors causes the prices of products of every kind to be higher than they would be otherwise. And finally, of course, this has resulted in a reduction in opportunities for the poorest segments of society. The end result is the actual oppression of the poor. The worst part of this state of affairs is that such legal plunder is often perpetuated without troubling anyone's conscience. Indeed, in this latest environment of the Obama administration, and their gross lust after power and money, one is left to wonder how much longer the nation's economy can survive.<br /><br />Paul A. Cleveland is a professor of economics at Birmingham-Southernn College where he has taught since 1990. He received his Ph.D. in Economics from Texas A&M University. His principal academic research is focused on the study of political economy with a special emphasis on understanding the importance of free enterprise and entrepreneurial human action.<br /><br />His articles have appeared in numerous places including the Mises Institute, the Journal of Private Enterprise, The Freeman, The Independent Review, and Religion and Liberty. As a book writer he has published Understanding the Culture Wars: The Essentials of Western Civilization and Unmasking the Sacred Lies. Contact him at <a href="http://www.Boundarystone.net">www.Boundarystone.net</a>.Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-52606869281715179912009-03-30T13:24:00.000-07:002009-03-30T13:26:03.046-07:00A Financial Bunker For Scary Times<p align="left"><strong>by J. Girouard</strong></p> <p align="left">This article appeared in Forbes Magazine 2.10.09- to read the complete article go to <a href="http://www.forbes.com/2009/02/10/mutual-life-insurance-financial-adviser-network_0210_financial_planning.html" target="_blank">www.forbes.com</a>.</p> <p align="left">Suppose there was a financial intrument with a track record stretching back 1,400 years, that was so solid it could survive the Great Depression intact; that earned untaxed interest at a competitive rate; that could be borrowed against at will regardless of credit conditions; and that could be used by individuals as well as major corporations and banks as a safe harbor during economic turmoil?</p> <p align="left">You'd call it a financial bunker for scary times, and you'd be talking about mutual whole life insurance.</p> <p align="left">This is not the life insurance that only pays when you die. Mutual whole life is the kind of insurance our parents and grandparents owned in the good old days before the stock market began to boom in the 1980's and 1990's. Mutual whole life saw our elders through thick and thin, and after several decades of being muscled aside by the allure of the stock market, it's making a big comeback.</p> <p align="left">Mutual whole life policies have been an essential part of my financial planning practice for many years. But I'm astonished at how few of the many investement advisers I meet understand how mutual whole life policies work, or don't offer them to clients because they aren't sexy or new.</p> <p align="left">Mutual whole life fell so far out of favor in the 1990's that insurer Swiss Re issued a report in 1999 headlined "Are mutual insurers an endangered species?" Not anymore.</p> <p align="left">Mutual life insurance is making a comeback now that our speculative economy has blown up and financial disaster is driving people away from risk and back to basics. Forbes magazine reported in December ("Mutual Respect") that two of the larger mutual insurance companies, Guardian Life and New York Life, reported double-digit growth in sales of individual life policies.</p> <p align="left">Mutual or "participating" whole life insurance is the closest thing to owning your own bank. As New York Life has said in its ads, "We're Main Street not Wall Street" The concept of mutual insurance is rather simple, especially compared with the complex annuity products that were so popular until recently. And the benefits include all those listed in my opening paragraph.</p> <p align="left"><strong>You Own The Bank:</strong> Mutual insurance companies are owned by the people who buy the policies...Because mutual companies have no shareholders, they serve one constituency--the policyholders. Mutuals have no need to report good earnings every three months to justify a stock price, so there is no pressure for them to take on extra risk to make a profit.</p> <p align="left"><strong>Your Premium Payments Belong To You:</strong> Unlike traditional term insurance, the premiums you pay for your mutual whole life policy belong to you in the form of the accumulated "cash value" of your policy. On top of that, the cash value of the accumulated premiums earns interest at a rate set once each year. In 2008, Guardian Life paid a record of 7.3% dividend interest, and those earnings are untaxed! That's spectacular compared with last year's over 30% decline in the stock markets, bank CDs paying under 2% taxable, or money market rates under 1% taxable.</p> <p align="left"><strong>You Can Borrow Back Your Premium Payment:</strong> Because your premiums "belong" to you as a policyholder-owner of the company, you can borrow them back any time you want for any reason you need, regardless of your creditworthiness. The death benefit of the life insurance will be reduced by the amount your borrow, and you will lose the interest you would have earned. But you can choose to pay the interest as you would for any loan, except you are paying yourself instead of the stockholders of a bank, If you pay the loan back as well, the death benefit goes back up.</p> <p align="left"><strong>Mutuals Offer Ironclad Guarantees: </strong>Few people realize that the insurance industry, dominated by mutuals, was the one sector that made it through the Great Depression without a disaster and with policyholders financially intact. The cash value and the death benefit are guaranteed and tightly regulated by the states. That means your cash value is there regardless of market conditions, and when you die your heirs will receive the full face value of the policy. While stockholder-owned insurance companies saw their values fall sharply last year (remember when we taxpayers bailed out AIG (nyse:AIG- news people)?), the top mutually-owned insurers saw their book values remain stable or rise.</p> <p align="left"><strong>Even Banks and Corporations Buy Mutual Policies: </strong>One of the lessor-known aspects of mutual insurance is that major corporations and banks buy policies on the lives of their employees and use the cash value to fund employee benefits and as a safe harbor for working capital....Instead of doing what banks say--put your money in our CDs at low rates so we can turn around and lend your money out at a profit to us--do what banks do.</p> <p align="left"><strong>Mutual Insurance Is One Leg of The Money Stool: </strong>Investing should be approached as a three-legged stool. One leg is the money you need to live on in the near future (cash in the bank), one leg is the money you invest for long-term growth (equities) and one leg is the financial bunker you can retreat to when the rest of the world is falling apart and you can't sleep. Mutual whole life got our grandparents through the Great Depression, and it's going to get a lot of the people through our current calamity.</p><p align="left"><br /></p><p align="left"><br /></p><p align="left"><br /></p><p align="left"><br /></p>Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-964712893494871112008-11-14T12:42:00.000-08:002008-11-14T12:43:36.087-08:00An Interview with R. Nelson Nash<blockquote></blockquote>R. Nelson Nash discovered the formula to building wealth using the sound principles of an industry that has been deemed the foundation of the United States economy: <b>Banking</b>. He is the creator of the Infinite Banking Concept and renowned author of <i>Becoming Your Own Banker</i>. This concept uses dividend paying whole life insurance policies to create a personal bank.<br /><br /><a href="http://www.americanchronicle.com/articles/81047">Click here for the full interview on AmericanChronicle.com</a>.Ray Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-27019121337030854892008-10-27T15:31:00.000-07:002008-10-27T15:38:52.935-07:00Sunlight during turmoilI just want to say thank you to Alpha & Omega Financial Services. A special thanks to Ray and Heather. I've been going through a very difficult time personally, and no one around me as offered much hope or encouragement. Through this process, and I say this because it is a process that I still working through. Alpha and Omega has answered my questions, worked with me and given me hope and encouragement when I thought I would have to rebuild my practice. My problems have not been monetary, so you would think that something like IBC (Infinite Banking Concept) and financials planners would not be the source of my renewed vision and belief that there is a bright shining light at the end of the tunnel, but this has been an answered prayer for me. I'm looking forward to working with Alpha & Omega in the future because if this is how someone is treated when they haven't even done anything yet, then it can only get better. When things are settled in my personal life, I will be on board and ready to go with IBC. Thank you for being light in the midst of turmoil. <br /><br />JMRay Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-74957691957427608882008-10-27T15:23:00.000-07:002008-10-27T15:31:36.310-07:00Hope through Infinite BankingThanks again for sharing with me about IBC (Becoming Your Own Banker: Infinite Banking Concept). I have also give up the idea that I will open my bank from a position of strenght. My direction now is to get some cash together and consolidate my debt. After a while, when things start improving through the system. We can get together for a serious talk on implementing the IBC (Nelson's) system in even more ways than right now, since I'm just getting started. Thank you again for giving me hope for a brighter tomorrow & future.<br /><br />Talk to you soon,<br /><br />RickRay Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0tag:blogger.com,1999:blog-5783041900131622174.post-8089593565928097442008-09-05T11:18:00.000-07:002009-09-08T08:33:34.504-07:00IBC at work in every day lifeI took my first whole life insurance policy out on Feb of 2007. I have been using my policies for almost a year now with banking as my main focus. I have used my policies for my 2009 Honda and my monthly expenses. I am now using "my bank" for funding my international travel as well as taking over my house loan. I use my bank as a way of life. My ultimate goal is to have my direct deposits put into my whole life account. I have been taken advantage of when it comes to money over the years but not anymore. I have a foundation under me that is Infinite. Try IBC and Alpha and Omega, you will be glad you did. YvonneRay Poteethttp://www.blogger.com/profile/16678776110730625322noreply@blogger.com0