Speculators and Oil Prices

In his recent tirade against the free market, Socialist senator Levin, of Michigan, gave birth to the following puff of rhetorical flatulance:

Much of this increase can be attributed to speculators, who buy and sell futures contracts for crude oil and leverage them just to make a profit, creating an artificial 'paper demand' that does not accurately reflect actual market conditions.

First off, it should be pointed out that *ALL* productive activity, including (of course) investing in commodities and anything else, is carried on "just to make a profit". The purpose of production is to provide an output which is more valuable than the inputs -- land, capital, raw materials, and labor -- required to produce it. This difference is called profit.

In the case of commodities traders, the principal is the same. The difference is that their 'input' is a commodity at one point in time, and their 'output' is the same commodity at another point in time. Like any entrepreneur, their business is prognostication, and they make money if -- and only if -- they reach the correct conclusions about the future.

The need for 'speculators'

The specter of 'speculators' is too frequently raised by the economically ignorant to be ignored. Most people do not understand their function, nor the service they provide, and they are therefore easily used as scapegoats, as Marx and Stalin used 'the bourgeois', and their spiritual brother Hitler used Jews. In their defense, I will therefore explain, in a simplified way, the service that 'speculators' provide to consumers.

There are two types of trade which an 'evil speculator' can engage in. These are called 'short' and 'long' trades.

A long trader believes that the current price of a good is lower than the future price of the same good. He therefore buys the good now (raising the current market price), and sells the good later (lowering the future market price). Assuming the 'speculator' is right, the consumers will pay a higher price now (when prices are relatively low), but will pay a lower price later (when prices will be relatively high).

A short trader believes that the current price of a good is higher than the future price of the same good. He therefore borrows and sells the good now (lowering the current market price), and later buys the good to repay the lender (raising the future market price). Assuming the 'speculator' is right, the consumer will pay a lower price now (when prices are relatively high), and will pay a higher price later (when prices will be relatively low).

The short trader cannot operate, of course, without long traders from whom to borrow the good. Also note that when I say 'short trader' and 'long trader', I am speaking about an individual's role in a given transaction. Traders execute both short and long trades.

In either of these cases, of course, the trader makes money if and only if he correctly predicts the market. Money is made by buying cheap and selling dear. If a long trader is wrong, he will be stuck with a good for which he paid dearly, and must either store indefinably (which costs money) or sell cheap. If a short trader is wrong, he will have to replace a borrowed good which he sold cheap with the same good, for which he must pay dearly.

This explanation of commodities trading is somewhat simplified, there are actually a great variety of contract types and terms, but it illustrates the principals behind commodities trading, the benifit which these 'evil speculators' provide to society, and why they must be permitted to continue to provide those benifits.

The alternative is a 'lobotomized market', in which people burn wheat instead of coal in the winter, since they can save money by doing so, and then starve -- or eat the seeds of their future havests -- in the summer, since the wheat which the 'evil speculators' would have saved for them has been -- quite literally -- thrown into the fire.

What Levin Should Do

If Levin truely belives that there are too many people trading long, and that the current price of oil is higher than the future price of oil, there is an action he can legitimately take in order to correct their error. He can sell oil short. As stated above, this will lower the current price of oil, and raise the future price of oil. Of course, if he is wrong, he will be doing harm, not good. The beauty of the free market is that he will automatically pay for any harm he does out of his own pocket, and if he is consistently wrong, he will blow through his considerable wealth, leaving him with nothing to harm us with in the future.

It is sad that politics does not have similar automatic and unavoidable penalties for being consistently wrong.

Comrade Mitt joins the fight against the Free Market

I guess I'm naive. I was surprised by Mitt Romney's abject economic ignorance at the debate last night. When asked about agricultural subsidies, he said that he didn't think that the Free Market could provide food reliably, and that central planning of the economy by the government was needed to guarantee our food supply.

Just on more reason to vote against Comrade Mitt.

"For God's Sake, Please Stop the Aid!"

This is a wonderful article, explaining how well intentioned westerners are destroying the economies of Africa. We are killing them with kindness, and except for the politicians, nobody wins.



read more | digg story

Capitalism in a Free Society #1

There are criticisms of Capitalism which are so widespread and so plausible that they must be addressed, before we can hope to establish a Libertarian society. These criticisms generally come from the Left, but there are those on the Right who make similar arguments. This article will attempt to address some of these issues from a Libertarian perspective.

Q: Who coined the term Capitalism?

A: An excellent question. Who came up with the word "Capitalism"? It doesn't sound very nice. It sounds as if Capitalism is designed to benefit those who provide the capital. It sounds as if Capitalism might well be very bad for others who live under the system, for example workers and consumers. Why would the creators of Capitalism have chosen such an emotionally loaded word to describe their idea? The reason is simple: the word Capitalism was not coined by Capitalists. It was coined by socialists, and thus the emotional loading is purely intentional. Capitalists adopted the word Capitalism in much the same way that Americans adopted the phrase "Yankee Doodle", which was originally a British slur, and made it a term of honor.

Q: What is Capitalism?

Capitalism is a system with two essential characteristics: Private property, and free markets. Both of these characteristics are considered by most Libertarians to be expressions of natural rights. The right to exist, combined with the human need for material goods in order to live, implies a moral right to private property. It also implies a right to defend this private property from those who would confiscate it for their own ends, as otherwise, one would have to depend for survival on the hope that nobody would come and take from you those things which you need to live. Free markets are really merely an extension of private property. Since ownership of private property implies the sole right to dispose of that property, and since free markets are merely the sum of all voluntary exchanges in a society, the only way that a society could exist without free markets is to violate the right of private property by forbidding people to trade what they have created.

Please note that these are the only two essential characteristics of Capitalism. Capitalism does not imply the existence of corporations, of democracy, of a government, of copyright, of patents, of large industrial facilities, or any of the other trappings which are frequently associated in the popular imagination with capitalism. If you strand two naked people on an island, and they trade with each other without violence, you have created a Capitalist society.

Q: Who "invented" Capitalism?

A: Capitalism was never invented. As illustrated above, it flowed naturally from the advantages people can gain by trading with each other. The person most referred to as the "father of Capitalism", Adam Smith, described capitalism (without ever using the word) in his 1776 classic "The Wealth of Nations". He was describing what he saw, and advancing arguments for dismantling the state controls of the economy which had characterized earlier economic systems, for example, Feudalism and Mercantilism. We have never, since the establishment of government, come close to the ideals which Smith described, although sometimes we have been closer than others.

Q: What are the classes of people in a Capitalist society?

A: People may play many roles in the economy of a Capitalist society. The three basic roles are:

Capitalist

One who owns capital, and manages it's use in the production of goods

Worker

One who produces goods or provides services

Landlord

One who receives income from the ownership of land

These are not, however, "classes" of people (except in the broadest sense of being classifications which can be attached to people). There are several reasons that these can really not be called classes:

1. These roles are not immutable. An individual in a capitalist society will more than likely play more than one of these roles in his lifetime. He may well start out as a worker, and choose to refraining from spending some of his income, and to invest it instead. Now he's a capitalist. He may choose to invest in land, rather than tools and equipment, in which case he's a landlord.
2. These roles are not exclusive. An individual may well play many of these roles simultaneously. Consider a carpenter who owns his own tools. When working, this carpenter is making money through his labor, which would make him a worker. He is also magnifying the effects of his labor, by using tools, which he owns. This, of course, increases his income, making him a capitalist as well. An even better example would be an family farm. Consider the owner of such a business:
   1. He works his own land, making him a worker.
   2. He owns his land, and receives income from it, therefore making him a landlord.
   3. He owns his tools, and thereby increases the income from his labor. This makes him a capitalist.
3. These roles do not imply different levels of wealth. It is a common misconception that a business owner makes more money then a worker. This misconception does not bear even casual scrutiny. It is quite possible that a business owner or landlord will lose money through error or while ramping up a new business. A worker, of course, runs no risk of losing money through his labors. The worst that could possibly happen would be for his employer to go bankrupt, and fail to pay his wages. Even in this case, though he has not been paid, and rightly feels he has been cheated, he has not actually lost anything he already had. He has failed to gain his rightful due. This is bad, but not nearly as bad as having built a business and then lost it.
4. These rules do not imply different levels of power. In a command economy, like socialism, the various roles imply a level of power over others. If a member of a subordinate class fails to obey his master, his master can have him killed, imprisoned, or otherwise punished. This creates a tremendous power differential. In a market economy, like capitalism, however, there is no difference in power. Any person can make whatever offer he chooses to any other person, but there is no way for him to punish those who refuse to obey his request. He can, of course, refuse to pay those who refuse to work for him, but he cannot take from them their lives, their liberty, or their ability to pursue happiness.

This is probably enough information to absorb in one sitting, and it is as much as I choose to write right now, so I will sign off, and return later to expound further on the joys of capitalism and freedom.

Gay Species: Naive Capitalism: Why I Am Not a Libertarain

I trust we remain vaguely familiar with the pernicious effects of child labor, market indenture (virtually "slave" labor), intolerable working conditions, exploitation for greed, etc., to realize not everyone's "self interest," in Adam Smith's famous phrase, is in our common interest. Unrestrained greed may manifest particular individuals' "liberty of free exchange," but if so, maybe "free exchange" as a principle is too high a price to pay for its adverse consequences? In other words, the principles of liberalism are not in themselves the objective, but the means to an objective. Libertarianism confuses the "means" for an "end."

I have to disagree with your criticisms of the Free Market. The "horrors" of the free market seem less horrible when you consider that for the people participating in such "horrors", the "horrors" were better than the alternative. The error you make is one of context dropping: judging their solutions to their problems against our opportunities, and finding that our opportunities are better then theirs were. This is true, of course, but they did not have our opportunities. For that matter, were it not for their hard work, and the Free Market which made it possible for them to prosper by it, we would not have these opportunities either.

Consider child labor. Obviously, in a society as affluent as ours, child labor would be extremely rare with or without laws forbidding it. It is safe to say that the number of working children even when child labor was first outlawed was quite small, or those who chose to engage in it (or their parents) would have shouted down any attempt to outlaw the choices they made. Today, nearly all parents are ready, willing, and able to provide better alternatives to their children. But it is a common error in "political economics" to say that if most people can afford a thing, all people should be required to purchase that thing. If (and only if) working is the best option for the child, then forbidding child labor is forcing them into something worse. For example, there are third world nations that have forbidden child labor, only to see 14 year old factory workers becoming 14 year old prostitutes. This is not a step in the right direction. People should always be free to pursue the options that they, themselves, find to be in their best interests. This is not always what some arrogant, rich, white, liberal academic thinks would be in their best interests.

I'm not sure what you mean by market indenture, unless you are referring to the system of indenture under which many of our (extremely) early immigrants escaped from the mercentilist economy of England to the freer economy of America. This turned out to be a very good deal for some. It turned out to be a very bad deal for others. Eventually, it became unpopular, and involuntary servitude was instituted in America in order to force people to come under less humane conditions. Of course if the government had not intervened by sanctioning and enforcing the practice of slavery, the employers would have been left with only one option: make conditions better for those who traveled under indentures to America. This would have probably meant shorter terms of service, greater compensations, and addressing whatever complaints previous indents had had with the system. Even so, the deal offered to indents would probably only have been marginally better then the lives they lived in England. But "marginally better" beats the hell out of "trapped in England". This is evidenced by the fact that 6 out of 7 early immigrants to America in the 1600's died, but yet they continued to come. England, and her "regulated, fettered markets" were that bad.

Providing a working environment with "intolerable working conditions", of course, suffers from the same problem. If a thing is intolerable, people do not tolerate it. Now of course what we consider to be intolerable now that we have been enriched by capitalism should not be confused with what was considered intolerable by those who had been impoverished by the "reasonable, common sense" interventions of Feudalism and Mercantilism. Why would somebody work in an intolerably unsafe factory, when they could, for example, start a service mowing lawns or running to the store to buy people groceries? Well, obviously, in order to entice people into unsafe factories when they had other alternatives would become more and more expensive, and in order to attract workers, employers would have to make their factories safer. It would become cheaper to do so then to pay the workers more to enter unsafe factories. Thus the problem is resolved, without the arbitrary intervention of government, and all the costs to human flourishing which that entails. The solutions arrived at by the market, of course, would have tremendous advantages over the arbitrary dictates of the Government: this is because the issues addressed would be those that mattered to the workers themselves, not those chosen by bureaucrats bought and paid for by the industries that benefit by the extra costs they generated.

Exploitation for greed is a lovely emotional phrase. Sadly, it lacks any rational definition, when applied to a free market. One can only exploit by force, and in a free market, you can apply no force: the only way you can attract workers is to offer them a better deal. If offering me a better deal then the one I have right now is exploitation, then exploit me early and exploit me often.

The upshot is that a "fettered, regulated market" can never improve upon the results gained in "unfettered, unregulated markets". The weapons which we have so carefully fashioned to cut the wealthy down to the size our envy dictates will turn like boomerangs, mid-flight, and return to cut us to ribbons. This is because the laws will always be controlled by those who can buy them to exactly the extent that they can trick the rest of us. The more byzantine the law becomes, the more the area of incomprehension grows, and the more we will be exploited by the forces we ourselves have empowered by chipping away the risks (and rewards) of limited government. The only solution is to take responsibility for our own lives, to consider the costs, the benefits, the risks, and the rewards of our actions, and to live our lives to the best of our ability. If I refuse to take a risk there is a chance that someone who needs the reward more then I will risk what I would not, in order to receive it. That is his right. To take that right from him is the most inhumane thing that I could do.

Stupid in America

An excellent expose of why public education is the best way to promote universal ignorance in our lifetime.

The Corporation

The Corporation, by Joel Bakan, is a left liberal rant with some interesting substance beneath it. It discusses the nature and history of corporations, the odd if not absurd rulings that made them, in America, "people" under the law, and therefore entitled to rights under the 14th Amendment, and provides a litany of corporate misdeeds (in my opinion, some real and some imagined) throughout the years. It discusses the very real problem of "regulatory capture", where regulatory agencies that are created to "protect people from industry" end up serving the established interests in that industry to the detriment of consumers, potential competitors, and everyone else, but falsely concludes that more regulation is the solution to this problem. This error is repeated throughout the book, with government recommended as the solution to each and every failure of government stated or implied in the text.

There is, however, some merit from a capitalist and libertarian point of view to some of the arguments made within this book. For example, there is the fact that one of the defining attributes of corporations is the limitation of liability they provide for shareholders. The owner of an ordinary proprietorship, for example, is personally liable for his acts and the acts of his company, just as he would be liable for the same acts were they carried out in his non-working hours. The same is true of a partnership. This is not true of corporations. The liability of investors in corporations is limited to to the value of their investment. This is not much of a problem for companies and people who do business with the corporation. They know about this limitation, and that their potential recovery in suing a corporation are limited to the value of that corporation. This is why corporations are required to put the ubiquitous "Inc" after their name on contracts, for example. But there are people effected by the acts of corporation who do not have any choice. A corporation's externalities, for example, are different from the externalities of a person or an ordinary business, in that even if you sue the corporation, your recovery is limited to the value of that corporation. And since externalities are, by definition, "effects of an act on non-consenting third parties", you cannot choose to have externalities imposed on you only by people and ordinary businesses. If corporations exist, and if they produce externalities, as everyone does, they can impose externalities on you, and there is no way to opt out. This can be considered an initiation of force.

Mr. Bakan goes to great length to point out that corporations, in their single minded pursuit of profit, are inhuman. This is, of course, true. Corporations, legal fictions aside, are not people. He fails to point out that your car, your house, and your dishwasher suffer from the same failing. Corporations are more like machines then like people. His assertion that they are psychopathic, however, does not hold water. Psychopaths are people, and it is reasonable to expect a conscience from people. If they fail to display such, they are defective people, and therefore may be termed psychopaths. However, hammers and bulldozers are rarely described as psychopaths, despite their notable lack of conscience. However, there is a grain of truth in this argument as well. Corporate directors frequently act as if their limited financial responsibility for the acts of their corporation is also a limited moral responsibility. This is false.

So what can we do about the real problems concerning corporations? How would they be handled in my perfect world? Here I differ with Mr. Bakan. In my perfect Libertarian world, there would be no limited liability for corporate shareholders. Instead, there would be insurance companies which served to protect shareholders from liability from the actions of the corporations in which they invested. This insurance could either be purchased by the shareholders themselves, or could be purchased by the corporation itself on their behalf. Thus, those exposed to externalities by corporations would be able to recover their losses from the owners of the corporation or it's insurance company, even if it exceeded the value of the corporation. And stockholders would bear the cost of liability for their corporations, just as they do for their homes and cars. The insurance companies would vary their rates, on a case by case basis, for the shareholders of the various corporations, based on the behavior of those corporations.

I would also return to some of the older rules regarding corporations. For example, I would not permit corporations to own stock in other companies. This is a human right, but it is just that: a human right. There is no reason that companies must own each other, except for the purpose of obfuscation. And obfuscation is the bane of any market economy. Rather than merging companies, there is no reason that a corporation cannot sell it's assets to another, pay off it's shareholders, and cease to exist, rather than selling itself to another company. The main difference would be that the name of the company would cease to exist along with the company, and contracts would not be transferable. It really annoyed me, for example, when Cingular Wireless bought AT&T wireless, and without my consent, I became a customer of Cingular. I did not choose to do business with Cingular, and did not like the way they treated me.

And I would strongly consider returning to the rule that corporations could be created only for a narrowly defined purpose and a limited time. This might entail some loss of economies of scale, but would allow much greater flexibility to investors in choosing which things in which he wanted to invest.

What would the results of these changes be? In my opinion, they would reduce the number and size of corporations by removing one of the primary reasons (if not the primary reason) for incorporating, and by limiting corporations to a single purpose. The only time when it would be to the advantage of investors to incorporate would be when they needed to in order to raise the requisite capital in order to pursue the limited objectives they pursued. Transparency would be increased, as I suspect that insurance companies would be reluctant to insure shareholders of companies which were not forthcoming about their business practices, and willing to submit to inspections by the representatives of the insurers.

The problem that would not be solved by these changes is the problem of externalities. This problem is not specific to corporations, but merely exacerbated by their limited liability. The only solution I can see here is a more complete definition of property rights, and for more things to be privately held. But I will return to that subject in a forthcoming article on externalities.

Peaceful Socialism

Somebody asked me, once upon a time, if there was any characteristic of Libertarianism which made it indisputably the most just form of government. There is. That characteristic is that it is so open, so free, that nearly any form of social organization is possible within the Libertarian framework. The converse is not true. One cannot set up a Libertarian society within a Socialist society, as having everything allocated by government would make private property impossible. But it is possible, to the extent that a Socialist society is possible at all, to set up a Socialist society within a Libertarian society, given three conditions.

Remember that in a Libertarian society, the only function of government is to protect individual rights from attack, either from inside society, as in criminal activity, or from outside society, as in invasion. This is truly a least common denominator government. So how can Socialism, which requires complete centralization of all types of economic activity, possibly be achieved within a Libertarian society? Quite easily. The proviso that a Libertarian society forbids the initiation of force implies the following three conditions:

1. That members of the Socialist subgroup not be coerced into joining that subgroup. For the subgroup to kidnap members of the society at large, or to otherwise force them to participate, would obviously be an initiation of force. This cannot be permitted. But so long as subgroup members were willing participants, force would not be involved, and therefore there would be no conflict between the Socialist subgroup and the group at large. By the same token, the group at large would have no right, and no desire, to forcibly prevent those who chose a Socialist lifestyle from enjoying that which they have chosen.
2. That members of the Socialist subgroup not be forcibly prevented from leaving their subgroup. That is, if and when members of the subgroup chose to leave, Libertarian principals would require that the group at large intervene were we to discover that he was forcibly prevented from leaving the subgroup. Just as group marriage would require a contract that specified the terms for divorce, a Socialist subgroup would require (or at least would be well advised to have) a contract with each of it's members specifying, for example, what sorts of property the member would be permitted to retain if and when he left the group, and whether a member whom had received investment in the form of education would owe the subgroup compensation if he immediately left the subgroup upon completion of this education. The only requirement which a Libertarian government would impose on this contract would be that he be permitted to take is body with him, and that he not be subjected to a debtor's prison in order to repay whatever was required by the subgroup's contract. All other contract terms would be purely private matters between the subgroup and it's members.
3. That members of the Socialist subgroup not confiscate property from non-members in establishing or expanding their holdings. That is, they could not initiate force against their neighbors in order to gain more land on which to live and/or work, they could not take factories by force. They could, however, buy any property they desired, in order to expand their operations.

These simple conditions would make it perfectly possible to form several different kinds of Socialist organizations that could exist at peace within a Libertarian society. Since there would be no pesky tax collectors coming around, the subgroup would not be forced to trade with members of the group at large in order to get hard currency to pay taxes. But there would be nothing to prevent them from trading with the outside if they so chose. They could either trade in kind, and preserve the purity of their moneyless system, or they could trade goods for cash, and maintain a collective store of cash for future trade. They could even, if they so chose, invest their collective wealth in the stock market of the outside world, in order to have their operation partially financed by the outside economy. No Libertarian society would object to any of these arrangements.

There are several collective arrangements that could be supported in this way.

1. A Kibbutz, a form of collective farm in which the inhabitants of the farm share equally in the proceeds thereof. They could be either self-sufficient, or trade externally (as a socialist nation likely would), or any combination thereof. They would be free to structure their operation as they saw fit. All they would need to do is to assure themselves that they were able to produce as much as their members consumed. And that, of course, is also a requirement of a Socialist government. It is an inescapable law of nature.
2. A collective business, or coop, in which the employees of a business, or other like-minded individuals, buy or build a business and operate it for themselves. There are innumerable ways to structure such a business, and I am no expert on what they are. But surely anyone who was interested in this form of organization would be able to come up with an arrangement that would suit them.
3. Many others, limited only by your imagination.

Why would any Socialist prefer such an arrangement to revolution or gradual socialization of an economy by successive interventions? There are several reasons. Perhaps the individuals in question truly do not want to do harm to anyone. My biggest problem with Socialism is that in a Socialist society, I would have to either be killed or tortured/starved into submission. This is something that I would take rather personally. My preferred social organization makes no such requirement of you.

Or perhaps one might be committed to Socialism, but unsure of what organization might work. In a Libertarian society, I predict that their would be thousands of groups who wanted to try different types of communal arrangements. If they were to carry out a revolution, and impose their first choice on a nation by force and law, they would find it difficult to change from that first organization to another if the first did not work well for them. And since it was on a national scale, they would only be able to try one form of Socialism at a time. But under a Libertarian governments, hundreds or thousands of organizational structures could be tried, limited only the members who desired to make the attempt.

Or perhaps you aren't entirely sure that Socialism will work, but want to make the attempt. A Libertarian society would allow a Socialist society that did not work to disband or reorganize, should Socialism, or the brand of Socialism they chose not work. This could be done without violence, and without the seventy years of hell that the Soviets endured, simply by unanimously choosing to disband. Or if part of the group wanted to disband, and the others did not, those who wanted to leave would always be free to do so.

So although I do not think that Socialism is workable on a large scale, I invite non-violent Socialists everywhere to join the Libertarians in attempting to establish a framework in which everyone's dreams, Capitalist and Socialist alike, can be pursued. I even have a suggested slogan for you:

We are the collective. You will not, unless you so choose, be assimilated.

The Social Contract

When I grow annoyed at having the fruits of my labor, my liberty, and slowly but surely my sanity confiscated by our benevolent and kindly government, invariably somebody points out that I am a party to a 'social contract'. Being the literal minded SOB that I am, I generally point out that I never entered into any such agreement, and that I can hardly be bound by a contract to which I never agreed. The response is generally some noise indicating that I implicitly entered into the agreement when I chose to be born, to which I can only respond that I do not recall choosing to be born, and surely had I known the conditions of the agreement I was entering into, I would have made different arrangements. Of course it's a moot point, since we cannot be bound by a contract until we reach adulthood, and my parents were quite clear that that did not happen until long after I was born. They are less clear about whether it ever happened.

So I thought I might feel better if I obtained a copy of this document, affixed my signature, and was thereby honor bound to adhere to it. Sadly, in all the hubbub, it appears that the document has been misplaced.

So in order to reach the serene state for which I long, I am going to have to draft a new copy, based on current practice. I am not a lawyer, but since nobody else has stepped up to the plate, I guess I must.

Here is my first draft:

I, the undersigned, hereby agree to enter into "the social contract". I agree to provide the government with a blank check, which will allow them to at any time and in any manner they choose to take any amount of my earnings or accumulated property that they may desire. Further, I agree to bind myself to them as an indentured accountant, and to spend whatever amount of time shall be required in plumbing the depths of the byzantine and incomprehensible tax codes, as they shall be spelled out by the congress, and interpreted by the IRS. I accept that any assistance I am granted by my masters in pondering these imponderables shall be granted at their leisure and agree to take responsibility for any errors that either I or they may make in these calculations, as well as whatever penalties they should impose upon me for said mistakes, regardless of whether said mistakes are mine or theirs. I disclaim any responsibility on their part to be accurate, fair, sane, or humane.

I agree that in return for this consideration, I will be granted guidance in how to live my life, under the gentle tutelage of the Government's jack-booted thugs, who will provide me such kindnesses as burning down my dwelling with my family and friends inside, shooting my unarmed wife as she stands in the front yard holding an 18 month old child, imprisoning me, brutalizing me, lying to me, impoverishing me, redistributing my earnings to their cronies at their whim, drafting me to serve in their wars, granting or refusing me medical care at their whim, not based on the merits of the treatment I require but on the political expediency of my receiving that treatment, and other tender mercies too numerous to mention and too ghastly to consider. I am sure that by this process I will be able to finally understand ethical behavior and good will toward those men, women, children who are not located in some place which must be bombed in the national interest.

I agree not to attempt to comprehend the simple and concise wording of the constitution, or to delve into the mysteries of what phrases such as "shall not be abridged", "shall pass no law", might mean, as if I am unable to understand the tens of thousands of pages of the tax code, I surely could not begin to fathom the 4543 words that make up our constitution. I also acknowledge that the ninth amendment, otherwise known as the "but wait, there's more!" amendment, should not be construed to imply that I actually have rights that are not enumerated in the constitution (being neither female nor pregnant) and that the tenth amendment, which states that any power which is not explicitly granted to the federal government is explicitly denied them was just an April fools joke on the part of the founding fathers. They were such kidders. You should have seen some of the pranks they played on the British.

I agree not to question why the 18th amendment was required to start prohibition I, but no amendment was required to start the war on sick, harmless addicts and recreational drug users. I also agree to ignore the fact that harmful addicts, could have been dealt with under pre-existing laws against doing harm.

I agree in all matters involving the constitution to submit to the ageless wisdom of Chief Justice Humpty Dumpty:

When I use a word it means just what I choose it to mean, neither more nor less. The question is, who is master?

I agree to ignore the fact that is was not Justice Dumpty who used the words in the Constitution but rather the founding fathers, and that it was not just written but carefully negotiated. We all know what happens, after all, to the best laid plans of mice and men. Sooner or later someone decides that since they 'interpret' the constitution, and since the word 'interpret' is one of the words of the constitution, they may 'interpret' 'interpret' to mean alter, change, legislate, repeal, destroy, mangle, or any other damn thing the feel like 'interpreting' 'interpret' it to mean at the moment. We are, after all, a nation of lawyers, not of men.

In short, I agree to obey, rather than thinking. To coast rather than striving. To work, not for those things that I value, and those people whom I love, but for the aggrandizement of the omnipotent state, and the advancement of those things I abhor. I agree that my life is not mine, but is the rightful property of my neighbors; that it is their goals I must pursue, their wants I must satisfy, their lives which I must make meaningful.

On second thought, this contract would not be binding. Under American law, in order for a contract to bind, each party to it must receive something of value, and though the document gives away my life, my fortune, and my sacred honor, it provides nothing for me. So I guess it won't solve my problem after all. Oh, well, back to the drawing board!

Capital to the People!

The Mystery of Capital, by Hernando de Soto, is a must read for anyone who studies or debates free market economics. Capitalism is the most powerful engine for allowing people to lift themselves out of poverty and empowering anyone willing to make the effort to reach their dreams. But in some developing countries, Capitalism is not reaching these goals. This is not because of "market failure", but rather because of government failure. De Soto demonstrates effectively how much damage a government which fails to provide simple, easy, inexpensive and effective registration of property and is therefore unable to enforce property rights can do. Through studies performed in his native Peru and throughout the third world, he illustrates again and again how the entrepreneurship of poor people is thwarted by the governments that are supposed to be protecting their rights.

Consider the Philippines, where it takes 168 steps and 13-25 years to formalize informal urban property. Or Egypt, where the procedure to gain access to desert land for construction and to register these property rights takes 6-14 years and 77 steps. Or Lima, Peru, where 728 bureaucratic steps must be braved, in order to obtain legal title to a home in a validated housing settlement.

The result of this madness? People build concrete and cinder block homes on land they do not own. People are forced to run their businesses illegally because running a legal business is impossible. And under those conditions, although these people have assets, they have no way of turning these assets into capital. Who would write a mortgage on a home built on land whose ownership cannot be determined? Who will finance the expansion of a business which exists only because the authorities have not yet gotten around to shutting it down? How can people escape from poverty, if access to the very basic legal system that capitalism requires is beyond their means.

Please click the link adjacent to the title, in order to order this fine work, and to finally put to rest the illusions of those Socialists who claim that the countries where many are unable to experience the benefits of capitalism is "proof" that capitalism creates wealth only for the few at expense of the many.

Why socialism doesn't work (part 1)

First off, let's imagine Marxism as Marx imagined it. Everyone has become the "New Socialist Man", and is no longer interested in their own life, wants, needs, dreams, or aspirations, but cares only about the almighty State and what they can do for their government. There is no money. There is no market. There is just whatever amount of stuff happens to have either been stolen from the bourgeois (capital) and the land itself. The running-dog capitalist exploiters of the noble workers and virtuous peasants and their itching-and-scratching-dog lackeys have been heroically tortured into submission or justly executed along with their families. It is time to celebrate our glorious revolution and to proceed to enjoy our new workers' paradise.

There is a problem, however. We have abolished money! We have abolished the market! We have no way of determining if anything is more or less valuable than anything else! So how do we decide what to produce? The answer is that in the absence of a free market, we have no way of determining whether ten tons of iron ore (about two tons of iron), 200 pounds of rubber and plastic, 50 pounds of glass and the labor, equipment and facilities required to turn the forgoing into an automobile are worth more or less than the automobile we could produce from them. Moreover, we have no way of comparing the value of ten of those potential automobiles to the value of one railroad engine. Or of five tractors. Or a refrigerator (which requires some different materials, and some of the same materials). Or a computer program (which requires almost none of the same materials and a totally different type of labor). We have no idea what we can do to serve our fellow man, which we want oh-so-badly to do, because we have no idea what he values.

So, with heavy hearts, we have to return to the drawing board. But do not lose faith, comrades! Just because Marx's dream of a moneyless and marketless economy does not stand up to even casual scrutiny, that doesn't mean that he was wrong. He just wasn't right. And logic, right and wrong are concepts of the bourgeois mind anyway. Our superior proletarian minds will find a way to overcome these temporary setbacks on our glorious revolutionary road to freedom, democracy, and the mass murders of all those who disagree with us.

Libertarian Strikes Back

Here are my responses to a post by capitalistimperialistpig. The original post is accessible by clicking on the title.

The most pointed critique of social security and liberalism in general is the libertarian critique. The problem with libertarians, for a liberal, is that we have too much in common. We both believe in individual rights, tolerance of individual differences, and dislike government prescription of religion. The basic difference, it seems to me, is the different answers we give to Cain's (with thanks to the Captain - my original version had the corpse asking the question!) famous question: "Am I my brother's keeper?"

Actually, the question "Am I my brother's keeper" is a matter of personal conscience, not a political question at all. The question on which I differ with socialists and modern "liberals" is "should the state force me to be my brothers keeper above and beyond the dictates of my conscience". This comes down to your assumption below that libertarians are opposed to slavery. Yes, we are. It is nice to run across a liberal who actually states (rather than implying) that he is not. It clarifies things when you admit what you really believe: that you have the right to enslave your neighbor in order that his life can be spent in pursuit of your goals, rather than in pursuit of his own.

That's not really my basic bitch against the libertarians though. My real complaint is the same as my complaint against most religion - its premise is a fraud. For those who can't stand to wait for the punchline, I believe that trying to implement libertarian principles leads to tyranny or social disintegration. Demonstrating that takes some historical (and pre-historical) context.

The premise of libertarianism is as follows: you own yourself. In what way is that premise fraudulent?

For all but the last 15,000 or so of the 100,000 years the human species has existed, all humans lived in a sort of libertarian paradise - no government, no organized religion, and few social constraints on behavior. A few lived that way until very recently. In many places people were able to achieve a kind of equilibrium with their environment, with population naturally controlled through homicide, infanticide, and starvation.

I'm afraid you've mistaken us for anarchists. There are good arguments for anarchism, but I am not entirely convinced by them, so I will defend your target of record, Libertarianism, not your straw man, Anarchism.

Clearly, humans are well adapted to that kind of life, so its no wonder libertarians would like to recapture that. The catch - there's always a catch - is that they don't want to give up the comforts of civilization.

No, we want to completely realize the benefits of civilization by removing fraud, force, and the threat of force from human interactions except in self-defense. That process has been started, and the USA is (as of yet) the closest any human society has come to that ideal, but we are not there yet, and have been regressing since the Great Depression from Republican (not the party, but the type of government) limited government to "my gang is bigger than your gang" pure democracy.

Hobbes and Jefferson had somewhat different ideas about the proper role of government in civilization, but I think we now have some historical perspective on actual as opposed to theoretical development, so that will be my approach. The serpent in the above described libertarian paradise appeared in the form of horticulture and the settled life it required. Hunter gatherers have no property but that which they can carry with them, so their wives and daughters are almost the only things they have worth stealing. Farmers have property - stored food, dwellings, and tools too big to lug around much. They also develop population densities large enough to become a menace to their hunter gatherer neighbors and each other. Thus, the necessity for organized defense.

Of course.

It's doubtless natural to be willing to fight in defense of one family and property, but it's decidedly unnatural to lay one's life on the line for the neighbors. Consequently, tribal and larger societies develop an array of strategies to compel service in the common defense, including elaborate patriotic social structures, organized religion, professional armies, and, or course, the naked threat of violence against non-participants. Military organizations inevitably partially enslave their members.

Why are societies formed in the first place? The answer is that organized defense is more effective and more efficient than disorganized defense. Thus the best way to defend your family and property is to join in the common defense of your nation. This is unnatural, in that animals would not generally do it, but one must understand that humans have one natural defense that animals lack: reason. Without that, we are lost.

I'm pretty sure libertarians oppose slavery in principle, but how can you have armies without it. The

Yes, we do! You can have armies without slavery by making your society worth defending. Worth defending to whom? To those who are asked to defend it. I will agree with you, however, that a society not worth defending must resort to armies of slaves.

only good defense anyone has found so far is the republican form of government. Unfortunately, as the history of Greece, Rome, Florence and many others shows, the Republic is fragile. There are number of diseases that afflict the Republic, as Adams and others among the founding fathers noted. One of the most pernicious is the concentration of wealth and power in a few dynastic families. Libertarians, at least our current Rand influenced version, seem unwilling to address this problem. Several times our ancestors found it necessary to attack this problem, by eliminating primogeniture, instituting the income tax, and inheritance and gift taxes.

Primogeniture still exists: in the U.S., at least, you are permitted to leave your entire estate to your first born child if that is what you desire. People rarely desire that, so it is rarely done. As for the income tax, inheritance tax, and gift tax, the first thing that should be noted about them is they are not wealth taxes, they are transaction taxes. Thus they do not have any effect at all on those who are living off their fortunes: they effect people who are attempting to build fortunes, thereby protecting the positions of established fortunes. So such taxes protect "the concentration of wealth in a few dynastic families". The one that comes closest to the effects you seem to want is the inheritance tax, but that is easily evaded if you can afford the lawyers to make it happen. It is again a punishing tax for the middle class, but not so for the truly rich. Two taxes that would come much closer to the goal of reducing fortunes are land taxes (http://en.wikipedia.org/wiki/Geolibertarianism) and consumption taxes (see http://fairtax.org). Of course, a libertarian society would have very little governmental spending, so taxation would do very little to prevent concentration of wealth. That is not the purpose of taxation, the purpose of taxation is to fund your (hopefully minimal) government in it's efforts to defend you against crime from within and invasion from without. The advantages of these schemes of taxation is that, unlike those you listed, they would not increase the concentration of wealth.

The most important factor in keeping wealth concentrated is regulation. A relatively unsophisticated person can run a simple business in an unregulated economy. The only thing he needs to be able to do is create something -- anything -- that someone -- anyone -- values more it's creation cost him. That is not a particularly high hurdle. 10th century blacksmiths were able to run businesses. Crack dealers are able to run businesses. Pimps are able to run businesses. Why could your average American not run a business? Regulation. In order to run a business within the law in America, one would have to have a legion of lawyers on staff. As a matter of fact, I would be surprised if any businessman told me that his business never broke the law. There are 30,000 pages of regulation in the federal registry. Not to mention state laws. Nobody can be sure at any given moment that they are not breaking the law. They just hope that if and when they get caught, they have enough political pull to avoid the penalties, or enough money to bribe the official in question. Start-ups run by poor people almost never have those resources. Again, the position of the few is protected from encroachment by the many.

The second most important factor that keeps wealth concentrated is the shortage of capital. Every job that is created costs money. When there is more than frictional unemployment (see any econ text book for explanation), the price of labor tends to be low and the returns on capital tend to be high. The market will solve this problem very quickly, if left to itself, because those high returns on capital will cause people to make a greater effort to accumulate capital. Thus the returns will (largely) be reinvested, and those who earn more than subsistence wages will be more likely to invest. These investments will create more and more jobs. Eventually, there will be more jobs than there are people to do the jobs. Employers will have to pay more in order to get people to work for them. As this happens, more people will be earning more than subsistence wages. The high returns of capital will drive some of them to invest. More jobs will be created. And the cycle will continue. The rich will get richer, and the poor will get richer. The poor will get richer faster. And that is how it should be.

Unfortunately, Socialists have misinterpreted the high returns of capital as "exploitation". So instead of letting the increase in capital exceed the increase in population, they attempt to revenge themselves on capitalists for being successful. This makes capital grow more slowly, and prolongs the process. They have not entirely stopped economic growth, but they have slowed it down. Eventually, either socialists will reverse the trend of improvement by bringing the economy to a halt, and society will collapse (bringing about the anarchy you fear) or the free market will be welcomed and understood, and the conditions of workers will improve as they generally have since the transition from Mercantilism and Feudalism to capitalism started in the 1700's. As the level of capital investment balances the size of the population, the levels of wealth will equalize themselves.

A third important factor is mercantilist/socialist policies that attempt to control the economy to benefit some groups at the expense of others. For example, corporate bankruptcies that leave the same people in power that ran the company into the ground in the first place. Chrysler comes to mind, along with others. This means that incompetents get to continue wasting resources, and the taxpayer gets stuck with the bill. Failed companies should be allowed to cease to exist. This is a specific case of the general problem of subsidies. Any subsidy, whether paid to corporations, to farmers, to bums, or to anyone else, causes less valuable uses of labor and capital to replace more valuable uses of labor and capital. Moreover, subsidies go to those with the most political pull, who are generally the richest and most powerful members of society. Again, the richest are protected from encroachment by the poorer.

There is one more feature of the world economy (and economics in general) that will slow down the process of equalization in America. Since many countries have pursued mercantilist and socialist policies even more enthusiastically than we have in America, there are countries out there with huge populations of desperately poor people. As they abandon these policies, it will be most profitable to do business where there are the greatest concentrations of poor people, and the least capitalization. But this is a self liquidating phenomenon. As people invest in poor countries in order to take advantage of the cheap labor there, they must make those countries richer (if the foreign companies were not offering more than their workers were making before, their workers would not work for them). This will begin to take up the supply of poor people in these countries. Since these new producers will want to consume (why else would they be producing), local businesses will expand or be created to provide them will things to consume. This will further limit the supply of poor people in these countries. Eventually, there will be enough wealth in these countries that there is no longer any particular reason to invest there, as their labor rates approach ours, but that is not really a problem, since their economies will be healthy and thriving. And as that happens, and standards of living homogenize in the free world, the richer countries will begin growing faster again.

This is not to say that a free society would have no gradations in wealth. Of course it would. Different people have different values, and strive for different things. Why should someone who values wealth, and is willing to earn it, have the same outcome as someone who would prefer to exert themselves as little as possible and spend the rest of their time fishing? Also, different people have different abilities, and therefore would have different levels of success. The only way that any society can provide equality of results would be to provide inequality of treatment, rather than the Libertarian ideal, the Rule of Law. But the very large differences we see today would by and large disappear, and since it would be impossible to make your money by coercing others to do business with you (through government power) or by preventing people from competing with you (through government power), we could be sure that anyone who did amass a large fortune did so by providing us with those things we most value in the highest quality and at the best price. And those are differences I can live with very happily.

As long as libertarians refuse to embrace this necessity, they are the enemies of freedom, and need to be treated as such.

As long as socialists refuse to recognize that what I create belongs to me, they are enemies of freedom, and need to be treated as such.

If we had a first amendment ...

One often hears people bewail the fact that in our society, often both 'the husband' and 'the wife' have to work in order to earn enough money to live and support our bloated and spendthrift government. We could solve this problem by cutting government back to the size mandated by the constitution, but I have grave doubts as to whether the weasels in charge will give up any signifigent amount of power without bloodshed. So I have a modest proposal for the intrim: change the rules.

There is no reason, outside of religion, that the size of a family must be fixed at 2 adults + zero or more children. And since the first amendment of the constitution puts protection the sanctity of anything completely outside the purvue of the federal government, sanctity being a purely religious concept, the laws that limit families to that size are completely unconstitutional. (Yeah, I know, the constitution also forbids the existence of the FDA, the DEA, two thirds of the ATF, the various educational prevention organizations, and most of the rest of the federal government. But none the less ... ) So why not allow families to be formed by any group of consenting adults that chooses to form one?

Some will surely say that human biology precludes this arrangement. Humans, they will say, have a biological imperitive that forces them into monogamous relationships. (Obviously, they never met my ex). They will be completely wrong, but they will say it none the less. To mis-quote Robert A. Heinlien, forgive them: for they are young and think that the customs of their tribe are laws of nature. Not only is there no such biological imperitive, but globally, plural marriage is allowed in the cultures of something like one third of the world's population, including Muslim countries, among the Bedouin of Isreal, among Jews in Yeman, among traditional Mormons, in several experimental Christian groups, and many other societies.

Morover, many of the societies that do not practice plural marriage, including mainstream Jews and Mormons, do not practice it because they have been forced or intimidated into giving it up ... Our government flew in the face of it's own constitution by forcing the Mormons to abandon the practice as the price of statehood for Utah, and I am told that some Jewish sects gave it up for fear of angering the Gentiles.

In many of the societies that do practice plural marriage, economics limits the practice to about 10% to 25% of the population. This, in my opinion, is due to two major factors: in many of these societies the economic status of women is limited, and their ability to work, is savagely curtailed. And often only poligamy ... one man, more than one women ... is practiced. But there is no reason this must be the case!

Imagine the opportunities availiable with plural marriage. A family of eight adults with 16 children could afford to allocate two or more full-time caregivers to the children, and still field up to 6 breadwinners! Two cannot live as cheaply as one, and 24 cannot live as cheaply as 16. But 24 can live together much more cheaply than they can live apart. Even with our corpulent government, this should be enough to allow economic success, and discretionary income as well. This discretionary income could be used to finance continuing education or to invest in starting a business, further increasing the economic opportunities of the family, and decreasing our dependance on corporations to create jobs. The possibilities are endless. No longer would men or women be unable to enjoy child-rearing due to medical problems. No longer would economies of scale be availiable only to business. A large clan could provide it's own group health coverage, or simply marry a couple of doctors!

People will wonder: how will we handle the legal implications of such groups? What about divorce, alimony, separation, health benifits from employment, and other issues? That's the easiest part. Rather than the one size fails all scheme of marriage we have today, entering into a plural family would simply be a matter of executing a contract. Most of these issues, like inheritance, divorce and alimony would be specified in the terms of that contract. No-one would be able to say 'the terms of this contract are unfair', since they would have negotiated those terms themselves in the process of forming the union. As for health benifits and insurance, those issues would be (slightly) more complex, as they involve third parties. But companies like to make money, and if there is demand for a service, it will be provided. The only reason that companies sometimes balk at providing services to 'domestic partnerships' is that they are sometimes required by law provide services at a loss. This, too, would become a non-issue in the presence of freedom.

Of course the ruling parties won't like these ideas.

The Democrats will fear that these arrangements could erode the victim class that has become their base. And they would be right. Only government needs a victim class, and only over-regulation and violence can create one. The victim class would become a thing of the past, as people freely formed the alliances that made sense in their own lives, and met their needs.

Republicans, on the other hand, will panic when they consider the sexual implications: Who, they will wonder, would sleep with whom in the presence of such freedom? How will we impose Christian morality on these people? Well, Mr. Bush, the imposition of Christian morality -- or that of any other religion -- by the government is unconstitutional. I know that means little to you, but it is still important to some of us. But to answer your question: I don't know who sleeps with whom -- and I'm not asking.