A Dutch Uncle's Advice to Race Warriors

 

Wikipedia describes a Dutch Uncle as follows:

 

Dutch uncle is an informal term for a person who issues frank, harsh or severe comments and criticism to educate, encourage or admonish someone. Thus, a "Dutch uncle" is the reverse of what is normally thought of as avuncular or uncle-like.

 

In this essay I will give some Dutch Uncle advice to those who fancy themselves as fighting the good fight in the war over racism. I assume that your intentions are honorable, because if they are not, then my advice will be dismissed out of hand because it is irrelevant to your true intentions of eternal conflict.

 

Your premise is that you or your ancestors were the victims of past discrimination based on race; therefore, you are justified in admonishing your fellow citizens who are not minorities, perhaps even demanding reparations. Furthermore you are entitled to practice discrimination against them as compensation and force them to repent publicly for their own actions and for the actions of their ancestors. You demand these humbling admissions even if there is no evidence of individual discrimination. As a recipe for never-ending racial conflict, you could hardly have adopted better tactics.

 

First of all, there is no objective or valid method for determining the extent of past, nationwide discrimination other than a close examination of discriminatory laws. The so-called Jim Crow laws of the post Reconstruction era South certainly qualify, but it is safe to say that these were removed long ago. Today the only discriminatory laws punish those who are not considered to be minorities. I leave it to you to decide who these victims of "affirmative action" might be. Race warriors are left with nothing more than seeking insult and injury in the completely legal actions of your fellow citizens as they go about their daily lives. This is especially divisive when inculcated into the minds of children; i.e., telling them at an impressionable age that they cannot achieve their full potential in life because others hate them for the color of their skin.

 

Now here's my first Dutch Uncle advice: Forget about it. Yes, forget about it. Ignore it. Put it out of your mind. There is nothing--I repeat, nothing-- that you can do to change people's minds....OTHER THAN PRACTICING EXEMPLORY BEHAVIOR YOURSELF. Do not become bitter. Do not ask government to intervene in some way to placate your real or perceived insults. All that will happen is the opposite of what you truly desire. Telling someone that he is a racist, whether he knows it or not, will get you nowhere. In fact it will get you LESS than nowhere. It will harm your cause.

 

Here are some more Dutch Uncle rules for would-be race warriors:

 

1. Perfect yourself through continuous self-improvement and self-reflection. Every man contains the seeds of good and evil within himself, but he must fight his own devils alone. No one can make you a better person and no one can prevent you from becoming one.

 

2. Forget about "fighting for social justice, etc." as an occupation. Your occupation should be finding a way to integrate yourself into the market economy. You do this by building your personal capital base. Become someone others can rely upon, who has skills and knowledge that others admire. Yes, you get it now. Stay in school. Pay attention in school and do your best. Become self reliant and self dependant. Do not rely upon government handouts. These are traps to a lifetime of dependency and bitterness. This should be a strong principle. Work hard. Work smart. Live within your means and do not begrudge others who are more successful. This is the true path to good self-esteem. The most important component of your personal capital base is good character, honesty, reliability, integrity. These are the traits that are most desired in life and also the traits that are most lacking. One can acquire many skills and honors, but nothing is so valuable as one's own good name.

 

3. Turn the other cheek. Do not respond negatively to perceived slights. Be magnanimous; i.e., assume that others did not intend to slight you. Remember the adage--Those who seek trouble usually find it. Do not be that person. Hall of Fame baseball star Ernie Banks once was asked if he had ever suffered insults and discrimination due to his race. He said of course he had. When asked how he responded to these insults and how he remained so cheerful, Banks said, "I killed them with kindness." This is the path to true self-worth. Do not let others make you bitter. Pity them instead.

 

4. Build a strong, loving relationship with your family. Cultivate lasting friendships. Make friends by being a friend. No one can have too  many friends. Be helpful. But most of all, remember that charity begins at home. In other words, your family is your foundation to happiness. Cultivate a strong family network. Do not keep a mental scorecard of whether you have helped your friends or family members more than they have helped you. Just be the person upon whom others can rely, whom others consult in times of trouble, whom others look upon as a rock of kindness and wisdom.

 

None of this is headline grabbing. None of this will get your name and picture in the paper. Forget about seeking accolades from becoming a race warrior. The real, lasting accolades, and the only ones that are important, will come to you anyway.

Denying Reality Leads to Tyranny and Societal Failure

 

The common thread that connects failed societies, from Weimar Germany to the Soviet Union, is an almost pathological insistence on denying reality. Weimar Germany denied that masses of printed money would destroy civilized society. The Soviet Union insisted that Soviet Man would emerge spontaneously from the ashes of capitalist society. Weimar Germany spawned Nazi Germany. Nazi Germany was completely destroyed, both physically and politically, by the World War II Allies. Mercifully, the Soviet Union simply collapsed after seventy years of consuming capital to achieve the  phantom of the classless society. Today both Nazi Germany and the Soviet Union are synonymous with tyranny and failure. Both nations murdered millions. Both nations no longer exist. True, Germany exists as does Russia, but I contend that both are  new nations. Neither is perfect, but neither claims a political heritage to the nation that preceded it.

 

Pathological policy errors flowed inexorably from a skewed view of reality in both Nazi Germany and the Soviet Union. Once this view of reality was deemed to be above criticism, its champions adopted increasingly tyrannical policies. Nazi Germany's Aryan Supremacy racial theories seemingly justified the murder of the handicapped, Gypsies, those of alternative sexual orientation, Jews, and Slavs. In the name of birthing a new Soviet Man, the Soviet Union murdered anyone who stood in the way of its program to confiscate all businesses, including small farms. When businesses and farms failed, there was no soul searching as to root causes that might lie in Marxism itself. No, the problem had to be saboteurs within society. Reality, you see, was what the Soviet Union's Politburo said it was. As the vanguard of the proletariat, the Politburo stood outside society and saw its flaws. Those who disagreed were blind to this insight and had to be eliminated.

 

Chasing the Phantoms of Alternative Reality

 

Today the West especially is adopting policies that flow from alternative realities that, frankly, do not exist. Here I list just a few:

 

1. Catastrophic global warming/climate change is caused by man and must be stopped. I prefer to qualify the term "global warming/climate change" by the adjective "catastrophic". Is the world warming? Who knows? Is the climate changing? Probably. But neither global warming nor climate change is "catastrophic". Yet it has become almost an article of faith that the earth is on the precipice of an environmental catastrophe, requiring ever more radical handicaps on our freedoms and the economy.

 

2. White privilege in the US is responsible for crimes against minorities and disparities in wealth. This critical race theory has spawned witch hunts for secret and shadowy white supremacist groups especially in the military, which has empowered investigators to find evidence of these groups and root them out. It will be imperative that these investigators actually uncover such groups, whether they exist or not. Critical race theory is the old Marxist class struggle theory in new clothes. The Marxist class struggle theory postulated that we all are born into a class and cannot escape its prejudices. But notice that the Marxist and now the Race theorists consider that they themselves are not susceptible to the prejudices in which all the rest of us are trapped. Very convenient, eh?

 

3. Covid-19 is an existential threat to human life on earth. Constitutionally guaranteed human rights may be violated with impunity. Who gets to decide all this? Why, elected officials and government bureaucrats, of course.

 

4. Modern Monetary Theory (MMT) explains that government need not moderate its spending. Government can always manufacture more money in  order to fund new programs and pay its debts . More government spending can always prevent a drop in aggregate demand. Government debt is irrelevant, because "we owe it to ourselves". MMT gave government elected officials exactly what they always wanted--carte blanche to spend, spend, and spend some more and not worry about justifying or prioritizing spending. As Keynes actually said, pay people to dig holes in the ground and pay others to fill them back up. What could possibly go wrong?

 

Champions of the above denials of reality refuse to discuss whether their view of reality is accurate. All are articles of faith and cannot be questioned. In fact, to question them is considered to be an admission of ignorance, guilt, or perfidy. One wants to destroy Mother Earth, enslave minorities, kill innocent people, and prevent all in society from enjoying unlimited prosperity. It's the old straw man fallacy on steroids. Furthermore, resources will be expended to pursue these phantoms, and more resources will be expended to protect oneself from being caught in a witch hunt. Society will live in fear--fear of global warming, fear of being branded a racist, fear of contracting a dread disease. Unfortunately, what society does not fear is that our lifetime's savings will be wiped out by the hyperinflation made possible by MMT.

 

The Austrian View of Reality

 

Contrast these phantoms with Austrian economic theory, a central feature of which is that in order to prosper man must face the reality of human existence, primarily scarcity and uncertainty. People's preferences must be accepted at face value. Man acts. This is an irrefutable axiom in that to deny it is to confirm its validity. His action is rational in the sense that he believes that his action will improve his condition. He understands cause and effect. He performs one act at a time. He performs the most important act first; in other words, he ranks his actions in order of importance. Performing an act means that he must sacrifice the execution of others until later; in other words, acting means giving up some other preference, at least until some later time. Man's ordinal ranking of preferences means that the cost of an action is determined by what he eschews until later. No two  men have the identical ordinal ranking of preferences; plus, the preferences cannot be assigned a cardinal value in order to compare one man's preferences with another. Man discovers the concept of comparative advantage and adopts the division of labor in order to accomplish more. Through the market process, man adopts a universal medium of exchange (money) in order to break the tyranny of direct barter. Now man can indirectly exchange his specialized production for a universal  medium of exchange in order to obtain his real wants. Man invents government as a specialized service in order to protect his person and his property at a lower cost. He invents law in order to adjudicate inevitable disputes.

 

 All this is reality. Peaceful exchange requires social cooperation, which brings about peace and prosperity among men everywhere. As advice columnist Ann Landers used to say, Wake up and smell the coffee!

A Rights and Logic Based Approach to Pandemics

 

We all are too familiar with the approach to pandemics taken by governments at all levels in the US. In the name of "public safety" governments assumed "emergency powers" to restrict the citizens' right to peaceful assembly (a violation of the first amendment to the Constitution) and to deprive citizens of property without due process of law (a violation of the fifth amendment to the Constitution). The fourteenth amendment applies these protections to the states, too. I will not repeat all the justifications that emanated from government that supposedly negated these Constitutional protections. Instead I will concentrate on whether they are defensible logically, using government's own criteria as the judge. The individual will be the subject of our inquiry, not the group.

 

Claim number one:

Peaceful Assembly Threatens Your Health and the Health of Others

 

Let's assume that government is right. If individuals assemble, they threaten one another's health in some way. But why should government make the decision about what constitutes a threat to health? What is its criteria? What is the threshold? Some individual in government makes this decision, but why should his level of acceptable risk be the group standard? Can't each individual decide how much risk he willingly assumes? Furthermore, if a person decides to assemble with like-minded individuals, what risk is that to those who do  not wish to assemble? You've willingly quarantined yourself, as governments recommended. Your risk is not affected by those who do not wish to quarantine themselves. They assume more risk; yours remains the same. Even if the pandemic spreads more rapidly, it does so only among those who took the risk in the first place, not you. Again, you have not been subjected to any additional risk. This is the reasoning behind the actions of many hypocritical politicians who ignored their own orders to their constituents. They merely decided that they were willing to take additional risk, and no one suggested that they were threatening others who remained in quarantine. So, logically the government imposed quarantine, AKA restricting the citizens' right to peaceful assembly, makes no sense logically.

 

Claim number two:

"Non-essential" Businesses Threaten Your Health and the Health of Others

 

The same logic can be applied to governments' decisions to lockdown "non-essential" businesses. (All businesses are essential, so that qualification is nonsense.) Government used the same rationale; i.e., that mingling with one's fellow citizens in places of business threatened the individual himself and others. But these "minglers" assumed the risk and threatened no one who did not "mingle".

 

The big question becomes this: why do those who quarantine themselves insist upon forcing quarantines on others? Certainly, businesses who choose to close may do so voluntarily. Why should they be concerned over those who do not choose to close. (Actually, I am not aware of any business that voluntarily closed due to risk intolerance. But maybe such a business does exist.) Businesses can adapt their premises to allay the fears of potential customers. This seems to be happening voluntarily for those "essential-businesses" that were permitted to remain open. Why should government dictate business practices to those who remain open? This is a decision for individual businesses alone. If such businesses adopt too stringent entry requirements, patronage will flow to more friendly competitors. If such businesses adopt too lenient entry requirements, the same thing will happen. There is no objective guideline for determining entry practices. In fact, the same kind of businesses may be more or less stringent, attracting more or less risk averse clientele.

 

Let Perfect Freedom Prevail

 

Each individual has the right to "perfect freedom" in deciding for himself how much risk he is willing to assume from any of thousands of daily risks. We practice perfect freedom every day without even thinking about it as we go about our daily lives. Each individual may choose his own risk tolerance, because his decision cannot affect those who wish to take less or even more risk. Risk averse individuals protect themselves. Likewise, each individual business decides what is best for itself and its customers, ranging from closing down to taking no additional risk mitigating measures at all. If customers decide that the business is not taking appropriate measures, they can stay home and/or patronize other businesses with risk mitigating measure more attuned to their liking. In other words, there is no logical reason that our Constitutionally guaranteed rights of peaceful assembly and right to protection of our property need be violated in order to protect "society". Society is composed of millions upon millions of individuals, all with different risk profiles. Let perfect freedom prevail.

 

My letter to the NY Times re: Brexit as Escape from the Nascent EU Empire

 From: Patrick Barron

Sent: Sunday, March 21, 2021 11:46 AM
To: NY Times <letters@nytimes.com>
Subject: Brexit as Escape from the Nascent EU Empire

 

Re: Legacies of Imperialism by Samir Puri, reviewed by Fareed Zakaria

Dear Sirs:

If Fareed Zakaria's review of Samir Puri's The Shadow of Empire is correct, I believe that Mr. Samir has picked in Brexit a poor example to support his thesis that the world is still recovering from the fall of empires. Britain's participation in the Iraq War may have been ill-advised but it was not an attempt to rebuild the British Empire. Nor was Brexit another such attempt. Quite the opposite. Brexit was the culmination of the growing realization that Britain was becoming a vasal state to the ever-expanding and intrusive, both geographically and politically, EU superstate. Puri's Boris Johnson quote of ""global Britain" continuing its historic mission around the world" is political hyperbole and to be expected from elected officials. Nevertheless, undoubtedly it is true that Britain wishes to renew and reinforce its ties to the English-speaking world. The English-speaking world shares three traits not found in the European Union: that the people bestow ultimate legitimacy on government through representative bodies; that human rights are God-given and inalienable and not the gift of privileged political elites; and, that law emerges organically from society (the Common Law) and not from the administrative state. All three of these traits spring from perhaps the greatest political document in the history of the world: Magna Carta.

Sincerely,

Patrick Barron

20 McMullan Farm Lane

West Chester, PA 19382

Phone: 610-793-3605

GDP Hides the Damage from the Covid-19 Lockdowns

 

Do not believe government pronouncements that the economy is rebounding from very minimal damage caused by unprecedented Covid-19 inspired closures of businesses. Government will use its favorite statistic of the health of the economy to justify its actions--Gross Domestic Product (GDP).

 

GDP is supposed to represent the total of spending in the economy. It is a Keynesian term that elevates a concept called "aggregate demand" as most important. Not production and especially not savings. In fact Keynesians fear savings most of all. Now, you and I know that we can become wealthier only by saving some of our income and investing it wisely for the future. But Keynesians invented a concept called "The Paradox of Thrift", whereby they claim that the economy enters a death spiral from reductions in spending caused by an increase in savings. Individually savers may be better off, they say, but collectively the economy suffers. For example, the new auto that we savers do not buy, but rather keep our old one in good repair for a few more years, denies the automakers and all who work for them the money they need to continue production. Layoffs and plant closings ensue. The reduction in aggregate demand ripples outward, bankrupting more and more support businesses and their employees. This is the simplistic Keynesian view of savings.

 

But what happens to the money that we do  not spend on as many new cars? Is it thrown down a rat hole? No, of course not. It is invested in longer term production processes that will yield even more wealth than if we had continued our former practice of buying new cars more often. Austrians call this phenomenon a change in the "structure of production". We may produce few automobiles now, but later we'll have access to products and services that would not have existed without our previous investment. We see this in our personal financial profiles. Our savings accounts increase at a compounding rate, allowing us to live a more comfortable existence later in life. This is the truth that used to be drilled into all of us before governments' in-house economists propagandized that by being frugal we were denying our fellow citizens what was rightfully theirs: i.e. our money and our future. It's nonsense.

 

But, you may ask, where does GDP enter the picture? Remember, aggregate demand is measured by spending, which becomes GDP. There are two critical problems with GDP. One, it does  not capture spending on longer term and intermediate term production, but rather mostly retail sales. Headlines that retail sales are up are supposed to generate confidence that all is well with the economy. But is it? If you and I spend all our savings and even borrow more, we would soon find ourselves in the poor house. But Keynesians would say that our individual financial difficulties were good for the economy. Anybody buying that? I certainly hope not!

 

GDP Captures Price Inflation and Calls It Economic Growth

 

But the biggest problem with GDP is the most obvious one--that GDP measures price increases, not increases in the production of real goods or services. For example, in the past month or so the price of a gallon of regular gasoline in my home state of Pennsylvania has gone up from just under $2.50 to around $3.00. That's a twenty percent increase in price. Since gasoline consumption changes little in the short run, selling the same volume of gasoline at a higher price causes GDP to go up. But our standard of living just went down! Our increased dollar spending on the same amount of gasoline had to come from somewhere. We had to cut back somewhere else, either some other consumption item or, most likely, a reduction in savings. Whereas government says that the increase in GDP means that we are better off, actually we are worse off.

 

Increases in the Monetary Base and M2 Are Harbingers of Future Price Inflation

 

The best measure of long term price inflation is not necessarily measuring retail prices in the short run but measuring the increase in the money supply over time. If the money supply increases, eventually this increase will work its way into the price structure. It can do nothing else. The two statistics that best measure the money supply are the "Monetary Base" and "M2". The monetary base consists of all cash, wherever held, plus bank reserves held at the Federal Reserve Bank which may be converted into cash on demand by the banks. It is called the monetary base because banks can create money out of thin air by pyramiding loans on top of their reserves at roughly a ten to one ratio. Just after the 2007/8 Subprime Lending debacle the monetary base was $.910 trillion. The Fed juiced the monetary base to bail out the banks, so that in January 2020, just prior to the Covid-19 lockdowns, it stood at $3.443 trillion. That's a 278% increase. After the Covid-19 lockdowns the Fed juiced the monetary base again. Today it stands at $5.248 trillion, a further increase of 52% over the already inflated January 2020 level. And we haven't seen the effect of the recently passed $1.9 trillion stimulus bill! Since this government helicopter money will be funded completely by money printing by the Fed--a process called "monetizing the debt"--the full amount will go directly into the monetary base as the checks are either cashed or deposited to the recipients' bank accounts.

 

M2 is the broadest measure of the money supply that can be accessed by the public on demand. It comprises cash in the hands of the public (but not cash in bank vaults plus money in checking and savings accounts. M2 has exhibited similar meteoric increases. M2 stood at $7.215 trillion in 2008, then was juiced to $15.419 trillion by January of last year. It  now stands at $19.384 trillion. That's a 169% increase, and tracks very well with independent measures of price inflation of ten percent compounded per year (ShadowStats and the Chapwood Index). The $1.9 trillion third stimulus program will add dollar for dollar to M2 initially. If the banks pyramid more lending on top of this increase in their reserves, M2 will continue to grow beyond the $1.9 trillion. This is exactly what the government wants, because it will goose GDP.

 

The lesson is this--don't be fooled by government statistics, especially GDP, that the economy is recovering nicely from the Covid-19 lockdowns. The Covid-19 lockdowns have caused immense damage to the economy. Government money printing may goose GDP, but It will do nothing to compensate for  the dead weight loss that millions have suffered.

How Germany Can Save Civilization

 

The unholy alliance between accommodating central banks and spendthrift governments, born of Keynesian economics, will cause the collapse of the Western world's fiat currencies while wreaking devastation on civilization itself. Keynesian economists dominate all levels of government, government bureaucracy, the mainstream press, and universities. Keynesian economic thought puts centuries' of sound economic science on its head. Prior to Keynes, those in government were forced to, well, economize, due to the scarcity of resources, as represented by a universally acceptable medium of exchange--i. e, sound money in the form of a commodity, usually gold and/or silver. By substituting "aggregate demand" for Say's Law, Keynesian economics gave government not only a green light to spend, spend, and spend some more, but actually an obligation to do so. Furthermore, government did not have to concern itself over prioritizing its spending. Keynes actually told government to pay people to dig holes in the ground and then pay others to fill them back up.

 

Keynesian economics allows government to confiscate resources that it dare not tax or borrow in an honest monetary system. Think of a situation where most people must work to provide goods or services that they exchange in the marketplace for money with which to buy the necessities and luxuries of life. But your neighbor has a money printing press in his basement and need only print as much money as he needs to live a life of ease. That is what Keynesian economics fosters; i.e., many work and a few politically connected elites and their sycophants live luxuriously at leisure.

 

Sound Money Was the Barrier to Government Confiscation

 

The barrier to implementation of the Keynesian revolution was sound money. Government could not manufacture gold and/or silver out of thin air. It had to tax the people or borrow honestly in the bond market. The public dislikes taxes, and excessive borrowing causes interest rates to rise, followed by an inevitable recession.

 

The seeds of sound money destruction were sown at the 1944 Bretton Woods Conference, whereby US dollars could be held as central bank reserves and redeemable into gold by the US Treasury at thirty-five dollars an ounce. This was the so-called Gold Exchange Standard, but only foreign central banks and some multinational organizations, such as the IMF, enjoyed this right of redemption. The system depended upon the solemn promise by the US that it would refrain from issuing unbacked dollars. The watershed event that ushered in this new, malignant, completely fiat money era occured on August 15, 1971, when the US abandoned the Gold Exchange Standard in order to stop the drain on the US gold stock.

 

 American money printing had begun in earnest in the previous decade in order to finance Lyndon Johnson's "Guns and Butter" policy. The Fed monetized government debt to fund LBJ's Great Society welfare programs while fighting a war in Southeast Asia at the same time. Dollar claims in the form of government bills and bonds built up at central banks around the world. At the recommendation of French economic advisor Jacque Rueff, a free market economist and gold standard proponent, French President Charles De Gaulle ordered the Bank of France to redeem eighty percent of its US dollar holdings for gold, per the solemn promise made at Bretton Woods. Thus began a run on the US Treasury's gold reserves that culminated in President Nixon taking the dishonorable action of abandoning the Gold Exchange Standard. This set the course of unfettered fiat money expansion that has led the world to the precipice of monetary destruction.

 

 (President Nixon did have another option. He could have devalued the dollar to gold in order to stop the run on the US gold supply and promise that the US would stop issuing unbacked dollars. In fact, at the Bretton Woods Conference, the IMF had been given the duty to audit the US money and gold stock to ensure that it lived up to the agreement. But the IMF failed to do so.)

 

The Scenario for a Worldwide Currency Collapse

 

GoldMoney.com's Alasdair Macleod has written exhaustively of the inevitable destructive result of money printing that now has entered hyperinflation in America. Macleod defines hyperinflation not as prices out of control (yet) but as the scenario whereby government spending can be financed only through ever increasing issues of fiat money. Skyrocketing price inflation, the traditional definition of hyperinflation, follows inevitably from previous acts of excessive and increasing money printing that first reveal their destructive nature in stock market, real estate, and commodity bubbles before filtering down to out-of-control consumer price inflation that devastates society, as seen in Weimar Germany in 1923, and more recently in Argentina, Venezuela, Zimbabwe, and elsewhere. The horror stops only when society abandons the hyper inflated money and adopts a new or different currency. Weimar Germany tied its new currency to the dollar, which was still on the gold standard. But the damage had been done. German civil society had been destroyed and its citizens traumatized to the extent that within ten years full blown totalitarian dictatorship was seen as the only viable option to internal civil disorder.

 

Today there is no gold standard currency in the world to which the US and the West could link their hyper inflated currencies. The most likely outcome will be a return to a gold backed dollar, but only after American civil society has been forever altered for the worse and the American people traumatized as were the Germans in 1923.

 

Germany to the Rescue

 

But, there is an option still available to the West--a voluntary abandonment of Keynesian economics and the linking of the US dollar to its still substantial gold reserves. But what development could move the US toward strengthening its currency voluntarily? Germany!

 

Germany is the fourth largest economy in the world and probably the soundest financially. Germany's federal government regularly runs budget surpluses, a phenomenon last seen briefly in the US in the 1990's and before that in the Eisenhower presidency of the 1950's. Germany does not rely upon borrowing, much less money printing (called monetization),to balance its books. Prior to joining the euro zone, the Deutsche Mark was the strongest currency in Europe. For decades it appreciated gradually against all currencies, including  the US dollar. As such, it served as a rebuke to the inflationary monetary proclivities of its trading partners. But the DM was more than a rebuke; it was a real market force that prevented its trading partners from debasing their own currencies too rapidly. Prices of highly desirable German goods rose in foreign currency cost even when their prices as denominated in DM remained stable or even fell somewhat.  This was especially troubling to France, which feared a resurgence of German economic power in the heart of Europe.

 

The opportunity for France to eliminate the DM and gain some control over the German economy arose after the fall of the Soviet Union and the government of its puppet state East Germany in the early 1990's. Germans on both sides of the now torn down Berlin Wall desired to reunite their country politically. Eschewing force majeure, Germany sought the approval of the US, France, and the UK to reunite. In a still controversial and not universally accepted scenario--see this report from Spiegel International--France let it be known that it would give approval to a reunited Germany only if West Germany scrapped the DM and used the euro. German central bankers may actually have thought that they could prevail to make the euro a super-DM. They soon learned otherwise as they were outvoted at key policy debates and watched helplessly as the European Central Bank violate the terms of its charter not to inflate the euro or to support the debt obligations of its members.

 

Reinstating the Deutsche Mark Would Be Good for both Germany and the World

 

The decision to leave the inflationist euro zone is a political decision only. There is nothing in economic science that would prevent Germany from doing so and even adopting a gold standard. As explained by Ludwig von Mises in Chapter eleven of Omnipotent Government:

 

No international agreements or international planning is needed if a government wants to return to the gold standard. Every nation, whether rich or poor, powerful or feeble, can at any hour once again adopt the gold standard. The only condition required is the abandonment of an easy money policy and of the endeavors to com­bat imports by devaluation.

The question involved here is not whether a nation should return to the particular gold parity that it had once established and has long since abandoned. Such a policy would of course now mean deflation. But every government is free to stabilize the existing ex­change ratio between its national currency unit and gold, and to keep this ratio stable. If there is no further credit expansion and no further inflation, the mechanism of the gold standard or of the gold exchange standard will work again.

 

Germany is being plundered economically and financially by mostly southern European countries, as shown in this TARGET2 chart. In essence, Germany is building high quality goods that are being purchased by other euro zone countries with money printed out of thin air by the European Central Bank. Currently Germany's TARGET2 balance at the European Central Bank is in excess of one trillion euro. The quality of Germany's TARGET2 credit is suspect, to say the least, as explained here by Alasdair Macleod of Goldmoney.com. National central banks in highly TARGET2 deficit countries have been declaring non-performing loans as suitable collateral to obtain loans from the European Central Bank. This dumping of problem loans into TARGET2 will reduce the Bundesbank's assets in an inevitable banking crisis. The process of capital confiscation is increasing as the European Central Bank expands its so-called Quantitative Easing Program. The simple answer is for Germany to leave the euro zone and reinstate the DM. Doing so would be a benign act of rational self-interest by a sovereign nation.  Most probably many current euro zone countries would leave the euro zone, too. Without Germany to fund the budget deficits of the mostly southern members of the euro zone, the European Central Bank would shift its mechanism of plunder--the TARGET2 system--to the few remaining semi-responsible but  much smaller nations. To avoid this fate, these more responsible nations  would either adopt the DM themselves or reinstate their former local currencies and link them to the DM. This would leave the profligate nations of the former euro zone with no host to plunder. Reinstating their own currencies would probably be short lived, as no one would buy their bonds. The euro zone will have collapsed, leaving the only option, eventually, for all of Europe to become a DM zone, either adopting the DM themselves, as they had adopted the euro decades ago, or through direct linkage of local currencies to the DM. A sound DM would force these former euro zone nations to adopt more responsible spending and regulatory regimes.

 

A Cascade of Benevolent Reform Around the World

 

Reinstating the DM, a peaceful act by a sovereign country, would create a cascade of monetary reform throughout the world. Europe's trading partners would find the cost of necessary imports rising in terms of their local currencies, forcing them to adopt fiscal and monetary responsibility. Gresham's Law--that overvalued money drives out undervalued money--would work in reverse in international finance, because there is nothing to force foreigners to settle trade accounts with the dollar. Governments certainly can use legal tender laws to force their citizens to use "bad" money within their borders, but they cannot force sovereign nations to do so for very long. Just as superior automobiles from Japan and South Korea forced US automakers to up their game, a strong DM will force the US to strengthen the dollar. If it does not, the world will abandon the dollar for international trade, as explained by Alasdair Macleod. All that is required for this process to begin is that Germany, a sovereign nation, leave the euro zone and reinstate the Deutsche Mark. No treaties are required. Germany needs no one's permission to leave the euro zone. The sooner it does so, the better for itself and for the world.

 

Patrick Barron has been a consultant to the banking industry for forty years. He taught an introductory class in Austrian economics at the University of Iowa plus a directed readings class of Ludwig von Mises' magnum Opus "Human Action". He taught at the Graduate School of Banking at the University of Wisconsin for thirty years, running the school's capstone "Bank Management Simulation" course.

 

Presented with the grateful collaboration of:

 

Godfrey Bloom, spent thirty-five years and won prizes for fund management. For five years her was on the EU Monetary & Economics Affairs Committee. His articles and speeches can be found on Godfreybloom.uk.

 

Emile Woolf, a chartered public account for over fifty years, bestselling and award winning author of professional texts and economics essays. His regular "Economic Perspectives" may be found on his website: http.//www.emilewoolfwrites.co.uk.

 

Alasdair Macleod, a veteran of over fifty years in stock markets, investment management and banking. He writes a weekly column on the economics of sound money for Goldmoney, Inc. in a personal capacity.

 

Thorsten Polleit, chief economist of Degussa and Honorary Professor at the University of Bayreuth. He also acts as an investment advisor.

 

Claudio Grass, precious metals advisor in Switzerland, advises HNWIs on the best strategies for preserving wealth.

 

Philipp Bagus, professor at Universidad Rey Juan Carlos and author of The Tragedy of the Euro.

 

Perfect Liberty Is the Proper Response to Covid-19

 

Perfect Liberty Is the Proper Response to Covid-19

or

The Socialist Calculation Problem and Covid-19

 

by Patrick Barron

 

 

 

One hundred years ago Ludwig von Mises wrote the definitive exposure of the impossibility of socialism: Economic Calculation in the Socialist Commonwealth. In a recent Mises Wire essay--Socialist Robert Heilbroner's Confession in 1990: "Mises Was Right."--Gary North sums up the socialist problem succinctly (his emphasis).

"But Heilbronner failed to present the central argument that Mises had offered. Mises was not talking about the technical difficulty of setting prices. He was making a far more fundamental point. He argued that no central planning bureau could know the economic value of any scarce resource. Why not? Because there is no price system under socialism that is based on the private ownership of the means of production. There is therefore no way for central planners to know which goods and services are most important for the state to produce. There is no hierarchical scale of value that is based on supply and demand—a world in which property-owning individuals place their monetary bids to buy and sell. The problem of socialism is not the technical problem of allocation facing a planning board. It is also not that planners lack sufficient technical data. Rather, the central problem is this: assessing economic value through prices. The planners do not know what anything is worth."

 

Notice North's point. Socialism is impossible, not just technically difficult. Knowing what to produce requires a price system. A price system requires private ownership of the means of production. Why? Because the price system rests on individually held hierarchical scales of values. And the hierarchical scale of values require private ownership of the means of production. In other words, if you don't own something, you cannot know its worth. This doesn't mean that everyone has the same hierarchical scale of values. But all these individual scales of value do meet in the market place to determine marginal prices at given points of time. Your beanie baby collection may be worth a thousand dollars in today's market and possibly zilch tomorrow. Now, your beanie baby collection may be priceless to you and you don't really care about its value to others. But if you decided to make a business of selling beanie babies or even simply sell your collection, you would be forced to confront the reality of the marketplace.

 

Covid-19 and the Socialist Calculation Problem

 

You may well ask what this has to do with Covid-19. Covid-19 isn't a marketable good. It isn't owned by anyone. No one wants it. Quite the opposite in fact. True. Nevertheless, government's response to Covid-19 assumes that it knows everyone's personal risk hierarchy and can tailor an appropriate public response. This is as impossible as knowing values in a socialist commonwealth. In the place of a hierarchy of wants, we have a hierarchy of risk. And just as everyone's hierarchy of wants is different, everyone's hierarchy of risk is different. No one can deny this. We see it played out everywhere. Young people in college assess their personal health risk from Covid-19 as very low. The aged and those suffering from other illnesses assess their personal health risk as very high. Furthermore, one's response is determined by what one gives up. The elderly living on pensions may be giving up very little in a lockdown or quarantine other than their social life. Certainly they are not giving up their life sustaining income by staying in semi-isolation. But those still of working age have a very different tradeoff. Business owners who are forced to shut down may lose their entire wealth. Salaried and hourly workers may see a slower drain on their wealth, but the longer the lockdowns continue the more accumulated wealth they will see drain away.

 

I have used stereotypical broad categories here for illustrative comparisons only. Of course, those of the same age, health profile, wealth accumulation, etc. may have entirely different personal risk assessments. The old adage applies that no two people are alike. These facts of human existence make universally acceptable public policy responses to Covid-19 not just difficult but impossible. The only acceptable public response is one of perfect liberty; i.e., each individual decides his own response to Covid-19 as long as he does no harm to others.

 

What about Externalities?

 

This brings up a common retort that perfect liberty DOES harm others. A typical government justification for coerced lockdowns and quarantines was that there was a need to conserve hospital beds for the expected onslaught of Covid-19 patients. Sounds reasonable at first, but not upon further examination. This so-called line of reasoning rests upon faulty externality theory; i.e., that everything you do affects others in some degree. By this logic government has a right to regulate everything you do. Forgetting for a moment that government's access to information is no greater than that of thousands of others, there is the ethical problem of government's right to determine to whom a private entity may offer services. For example, a private hospital may refuse patients who wish to have elective surgery in order to preserve beds for what the hospital considers more important patients, but government may not insert its power of coercion into this decision. Like the socialist allocation problem, government has no "skin in the game" and, therefore, it has nothing upon which to make a universally applicable policy except the temporary prejudice of those currently elected to office and/or those currently working for government. Perhaps an even more damning criticism of the externality rationale is that there is no attempt and probably no definitive calculation of the many adverse consequences to lockdowns and quarantines, from delayed medical treatment that leads to worsening health (both physical and mental) or even death to permanent loss of one's ability to feed, house, and clothe one's family adequately.

 

"Perfect Liberty" IS the choice of our political leaders. Why not the rest of us?

 

So, we are left with these conclusions: Since all risk is personal, no one knows the risk tolerance of others. Therefore, one's response to Covid-19 is a personal decision based upon one’s personal risk assessment. In other words, perfect liberty must be respected because it is the only rational option. Impractical? This is the very policy actually followed by many of the authors of the current restrictions. Governor Newsom of California attended a lavish dinner party after issuing new and more onerous restrictions on public and private gatherings. Illinois Governor Pritzker has been unapologetic about visiting his many out-of-state residences after telling his constituents not to do the same. Other politicians have been similarly embarrassed. Are they taking unnecessary risks, both to themselves and others? There is no definitive answer. By the very fact that they violated their own restrictions, we can conclude that they valued their freedom to do so above their personally perceived risk. Why should not that same right be available to all of us?