Deflation

Keynesians, monetarists, and other non-Austrian economists all support inflationary policies and view deflation as a very dangerous phenomenon, as it purportedly can cause a self-reinforcing spiral of lower wages, prices, and economic activity.  However, this is a totally unfounded concern, and such a deflationary cycle simply would not occur in a free market -- it is only the attempts made to curb deflation that could possibly cause such an ill effect.

The first thing to understand is why deflation might occur in the first place -- while there may be more causes, I see three obvious ways in which deflation might occur:

• Increased Productivity: I would call this the most prevalent of all production-related market phenomena -- under a system of free markets, increased competition and efficiency would cause the general price of any particular good to go down over time.  Barring a rise in other factors, producers competing to provide the best quality good at the lowest possible price will produce a long-term trend towards lower prices of a good.  Taken at a market-wide scale, this phenomenon should produce a natural decline in price levels over time.
• Market-clearing: When a good has been over-produced, that is to say, the demand for a good at a particular price level no longer supports consumption of that good in a broad way, the price of the good will need to change.  This is the market-clearing effect of the free market -- producers will be forced to lower the price of a good, even to unprofitable levels if need be, in order to sell it.  This behavior becomes widespread during a recessionary period of the business cycle, and would lead to short-term deflation.  This deflation should be short-lived: once the market has cleared, the deflationary effect will be gone.
• Increased preference for saving vs. consumption: Sometimes market conditions may change such that consumers generally change their appetite for consumption in favor of savings.  The effect of this could also be deflationary, as suddenly the existing price level for many goods no longer supports their purchase, or amongst capitalists they choose not to invest now in additional production, but rather save or "hoard" their capital goods.  The market serves to coordinate this effect as well through the freely-fluctuating interest rate -- the prevailing rate at which market participants will borrow and loan money.  This is also short-lived and naturally corrected by the market: as consumers and capitalists save more money vs. consuming or investing, the rate of interest will fall in response to this change until it again becomes more advantageous to consume and invest vs. saving.

So looking at those potential sources of deflation, it seems clear that deflation has a legitimate function in the market, and a free market will correct that trend in all cases regardless of it's source.  However, it is entirely possible to prolong those deflationary pressures and indeed trigger a dangerous self-reinforcing deflationary cycle, but ONLY through government on non-market interruption.  For instance, non-Austrian economists always are in favor of policies that prevent markets from clearing, prevent prices from generally falling due to increased productivity, and prevent the interest rate from freely fluctuating to reflect consumer and investor preferences in saving vs. consumption and investment.  In the case of Japan, monetary policy intentionally aimed at all of these things, and rather than allowing the market to quickly adjust, it has prolonged the deflationary cycle for nearly two decades.

Free Entry -- an under-recognized aspect of the Free Market

Perhaps the most overlooked element of a free market -- amongst free trade, free exchange, etc. -- is the concept of free entry into the market.  Probably the single largest hurdle to the general acceptance of free markets is the problem of monopoly.  The fear is that, in a free market, the inevitable outcome of market activities would be either a single firm or a collection of firms conspiring together (a cartel) dominating the market.  What is chiefly overlooked here is that a truly free market also allows for free entry into the market, which is the single most important counterbalance in the system.  The fact that this is overlooked speaks directly to the degree to which free entry is not permitted in most current and historical markets -- in fact it is almost inconceivable that such a force would come into play in a free market system.

The simple fact is this: in order for a firm or a cartel to even attempt to dominate a market, they necessarily introduce bads alongside their goods or else their goods simply become bads.  To understand this, let's examine the nature of monopoly itself: under a monopolistic system, there is a tendency for the quantity and or quality of goods to decrease while the price of those goods increases.  Right?  That is the entire fear of monopoly in a nutshell.  So they are essentially producing less goods.  What is the bad?  Through their monopolistic behavior, they are preventing other producers from competing with them.  Well the solution here is obvious -- if a monopolist or would-be monopolist is producing fewer goods at a higher price, then it should be quite simple for another producer -- if even on a small or localized scale -- to produce better quality goods at a lower price.  Would not then, almost immediately, consumers turn to this new producer for those goods? If you dispute that, then why will thousands of people line up outside Best Buy on Black Friday to save a few bucks on a television set?  Consumers aren't dumb -- they are constantly looking for the best deal and taking their business there.

So the only way, truly, for a monopoly to succeed is to prevent free entry into their market.  It would be impossible to do so economically for a monopolistic entity to do so -- they would have to buy up every would-be competitor, and constantly forcing their business partners to take anti-consumeristic behavior in order to economically prevent free entry.  This would crush them very quickly, as the costs would be too great.  So the only mechanism for truly preventing free entry into a system is ultimately violence: competitors or would be competitors must ultimately be coerced (through violence or the threat thereof) to not compete.  But in a free market system, where property rights are considered absolute, such behavior would likewise be extraordinarily costly, as a monopolist or would-be monopolist would either lose their own security provider, be forced to pay exorbitant rates by their security provider, AND would be the target of every other security provider in the entire world.

Monopoly is only possible in the absence of free entry into a market.  Free entry can only be suppressed through a violation of property rights.  A free market respects property rights.  Therefore, a monopoly is impossible in a free market.

Digital Money

It's been a long time, dear reader (some writers use that term as a way to personalize what would otherwise be the equivalent of a mass email...in my case I well realize that the singular use of "reader" is accurate at best -- you know who you are).  I was reading an article over at mises.org and drinking some whiskey (what else is new) and was suddenly inspired to pickup the old pen again and make a few scribbles.

The article was about gold and it's function as "money," and it was generally a good article.  That said, while I'm in complete agreement about the fact that paper "money" is a sham, and that commodities like gold and silver can possibly make a good money, there's one key point that I think is either omitted or not considered by the modern "gold bug" and that is this: there's no way in hell I'm going to carry around a pocket full of coins no matter what their fungible properties might be.  I don't even carry keys at this point, and it annoys me that I need a wallet -- a very minor upgrade in technology should allow me to use my iPhone for all monetary transactions, identification needs, and God willing a lighter and cigarette holder.  You ladies out there might say, "well I always have a purse, so keeping coins is no problem."  Yeah, I've seen your purses and they're a wreck.  They're a place for lipstick, tissues, assorted garbage, and tampons as needed.  If you could do away with coins, your hands would be cleaner in the long run, I promise.

At any rate, while I agree that real assets should underly any "money," the knee-jerk reaction to gold and silver is overblown.  Modern technology can render those things largely obsolete -- let's look at the definition of good money as described in the aforementioned article:

"A convenient money will have several properties. For example, it should be physically durable and easy to transport. It should also be easily recognizable and homogeneous across units. Further, it should be easily subdivided into smaller pieces. Finally, its market value should be convenient for typical purchases."

The truly important part about money is the last piece -- convenience.  I have goods, and I'd like to get some other goods by exchanging them.  Well, as the author of this article points out, if I were an astronomer and wanted to trade one of my hand-crafted telescopes for a dozen eggs, a gallon of milk, a few shirts, and a night out on the town, it would be difficult for me to accomplish that via direct trade.  Perhaps it could be arranged, but it would indeed be highly inconvenient.  Rather, by inserting some medium of exchange like gold or silver, I can swap my telescope for that and then more readily go buy whatever I want.

Again, great concept when technology is lacking, but for a guy that doesn't even like to carry keys I don't find a pocket full of krugerrands particularly convenient.  Okay -- if you insist that it's got to be gold and silver, fine, but I don't want to ever touch the stuff.  Put it in my account when payroll does their work, or transfer the balance to my account when someone drops me some dough through PayPal, but don't expect me to trade you 13 coppers for a sandwich.  Get real -- it's 2010 and while we're not cruising around in flying cars or living in Utopia, the money revolution need not revert to such old-school concepts.

Let's get back to the point -- convenience is the real key, coupled with backing by tangible assets.  So if I want to trade my old sofa for a six pack, a carton of Marlboro Lights, and a porno mag, why does gold need to enter into it?  Couldn't, given a very sophisticated global market, I basically post my couch online, get some "credits" when it's sold, and then swap those credits for whatever I want?  Theoretically, Sheebu at the convenience store could go buy my old sofa for almost the exact value of the sundries he sold me, but that need not be the case.  A "medium of exchange" could well manifest as some strange combination of eBay and Bank of America like some kind of meta-barter arrangement.  In a market so efficient, trading goods for gold or silver and then back into other goods would simply be a waste of time, not to mention a pain in the ass lugging all that metal around!

I'm being a bit silly here, and I realize that most likely gold and silver still have their place, but I'd be perfectly happy to have that sitting at a bank (provided I could readily remove that as physical gold and silver should the state of things so move me) and just transfer everything digitally at all times.  Don't make me lug around a little man-purse full of metal -- please.  Next thing you know I'll have chapstick in there and it's only a step away from metrosexual-city.  I want all monetary transactions conducted through my iPhone either at the POS (point of sale) or on a P2P (peer to peer, dude) basis.

So Goldbugs: don't sound like you're from the dark ages -- if you want to sell this idea, let's tell people that there's a way to do away with the wallet and the coint purse once and for all.  The youth of today will respond -- they're already so overburdened with mandatory handheld goods and accessories as it is.

Private Law Society: Section 2 - A Positive Account of how a Private Law Society Functions

This is Section 2 of 3 of the broader construct of a Private Law Society (click on this link to view a full overview).  While it largely stands alone as an independent work, it may be helpful to read the preface and introduction to this work if you need some context.

Section 2 at a glance:

• 2.1: Security
• 2.2: Justice and the Legal System
• 2.3: Market Governance
• 2.x: The Environment
• 2.x: Education
• 2.x: Healthcare
• 2.x: Transportation
• 2.x: Immigration and Travel
• 2.x: Money, Banking, Credit and Finance
• 2.x: Social Welfare
• 2.x: Intellectual Property
• 2.x: Communication and Information

Private Law Society: Introduction -- I.1: General Overview of the work

This is the first part of the Introduction to the Private Law Society.

Outline of the work: The main body of this work consists of three sections, which I will describe here.

Section 1: In the first section, I will broadly introduce the concept of a Private Law Society and describe the general way in which it is expected to function.  I will also lay out the basic principles on which it is founded.  The purpose of this section is to provide a basic understanding of the concept from both a descriptive and theoretical perspective such that as the reader moves on through the work they have a proper orientation.  I will not in this first section argue on behalf of a Private Law Society per se, but rather offer this as a purely factual account of what a PLS is. The reader need no "buy into any arguments" in this section in order to read the rest of the work, but merely understand the concepts in preparation for dealing with the main arguments.

Private Law Society: Introduction

This is the Introduction to the broader construct of a Private Law Society.  It may be helpful to click on that link to grasp a broader view of the overall project, or read the Preface.

Introduction at a glance:

• I.1: General Overview of the work
• I.2: Examination of Historical Thought
• I.3: Examination of Existing Systems and Prognosis for their future course
• I.4: The Theoretical attraction of a Private Law Society
• I.5: Theoretical foundation for the work and generally assumed principles
• I.6: Why this will work

Most people have probably never heard or conceived of a "Private Law Society," and perhaps rightfully so.  While elements and aspects of the theory have existed throughout the entire history of political thought, only recently has the theory been crafted into a fully coherent system of principles and propositions that give it the promise of a proper standing as a Political Philosophy.  I credit Hans-Hermann Hoppe with making this jump --  from a  loose connection of related concepts and thoughts into a properly developed theory.  Within the circles of adherents to the Austrian School of Economics and more broadly in the more radical edge of libertarian circles, this newly-formulated concept of a Private Law Society has made a very rapid ascension to prominence and indeed has established itself as the primary political doctrine of these groups.  Despite this success, the body of work on the subject remains woefully incomplete, due in part to the fact that it is very difficult to systematically describe given it's very radically different nature from the vast history of traditional thought.

Private Law Society: Preface -- P.2: How to approach this material

In postulating such a radically different conception of social order -- one that in challenges some of the most fundamental arguments of all other political philosophy and those that are most fiercely ingrained in most people's basic conception of how we ought to organize ourselves as a society, I must request that readers of this material be willing to engage in a sort of thought experiment.  In fact, this entire work can be thought of largely as just that -- a thought experiment.

Within the realm of political philosophy, the common thought experiment involves a return to what Thomas Hobbes referred to as the "state of nature."  This is a hypothetical or mythical conception of a sort of pre-governmental world, and the exercise involves examining the nature of this world and then postulating the necessary theoretical constructs for rendering it orderly, moral, economical, etc.

Private Law Society: Preface -- P.1: The scope of this work

A general treatise on the tenets of a Private Law Society is outside the scope of this work.  A proper Critique of Political Philosophy would at a minimum need to lay a groundwork of the moral, logical, and economic underpinnings of political philosophy, and while I don't think any single work has adequately provided a systematic critique of this sort, there is a wealth of material on these topics already published and continuing to be published all of the time.


Such a critique would be necessary to make a complete case for the adoption of the tenets of a Private Law Society.  The basic tenets of the theory have been outlined by Professor Hoppe over the course of a number of works including The Idea of a Private Law Society, The Economics and Ethics of Private Property, and Democracy: The God That Failed.  Any of these works make excellent reading on the topic.

Private Law Society: Preface

This is the Preface to the broader construct of a Private Law Society.  It may be helpful to click on that link to grasp a broader view of the overall project.

Preface at a glance:

• P.1: The scope of this work
• P.2: How to approach this material
• P.3: Notes on the Style of this Work
• P.4: The objective of writing this work

The world as we know it stands in a precarious state at the time of this writing.  We stand on the brink of a possible economic, social, and political collapse.  While many have turned a blind eye to this possibility for a long time, it has now at least occurred to most people that the possibility of catastrophe exists.  In times like this, a hard look is warranted at the causes of this situation -- why are we here?  How did we get here?


One thing is clear -- the ideas that inform our system of social order are failing, or have at least to some extent failed.  Some people blame the Government, others blame the Markets, and others blame Human Nature itself.  A complete critique of the possible causes of our current situation, or further a universal critique of Political, Social, or Economic Philosophy lie outside the scope of this work.  I will leave those topics to another work or to another author, but before I just dive into my primary proposition, I must make some simple case for it from the outset so as not to utterly turn off readers that don't readily accept it, so here it is:

Why The East Is Succeeding Part 2 -- Competition between the states

I was watching a recent interview of Tom Woods by PressTV, and at around the 6:30 mark of the clip he made an interesting point that I think makes a nice addendum to my earlier post on why the Eastern States of this world seem to be doing much better than the States in the West.  Tom is talking about his new book, Nullification, and he makes a point about his opinion of the original design for the United States under the Constitution:

"Either you have a system in which there's just one giant jurisdiction, and you just hope that liberty is preserved there, or you have a system with a bunch of competing jurisdictions, in which people can leave if one becomes too oppressive.  I think the second one, in the long run, in which different states are competing to see which one can have the most liveable, most desirable society, I think liberty is much more likely to be preserved there."

While this vision has been largely compromised in the United States (I like those who insist, "United State" would be more appropriate), has likewise been compromised to a large extent in Europe via the EU, and even to some extent via NATO hegemony across the Atlantic, the States comprising the Far East and to some extent in the Middle East seem to have preserved something of true sovereignty and represent a closer approximation to this founding vision for America than exists anywhere else in the world.

The State Is Too Rigid

We live in a dynamic world.  From astrophysics to thermodynamics to biology to psychology -- the entirety of our physical, emotional, and psychological lives prove this point.  The world is dynamic.

Static structures cannot succeed in a dynamic world.  The very term, "The State" proves its own failure -- it is at odds with everything we know and experience.  The state is inherently too rigid a structure function in a dynamic world -- it can pretend for a time, and even a long time, to be orderly, but ultimately the reality of our dynamic world will shake free of any static structure and destroy it.

The only hope and possibility for social order lies in a dynamic model.  Static structures must be ruled out entirely -- they are all destined to fail no matter how perfectly designed.  Static structures offer the possibility of certainty and stability, but in fact are the precise opposite: in the face of dynamic changes in the world the state can only firm its stance, become more rigid, and ultimately succumb to its inferior fate.

Democracy, Monarchy, Socialism, Communism,and all sub-variants of static construction must be cast away -- none are capable of withstanding the gyrations of our dynamic world.

The United States of America has managed one of the most unprecedented runs of any static structure in world history precisely because of it's adherence to freedom, which is the social equivalent of the kind of dynamism that affects the rest of reality.  It is still doomed to fail, and was doomed to fail from the start.  The history of the USA is a history of increasing static construction in the face of what is clearly an increasingly dynamic world.  From the time of it's most dynamic statement, the Declaration of Independence, to it's most totalitarian realization in the modern day, the government has retracted from one after another dynamic shock into a fatally rigid construct.  The acceptance of a static construct, "The Great Experiment," was doomed from the beginning.

Disbelieve me, if you like.  You will be proven wrong very shortly.  So what to do, and what to believe?  First, realize that all static structures (I.e., government, political philosophies) will fail.  If you don't realize that yet, you will at least consider it when the current system fails, and spectacularly so.  Give it up -- it's time to think differently.  Your world doesn't work.  When you're ready to face the music, it's time to think about something different...there are alternatives.

Free Markets limit excessive risk taking

I've probably been watching too much CNBC, but I keep hearing people talk about limiting risk taking, prohibiting "naked shorts" etc., etc.

Without even getting into the issues of central banking, I thought I'd document a really simple proposition: one of the beautiful functions of a free market is that it is the best way to limit excessive risk taking: excessive risk, by definition, means that you've gone too far with your risk taking.  The free market handles this quite simply: those that take on excessive risk will quickly lose their shirt, and having no more money can cause no more trouble.  The market systematically weeds these people out and informs them, not so kindly, that they need to be in a different line of business.  This leaves the market in the hands of the more sensible actors.  A bit of an obvious point, but in never hurts to keep saying these things...as the folks at CNBC are proving, they obviously haven't heard this argument enough!

China -- first impressions

I'm on a quick 5-day trip through Beijing, Hangzhou, and now in Shanghai for the weekend and will deliver some first impressions.  Overall, the sheer scale of everything in China is mind blowing.  It's very modern, reasonably orderly and clean.  It's vibrant and booming.  Here are some random thoughts:

• The communists believed that capitalism was the true road to communism, and may have been right. China, on the other hand, is a new flag away from being a full-blown capitalist (in the statist sense) nation. Go figure.
• Need anyone look further for an argument for free markets than the near universal dichotomy between state capitols and major trade centers? As a first time visitor to China, the contrast between Beijing and Shanghai says it all. Dc vs nyc? Sacramento vs san fran or la? Come on -- state capitals are always lame, whereas the major trade centers are vibrant and exciting.
• Why couldn't Shanghai be an independent country like Singapore is or Hong Kong was? Of course, all cities should immediately declare their independence, but just relating something like Shanghai to Singapore makes it seem all the more obvious.

New Painting

Art Jam -- you show up at 8pm, and for a small fee you are supplied with a canvas, brushes, acrylic paint, some tunes and a couple of glasses of wine, then you've got 3 hours to get something done.  This was painted 90 degrees to the right, but an interesting facial construct appeared at this angle.  Turn your head to your left shoulder if you want to see it's orientation as painted.

The Beginning of the End

I just stumbled across this little gem on Youtube -- it's positively chilling to watch. While America's problems (along with most of the rest of the world) are multitudinous, there's no doubt that this particular action was essentially the beginning of the end.



If you are unaware, the closing of the gold window in 1971 meant that the US dollar, ostensibly backed by gold prior to this action, became a pure fiat currency. A dollar was worth (and redeemable for) 1/35th of an ounce of gold at the time. Now worth only 1/1200th of an ounce of gold, simple arithmetic would indicate that we've already been wiped out over a mere 40 years. I predict that within five years time, the dollar will be worth only a fraction of what it's worth now (so please, if you HAVE money, buy some gold before you get wiped out too).

New Page: Private Law Society

At the very core of the new Renaissance -- Renaissance 2.0 -- lies the concept of freedom.  While the broader concept of freedom is an absolutely vast subject matter, one of my goals is to elucidate its theoretically maximal implementation within the sphere of social and political organization.  I formulate this from what I call a "Private Law Society."

My new page represents an experimental effort in writing, consisting in an outline to a book-length work that I hope to complete and at some point publish.  This outline itself will grow and change over time, but each individual bullet in the outline will be drafted and published as a separate blog post, and when available will be linked from this page.  As time goes by, this mere outline will form into a complete work available to be read in a linear fashion, but the intent is that the individual topics can be read largely independently.

Most critical in this process is your feedback -- I will accept all comments, criticisms, questions, research and supporting facts, etc., and will address and incorporate these into the work.  This is the methodology of Renaissance 2.0 -- leveraging the best of individualism and collaboration to create the best possible works of art, literature, and music.  So without further adieu, I present...

Private Law Society

Upcoming article: Boomless Busts and Bustless Booms

This is a bit of a nit, but again today I have seen an error in the application of Austrian Business Cycle Theory (ABCT) that needs correcting.

In this post over at the mises.org blog today, Joseph Salerno makes a quick reference to the fact that the issuance of fiduciary media would generate a business cycle.  I'm not picking on Mr. Salerno here other than the fact that the topic was on my mind and this made a good reference point to link to.

What I will strive to demonstrate is that while the ABCT correctly identifies the causes of business cycle, it cannot be postulated that the phenomenon underlying business cycles either necessarily or probabilistically WILL in fact cause future business cycles.  If future business cycles in fact occur, we will still certainly know the causes through ABCT analysis, but that same analysis carries a highly imperfect predictive capacity.

What's the point?  Everyone using ABCT analysis to try to identify "the next bubble" may well be wrong if no bubble materializes, and it may marginalize ABCT theory or Austrian, Free-market theory more generally if the predictions don't come true.

Here's my prediction: There will be no new bubble, and there won't be a boom before there is a new bust.  The upcoming article will dive into this prediction and talk about the possibility of non-cyclical or at least non-typical booms and busts.

Why the East is succeeding while the West is failing

In case it is not yet abundantly clear, the major states in the West are crumbling, while much of the East is thriving.  It seems a straightforward enough proposition to simply identify the key differences and then apply the methods of the East back to the West, and those differences are so incredibly obvious.  Yet still the West clings to outdated political and economic philosophies with such dogmatic fervor that it seems almost inevitable that they will collapse before changing their ways.

The Corporation IS evil, just not for the reasons you think

The repeated refrain from the left about the "Evil Corporations" is in fact spot on, but the analysis of WHY they are evil is utterly incorrect. While I'm not even sure if there is a coherent opinion of corporations on the Right, the libertarian position certainly posits it's own conclusion -- basically that the relationship between the corporation and the state forms a sort of power cabal that is inherently anti-free market, and more broadly forms the backbone of the warfare-welfare state. While this is true enough, it is only a critique of the symptom rather than the cause of this reality. I will attempt here a proper explanation of the inherent flaw in the corporate entity, refuting the leftist concept of "greed" and in support of an anti-corporatist argument.  At the highest level, suffice it to say that the corporation is evil strictly because it is anti-free market, rather than somehow being an inherent market phenomenon as common experience and insufficient consideration would have us believe.

First painting in a loooong time -- hopefully the first of many.