Monday, September 16, 2013 ... /////

Organized bullying against Larry Summers, Rebecca Ann Sedwick

When I woke up today, I opened (a dozen of mails including) a mail from Gene who informed me that Larry Summers became a victim of the political correctness again. He withdrew himself from Fed consideration by sending a letter to Barack Obama that said:

I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the administration or, ultimately, the interests of the nation’s ongoing economic recovery.
He clearly wanted the job. He was a right man for the job. But if you have watched the responses in the media and the Internet, you must realize that the attacks against Summers – mostly from the extreme Left – were overwhelming. It's a pure speculation when we guess whether Larry's reluctant conclusion came from his own head or whether he was encouraged by a "boss" (yes, it does seem to me that Obama's reply on Sunday was prepared too quickly) but it seems almost certain to me that a confirmation process would have been full of hysteria and could easily turn out to be unsuccessful, indeed.

One could think that that the attacks are irrelevant because most of them come from unimportant groups of subpar individuals such as the feminists – who have still been unable to accept the indisputable fact that the lower average and especially lower variance of their mathematical aptitude makes it far less likely for a woman to become a top person in STEM fields than it is for a man. But this ain't really the case. Even such people matter and various individuals who have a much stronger – and more legitimate – influence on the selection process are led to join the feminists, the radical pro-regulation warriors, and similar lunatics. Certain Democrat Party lawmakers belong to the hysterical progressive movement, others don't have their opinion so they copy it from similar movements.

It's hard to say whether those who can't forgive Larry his deregulation policies were more important for Larry's final decision than the feminists. I would actually bet that the stories and stereotypes spread by the feminists were more important in this case, too.

In seemingly unrelated news, a 12-year-old Florida girl, Rebecca Ann Sedwick, committed suicide a few days ago (jump from a tower in an abandoned concrete plant) after two years of verbal terror against her by more than a dozen of haters of her age that took place on ask.fm, Kik, and Voxer – smaller, photographs-dominated social networks where teenagers tend to drift because Facebook, Twitter, and Instagram are already full of their parents and other older people.

Larry will of course do fine, once little scars to his ego mostly heal. The U.S. economy is likely to survive his surrender, too (at least for a few more years or decades). The girl didn't withdraw just from a Fed consideration; she withdrew from life. I said that these two stories are "seemingly unrelated" but of course that I don't think that they're completely unrelated. Both of them are examples of the nearly unlimited verbal terror that mobs of inferior cowards often tend to direct against individuals who are better humans.

The Florida girl (pictured with her mother, I guess) was cute, skillful, smart, and young. She was joining a chorus (a singer) and was a cheerleader, too. The primary reason behind the hatred was her decision to end a relationship with a boy a year ago (her having moved to another high school plus the deletion of her FB account didn't help). She had an unquestionable right to do it. Many other people – and girls – are doing these things all the time. A relationship has to have two agreeing sides. Moreover, she was young for any "real dating".

But some people of her age decided to change her life into horror whatever it costs. The idea is that certain harmful acts are viewed as "OK", especially when dozens of other people are doing the same thing. So she was getting tons of messages of the type "die, kill yourself". It's annoying if one gets one such a message. But I can't really imagine what it's like if you're getting similar messages from dozens of people who moreover seem to represent a majority of the "culture" where you're actually supposed to live.

It's not "OK" to encourage someone to commit suicide. And if many other people are doing the same thing, it isn't an excuse. I am confident that it makes the intimidation worse, not better. Unfortunately, the larger number of culprits often makes it harder for cowardly judges and juries to produce the "guilty" verdict. Many people get away with similar acts exactly because they're members of mobs. This is too bad. The laws should be such that members of similar mobs are also prosecuted – just like Al Qaeda is being hunted. I would personally feel some satisfaction if these young bullies were found, located, caught, and each of them got several years in prison. Of course that the local sheriff will try to sue the bastards but I have some doubts about the result.

Do feminists respect women? Do they make profit? A fun 2010 video via Jan U.

The case of Larry isn't lethal but it's qualitatively analogous. Most of his critics don't even try to hide that they have been parts of the intimidation for reasons that have nothing to do with Larry's qualities as an economist and manager – which are the relevant things for the Fed nomination process assuming some meritocracy – but they are all about their ideology and, which is perhaps even worse, their own hurt personal pride.

You may be annoyed when you learn that unlike others, Larry just won't play the silly game that you are his peer if you are clearly not his peer. But this subjective feeling of yours doesn't justify your writing of hostile rants that have no meritocratic basis. On the contrary, when you produce appraisals of an economist whose flavor is fully dictated by your emotions that you just can't control, it only helps to emphasize what a pathetic creature you are. Relatively to Summers. Relatively to an average decent person, too.

Today, the markets – that have assumed that Summers could have become a more hawkish Fed chief than other candidates – decided to sink the U.S. dollar while the stocks rallied. It's probably a rational reaction. I think that by his words, Summers has been a dove for many years (I am referring to his remarks in recent years that the long-term yields are so low that America may afford to increase the borrowing etc.). But he's still a man who has the balls to do what he believes is right. If he decided that the interest rates have to rise, he would just make them rise, regardless of the whining by many players who offer mostly irrational, emotional, and/or their own personal interests-inspired screams that the interest rates should stay near zero.

These testicles are something that is rare among the other candidates which is why even a dove like Summers must be counted as a relative hawk. These are crazy times. We're living in an era when a loosely organized community behaves as if it had the ultimate veto rights – a right to reject Summers regardless of his abilities and the opinions of others, to push Sedwick out of a tower, to keep the interest rates low, to ban the speech about the truths that are inconvenient for them, to do many other things. (Of course that I could add the organized anti-modern-physics crackpots, too.) These mobs, piles of loosely organized trolls, often represent a clear minority but they're so loud and annoying that they are de facto controlling a large portion of the life of the Western nations.

By the way, I also find it unfortunate that a complete unity of the Democratic and Republican caucuses is being assumed and/or demanded here. In my opinion, it should be more normal for such a candidate to be supported at least partially "across the aisle". Small groups of Democrats should be just ignored by the president; and some of the Republicans shouldn't be afraid of supporting someone who arguably has stronger conservative credentials than most of them...

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The right man for the job? Whatever would make you reach that conclusion? Summers is a promoter of big government and an apologist for central planning in the monetary sphere. Why is it that people who could see the folly of central planning in the general economy have a blind spot about a bunch of men and women choose an artificial price for money by manipulating interest rates and buying treasuries and other assets?

The Federal Reserve Act requires the Fed to act so as to maximize employment. Unless the law is changed, your ideas, which are widely held, cannot be implemented and any person advocating them does not qualify for the job.

I agree completely and also feel that Harvard would be a better institution if Larry still had his job there. This is sad for the man and for his country.

The law does not matter because we are still talking about central planning. For the record, it does not work no matter what economists from Yale or Harvard claim. In a truly free society there is no room for a central bank.

I only wish Larry had fought back rather than folded back when he was at Harvard. He surrendered the intellectual high ground, or so it seemed to me.

OT, but peecee related:

Aaron Alexis — could he be your son too, Mr O'Banana?

Does anyone know if the Great Massa Bwana Muslime in Chief has expressed any familial concern yet? Was poor old Ayron shot by whitey masquerading as an Hispanic? Heavens! Is it even possible that R-A-C-I-S-M could be involved here?

What colour was dem victims?

I think we should be told.

Yes, lukelea, but when an institution’s income is threatened the directors (Board of Regents) have to take corrective action.
Lubos is 100% right, of course, in describing this as bullying. In my opinion this and the Harvard debacle represent totally reprehensible behavior.

I’m not sure that he had any choice in that situation either. Many of Harvard’s donors are leftists and politically correct. Like any leader, summers had to choose his battles because he could not win them all and his primary responsibility was to Harvard itself.

Sorry, Vangel, but the law really does matter. You should know that.

Hmm, does the distribution of mathematical aptitude has a variance, or is it a x^-3 long tail?

I don't think Summer's enemies were only on the left. He made Wall Street nervous too, and plenty of Republicans were lined up to oppose him. He also had plenty of friends on the left, like DeLong, Bernstein, and Krugman - though they would all be happy with Yellen too.

OK, I suppose that every sensible person agrees that it's not a job of the Fed chief to relieve the nerves of the Wall Street folks so this particular comment is irrelevant.

Dear Luke, I have mixed feelings on whether or not the fight would have a chance or would be just silly. Summers is not a hardwired born warrior - he is partly a worker for the system, perhaps a bit opportunist, so he would be a very unlikely hero.

With the female aptitude issue, he could have e.g. invited thinkers supporting him to give lectures at Harvard and just fight. But that would have had new consequences.

It is unconstitutional. There is nothing in the US Constitution that permits Congress to give a monopoly over the creation of money to a private organization. If Congress wants to pass such laws it should use the amending formula. And it has already been established that bad laws do not have to be followed.

“OK, I suppose that every sensible person agrees that it's not a job of the Fed chief to relieve the nerves of the Wall Street folks...”

I am not sure that this does not require discussion. What would a sensible person conclude is the job of the Fed chief? The Fed engages in central planning. Shouldn’t we have learned our lesson that central planners have no way to act rationally without price signals from the markets? (For more see Ludwig von Mises's book, Economic Calculation in the Socialist Commonwealth.”) It seems to me that the Fed’s job is to facilitate the growth of government and to transfer wealth from workers, savers, and investors to the financial system.

“Also, it's expected that *some* opposition party lawmakers would oppose the people proposed by a president from the other party. This is a complete routine and none of these things ever causes candidates to be bullied away before a confirmation process begins.”

You are partially right. The Democratic and Republican parties are two wings of the same bird for prey. There is very difference between the two. In this case Summers was opposed by Obama’s pals in the Democratic Party, not the GOP.

“Some people supported Summers, some people supported e.g. Yellen (like DeLong), this is also normal and none of it is what I find shocking. What I find shocking is those haters who force someone avoid a legitimate contest/procedure before the procedure begins.”

Why would that be a shock? Politics is only about power. I think that Mencken got it right when he wrote that, “The urge to save humanity is almost always a false front for the urge to rule.” (H/T Alberto Mingardi)

Dear Vangel, the monetary regulators should be influenced by the markets, but exactly in the opposite direction than you suggest. They should bring "bad news" for most of the market participants.

What do I mean? Imagine that with the low interest rates, it becomes a huge fad to borrow the money which is ultimately taken from the printing presses. People love borrowing. Obviously, in such a situation the central bank should make the borrowing harder or more expensive to discourage it, thus bringing bad news to what has become "most people", right?

I am sorry my friend by you seem to be arguing for central planning as if you believe that a few people behind closed doors will somehow do what is best for everyone and a better job than the free market. But given your personal experiences you must know that central planning does not work even if the people who are responsible for it are the best and brightest along with being totally without self interest.

Note that I am not saying that you cannot have your New Socialist man who does what is needed for behalf of his fellow citizens. Even though I do not believe that is possible I will still give you that it is possible to appoint altruistic geniuses to run the central banks rather than the typical idiots that we usually get. I am saying that those people cannot do what is right even in theory because they need the price signals which come from the very market that they are distorting.

You are a really smart guy. Please take the time to look into the, "The Socialist Calculation Debate", between the Socialists and Ludwig von Mises. When you do you will find that you are siding with the socialists when you argue that central planners can be effective when setting the price of money but you will also find that Mises' logic is irrefutable and that central planning is not possible even in theory.

Monetary policymaking has nothing whatsoever to do with central planning. It's just a set of procedures to maintain a stable unit of payment, the currency, which makes the free market work.

One may argue that the existence of a predictable fiat currency is something that any modern free-market economy depends on.

setting the price of money

Money does not have a price, money is not a good, it is a medium of exchange. How would you buy money if not with money, but why would anyone pay a dollar to get a dollar? Makes no sense.

Or were you thinking of the cost of borrowing. but then you should say so.

In any case money is not a product or a raw material, it does not get manufactured nor dug out of the ground. Hence the well-known caveats against replacing efficient markets with central planning of the economy are not applicable to money.

One could consider all kinds of changes to the system. For instance, to reduce volatility and lessen the severity of downturns in the economy, a move from a fractional-reserve banking system in which banks create money out of thin air and run risks for which they are insufficiently capitalized (and which ultimately get offloaded onto taxpayers when things go wrong) to a system in which banks must carry thirty percent core capital (instead of three) or even a one-to-one correspondence between every unit of money lent and the amount of capital available to cover losses from lendings.

Some of these changes would be quite sensible but the trouble is, it is hard to get people to agree on which changes to adopt and even if a majority can be found to get behind a proposal, the resistance from vested interests determined to maintain the status quo can be too strong to overcome.

Of course it is central planning. When the Fed decides to drive down rates to levels that the planners decide its actions have nothing to do with the markets. When it buys impaired mortgage paper from banks so that they can improve their balance sheets that is central planning. None of what central banks do has anything to do with the free markets.

A free market system would have no legal tender laws and would let market participants choose what to use as the circulating monetary media. It certainly would not give a monopoly on money creation to a single private institution and allow that institution to create as much money out of thin air as it wished.

I guess I was not clear enough so thank you for the opportunity to set the record straight.

First of all, money itself is not a creature of the state, and we do not need government to create or regulate it. Money always emerges out of barter because the difficulties of finding trading partners results in the emergence of commodity monies. Commodities that are portable, durable, and fungible, like gold and silver, are typically chosen by market participants as the monetary media. The creation and evolution of such institutions should be left to the competitive market forces that originally created them. When governments intervene as they do when the create central banks the intervention creates inflation and malinvestment bubbles.

Second, when I referred to the price of money I was referring to interest rates, which are set by the central banks at the short rate and have recently been set further out on the yield curve as the central planners decided that it would be a good idea to bail out failed banks and to revive the housing bubble.

Two participants of a financial transaction that uses money depend on an externally determined value of the money that can't be manipulated by either of the participants.

Fiat money regulated by a body declaring some rules like the inflation targeting are way more robust a method of payment than e.g. commodities, for many reasons. First, it's just not possible to cover all money that is used by any particular commodity - there just isn't enough of any commodity. Each commodity only represents a tiny percentage of the net wealth. Second, the price of commodities follows its own individual dynamics and is affected by the discoveries of new reserves, technological breakthroughs in the artificial production of the commodity or its replacements (in some or all situations), and many other things.

No business player that is doing serious business and not just lottery would choose something like a commodity for general payments because it would be like playing lottery. Relatively to a commodity's volatility, the differences in various currencies are completely negligible and the exchange rates may be assumed to be nearly constant.

It may be true, but show me the successful battles that he saved his ammunition for.
His later decision to put the operating funds into illiquid investments cost Harvard over 10 billion when the crunch came in '08. It also left Harvard in possession of a vast vacant construction site in Allston, where Harvard had wrecked the community.
Larry did not work out as Harvard President, despite his talents. I see no reason to expect that he would have done better as Chairman of the Fed.

Yes, yes. The President deserves the right to nominate his the person of his choice and the Senate, and only the Senate, has the right to refuse to confirm that choice. Everything ought to be aired out publicly; let the political consequences fall as they may.
I find this character assassination crap to be disgusting.

A sensible person would conclude that the job of the Fed is to follow the law, namely the Federal Reserve Act, which clearly gives the Fed the authority to do central planning.
If you are not happy with that you can work to get the law changed or you can move out of the country.

"Central planning” needs to be more tightly defined. I do think of it as a form of central planning, albeit a very limited one.

Larry had lofty aims for the teaching environment at Harvard and worked hard to make it a more excellent university. Harvard was replete with grade inflation, for instance, and its academic standards were clearly dropping.
Whether he was successful can be debated but he surely cannot be accused of failure. If he made poor investment choices (Did he, really?) that is regrettable but his main focus was the classroom and the academic, not the financial, future of that great university.

It is absolutely constitutional until the courts rule otherwise. You ought to know that, too.

He drove investment decisions that were very costly to Harvard. The endowment lost over 10 billion dollars on his watch. So in an area where I have some experience, he was a bad guide.
He may have been a great teacher, but he was a poor manager. That is why I do not think he would have been a good FRB Chairman.

Dear Gene, I would agree that technically speaking you are correct. However, "central planning" was earlier introduced to the discussion as something discussed by von Mises in the context of information never being sufficient to make command and control decisions as a central planner. The collective wisdom of the individual hand is always wiser than one benevolent dictator or committee, be they ever so smart. No five-year plan, no centrally mandated allocation of resources, can hope to match the free market for efficiency. This is true for markets in commodities, goods, or services. It is also true for the capital market (borrowers vying with one another to offer the returns on other people's money that they need to grow their business or save for retirement etc.)

However, I would be surprised to learn that Hayek or von Mises argued for letting the issue of currency and control of the money supply be left to the free play of market forces. (Perhaps they did at some point...? If so, I would like to see the citation and also know whether they later changed their mind.) Actually, while one could argue that meetings of the Federal Open Market Committee (or counterpart in other countries) do constitute a form of central planning, no single entity controls the money supply, certainly not the Fed. Fractional reserve banking means that banks everywhere can, and do, "create" most of the money added to the money supply "out of thin air". Most people, if you ask them, will say that the money supply grows because the government cranks up the printing presses, but in fact most of the increment gets created in electronic form -- as a string of numbers on your bank statement -- when you take out a loan. In that sense, there are sensible arguments for taking that power away from the banks and returning it to the central bank since some things, like enforcing laws or providing for the common defense, are best handled by the state (or in the case of monetary policy by a mixed public-private institution like the Fed). Likewise there are good arguments for ending TBTF (too big to fail) forever, but inertia is hard to overcome.

To summarize, there is a reason why we do not have competing sets of laws, competing police forces, competing militaries: it would be impractical, wasteful, and probably dangerous. Having a single common currency as legal tender avoids friction and cuts down on the potential for internal strife. Provided, that is, that the territory on which the single currency is introduced meets certain conditions, which are largely met in a country like the United States but not in a loose confederation of disparate economies such as the European Union. Which is why the life expectancy of te euro is so much lower than that of the dollar.

In any case I suppose you could fashion a lifestyle for yourself in which you never touch a dollar (euro, pound sterling, ...). You can buy stuff online and pay via Bitcoin and obtain stuff locally via barter agreements. As far as I know that is legal. But is it practical?

I think that you need to read up on economics my friend. First of all, value is subjective and fiat money only depends on faith in the issuer. That makes fiat money very unstable, which is why most fiat currencies fail within a few decades of issue. The market's choice of money does not have the same problem because the circulating monetary media has intrinsic value as a commodity. For a perfect illustration of this all you need to do is to look at the purchasing power of gold after the spectacular finds in California, the Yukon, and Australia. Even though production exploded inflation averaged around 3.5% over the next decade or so and over the century the purchasing power of gold doubled.

Contrast this to the collapse in purchasing power of the USD since Nixon closed the gold window and the large numbers of currencies that have been vaporized around the globe in the past few decades.

"No business player that is doing serious business and not just lottery would choose something like a commodity for general payments because it would be like playing lottery."

This is nonsense. Businesses chose gold and silver because of their stability and their ability to act as a store of value. Since each currency was a given weight of gold or silver there was no loss due to forex transactions and no gambling and manipulation of currencies. You really need to learn a bit about monetary history.

Dear Vangel, it isn't clear to me whether you are advocating a return to the "gold standard" or a return all the way to using physical gold and silver and doing away with paper money.

Either way, why do you think the gold standard and gold/silver coins were abandoned if they were so great?

Dear Gene, maybe in the U.S., they're doing central planning - recall our discussions about the need to maximize employment or whatever.

However, proper central banks like ours in Czechia don't do any central planning whatsoever for simple reasons: all the buyers and sellers may still decide about the prices (and compensations), regardless of the current magnitude of the unit, the currency unit.

The monetary policy only decides about the evolution of the unit in time. With inflation targeting, the rules are fixed and they just mean to impose as constant value as possible. So the monetary policymakers aren't not special cases of central planners. They're special cases of enforcement forces that make sure that the wealth isn't being stolen from/to the people who have cash to/from people who are in debt.

They play exactly the same role as cops who watch your strongbox with gold. The only difference is that what they're protecting against stolen/changing value isn't a particular commodity whose value relatively to everything else may fluctuate but wealth in the most general, inclusive, and stable form which is effectively a basket containing everything.

This is perhaps really the source of our previous disagreement on whether or not the Fed should be social-engineering employment etc. I think it's no business of a central bank exactly because I think that a central bank governing market economy/ies should have *zero* activities of the central planning type in its portfolio.

Dear Eugene, it's not just about some preferences, it's about the laws of physics. One can't really "return" to any gold standard simply because all the gold humans have mined in the world is just a tiny fraction of their overall wealth and even a tinier fraction of the M4 and other inclusive money supplies which include various types of higher-level debt etc.

So one simply can't spread enough gold to replace all the papers above. One also can't spread papers saying "you can pick XY of gold for this paper when you want" because in the first good moment, everyone would find it safer to pick their gold and there's simply not enough gold for them again.So the backing by the gold would always be a lie and it wouldn't work in reality.

It's similar to the bogus exchange rates of the communist currencies. One may only promise some backing if you can't actually convert it. and then all the backing is an illusion, a lie.

The price of gold relatively to normal products was quadrupling and/or halving in 5 years in recent decades. That's what the prices of food expressed in gold could do as well if people tried to pay with gold, and I have explained it is not possible. The only reason why the prices could be changing a bit more slowly would be the laziness of people to write new stickers, almost literally.

Trying to revert the advanced economies back to something like a gold standard would be just like returning us from atomic clocks to some wooden clocks again. The purpose of the new technologies is exactly that they're more stable, accurate, and well-behaved and they work in a wider range of situations than any of the predecessors.

Right, right... I am just trying to draw Vangel out. As far as I can tell, there are two, at most three, types of "gold bugs": (1) paranoid tinfoil-hat wearing antisemites in the mold of Eustace Mullins, who believe that "Rothschilds" possess a trillion-dollar fortune and pull the strings that make the world go; (2) romantic reactionaries pining for a simpler bygone age: these will often be older Americans of good character living far from the big city; (3) very occasionally people with a good knowledge of economics capable of making a reasoned argument in favor of the gold standard while at the same time acknowledging its inherent drawbacks.

I am not advocating any standard. I am saying that the market, not political leaders, should determine what the circulating medium of exchange should be. A free country cannot have legal tender laws.

"Either way, why do you think the gold standard and gold/silver coins were abandoned if they were so great?"

It was not abandoned by market participants. It was set aside by governments that needed a way to pay for the warfare state. World War One was not possible if countries had remained on the gold standard because the people would have risen against governments that increased their taxes to pay for the costs. Central banking does away with such necessities as the bank makes loans to the government as it creates new money that is used to purchase government debt instruments. This usually happens through intermediaries like primary dealers but can also happen directly.

Commodity backed money is better for investors, workers, and savers because it has intrinsic value and cannot be inflated without increasing real reserves. Many people are about to find this out as currencies around the globe enter death spirals and ordinary people run to physical monetary metals just as they always have. While this can be masked by the futures markets as the banks sell naked short positions eventually physical delivery will expose the problem and all futures contracts will be forced to settle for cash. At that time you should see a Reichsmark type collapse and the era of fractional-reserve, fiat based financial systems will have to be reset.

This is not true. Every piece of fiat paper can be backed by gold at a given price. It is very easy to have electronic transfers of claims to gold held in deposit from consumer to provider or from employer to employee.

But nobody says that the money has to be backed by physical gold. Inventories of silver, other metals, oil reserves, land, or plenty of other real assets can be used to act as reserves that would back a currency. What eventually prevails is not known at this time although I would guess that it would be gold just as it always has been throughout human history. The real issue is liberty and property rights. Hard money supports both; fiat currencies undermine them.

What you write just makes no sense whatsoever.

With your gold-like fiat money, you either claim that there is a link of your fiat money to gold - at a predictable or fixed rate - or you don't.

If you don't, then there is no reason to talk about gold at all.

If you do, you simply have to guarantee that the people who will want will actually be able to convert the fiat money to gold or vice versa at the promised rate. If they can't do it, the rate is complete bogus and it will (dramatically) change once the demand for either will be too large - the system will either run out of gold or run out of the fiat money and the rate will become unsustainable.

And be sure it will. The U.S. gold reserves are worth something close to 1 trillion dollars, see all the discussions

http://motls.blogspot.com/2011/06/ron-paul-is-fort-knox-gold-gone.html?m=1

so you can't even back one month of income of all the citizens. Any claim that the value of a piece of paper that is used as a payment unit across the U.S. is guaranteed to be linked to gold at a fixed price is guaranteed to be a fantasy, a lie.

"Right now I am trying to draw Vangel out?"

I thought that I was clear. There is no moral or utilitarian based argument for fiat money. When banks can create money and credit out of thin air there is no way for savings held in fiat money to retain their purchasing power.

That means that ordinary people run out of money long before they die and need the state to look after them. Since the state has no way to earn money it has to borrow or tax to support its welfare programs just as it has to borrow or tax to support its warfare programs.

Note that under a hard money system none of this would be true. For one, commodity based money would gain purchasing power as increased productivity drove prices much lower. Someone who had earned a certain amount could retire very early and live off the small interest payments if that is s/he desired. You certainly would not have high earners who retired with a very high pension at the beginning of a decade wind up eating cans of dog food at the end of that decade because the purchasing power of their pension collapsed.

Note that I am not arguing for any one standard. I am saying that what is used as the monetary media of exchange should be determined by the markets, not central planners in the government bureaucracy. I am not surprised that academics would favour the rule of some elite over the competition of the marketplace but am surprised that someone who lived behind the Iron Curtain cannot recognize central planning when he sees it.

Let's see,

-- use of ideologically charged in-group language ("warfare state")
-- refusal to admit that there were valid reasons why the gold standard was abandoned

-- no apparent effort to take on board the cogent arguments proffered by our host

... these are things I've noticed and they make me conclude that more discussion with you probably would not be fruitful. Best wishes to you nonetheless.

Cheers,
Eugene

“What you write just makes no sense whatsoever.”

That is because all your knowledge of economics comes from statists who follow a Keynesian line of argument.

“With your gold-like fiat money, you either claim that there is a link of your fiat money to gold - at a predictable or fixed rate - or you don't.”

Fiat money is not backed by anything. Money that is backed by a given weight of a monetary commodity is not fiat money.

“If you do, you simply have to guarantee that the people who will want will actually be able to convert the fiat money to gold or vice versa at the promised rate. If they can't do it, the rate is complete bogus and it will (dramatically) change once the demand for either will be too large - the system will either run out of gold or run out of the fiat money and the rate will become unsustainable.”

You are finally getting it. A bank or country that expands the money supply without having adequate reserves will quickly see its gold leave the vaults and the purchasing power of the unbacked currency will be rapidly depreciated. This is exactly what happened after the creation of the the Bank of North America and its successor, The First Bank of the United States.

“And be sure it will. The U.S. gold reserves are worth something close to 1 trillion dollars, see all the discussions

http://motls.blogspot.com/2011...

so you can't even back one month of income of all the citizens. Any claim that the value of a piece of paper that is used as a payment unit across the U.S. is guaranteed to be linked to gold at a fixed price is guaranteed to be a fantasy, a lie.

Here you fall into a trap. You assume that there isn’t enough gold to back the amount of currency that is in the system because all fiat bills will have to be backed by gold that sells \$1300 per ounce. But that is not the case. The currency simply has to be backed by the amount of gold that is held in reserves.

Note that value is subjective so that the gold ‘price’ of something will only depend on the preferences of the marginal buyer. The argument for gold is its stability. Since global production is a tiny fraction of the total reserves there is no way to get a huge inflationary episode and the loss of purchasing power for savers as is typical when fiat currencies are used.

“-- use of ideologically charged in-group language ("warfare state")”

If you add up all the budget for the Pentagon, the off balance sheet costs of the wars in Iraq, Afghanistan, Yemen, Sudan, Libya, Egypt, Syria, etc., the cost of running the VA, the nuclear arsenal budget of the Department of Energy, the military satellite spending by NASA, foreign aid for military purposes, the cost for DHS, NSA, CIA, NRO, and other such agencies, and the cost of servicing debt that was used to finance past wars you are looking at a number that is about equal to the revenue that comes in from personal income taxes. So why is it ideological to mention the words ‘warfare state’ and ‘welfare state’? Note that I get attacked from the left for criticising welfare programs and the right for criticising the warfare programs. That makes me very comfortable in my position because I use logic and facts rather than ideology.

“-- refusal to admit that there were valid reasons why the gold standard was abandoned”

No there weren’t valid reasons. The Gold Standard was abandoned so that wars could be financed. Without abandoning the gold standard it would not have been possible for Britain, Germany, Russia, and France to have a long war in the early part of the last century. Without abandoning the gold standard the war between the states would not have been possible in the United States.

The ‘valid’ reasons that you give all come from the same big banks that are in a privileged position and are protected by the Fed. These are the banks that collapsed the financial system through their derivatives and bad lending policies and who got bailed out while workers and investors got shafted.

“-- no apparent effort made to take on board the cogent arguments proffered by our host and give them due consideration”

Our host has no cogent argument. He still believes that you cannot use anything other than fiat because there aren’t enough monetary commodities to use as a circulating monetary media. He is a Keynesian who cannot see that central planning in money is no better than central planning in agriculture or industry.

“... these are things I've noticed and they make me conclude that more discussion with you probably would not be fruitful. Best wishes to you nonetheless.”

You may be right. I believe that the market should choose the monetary media while you have no trouble with governments making that choice for everyone in the economy. I support free markets which have no room for legal tender laws while you support managed markets where a few men and women get to decide what the appropriate interest rate is and how little banks need to hold in reserves to back their loans. I look at history and see that all fiat money has seen a horrible loss of purchasing power while gold seems to have been stable or gained purchasing power while you think that history does not matter.

I don’t think I have argued that the Fed either should or should not be doing social engineering but only that United States law requires it to do so.
Also, Ben Bernanke has lately been forecasting the Fed’s future moves and this is clearly a form of central planning even if he is talking about only a few months.
Personally, I think the jury is still out on the question of whether the Fed’s actions are beneficial or harmful.

“No there weren’t valid reasons. The Gold Standard was abandoned so that wars could be financed. Without abandoning the gold standard it would not have been possible for Britain, Germany, Russia, and France to have a long war in the early part of the last century.”

Right now I don’t have the time to seriously enter into this discussion so I will only limit myself to pointing out the peculiar mixture of “formal correctness” and fanatical utopianism that one can characterise practically every statement you make.

Yes, it is true that World War I could not have taken place if all the major powers stayed on the gold standard, just as much as it is true that Hitler could not have conducted World War II had he maintained the free market policies of Schacht and Goerdeler rather than adopt the “Four Year plan” of Goering and Speer.

But so what? Since Hitler was determined on war that was the course he was going to choose and to say that this was not “legitimate” is, to say the least, futile. It’s like arguing that the solution to “the problem of war” is pacifism. It is indeed, as long as everybody is a pacifist, but it is enough that just one side isn’t the whole argument collapses. Experience shows that this sort of thing will always happen.

The same applies to the gold standard. Considerations that lead countries to decide to go to war usually involved issues (such as, in the most extreme case, the very existence) that are valued vastly above price stability, lower currency risk etc. In fact, as Niall Ferguson points in “The Cash Nexus”:

“Gold standard membership indicated that a country followed "prudent fiscal and monetary policies." The exception that proved the rule was "a well-understood emergency such as a major war"; but if a country went off gold in such an emergency, the public understood that the suspension was temporary…
There is, however, a difficulty with this analysis too: namely, the assump­tion that wars were "well understood emergencies." The historical reality is that the period 1890-1914 was characterized by a growing danger of a war of unprecedented magnitude and unforeseeable duration between all the great powers.”

The whole point is that maintaing the gold standard was only the means to something that became a relatively minor consideration compared to the ones that were driving the events of the day. It was obvious to anyone that remaining on the gold standard would not prevent war but guarantee defeat. It was therefore a totally untenable alternative and only someone totally detached from the real world could fail to see this.

Yes, Eugene, you are right, especially on the last point. Many people have a wrong idea of the Austro-Hungarian Empire. Švejk is a great character and Hašek was a superb satirist, but his was a hardly fair portrait of the most liberal continental power. A much more objective (but still very funny) portrayal is in Robert Musil’s “Man without Qualities” (one of my favourite novels, its main hero is a mathematician with whom I tend to identify a lot). I can’t resist quoting it below. “Kakania” is of course Austo-Hungary.

“And what provinces they were! Glaciers and sea, Karst limestone and Bohemian fields of grain, nights on the Adriatic chirping with restless cicadas, and Slovakian villages where the smoke rose from chimneys as from up- turned nostrils while the village cowered between two small hills as if the earth had parted its lips to warm its child between them. Of course cars rolled on these roads too, but not too many! The conquest of the air was being prepared here too, but not too intensively. A ship would now and then be sent off to South America or East Asia, but not too often. There was no ambition for world markets or world power. Here at the very center of Europe, where the world's old axes crossed, words such as "colony" and "overseas" sounded like something quite untried and remote. There was some show of luxury, but by no means as in such overrefined ways as the French. People went in for sports, but not as fanatically as the English. Ruinous sums of money were spent on the army, but only just enough to secure its position as the second-weakest among the great powers. The capital, too, was somewhat smaller than all the other biggest cities of the world, but considerably bigger than a mere big city. And the country's administration was conducted in an enlightened, unobtrusive manner, with all sharp edges cautiously smoothed over, by the best bureaucracy in Europe, which could be faulted only in that it regarded genius, and any brilliant individual initiative not backed by noble birth or official status, as insolent and presumptuous. But then, who welcomes interference from unqualified outsiders? And in Kakania, at least, it would only happen that a genius would be regarded as a lout, but never was a mere lout taken-as happens elsewhere- for a genius. ”

Sounds like you might enjoy Der Komet, an alternate-history novel by Hannes Stein published last year. In the book, World War I never happened (because Franz Ferdinand turned around from Sarajevo). Hence also no World War II and no Holocaust. The Austro-Hungarian empire in the 21st century is teeming with Jews, America is a backwater populated by hillbillies and rednecks, the Prussians wisely decided to shift their energy from military pursuits to space exploration and colonized the moon in 1945. Vienna is the center of civilization.

Unfortunately the book is not translated into any other language though it should be. But if Karl Kraus, the mordant satirist whose love-hate relationship with Kakania ran even deeper than Musil's, a writer previously considered untranslatable, can be translated into English then perhaps there is hope for Stein after all.

Hey Farrar Straus Giroux, you listening? Give me the job! I have free capacity and I will do a sterling job on the translation. ;)

"I also disagree that mercantilism is against free trade."

You do? How can high tariffs, export subsidies, wage controls, industrial subsidies, or non-tariff barriers, all of which were a common feature of mercantilist policy be considered to be compatible with free trade?

It is clear that you favour the failed Keynesian doctrine when debating economic ideas. I have to say that I am surprised because I would have thought that your personal experience with central planning would have been enough to overcome the typical leftist ideology that one is exposed to in academia.

I suggest that you look at economics with a critical eye and see why much of the touted methodology that you seem to be supporting is built on a foundation of sand. Citing pro-government economists who are given the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is insufficient to support your arguments, particularly when the facts are clearly against you. It is not possible to take seriously an argument that claims that mercantilism is not against free trade.

If you had clicked on the links given by Luboš and read the articles you would have found that some economists are broadening the definition of mercantilism to encompass German economic policy. For instance, Clyde Prestowitz on foreignpolicy dot com:

[M}ercantilism typically entails protection of the domestic market and/or subsidization of domestic producers. Penetration of mercantilist markets by foreign producers is typically much less than foreign penetration of more open, laissez faire markets. So the question today was: what are the barriers to foreign producers in the German market? It doesn't have much in the way of tariffs, or quotas, or other formal trade barriers nor does it provide much in the way of export and production subsidies. So, in what does German mercantilism consist?

There seem
to be two major and related factors. The first is the embrace of a philosophy
of export led growth and of doing whatever is necessary to assure continuing trade surpluses. Thus, the German government coordinates constant discussions
between labor,government, and industry to arrive at agreements on wages,
investment, productivity gains, and prices that will assure continued competitiveness to producers based in Germany. Brutal austerity will be imposed on the German economy to keep it competitive. Moreover, this constant coordination and emphasis on competitiveness engenders a "Buy German" mentality
that tends to hold down the share of the German market held by imports. [...] But in general we can say that German mercantilism is essentially a state of mind more than a
collection of specific trade barriers or policies. And this state of mind is fundamentally opposed to what countries generally think of as "free trade."

One may not agree that mercantilism is the right word to use here, but the fact is that some economists -- including eminent ones -- are indeed using it that way.

You really need to up your game, Vangel. This isn't freepublic dot com where you can mouth platitudes and expect applause. On TRF, when someone -- and especially the host -- cites sources, you are expected to read them before shooting off a reply.

Thank you for the advice but I did look the links. Stiglitz and other defenders of big government and state central planning are simply trying to change the language, just as men and women like them did when they found a way to use the world Liberal to replace Socialist.

My game is quite fine. Mercantilism is all about preventing free trade. I do not mouth platitudes. I simply point to the economic arguments that you and Luboš are giving and point out that they are based on a lousy methodology.

Keynes' book, The General Theory, is a total incomprehensible mess that contradicts itself over and over again. (It was so bad that Hayek did not even bother to critique it because he did not think anyone would take it seriously.) A great and free (ePub format) critique of the book can be found at the link below. Henry Hazlitt, wrote a line-by-line commentary and refutation of one of the most destructive, fallacious, and convoluted books of the century. The target takes part, General Theory, line by line and shows why it is absolute nonsense.

http://tinyurl.com/kckfxe7

Now you may say that you agree that Keynesianism is nonsense, which is why we need to move on to the Monetarists. But that would be a huge error as well because in many ways the Monetarists are worse. At least Keynes looked at major disruptions and tailored his theory around observations. He noted that changes in capital and interest rates did not really matter over the very short term during a period of crisis and used that insight to propose interventionism by government. But when he did he counted demand from private consumption AND the demand that comes from government. The Monetarists lump these together and by doing so further obfuscate what is going on in the economy.

Sorry but I am already going too far and am not being careful enough with my choice of words and explanations. Given the fact that this is not an economics blog it would be hard to justify spending the time necessary to deal with the issues as clearly and thoroughly as would be demanded. But given Luboš' familiarity with climate model shortfalls and the horrible conclusions that are reached by those models it is appropriate to drive the essential nail in the Monetarist coffin. For that I provide a link to Friedman's paper on methodology, "The Methodology of Positive Economics".

http://www.ppge.ufrgs.br/GIACOMO/arquivos/eco02277/friedman-1966.pdf

Friedman takes the reader for a ride to a predetermined conclusion. He argues that we cannot ever completely come up with a realistic a theory because there is no way to come up with all of the inputs that would be necessary. But we cannot even figure out how to test whether or not to include certain inputs. That means that we have to see if the 'evidence' supports the theory without having the proper assumptions. This argument is being sold as 'scientific' to millions of unsuspecting students who are somehow under the impression that people who favour the growth of government programs, unjustifiable taxation schemes, and meddling at many levels as being supportive of free markets.

Roger Garrison provides a pretty good critique of both Keynesianism and Monetarism at the link below. As you can guess I agree with him.

http://mises.org/daily/4067

Dear Vangel, I am clearly against subsidies, tariffs, and all the other things you list. Also, I don't consider them a part of merctantilism and I don't think that Germany is doing any of these things to a significant extent.

I don't favor anything in Keynesianism.

"It is not clear to me why you're trying to pretend that I defend things that I obviously oppose."

I am sorry my friend but you say that you oppose Keynesianism and favour free markets at the same time as you argue that the government should give a monopoly over the creation of money and credit to a private organization that regulates the banks that own it. There is nothing federal about the Fed. It was created to protect American banks in the Northeast from competition as a response to a phoney crisis that they created in the first place. Since its creation the Federal Reserve Note, which is the fiat currency that replaced the Dollar Notes that were redeemable in specie, have lost more than 96% of their purchasing power even if we use the phoney CPI data issued by the government.

There is nothing moral about allowing the financial system to rob savers of purchasing power by inflating the money supply by 2% or by making businesses more and more dependent on the privileged banks and brokers that are protected from competition by government regulations and saved from insolvency by taxpayers.

If you support free trade stop making excuses for tariffs, non-tariff barriers, and regulations that protect inefficient domestic producers from foreign competition. And stop defending a monetary system that is imposed from the top instead of created by the markets.

You are clearly a very smart guy but you do not have enough knowledge of economics or monetary history to reach sound conclusions. I would stop paying much attention to the Monetarists and Keynesians and start looking to the Austrian School for a different view. Once you know all of the positions you will be able to use your considerable intellect to reach an informed decision on your own.

Note that the most devastating references that I have provided are the Hazlitt critique of Keynes and Milton Friedman's paper that describes positivist methodology. If you were a careful reader and honest in your assessment you would see the parallel with the 'climate science' critiques that you have given many times before. The monetarists are no different than the climate science guys who use statistical analysis to create a narrative that defends predetermined conclusions.

Apparently you didn't notice that I deleted my comment which you are replying to immediately after posting it.

If it motivated you to try harder to present a reasoned argument (absent from your earlier postings) then it may have been good for something after all.

Come on, Vangel. I am just saying that everyone - and every nation - has the freedom to hoard the money. It's you who is a social-engineering radical if you want to impose quota on how much people and nations have to save or spend from the money they have earned.

I am not saying anything else.

It's nonsense that the government has any monopoly. The main feature of a good unit of payment is that its value is imposed externally so that the participants of the transactions have no control over the value at all. You are suggesting some "democracy" in which people decide what the money should be worth or how their value should change, or whatever, but this is exactly a path towards the most dysfunctional regime of payments one can make.

It's really the trick that one is forced to prepare expectations about the future prices and amount of wealth and he can't really trick it. In this sense, if the U.S. or anyone paid with the money that are printed in the USSR or North Korea according to some rules, it wouldn't be any tragedy. It could even work better than now.

Just a curiosity. When Czechoslovakia was separated and the currencies were split a month later, the stamps validating the Czech banknotes were printed somewhere in South America. In this sense, some crazy third-world Latin American country had a monopoly over "our currency". It clearly doesn't matter at all. They're just pieces of paper. What matters is that the people agree that the papers have a value and they have arranged a system to punish those who counterfeit the banknotes and do similar things.

It doesn't matter that we associate with these with the "government". In fact, in the Czech Republic, we don't. We always say that the central bank is *independent* from the government. It's also independent from the direct wishes of the users of the money. Of course that some people would like if their value went down and others would prefer if it went up. But it's important for the working of the economy that they can't earn capital in this easy way. They have to do some work. That's why it's important that the value is dictated by an external entity according to some procedures that guarantee some stability of the value of the money - or a predictable low inflation etc.

Everything else is counterproductive. The statement that it is counterproductive is something that every intelligent market participant should be able to figure out. He would figure it out if he were living on a territory with *no* government whatsoever. On such a territory, the money would be created from the bottom and they would work almost identically like the normal "government" money. The government isn't really doing any nontrivial decisions. It's just guaranteeing that the conditions are the same for everyone - just - according to some largely inconsequential rules.

"Come on, Vangel. I am just saying that everyone - and every nation - has the freedom to hoard the money."

But that is the problem; you see the nation as the economic actor while I am with the Austrian School and on the purposeful actions of individuals. For a guy who claims to favour free markets and liberty you tend to side with Hegel and against Mises.

What I argue is that it is not nations but individuals that act. Americans do not bail out the banking system; Bernanke and Bush/Obama do. Nations cannot hoard anything and are not responsible for any particular action. It was not Russia but Stalin who decided to invade Eastern Europe. It was not Germany but Hitler and his staff that decided to kill Jews. And the deaths of individual Jews were made possible by the actions of the individual who pulled the trigger or pulled the lever, not the German action.

As I said, you are a smart guy but you use your considerable intellect to build beautiful logical structures on false premises. As such those structures are not very sound. When we discuss money I would look to history and see what that teaches us. While I am not in favour of make-believe empiricism in economics, history should give us a pretty good idea about who is right in this debate.

Since its creation the Federal Reserve Note, which is the fiat currency
that replaced the Dollar Notes that were redeemable in specie, have lost
more than 96% of their purchasing power
If there's one thing that central bankers have been doing well in the past couple of decades, it's announcing a ~2 percent annual inflation target and hitting it closely enough, year after year.

And you think that is a problem because...? And in the place of 2 percent annual inflation you propose ... what? Eternal deflation?

Quite apart from the question of money supply, inflation is necessary because it forces cash back into circulation and keeps the wheels of commerce from getting stuck.

I also see a nation as a collection of individuals. But the average value of a quantity for this group of individuals isn't the same for all nations.

For example, the German individuals are smarter, more hard-working, and like to save money much more than the Greeks. It doesn't matter at all whether the German government is doing these things at a centralized level, in the name of the German nation, at all. This just reflects the German character.

If you question that different groups of people are different, then you are a far left-wing whacko.

"Products would drop in price every week. And every week people would postpone their purchases because that iPad will cost less tomorrow. The economy would contract, people would lose their jobs, etc."

Have you participated in the economy since the start of the industrial revolution?? At all??

That "ipad" **DOES** drop in price every week, and so do all electronics. In fact, so do all other goods whose manufacturing cost is based on technology and productivity improvement (as opposed to the commodity cost of raw materials).

Did, perhaps, you notice that during the periods of most-accelerated productivity improvement (and consequent cost reduction) coincided precisely with the times of greatest wealth generation AND the times of lowest inflation??

Sparafucile, please, don't be silly. I am personally watching about 30 electronics products, including the iPads, at about 5 marketplaces and I know that their price generally drops. Eugene knows, too.

It's untrue, however, that the price drop occurs predictably every week. The weekly changes are mostly random. Only at the timescale of months or several months, the drop becomes "almost guaranteed".

But you're confusing the cause and effect. You don't increase the productivity by having deflation. Deflation is one reason why prices may drop and it generally doesn't do anything good to the productivity. Increases of productivity are an entirely different matter but their effects on prices may be similar.

If you have dropping prices without a gain in productivity, the producers start to make loss or become uncompetitive or both.

Alright, thanks. Mises and Rothbard... I guess Rothbard belongs to the more extreme wing of the Austrian School, then (see Wikipedia article -- they have nothing on gold standard).

I still don't "get" the obsession with wanting cash never to lose buying power.
Luboš posted a link to an article by Warren Buffett. As an investment, U.S. treasury bills had a much lower return than either gold or the S&P 500. But T bills are very sound. Eminently tradeable, at any time. And even after tax and inflation, their value in real terms held steady. Gold yielded higher returns but the S&P 500 yielded even more. And that makes sense. Productive assets should always bring the best return on investment.

But if someone wants safety and zero worries, they should buy T bills and forget about them until maturity. They won't get richer but they also won't get poorer.

Most of the money we earn, we spend very quickly anyway, long before it can lose value. The remainder we can invest profitably. A diversified, prudent investment strategy is practically guaranteed to make you come out ahead, if not every year than over a lifetime.

So, nothing from Hayek. Would he have belonged to the more moderate wing of the Austrian School, then?

There is nothing 'extreme' about defending individual rights and liberty. If you begin with the premise that you own your own body and do not believe that one should be able to INITIATE force against others logic will lead you to Rothbard's positions on most issues.

And I think that either I am not making the argument correctly or you are just not understanding it. The Austrians are not obsessed "with wanting cash never to lose buying power." Since they know that value is subjective it is not surprising if we have periods where even the market's choice as money will lose purchasing power. Their problem is with the COUNTERFEITING MONOPOLY that has been given to the Fed, which is a private organization and with the banking system's privileged and protected position. In a world of inflating fiat money and credit you wind up with the currency going to zero (or very close to it) and destroying savers all because those in political power are able to game the system for their own benefit.

Note that when the market chooses the circulating media, which was often gold or silver, there is no way for government to boost the money supply for very long. And while fractional reserve banking and government regulations of the banking system will make bubbles still very possible the discipline that a commodity reserve imposes keeps things more stable.

If you like fiction I suggest Garet Garrett's great book, The Driver. It is a fictionalized parallel of James Hill's life and in addition to giving you some historical context and decent economic arguments it will show you where Rand may have gotten her John Galt character from. Put Garrett together with Stirner and Isabelle Patterson and you have a very good idea about Rand's influences. (Let us not forget Zamyatin's book We, which also influenced Orwell and Huxley to that list.)

You can get the ePub version of the Driver at the link below.

http://tinyurl.com/nqqbwgz

Vangel - You have been doing heroic work here. Keep it up!

I enjoy arguing and feel very strongly about the subject so I am happy to keep defending individual liberty and freedom and oppose central planning. What gets to me is the fact that Luboš is unaware of the material given the fact that so many politicians, religious leaders, and intellectuals in the Czech Republic are familiar with Mises' books and there is a Mises Institute in Prague. If he wanted to read Human Action in his native language he could easily get a PDF version for free at http://www.mises.cz/database/literatura/34.pdf or could access a free copy of, Důvody pro 100% zlatý dolar, at http://www.mises.cz/database/literatura/58.pdf.

Just a brief explanation why (in spite of quite a lot of sympathy) I disagree with “Austrian economics” (except, of course, von Hayek, to who none of the criticisms below apply) and its descendent American libertarianism (Rothbard, Rand etc. and, of course, Vangel).

There are two basic reasons. The minor one is that these people tend to be completely innumerate, incapable of understanding the simplest mathematical or statistical argument (this despite of the fact that Ludwig von Mieses’ younger brother Richard was a mathematician and one of the founders of probability theory) and to justify their ignorance and incapability they declare “a priori” the inapplicability of tools in economics.

The much more serious problem is that they share some of the worst features with the marxists. The first is that like the marxists they believe in the primacy of economic factors over political ones - contrary to all the evidence. The second is the tendency of substituting completely mythical history for actual one and basing their arguments on the former while always carefully ignoring examples provided by the latter.

That makes them the most dangerous of utopians.

Here is an example of what I mean. It was well known to some of the American “founding fathers” that 18th century Poland provided the paradigm example of the sort of thing utopian libertarianism could lead to. In fact (at least for about 10% of its population who constituted the nobility) 18-th century Poland was a libertarian utopia. Government was almost non-existent and so were taxes. Parliament could only legislate unanimously, which meant that it almost never did so. The state had practically no army, although the population at large was the most heavily armed in Europe. And, of course, bullion was used as currency.

Then a curious thing happened. The neighbouring countries: Russia, Prussia, and Austria - the first two very centralised autocratic monarchies, the third somewhat less so, and all possessors of huge armies maintained from heavy taxation, decided to use their enormous military advantage divide up the giant but helpless “anarchic” or “libertarian” Utopia and made it disappear as a state for about 150 years.

This reminds me that Murray Rothbard that once argued that the US need not bother resisting the Soviets since if the latter took over the rest of the world and invaded America, the Americans could always take to the hills and launch a guerrilla war, a la "Red Dawn."

Don’t try telling this to the Poles.