Mises Memo Fall 2003

8/7/2019 Mises Memo Fall 2003

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M i s e s MemoNews f r om t h e Ludwig v on M is e s I n s t i t u t e F a l l 2003

T h e R o o t s o f F e d e r a l D e b tnew mega-spending programs thatbreak al l records .

How could all this be happening at the same time? Has thegovernment learned how to createsomething out of nothing? Hardly.The leakage is visible in the federaldeficit, which is estimated toexceed the $600 billion mark, andthe federal debt, which now standsat $6 .7 tril l ion. And then there's

the problem of unfunded liabilitiesin die system itself, which exceed$44 trillion.

Of course diese numbers, asstaggering as they arc, are toolarge to really comprehend. It isnot even possible to comprehendthe sheer size of the daily increase

i n t he n at io na l d eb t: $1 .72 billion.The very meaning of these numbers boggles the mind.

T h e issue of government debtand deficits lay dormant

throughout the high-revenue1990s. Bu t wid i recession and

exploding government spending,the issue has become enormously

important again. Sadly, just abouteveryone is missing the centralpoint, which is not that we needbudget reform so much as drasticmonetary reform.

Federal finance is a shell gameof such complexity and trickerythat it makes state-level finance, tosay nothing of family finance,appear simple by comparison. Atthe state level, the government

takes money from its citizensthrough taxes.The taxes can be onland, goods, sendee, or income.The government spends themoney it takes in. If die moneycomes up short, the governmenttries to issue bonds and get peopleto buy diem. Or it raises taxes. Ifit can't do that, it cuts die budgetor seeks a federal subsidy. Thereare no other options.

State governments fleece taxpayers at ever}' turn, of course, butat least it is hard to disguise. Thestates embarked o n massive new

spending in die 1990s before dierevenue dried up. States are nowstruggling to raise new revenuethrough bond sales and taxes,while avoiding necessary cuts.

When you move from die stateto the federal level of government,

the fog begins to fall. Right now,for example, we observe the coming together of three trends thatwould seem to contradict each

other.

First, many Americans arereceiving refunds on their taxes aswell as unexpected rebates formoney already paid into die federal system. Second, governmentrevenue has actually fallen fornearly three years in a row, duen o t to t ax c ut s b u t to l ow e r e co

nomic growth. Third, government spending is soaring, withdefense and nondefense spending

increases breaking all postwarrecords. Meanwhile, Congressand the President are instituting

F e d e r a l G o v e r n m e n t D e b t

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2500

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Federal Receipts and Outlays, 1941-2003

Your f in an ce s ar e n o t the first

concern of its primary clients, thelarge banks and the government,t h a t es tabl ished th e centra l bank.

It is short-term thinking at work.I n t he i ns ti tu ti on o f d ie cent ra l

bank, the government has the ultimate tool to permit its profligacyt o c on ti n ue w ith o ut check and

without regard to the future.If the Fed, the sponsor of die

ultimate check-kitingscheme, is sodangerous for society, why doesn'tsomebody do something about it?For years Congressman Ron Paulof Texas, distinguished counselorto the Mises Institute, has workedto restore the gold standard,because it wou ld mean the abol i

tion of central banking and theinstituting o f sound monev thatwould keep government in checkand stabilize economic growthand inf la t ion .

Bu t he is unusua l : a s t a t e sman

w h o u nd er sta nd s d ie i ssue and

cares enough about America'sfuture to push a program diatwould benef it eve ryone but th ebanking/government elite. Whatabout everyone else? They eitherlack the e co no mic ed uc at ion to

understand it or just have no realincentive to do the right thing.

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The following question isbasic but hardly ever asked: giventhat this debt cannot be paid, andnobodv reallv believes it can be,how is it tha t the federal governm e n t can con t i n u e t o b o r r ow so

much even as taxes are marginallycut and spending expands at arecord pace in the midst of a lackluster economy?

If individuals or corporations or state governments, fort h a t ma t t e r we r e th is much in

debt, they would see the value oftheir existing debt on the marketdowngraded. They would nolonger be creditworthy. Theywould default and be bankrupt.The profligacy would come to anend .

How is it diat the federal gove r nmen t is able t o accumula t e al l

this deb t and still marke t it s notes

all over the world? The answer to

die riddle is understood by theAustrian School: the Fed, th eagency of the federal government

The Mises Memo is published quarterlyby the Ludwig von Mises Ins ti tu te . Volume 9, No. 3. Copyr ight 2003 by th eLudwig von Mises Institute, 518 Wes tMagnolia Ave., Auburn, Alabama 36832-4528; 334-321-2100; fax 334-321-2119;[email protected]; www.mises.org.

that enjoys the monopoly privilegeto create o u t o f diin air al l the

money it wants to create. Fed governor Ben Bernanke is right thatthe Fed is capable of bailing outeven the worst debt crisis bymerely creating unlimited supplieso f d ol la rs . M i se s wro t e a b o u t th is

as early as 1912, and he saw thegrave costs for society.

W h a t are t h o s e cos ts? An

inflated money supply distorts thestructure of production and leadst o s er io u s i nv es tm e nt miscalcula

t ions . I t drives down the value o f

th e dol lar on t he i nt er na ti on al

exchange. It provokes a decline inthe purchasing power of each individualunit, thereby gutting savingsand discouraging thrift. It redistributes wealth from the productive to the government-connected.As die recent experience of Zim

babwe shows, inflation can literallyturn a society and culture upsided o w n .

Even the Fed would regret theconsequences of such actions.Why, then, does it continuallypromise to drive interest ratesdown to zero if need be? Why doits spokesmen never tire of emphasizing that the whole banking syste m is i n su l at e d f r om failure?

News f rom tiii-: Ludwig von Mi s e s I n s t i t u t e Fai j . 2 0 0 3


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Fro;;; te/fc; Summer Fellows Andrei Kreptul, Anlero Atilla, Art Garden, Bob Murpin/, and Daniel McCarthy

We live unde r wha t Paul Go t t

fried calls the managerial statewhich is to say a seemingly permanent bureaucratic governmentsubject to little effective demo

cratic control, that attempts toplan every aspect of societythough it has no real stake in theou tcome o f i ts f ai lu re s. In this

respect the modern state is verydifferent from its medieval predecessorin which the king took persona] responsibility for the outcome o f hi s decisions.

Under today's system of government, there are few mecha

nisms in place that operate as aneffective check on public looting.The f ramers o f th e cons t i t u t ion

didn't imagine institutions such asthe central bank, th e income tax,and a permanent bureaucraticclass, nor did they imagine theexplosive growth of the welfare-warfare s ta te t h a t t h e se ins t i tu

t i ons w o u l d u n d e rw r i t e a n d

entrench in public life.

One check on power doesremain, and it is the one that hasbeen mos t effective f rom t ime

immemorial: public opinion. Inlight of the impending bankruptcyof the federal government at ourexpense, we might demand toknow: where is the outrage? Atsome point, when it becomes clearthat the present level of profligacycannot continue, and we lace th e

consequences as a society, peopleare going to demand answers.

Ideally, the system would befixed before a crisis tha t results in a

complete financial meltdown.

Given w h a t we know a b o u t Washington today, however, the crisiswill not be stopped but will resultin upheavals of a kind and degreet ha t c an n ot be known in advance .

There arc ways around it, ofcourse: put an end to the recklessness and the ins t i tu t ions like th e

Fed that make it possible.

S u m m e r Students

W h a t a wonderful group ofs t u d e n t fe l lows we had this

year at the Miscs Institute. Theyhave universally reported anextremely valuable experience ofresearch and learning. They camef rom univers i t ies a round th e coun

try and the world, mostlygraduates tuden t s b u t also s ome o u t s t a n d

ing undergraduates. They presented papers and benefited from

critiques from our in-house facultyand visiting scholars. The researchtopics covered a huge range: scientific method, monetary policy,international trade, war history,secession, business cycle theory,antitrust, property rights theory,interest rates , f inancial markets,and many other areas.

A c o m m o n c o m m e n t f r om

the s t u d e n t s was h ow much t h e v

F a l l 2 0 0 3 News f ro m t ii k Ludwig v o x M i s e s I n s t i t u t e

appreciated having access to sucha great library and being permittedt he f re ed om to research and wri te

around colleagues who know andunder st and t he Austrian/libertaria n t r ad i t i on .

P r o s p e r i t y , W a r .

an d Dep r e s s i on

One look at the debt, the continuing economic bog, and

the government's response showsthat we could be in for very toughtimes ahead. The government'slust for war and welfare guaranteescontinued exorbitant spending.The Fed will be called on moreand more to be the final purchaserof treasury debt. Will there be asoft landing and a restoration ofsanity? If not, how bad could thecalamity be? Will it be a Japanese-style stagnation or will it all end inone great crisis, such as a massiver u n o n th e dol lar?

Dealing with dicse topics andmore is the Mises Institute's Sup

porters Summit (October 24 25,2003, in Auburn): "Prosperity,War, and Depression." Speakerswill unmask wrongheaded theories of the business cycle that dominate the business press and theacademic journals. They will takeon the central planners who thinkthat Big Government is preciselywhat a recession needs most. Theywill address the problem of


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deficits, spending, warmongering,trade interventions, SEC regulations, l awsu it man ia , an d all th eother factors that are forestallingrecovery.

Mises Ins t i tu te scholars will

give you an inside look into the

latest issues and arguments thatare driving the current debate, andshow how d ie Aust r ian School o f

economics isworking to advance alogical, liberty-minded response.Come to support our work, andlearn from experts in economics,history, philosophy, and law. Wewill also present the 2003 GaryG.Sch la rbaum Prize fo r L ife t im e

Achievement in L ib cr tv to Con

gressman Ron Paul of Texas.Among the speakers: Sean

Corrigan, Roger Garrison, Morgan Reynolds, Joseph Salerno,Peter Klein, Ron Paul, Burt

Blumert, Jeffrey Tucker, WalterBlock, Joseph Stromberg, DavidGordon, Thomas Di Lorenzo,Mark Thornton , Hans-HermannHoppe, John V Denson, RalphRaico, Jorg Guido Hiilsmann, andLlewellyn H. Rockwell, Jr.

This will not only be an educat i onal conference but an exciting;and fun on e as well, as arc all ou rannual Supporters Summits. Heldat the Mises In s t i t u t e wi th it s

remarkable libraries and grounds,this is an occa s i on t o hear w h a t th e

Austrians are saying about the

Students and faculty of the 2003 Mises University

state of the economy as well asf reedom and it s future.

T h e M i s e s U n i v e rs i t y

T h e 18 th a nnu a l M i se s Unive r

sity was the largest ever. Witha high-powered faculty and aschedule offering an integratedunderstanding of economic science, this year once again provedwhy this program has achieveds uc h i nt er na ti on a l r enown . Af t e r

all these years of holding this program, thanks to the benefactors ofthe Mises Institute, more workingeconomi s t s t han e ver b efo re h ave

knowledge of the Austrian contribu t i o n and t e a ch i t in t h e i r class

r o om s .

T h e in te res t in th e economic s

o f th e Aus t r i an Schoo l b o t h here

and abroad is expanding at a dramatic rate. Sadly, we had to turn

deserving students away, more thisyear than ever before. That's whythe Mises Institute has taken a bigstep for 2004. We will be holdingtwo separate Mises Universities,one at the beginning of the summer (June 6-12) and one at theend (August 1-7). This waywe candouble the number of people whocan come through our programs.

From left: Summer Fellows Devlin Cooper, Jan Havel, Jeffrey Cleveland, Jeremy Livingston, and Marcus Verhaugh

New s f r om t i i k l .umvir. v on M is ks I n s t i t i t k F a l l 2 0 0 3


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But die expansion will requireaddi t iona l f inancial c omm i tm e n t s

on the part of the Mises Institute.It is worth it, given the proveneffectiveness of this program. Wewelcome your support for thisteaching program, which does somuch to make up for the failuresof academia to expose students tot h e e c o nom i cs o f f reedom.

T h e Rothba rd M o m e n t

H o w important is MurrayRothbard's Man, Economy,

and State in the history of ideas?In an essay appearing in the Quarterly Journal ofAustrian Economics,Joseph Salerno wrote: ""Therevival o f Aust r ian economic s as a

living scientific movement can bedated from the publication ofRothbard's Man, Economy, andState in 1962 . " H e calls i t " a c on

t r ibut ion t o Aus t r i an economic s

and to pure economics in generalt h a t ranks as on e o f th e mo s t bri l

liant performances in die historyof economic thought."

The book, written in scintillating prose, deduces the entire corpus of economictheory step by stepfrom it s theoret ical f ounda t i on s t o

its applications. As Salerno pointsout, Rothbard makes hugeadvances over his predecessors, forexample, on monopoly riieory andthe theory of production. It alsocontains critiques of contemporaryneoclassical and Keynesian theoriesand a critical analysis of state intervent ions .

When our first reprint cameout in a student edition, it becamea huge seller once again, taking ona significance that can only becompared with Mises's ownHuman Action. And yet this edition lacked something extremelyimportant: the last section of thebook, which only appeared lateru nd er th e t i t le Power an d Market .

(The original publisher took it ou to n th e r e c ommenda t i o n o f a

reader who was n o t an economis t

but rather a Gold War militaryactivist.)

We are very pleased toannounce the publication of Man,Economy, and State with Power andMarket in its first fully unified edition, available in early 2004. It is

exactly as Rothbard originallyintended it. Our edition is entirelynew, with an introduction byJoseph Strombcrg that uses newmater ia l f rom t h e Ro t h b a r d

archives at the Institute, a magnificent index for scholarly purposes,

Fal l 2 0 0 3 N e w s i - r om th e l . n n v i c , v on M i s es I n s t i t u t e

and footnotes (Rothbard' s fabu

lous footnotes! ) at the bot tom ofeach page (no more turning to theback). The care riiat was taken inputting this 1,400+ page editiontogether, along with the quality ofthe paper, binding, and printing,will insure t h a t th i s e d it io n i mm e

diately becomes definitive.Man, Economy, and State has

special value for the student ofe c onom i c s because i t takes o n th e

apparatus of theory that is stillbeing taught in classrooms todayand provides a point-bv-pointAustr ian alternative. Anvonc who

r ea d s t hi s b o o k cove r t o cove r a s

the prose invites you to do as agraduate student, an undergraduate, or an interes ted adult , will beprofoundly affected by its arguments, which are both rigorousand inspiring. Power and Market

alone is so powerful a case for thefree market as to leave no escapehatch for any government interv e n t i o n .

I t is a s ha m e t ha t th e au then t i c

e d i t i o n o f t h e classic d ia t R o t h

bard wrote fully 40 years ago isonly now coming into print. Andyet the good news is that at lastth i s r ema rkab l e w o r k o n th e hi s

tory of ideas, the book that makes


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From left: Summer Fellows Mason Drake, Matus Petrik, Paul Cwik, Per hlenrik Hansen, and Peter Anderson

such a technically competent, systematic, and sweeping casefor theeconomics of liberty, will at lastappear and be available in early2004 .

T

W h a t Defense?

he latest GDP figures fromthe government reveal that the

bulk of it is artificial, based in largepart on government spending forpurposes of "defense." Now, evenif you believe that military spending makes us more secure, it ispreposterous to think that it adds toprosperity. Like all government

transfers of wealth, moneysiphoned off the private sector inorde r to bui ld missiles and bombs

only makes us poorer.

B u t does i t even mak e us mor e

secure? No t according to the contributors to our spectacular newvolume edited by Hans-HermannHoppe: The Myth of NationalDefense (Mises Institute 2003).The book shows t ha t th e nat ional -

security state is like the welfarestate: expensive, unworkable, andin t rus ive .

Might private enterprise do abetter job than the government?In some ways, it already does. Weuse private security services. Wearm ourselves to protect our families. We insure our property andlives. We lock our homes, cars, andplaces of business. We depend on

private police to protect the placeswe shop.

The s e are al l commerc i a l func

tions. Unlike government, freeenterprise actually works. There is

a profit and loss test. You can shoparound to get the most for yourdollar. Imagine if the only lockswere issued by the government.Or ifgovernment were responsiblefor all insurance coverage. Yetsomehow we put up with taxationto hind a national-security apparatu s t ha t c on su me s h al f a tr i l l ion

dollars a year, stirs up troublearound the globe, and makes us

vulnerab le t o t e r r o r i sm .

This new book, guaranteed tocause a commotion, includes 11chapters by top scholars on allaspects of defense. Indeed, it repr e s en t s th e mo s t amb i t i o u s

attempt ever to extend the idea offree enterprise to the area called"public goods." It will be availableby year's end.

S p e a k i n g o f Libe r t y

L ew R oc kw el l h as done wha t

many people have urged himto do for years. He's written abook, or, rather, the book has written itself. The book iscalled Speakingof Liberty, and already the Conservative Book Club ha s made i t a

selection. I t s tr u ck t h e edi tor as th e

kind of book people will want to

see in th e hands of friends, family,a n d s tu d en t s.

I t is a c o l le c ti o n b a s ed o n o u r

o ld es t f or m o f mass communica

tion: public speaking. These

speeches introduce ideas at greaterlength, and apply them to the current moment in a way that holdspeople's attention. The prose ismor e immed ia t e and mo r e r he to r

ical in th e classical sense , s incespeeches seek to persuade andmot iva t e .

The book begins witii economics, and explains whyAustrianeconomics matters, how the Fed

eral Reserve brings on the businesscycle, why we need private property and free enterprise, the unrecognized glories of the capitalist

Speakingof Liber ty

News FROM t h e Ludwig v on M is es I n s t i t u t e F a l l 2 0 0 3


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economy, and why the gold standard is still the best monetary system. There are other topics fromtaxation (also blown as organizedwealth destruction) to the statet akeover o f medica l care.

I t dea l s wi t h wa r : t h e

founders ' views, free trade andinternational conflict, the problemof sanctions, and how war growsthe government and reduces liberty. The subjects of imperialism,war propaganda, war and inflation, congress and the presidency,war powers and the constitution,al l are covered .

Next is the subject of Misesan d hi s work . He r e was a man o f

enormous personal courage, amodel who stood against everyform of statism and paid a dearprice for doing so. Later in thebook, Lew addresses other

thinkers, including Henry Hazlitt,Hans Sennholz, EA. Hayek, and,of course, the great Murray Roth-bard.

Finally, the book explains gove r n m e n t as t h e ma i n v i o l a t o r o f

the seven deadly sins, what anAmerican classical l iberal o f th e

founding era really believed, thevast gulf that separates the currenttax-eating political elite from thetaxpayers, and why we should behopeful about the prospects forhuman liberty, thanks to the rolethat ideas play in shaping history

The book is united by a set offixed principles: the corruption ofpolitics, the universality andimmutability of the ideas of freedom, the centrality of soundmoney and free enterprise, diemoral imperative of peace andtrade, the importance of hope andtenacity in the struggle for liberty,and the need for everyone to jointhe intellectual fight.

This book will sell, and couldbe the book diat helps the Austrian

Robert Higgs

School and th e f reedom mov e

ment blast into public view. It's now on de r th at R on Paul sa id t h a t i fhe c ou ld h e "w ou ld e n te r this

entire book in the CongressionalRecord" and Paul Craig Robertssaid that "omnipotent governmenthas rarely faced as fierce an intellectual opponent."

A S u m m e r o e Seminars

T h e seminars held by the MisesInstitute during the summer

attracted members, s tudents , an dfaculty from around the world.There were the two week-longprograms with historians RobertHiggs and Ralph Raico, whichspanned the history of liberty fromthe ancient world to the presenttimes. What a pleasure it was fort hose who a t tend ed to bene f i t

from such wide learning. The sess io ns w er e all recorded . We are in

die process of preparing those fordistribution next year.

Also, we held our first summerreading session of Man, Economy,and State for graduate students.The facultv loved teaching from abook that had such a huge impact

o n t h e i r l ives . T h e s t uden t s wereso pleased to be reading from abook that is so obviously superiorto anything they would ever beassigned to read in graduateschool. Every one of die attendeesleft: wi th detailed t echnica l knowl

edge that allows them to go toe-to-toe with any economist fromanother school of thought.

As one s t u d en t wro t e us : "The

professors' lectures had real depthand scholarship. Rothbard's workwas not just s umma ri ze d, bu tengaged, criticized, and extended.This was a true graduate seminar.The feeling was no t tha t we werepiously reading holy writ, but thatwe were being brought into a living research program with plentyof opportunities for all of us toextend the Rothbardian paradigm,refine it, and apply it."

Th e M i se s Blog

Did you ever watch the newsand th ink: how wou ld the

Austrian economists respond?Thanks to the blog (short for weblog), there is now a way to findout. Austrians post their responsesto all the important economicnews, whether it is a new regulat i on o r d ie a n no u nc em en t o f new

government data that is being

http://www.mises.org/blog.asp

^ ^ ^ Mises Economics

B l o gF a l l 2 0 0 0 News from t h e Ludwio vo n Mises I n s t i t u t e


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wrongly interpreted. The MisesEconomics Blog has proven to beenormously popular, widi links allove r t h e web a n d a con s t a n t

stream of visitors through the dayand night.

The blog also gives us a nice

place to post news on new essays,monographs, journals, and booksbeing posted on the Mises site ofwhich there are new ones everyday. The site wages an ongoingwar against interventionists of allstripes (even when they call themselves libertarian). Weare workingon an online edi tion o f Man, Economy, and State, and some unavailable classics from the history ofth e

Aus t r i anS ch oo l. A s t h e shee r

size of our traffic confirms (we areth e mos t trafficked th in k tank in

the world today), Mises.org is aninva luable resource .

Gar r i son a t L S E

Du r i n g the 1990s economicboom, it was difficult to get

anyone interested in the Austriantheory of the business cycle. Afterall, hadn't th e boom-and-bustcycle been conquered? Of course itall came to an end, and led to aresurgence of interest. Leading the

FA. Hayek

Toby Baxendale and Roger Garrisonat No. 10 Downing Street

charge has been Roger Garrison,who was the Hayek Visiting Fello w a t th e London Schoo l o f Eco

nomics in a program co-sponsoredby the Mises Institute.

His lecture scries and publicspeech were enormous hits, andle d t o a visi t w it h t he e co no m is ts

at 10 Downing Street. One mightsay that it is the most exposure

that the Austrian theory hasreceived since Hayek taught therein the 1930s. Garrison provides afull report on the event in the Fall2003 i s sue o f the Aust r i an Econom

ies Newsletter, or online at http://www.mises.org/journals/aen/aen23_3_l.pdf.

R e q u i e s g a t in P a c e

W e mourn the passing of twoChar t e r Member s : William R .

Jackson, Sr., entrepreneur andphilanthropist of Pittsburgh, Pennsylvania, and former chairman ofthe Pittsburgh-DesMoines Corporation, and Charles Toops, II ofCorrales, New Mexico, former

proprietor of Midwest Art andCo in wh o se b ri ck a t th e Ins t i t u t e

reads "God bless Ludwig vonMises." We are also grateful forthe generosity and example of thelate Albert F. Myers of Northville,Michigan; A.J. Singletary ofBlakely, Georgia; Scott S. Valentine of Friendship, Maryland; andNorman E. Wright, M.D., ofAmarillo, Texas. May they all restin peace.

InMemoriam

We mourn the passing,and willalwaysbe inspired by thededication to liberty, of our benefactors.May they restin peace, and maywe alwaysstrive to be worthy of them.

WilliamR. Jackson, Sr.

Charles Toops, II

Albert F. Myers

A.]. Singletary

Scott S. Valentine

Norman'E. Wright, M.D,

News f r om t h e Ludwig von Mis e s I n s t i t u t e F a ll 2 0 0 3

Mises Memo Fall 2003

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Transcript of Mises Memo Fall 2003