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| Disputed term/author/ism | Author |
Entry |
Reference |
|---|---|---|---|
| Government Bonds | Rothbard | Rothbard III 1025 Government Bonds/Rothbard: The major source of government revenue is taxation. Another source is government borrowing. Government borrowing from the banking system is really a form of inflation: it creates new money-substitutes that go first to the government and then diffuse, with each step of spending, into the community. >Inflation/Rothbard, >Money-substitutes/Rothbard. Government bonds: This is a process entirely different from borrowing from the public, which is not inflationary, for the latter transfers saved funds from private to governmental hands rather than create new funds. Its economic effect is to divert savings from the channels most desired by the consumers and to shift them to the uses desired by government offcials. Savings: Hence, from the point of view of the consumers, borrowing from the public wastes savings. Capital structure/Society: The consequences of this waste are a Iowering of the capital structure of the society and a Iowering of the general standard of living in the present and the future. Interest rates: Diversion and waste of savings from investment causes interest rates to be higher than they otherwise would, since now private uses must compete With government demands. Public borrowing strikes at individual savings more effectively even than taxation, for it specifically lures away savings rather than taxing income in general. VsRothbard: It might be objected that lending to the government is voluntary and is therefore equivalent to any other voluntary contribution to the government; the "diversion" of funds is something desired by the consumers and hence by society.(1) VsGovernment Bonds/RothbardVsVs: Yet the process is "voluntary" only in a one-sided way. For we must not forget that the government enters the time market as a bearer of coercion and as a guarantor that it will use this coercion to obtain funds for repayment. The government is armed by coercion With a crucial power denied to all other People on the market; it is always assured of funds, whether by taxation or by inflation. Risks: (…) the risk component in the interest rate paid by the government will be Iower than that paid by any other borrowers.(2) Rothbard III 1026 Voluntariness: Lending to government, therefore, may be voluntary, but the process is hardly voluntary when considered as a whole. It is rather a voluntary participation in future confiscation to be committed by the government. In fact, lending to government twice involves diversion of private funds to the government: once when the Ioan is made, and private savings are diverted to government spending; and again when the government taxes or inflates (or borrows again) to obtain the money to repay the Ioan. Coercion: Then, once more, a coerced diversion takes place from private producers to the government, the proceeds of which, after payment of the bureaucracy for handling services, accrues to the government bondholders. The latter have thus become a part of the state apparatus and are engaging in a "relation of state" with the tax-paying producers.(3) „We“/society/state/Rothbard: The ingenious slogan that the public debt does not matter because "we owe it to ourselves" is clearly absurd. The crucial question is: Who is the "we" and who are the "ourselves"? Analysis of the world must be individualistic and not holistic. Certain people owe money to certain other people, and it is precisely this fact that makes the borrowing as well as the taxing process important. For we might just as well say that taxes are unimportant for the same reason.(4) Rothbard III 1027 RothbardVsRightists/RothbardVsRight-wing: Many "right-wing" opponents of public borrowing, on the other hand, have greatly exaggerated the dangers of the public debt (…). 1) It is obvious that the government cannot become "insolvent" like private individuals - for it can always obtain money by coercion, while private citizens cannot. 2) Further, the periodic agitation that the government "reduce the public debt" generally forgets that - short of outright repudiation -the debt can be reduced only by increasing, at least for a time, the tax and/or inflation in society. Social utility: Social utility can therefore not be enhanced by debt-reduction, except by the method of repudiation - the one way that the public debt can be Iowered without a concomitant increase in fiscal coercion. Repudiation: Repudiation would also have the further merit (from the standpoint of the free market) of casting a pall on all future government credit, so that the government could no longer so easily divert savings to government use. It is therefore one of the most curious and inconsistent features of the history of politico-economic thought that it is precisely the "right-wingers," the presumed champions of the free market, who attack repudiation most strongly and who insist on as swift a payment of the public debt as possible.(5) 1. A recent objection of this sort appears in James M. Buchanan, Public Principles of Public Debt (Homewood, Ill.: Richard D. Irwin, 1958), especially pp. 104-05. 2. It is incorrect, however, to say that government Ioans are "riskless" and therefore that the interest yield on government bonds may be taken to be the pure interest rate. Governments may always repudiate their obligations if they wish, or they may be overturned and their successors may refuse to honor the I.0.U.'s. 3. Hence, despite Buchanan's criticism, the classical economists such as Mill were right: the public debt is a double burden on the free market; in the present, because resources are withdrawn from private to unproduc- tive governmental employment; and in the future, when private citizens are taxed to pay the debt. Indeed, for Buchanan to be right, and the public debt to be no burden, two extreme conditions would have to be met: (1) the bondholder would have to tear up his bond, so that the Ioan would be a genuinely voluntary contribution to the government; and (2) the government would have to be a totally voluntary institution, subsisting on voluntary payments alone, not just for this particular debt, but for all in transactions with the rest of society. Cf. Buchanan, Public Principles of Public Debt. 4. In the same way, we would have to assert that the Jews killed by the Nazis during World War II really committed suicide: "They did it to themselves." 5. For the rare exception of a libertarian Who recognizes the merit of repudiation from a free-market point ofview, see Frank Chodorov, "Don't Buy Bonds," analysis, Vol. IV, No. 9 (July, 1948), pp. 1-2. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
| Government Services | Rothbard | Rothbard III 944 Government Services/Rothbard: "Free" services are particularly characteristic of government. Police and military protection, firefighting, education, parks, some water supply come to mind as examples. VsGovernment services: The first point to note, of course, is that these services are not and cannot be truly free. A free good (…) would not be a good and hence not an object of human action; it would simply exist in superabundance for all. >Goods/Rothbard, >Action/Rothbard. If a good does not exist aplenty for all, then the resource is scarce, and supplying it costs society other goods forgone. Hence it cannot be free. The resources needed to supply the free governmental service are extracted from the rest of production. Payment/taxation: Payment is made, however, not by users on the basis of their voluntary purchases, but by a coerced levy on the taxpayers. A basic split is thus effected between payment and receipt of service. This split is inherent in all government operations. Rothbard III 945 Police/school system: Many grave consequences follow from the split and from the "free" service as well. As in all cases where price is below the free-market price, an enormous and excessive demand is stimulated for the good, far beyond the supply of service available. Consequently, there will always be "shortages" of the free good, constant complaints of insuffciency, overcrowding, etc. An illustration is the perpetual complaints about police insuffciency, particularly in crime-ridden district, about teacher and school shortages in the public school system(…). Free market/Rothbard: In no area of the free market are there such chronic complaints about shortages, insuffciencies, and Iow quality service. In all areas of private enterprise, firms try to coax and persuade consumers to buy more of their product. Efficiency/Public sector/Rothbard: Where government owns and operates, on the other hand, there are invariably calls on consumers for patience and sacrifice, and problems of shortages and deficiencies continually abound.(1) Price/market: The same is true, to a lesser extent, wherever the price is under the free-market price. >Free market/Rothbard, >Government policy/Rothbard. >Rothbard III 950 Prices: Many "criteria" have been offered by writers as guides for the pricing of government services. Marginal cost: One criterion supports pricing according to "marginal cost." RothbardVs: (:..) this is hardly a criterion at all and rests on classical fallacies of price determination by costs. "Marginal" varies according to the period of time surveyed. >Marginal cost/Rothbard. Costs: And costs are not in fact static but flexible; they change according to prices and hence cannot be used as a guide to the setting of prices. Equilibrium: Moreover, prices equal average costs only in final equilibrium, and equilibrium cannot be regarded as an ideal for the real world. The market only tends toward this goal. Finally, costs of government operation will be higher than for similar operations on the free market.(2) Competition/efficiency: The ineffciencies of government operation are compounded by several other factors. (…) a government enterprise competing in an industry can usually drive out private owners, since the government can subsidize itself in many ways and supply itself with unlimited funds when desired. In cases where it cannot compete even under these conditions, it can arrogate to itself a compulsory monopoly, driving out competitors by force. This was done in the United States in the case of the post office.(3) >Competition, >Efficiency. Rothbard III 952 Calculation: (…) one cartel or one firm could not own all the means of production in the economy, because it could not calculate prices and allocate factors in a rational manner. >Calculation/Rothbard, >Factors of production/Rothbard. No government enterprise could be established on a "business basis" even i fthe desire were present. Thus, any governmental operation injects a point of chaos into the economy; and since all markets are interconnected in the economy, every governmental activity disrupts and distorts pricing, the allocation of factors, consumption/investment ratios, etc. Utility: Every government enterprise not only Iowers the social utilities of the consumers by forcing the allocation of funds to other ends than those desired by the public; it Iowers the utility of everyone (including the utilities of some government offcials) by distorting the market and spreading calculational chaos. 1. See Murray N. Rothbard, "Government in Business" in Essays on Liberty (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1958), IV, 186 ff. It is therefore characteristic of government ownership and "enterprise" that the consumer becomes, not a "king" to be courted, but a troublesome fellow bent on using up the "social" product. 2. Various fallacious criteria have been advanced for deciding between private and state action. One common rule is to weigh "marginal social costs" and benefits against "marginal private costs" and benefits. Apart from other flaws, there is no such entity as "society" separate from constituent individuals, so that this preferred criterion is simply meaningless. 3. See the interesting pamphlet by Frank Chodorov, The Myth of the Post ofice (Hinsdale, 111.: Henry Regnery Co., 1948). On a similar situation in England, see Frederick Millar, "The Evils of State Trading as Illustrated by the Post Offce" in Thomas Mackay, ed., A Plea for Liberty (New York: D. Appleton Co., 1891), pp. 305-25. For a portrayal of the political factors that have systematically distorted economic considerations in setting postal rates in the United States, see Jane Kennedy, "Development of Postal Rates: 1845-1955 Land Economics, May, 1957, pp. 93-112; and Kennedy, "Structure and Policy in Postal Rates," Journal of Political Economy, June, 1957, pp. 185-208. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
| Inflation | Rothbard | II 160 Inflation/Rothbard: Great Britain suspended specie payments indefinitely so as to permit the Bank of England, and the banking system as a whole, to maintain and greatly expand the previously inflated system of fractional reserve banking. Accordingly, the bank was able to greatly inflate credit and the money supply of notes and deposits. >Gold standard/Rothbard, >Central banks/Rothbard, >Bullionism/Rothbard. Rothbard III 990 Def Inflation/Rothbard: The process of issuing pseudo warehouse receipts or, more exactly, the process of issuing money beyond any increase in the stock of specie, may be called inflation.(1) Def Deflation/Rothbard: A contraction in the money supply outstanding over any period (aside from a possible net decrease in specie) may be called deflation. Clearly, inflation is the primary event and the primary purpose of monetary intervention. There can be no deflation without an inflation having occurred in some previous period of time. Interventions: A priori, almost all intervention will be inflationary. For not only must all monetary intervention begin with inflation; the great gain to be derived from inflation comes from the issuer's putting new money into circulation. >Quasi-money/Rothbard, >Money/Rothbard, >Money substitutes/Rothbard. Money supply: The increasing money supply is only a social waste and can only advantage some at the expense of others. And the benefits and burdens are distributed as just outlined: the early-comers gaining at the expense of later-comers. Credit expansion/Rothbard: If inflation is any increase in the supply of money not matched by an increase in the gold or silver stock available, the method of inflation just depicted is called credit expansion - the creation of new money-substitutes, entering the economy on the credit market. As will be seen below, while credit expansion by a bank seems far more sober and respectable than outright spending of new money, it actually has far graver consequences for the economic system, consequences which most people would find especially undesirable. This inflationary credit is called circulating credit, as distinguished from the lending of saved funds - called commodity credit. Rothbard III 991 Prices/New equilibrium: (…) prices will not have increased uniformly in the new equilibrium; the purchasing power of the monetary unit has fallen, but not equiproportionally over the entire array of exchange-values. Since some prices have risen more than others, therefore, some people will be permanent gainers, and some permanent losers, from the inflation.(1) Victims of inflation: Particularly hard hit by an inflation, of course, are the relatively "fixed" income groups, who end their losses only after a long period or not at all. Pensioners and annuitants who have contracted for a fixed money income are examples of permanent as well as short-run losers. Life insurance benefits are permanently slashed.(2) Rothbard III 992 Investment/consumption: Inflation also changes the market's consumption/investment ratio. Superficially, it seems that credit expansion greatly increases capital, for the new money enters the market as equivalent to new savings for lending. Since the new "bank money" is apparently added to the supply of savings on the credit market, businesses can now borrow at a Iower rate of interest; hence inflationary credit expansion seems to offer the ideal escape from time preference, as well as an inexhaustible fount of added capital. Actually, this effect is illusory. On the contrary, inflation reduces saving and investment, thus Iowering society's standard of living. It may even cause large-scale capital consumption. 1) In the first place, as we just have seen, existing creditors are injured. This will tend to discourage lending in the future and thereby discourage saving-investment. 2) Secondly (…) the inflationary process inherently yields a purchasing-power profit to the businessman, since he purchases factors and sells them at a later time when all prices are higher. The businessman may thus keep abreast of the price increase (we are here exempting from variations in price increases the terms-of-trade component), neither Iosing nor gaining from the inflation. But business accounting is traditionally geared to a world where the value of the monetary unit is stable. Rothbard III 993 Capital goods: Capital goods purchased are entered in the asset column "at cost," i.e., at the price paid for them. When the firm later sells the product, the extra inflationary gain is not really a gain at all; for it must be absorbed in purchasing the replaced capital good at a higher price. Inflation, therefore, tricks the businessman: it destroys one of his main signposts and leads him to believe that he has gained extra profits when he is just able to replace capital. Accounting error: The accounting error stemming from inflation has (…) economic consequences. The firms with the greatest degree of error will be those with capital equipment bought more preponderantly when prices were Iowest. If the inflation has been going on for a while, these will be the firms with the oldest equipment. Their seemingly great profits will attract other firms into the field, and there will be a completely unjustified expansion of investment in a seemingly high-profit area. Conversely, there will be a deficiency of investment elsewhere. Allocation: Thus, the error distorts the market's system of allocating resources and reduces its effectiveness in satisfying the consumer. The error will also be greatest in those firms with a greater proportion of capital equipment to product, and similar distorting effects will take place through excessive investment in heavily "capitalized" industries, offset by underinvestment elsewhere.(3) >Credit expansion/Rothbard, >Time preference/Rothbard, >Money supply/Rothbard. Rothbard III 1018 Inflation/Rothbard: When the government and the banking system begin inflating, the public will usually aid them unwittingly in this task. The public, not cognizant of the true nature of the process, believes that the rise in prices is transient and that prices will soon return to "normal." Hoarding: (…) people will therefore hoard more money, i.e., keep a greater proportion of their income in the form of cash balances. >Hoarding/Rothbard, >Cash balance/Rothbard. Demand for money/prices: The social demand for money, in short, increases. As a result, prices tend to increase less than proportionately to the increase in the quantity of money. Government: The government obtains more real resources from the public than it had expected, since the public's demand for these resources has declined. Eventually, the public begins to realize what is taking place. Government: It seems that the government is attempting to use inflation as a permanent form of taxation. But the public has a weapon to combat this depredation. Consumption: Once people realize that the government will continue to inflate, and therefore that prices will continue to rise, they will step up their purchases of goods. For they will realize that they are gaining by buying now, instead of waiting until a future date when the value of the monetary unit will be Iower and prices higher. In other words, the social demand for money falls, and prices now begin to rise more rapidly than the increase in the supply of money. Hyperinflation: When this happens, the confiscation by the government, or the "taxation" effect of inflation, will be Iower than the government had expected, for the increased money will be reduced in purchasing power by the greater rise in prices. This stage of the inflation is the beginning of hyperinflation, of the run-away boom.(4) Demand for money: The Iower demand for money allows fewer resources to be extracted by the government, but the government can still obtain resources so long as the market continues to use the money. Prices: The accelerated price rise will, in fact, lead to complaints of a "scarcity of money" and stimulate the government to greater efforts of inflation, thereby causing even more accelerated price increases. Flight from money: This process will not continue long, however. As the rise in prices continues, the public begins a "flight from money," getting rid of money as soon as possible in order to invest in real goods - almost any real goods - as a store of value for the future. Prices: This mad scramble away from money, Iowering the demand for money to hold practically to zero, causes prices to rise upward in astronomical proportions. The value of the monetary unit falls practically to zero. The devastation and havoc that the runaway boom causes among the populace is enormous. Society: The relatively fixed-income groups are wiped out. Production declines drastically (sending up prices further), as people lose the incentive to work - since they must spend much of their time getting rid of money. The main desideratum becomes getting hold of real goods, whatever they may be, and spending money as soon as received. Market: When this runaway stage is reached, the economy in effect breaks down, the market is virtually ended, and society reverts to a state of virtual barter and complete impoverishment.(5) Commodities are then slowly built up as media of exchange. The public has rid itself of the inflation burden by its ultimate weapon: Iowering the demand for money to such an extent that the government's money has become worthless. When all other limits and forms of persuasion fail, this is the only way - through chaos and economic breakdown - for the people to force a return to the "hard" commodity money of the free market. Rothbard III 1021 Interventions: Movements in the supply-of-goods and in the demand-for-money schedules are all the results of voluntary changes of preferences on the market. The same is true for increases in the supply of gold or silver. But increases in fiduciary or fiat media are acts of fraudulent intervention in the market, distorting voluntary preferences and the voluntarily determined pattern of income and wealth. Def Inflation/Rothbard: Therefore, the most expedient definition of "inflation" is: an increase in the supply of money beyond any increase in specie.(6) Rothbard III 1022 RothbrdVsGovernment policies: The absurdity of the various governmental programs for "fighting inflation" now becomes evident. Most people believe that government offcials must constantly pace the ramparts, armed With a huge variety of "control" programs designed to combat the inflation enemy. Yet all that is really necessary is that the government and the banks (…) cease inflating.(7) Inflationary pressure: The absurdity of the term "inflationary pressure" also becomes clear. Either the government and banks are inflating or they are not; there is no such thing as "inflationary pressure."(8) 1. Cf. Mises, Theory of Money and Credit. New Haven, Conn.: Yale University Press, 1953 and 1957 Reprinted by Liberty Fund, 1995. pp. 140-42. 2. 1081 The avowed goal of Keynes' inflationist program was the "euthanasia of the rentier." Did Keynes realize that he was advocating the not-so-merciful annihilation of some of the most unfit-for-labor groups in the entire population - groups whose marginal value productivity consisted almost exclusively in their savings? Keynes, The General Theory of Employment, Interest and Money. New York: Harcourt, Brace & Co., 1936. Reprinted by Prometheus Books, 1997. p. 376. 3.For an interesting discussion of some aspects of the accounting error, see W.T. Baxter, "The Accountant's Contribution to the Trade Cycle," Economica, May, 195 5 , pp. 99-112. Also see Mises, Theory of Money and Credit, New Haven, Conn.: Yale University Press, 1953 and 1957. Reprinted by Liberty Fund, 1995. pp. 202-04; and Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 546 f. 4. Cf. the analysis by John Maynard Keynes in his A Tract on Monetary Reform (London: Macmillan & Co., 1923), chap. ii, section 1. 5. On runaway inflation, see Mises, Theory of Money and Credit, New Haven, Conn.: Yale University Press, 1953 and 1957. Reprinted by Liberty Fund, 1995. Mises, Richard von. Probability, Statistics, and Truth, 2nd ed. New York: Macmillan, 1957. Reprinted by Dover Publications, 1981. pp. 227-31. 6. Inflation is here defined as any increase in the money supply greater than an increase in specie, not as a big change in that supply. As here defined, therefore, the terms "inflation" and "deflation" are praxeological categories. See Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 419-20. But also see Mises' remarks in Aaron Director, ed., Defense, Controls, and Inflation (Chicago: University of Chicago Press, 1952), p. 3 n. 7. See George Ferdinand, "Review of Albert G. Hart, Defense without Inflation," Christian Economics, Vol. III, No. 19 (October 23, 1951). 8. See Mises in Director, Defense, Controls, and Inflation, p. 334. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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