Keynes vs. Hayek, Round 2

I like how at the end Keynes is pulled up to his feet and declared the victor (no matter how obvious a failure, the corrupt system keeps applying his theories). Then the Washington mandarins, Wall Street bigwigs and press all gather around him while the nerds come to congratulate Hayek. The press often implies that the Wall Street crowd loves Hayek and laissez-faire (“unrestrained markets” and all that), when in reality the moneyed political players support intervention since they are successful rent seekers and bailout recipients.

The key point that well-intentioned supporters of government (like most everyone in Europe) often miss is summed up in this phrase from Hayek:

“With political incentives, discretion’s a joke.
Those dials they’re twisting, just mirrors and smoke.”

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For those who haven’t seen it, this is the first video:

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And the real Hayek on Keynes:

The Reluctant Anarchist

This old essay by columnist Joe Sobran is remarkably close to my own view of government, as is the process by which he arrived at his conclusions (I added the bold below).

…I became a philosophical conservative, with a strong libertarian streak. I believed in government, but it had to be “limited” government — confined to a few legitimate purposes, such as defense abroad and policing at home. These functions, and hardly any others, I accepted, under the influence of writers like Ayn Rand and Henry Hazlitt, whose books I read in my college years.

During the Reagan years, which I expected to find exciting, I found myself bored to death by supply-side economics, enterprise zones, “privatizing” welfare programs, and similar principle-dodging gimmickry. I failed to see that “movement” conservatives were less interested in principles than in Republican victories….

Now I began to be critical of the U.S. Government, though not very. I saw that the welfare state, chiefly the legacy of Franklin Roosevelt’s New Deal, violated the principles of limited government and would eventually have to go. But I agreed with other conservatives that in the meantime the urgent global threat of Communism had to be stopped. Since I viewed “defense” as one of the proper tasks of government, I thought of the Cold War as a necessity, the overhead, so to speak, of freedom. If the Soviet threat ever ceased (the prospect seemed remote), we could afford to slash the military budget and get back to the job of dismantling the welfare state….

Gradually I came to see that the conservative challenge to liberalism’s jurisprudence of “loose construction” was far too narrow. Nearly everything liberals wanted the Federal Government to do was unconstitutional. The key to it all, I thought, was the Tenth Amendment, which forbids the Federal Government to exercise any powers not specifically assigned to it in the Constitution. But the Tenth Amendment had been comatose since the New Deal, when Roosevelt’s Court virtually excised it….

In a way I had transferred my patriotism from America as it then was to America as it had been when it still honored the Constitution. And when had it crossed the line? At first I thought the great corruption had occurred when Franklin Roosevelt subverted the Federal judiciary; later I came to see that the decisive event had been the Civil War, which had effectively destroyed the right of the states to secede from the Union. But this was very much a minority view among conservatives, particularly at National Review, where I was the only one who held it….

In the late 1980s I began mixing with Rothbardian libertarians — they called themselves by the unprepossessing label “anarcho-capitalists” — and even met Rothbard himself. They were a brilliant, combative lot, full of challenging ideas and surprising arguments. Rothbard himself combined a profound theoretical intelligence with a deep knowledge of history. His magnum opus, Man, Economy, and State, had received the most unqualified praise of the usually reserved Henry Hazlitt — in National Review!

Murray’s view of politics was shockingly blunt: the state was nothing but a criminal gang writ large. Much as I agreed with him in general, and fascinating though I found his arguments, I resisted this conclusion. I still wanted to believe in constitutional government.

Murray would have none of this. He insisted that the Philadelphia convention at which the Constitution had been drafted was nothing but a “coup d’etat,” centralizing power and destroying the far more tolerable arrangements of the Articles of Confederation. This was a direct denial of everything I’d been taught. I’d never heard anyone suggest that the Articles had been preferable to the Constitution! But Murray didn’t care what anyone thought — or what everyone thought. (He’d been too radical for Ayn Rand.)

Murray died a few years ago without quite having made an anarchist of me. It was left to his brilliant disciple, Hans-Hermann Hoppe, to finish my conversion. Hans argued that no constitution could restrain the state. Once its monopoly of force was granted legitimacy, constitutional limits became mere fictions it could disregard; nobody could have the legal standing to enforce those limits. The state itself would decide, by force, what the constitution “meant,” steadily ruling in its own favor and increasing its own power. This was true a priori, and American history bore it out.

What if the Federal Government grossly violated the Constitution? Could states withdraw from the Union? Lincoln said no…. The United States, plural, were really a single enormous state, as witness the new habit of speaking of “it” rather than “them.”

So the people are bound to obey the government even when the rulers betray their oath to uphold the Constitution. The door to escape is barred. Lincoln in effect claimed that it is not our rights but the state that is “unalienable.” And he made it stick by force of arms. No transgression of the Constitution can impair the Union’s inherited legitimacy. Once established on specific and limited terms, the U.S. Government is forever, even if it refuses to abide by those terms.

As Hoppe argues, this is the flaw in thinking the state can be controlled by a constitution. Once granted, state power naturally becomes absolute. Obedience is a one-way street. Notionally, “We the People” create a government and specify the powers it is allowed to exercise over us; our rulers swear before God that they will respect the limits we impose on them; but when they trample down those limits, our duty to obey them remains.

We may challenge the government in the courts… its courts.

…Franklin Roosevelt and his Supreme Court interpreted the Commerce Clause so broadly as to authorize virtually any Federal claim, and the Tenth Amendment so narrowly as to deprive it of any inhibiting force. Today these heresies are so firmly entrenched that Congress rarely even asks itself whether a proposed law is authorized or forbidden by the Constitution.

In short, the U.S. Constitution is a dead letter. It was mortally wounded in 1865. The corpse can’t be revived…

Other things have helped change my mind. R.J. Rummel of the University of Hawaii calculates that in the twentieth century alone, states murdered about 162,000,000 million of their own subjects. This figure doesn’t include the tens of millions of foreigners they killed in war. How, then, can we speak of states “protecting” their people? …As for warfare, Paul Fussell’s book Wartime portrays battle with such horrifying vividness that, although this wasn’t its intention, I came to doubt whether any war could be justified….

…For most people, anarchy is a disturbing word, suggesting chaos, violence, antinomianism — things they hope the state can control or prevent. The term state, despite its bloody history, doesn’t disturb them. Yet it’s the state that is truly chaotic, because it means the rule of the strong and cunning. They imagine that anarchy would naturally terminate in the rule of thugs. But mere thugs can’t assert a plausible right to rule. Only the state, with its propaganda apparatus, can do that. This is what legitimacy means. Anarchists obviously need a more seductive label.

“But what would you replace the state with?” The question reveals an inability to imagine human society without the state. Yet it would seem that an institution that can take 200,000,000 lives within a century hardly needs to be “replaced.”

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Anarchy naturally gives rise to capitalism, as people save and invest the fruits of their labor. Unfortunately, and without much lag, it also seems to give rise to states. Cunning individuals, as well as lazy, short-sighted or naive ones all desire to formalize the use of force to control capital.

To read some of Rothbard’s work, click here.

For Hoppe, here.

A pledge against the state

The production here is a little cheesy, but the principles expressed make for a refreshing contrast to that creepy video of Hollywood airheads for Obama.

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If it weren’t for the internet, this whole constitution movement would never have formed. The demographics in the US are unsupportive of it, to say the least, but it is a very healthy thing. The entirety of the landmass south of Canada and north of Mexico won’t always be ruled by the gang of thieves in DC, and these principles can be put to use on a smaller scale or in another place and time altogether.

Despite the sentiments of its current rulers and the booboisie, I don’t know of any other place that has such a well-defined culture of liberty as the US. Certainly not the UK anymore, nor anywhere else in the Commonwealth. Europe never really had one, aside from Switzerland, nor did Asia. The US carries the flame — its constitution may now be ignored, but it does serve as a rallying point and touchstone.

How many people are there, like that girl, who don’t trust the facts as presented by the big news companies? There is such a divide now between those who are thinking for themselves and those, however intelligent they may be, who think within the sphere of discourse as acceptable in the newspapers. There is the BS in USA Today and the BS on Slate.com – different BS for different IQs, but all from the same animal.

Make it a real audit, then end the Fed

Thomas Woods, Jr., PhD, Prepared Testimony in Support of HR 1207, The Federal Reserve Transparency Act of 2009, House Financial Services Committee, September 25, 2009:

There is no good reason for Americans not to know the recipients of the Fed’s emergency lending facilities. There is no good reason for them to be kept in the dark about the Fed’s arrangements with foreign central banks. These things affect the quality of the money that our system obliges the American public to accept.

The Fed’s arguments against the bill are unlikely to persuade, and will undoubtedly strike the average American as little more than special pleading. Perhaps the most frequent of the claims is that a genuine audit would jeopardize the alleged independence of the Fed. Congress could come to influence or even dictate monetary policy.

This is a red herring. The bill is not designed to empower politicians to increase the money supply, choose interest-rate targets, or adopt any of the rest of the Fed’s central planning apparatus, all of which is better left to the free market than to the Fed or Congress. It seeks nothing more than to open the Fed’s books to public scrutiny. Congress has a moral and legal obligation to oversee institutions it brings into existence. The convoluted scenarios by which merely opening the books will lead to an inflationary catastrophe at the hands of Congress are difficult to take seriously.

At the same time, as we hear this objection repeated time and again, we might wonder just how independent the Fed really is, what with its chairman up for reappointment by the president every four years. Have these critics never heard of the political business cycle? Fed chairmen have been known to ingratiate themselves into the president’s favor close to election time by means of loose monetary policy and the false (and temporary) prosperity it brings about. Let us not insult Americans’ intelligence by pretending this phenomenon does not exist…

If there is any truth to the idea of Fed independence, it lay in precisely this: the Fed may reward favored friends and constituencies with trillions of dollars in various kinds of assistance, while keeping the public completely in the dark. If that is the independence we’re talking about, no self-respecting American would hesitate for a moment to challenge it.

A related argument warns that the legislation threatens to politicize lender-of-last-resort decisions. Again, this is untrue. But even if it were true, how would that represent a departure from current practice? I hope we are not asking Americans to believe that the decisions to bail out various financial institutions over the past two years, and in particular to allow them to become depository institutions overnight that they might qualify for assistance, were made on the basis of a pure devotion to the common good and were not political at all. Most Americans, not unreasonably, seem convinced of another thesis: that Goldman Sachs, for instance, might be just a little bit more politically well connected than the rest of us…

If our monetary system were really as strong, robust, and beyond criticism as its cheerleaders claim, why does it need to rely so heavily on public ignorance? How can it be a sound banking system that depends on keeping the public in the dark about the condition of its financial institutions?

Let me also make clear that supporters of this legislation are strongly opposed to a watered-down version of the bill – which, incidentally, would only increase public suspicion that someone is hiding something.

If the Federal Reserve Transparency Act passes and the audit takes place, the American people will have achieved a great victory. If the legislation fails, more and more Americans will begin to wonder what the Fed could be so anxious to keep hidden, and the pressure for transparency will simply intensify. A recent poll finds 75 percent of Americans already in favor of auditing the Fed. The writing is on the wall.

The Federal Reserve may as well get used to the idea that the audit is coming. That would be a far more sensible approach than the counterproductive and condescending one it has adopted thus far, in which the peons who populate the country are urged to quit pestering their betters with all these impertinent questions. The Fed should take to heart the words of consolation the American people are given whenever a new government surveillance program is uncovered: if you’re not doing anything wrong, you have nothing to worry about.

The superstitious reverence that Americans have been taught to have for the Federal Reserve is unworthy of the dignity of a free people. The Fed enjoys a government-granted monopoly on the creation of legal-tender money. It is not an unreasonable imposition for Americans to demand to know about the activities of such an institution. It is common sense.

Tom Woods (see his website) is a senior fellow at the Ludwig von Mises Institute, the premier libertarian thinktank (Cato sold out decades ago after they got rid of Murray Rothbard).