“Tutto nello Stato, niente al di fuori dello Stato, nulla contro lo Stato”—Benito Mussolini

 Mussolini's fascist slogan, translated as "everything for the state, nothing outside the state, nothing against the state," is the underlying theme of an article published by Mariana Mazzucato on Time Magazine's Web site as It's 2023. Here's How We Fixed the Global Economy.

This utopia, straight out of the fascist playbooks of the 1920s and 1930s, and possibly even owing an intellectual debt to Edward Bellamy's Looking Backward, will have its own Albert Speers bringing forth the next generation of fascist architecture. One wonders why this splendid utopia has not been brought forth in the past, as Bellamy's book projected; and why so many of the attempts to achieve heaven-on-earth have succeeded primarily in bringing hell-on-earth to the world in addition to the domestic population.

We only need to look to California, our own little laboratory of utopian social engineering, to observe the results of efforts that Mazzucato would endorse. Escalating homelessness, a failing high-speed rail project, and a power grid, due to an emphasis on renewables, that is inadequate to meet demand are just the high points for a state that is losing large numbers of businesses and citizens due to high costs, taxes, and regulations.

It leads one to wonder, who is it that really ignores empirical data? How is it that success stories like Hong Kong (created by John Cowperthwaite and described by Milton Friedman) and post-World-War-2 Germany (the German Wirtschaftswunder, heavily influenced by the economic liberal and Mont Pelerin Society member Ludwig Erhard) are ignored. And why is it that failures like Nazi Germany, Fascist Italy, the Soviet Union, North Korea, etc. are also ignored. At this moment, I believe it is due to our imaginations—our imaginations that make it possible to believe in a return to the Garden of Eden.

The Great Reset

During the COVID-19 pandemic and the ensuing hysterical response imposed by the government and enthusiastically supported by the media, I have been wondering "what the hell is going on?" It seems to me that the mist is starting to clear, and the direction all this is heading is becoming apparent: Introducing the 'Great Reset,' world leaders' radical plan to transform the economy

Climate change was not getting the traction "they" needed to impose worldwide central planning, so the pandemic was an opportunity to push the accelerator all the way to the floor to create the conditions required.

To answer the question of "who are 'they'?", "they" are the people who think it is their responsibility to save the species from itself by imposing the governance they believe is required.

Will this break out into an armed struggle? I'm not sure, as the instigators will have control of a great deal of infrastructure and each step they take may seem "reasonable," weakening the strength of the opposition. It's all very worrisome, and no amount of preparation may suffice. 

Modern Monetary Theory is really Magical Monetary Theory

In my quest to understand things economic, I have run into Modern Money Theory (MMT) a number of times, and have adopted the habit of calling it "Magic Money Theory" because it seems to bestow magic properties upon money issued by governments. Feeling that I, perhaps, just didn't understand what MMT theorists were talking about, I searched for their responses to Weimar inflation--something that would seem hard for MMTers to explain. As a result, I stumbled upon L. Randal Wray's series of articles at EconoMonitor, entitled Zimbabwe! Weimar Republic! How Modern Money Theory Replies to Hyperinflation Hyperventilators (Part 1), Not Worth a Continental! How Modern Money Theory Replies to Hyperinflation Hyperventilators (Part 2), and http://www.economonitor.com/lrwray/2011/09/07/helicopter-ben-how-modern-money-theory-responds-to-hyperinflation-hyperventilators-part-3-2/. These articles did nothing to change my views of MMT, and actually makes me wonder if "Maniacal Money Theory" might be more appropriate.

Wray starts his defense of MMT by stipulating 'that government spends by “keystrokes”, this is a description'--no argument there. But then he goes on to state, 'If critics were correct that government spending by “printing money” necessarily leads to hyperinflation, then most developed nations would have hyperinflation all the time.' As far as I know, no critic says printing money "necessarily leads to hyperinflation," but they generally would say that it risks hyperinflation. The claim is hyperbolic as governments can and do reverse inflationary policies. The concerted actions of Reagan and Volker in the early 1980s illustrate the point.

The claim is made that "gold and silver coins were the Sovereign’s IOUs that happened to be recorded on metal (rather than on paper or electronic balance sheets)," but sovereign IOUs on paper, such as Tsarist bonds, are now generally worthless, while a Tsarist rouble will, even if melted down, its sovereign connection (and collectibility) broken, purchase a nice dinner for two. A gold coin is no one's debt--it's an asset.

A clear indicator of the falsity of what the MMTers call "nominalism" is that sovereigns began coinage with precious metals and then debased the coinage, producing greater numbers of coins and inducing inflation. Without this credible beginning, coinage would have had virtually no value. The MMT narrative also fails to explain the use of cigarettes as currency in POW camps, although this article attempts to discredit the idea as irrelevant. Note that Menger only argued that money was derived from the most liquid commodity, with reference to why that commodity was the most liquid (see Carl Menger, Principles of Economics, p 257-262). After all, he was one of the founders of the marginal revolution and the concept of subjective value. MMT also fails on the private coinage front, described in George Selgin's Good Money.

It is correct that governments who claim to be on a gold standard go off it in crises. However, this reaction is generally to a specific class of crisis--war. Wray implies that money-printing constraints are removed to cope with financial crises, but this phenomenon is more closely related to interventionist and, later, Keynesian policies that came into vogue in the 20th century.

What I admit that I do not understand, is why currency boards or a gold standard would present a problem. The country that creates its own money through keystrokes should be able to buy the foreign currency it needs on the deep foreign exchange markets or, likewise, acquire gold. Perhaps, gold markets are not deep enough, but surely the forex markets are. How could there be "imprudent expansion of these IOUs relative to ability to actually deliver the foreign currency or gold," when currency may be created without limit to acquire these assets?*

Near the end of the second "reply" we find the following aside: "(If you think about it, calling in all the coins to melt them for re-coinage would be a very strange and pointless activity if coins were already valued by embodied metal!)." But this recoinage makes perfect sense, as it is the method by which the sovereign may default on its debts. Reducing the amount of gold or other valued commodities and replacing them with base metal, while declaring the coins "legal tender" enabled the sovereign to pay of debts and purchase more commodities. This circumstance takes advantage of the non-neutrality of money as the sovereign was the first to use the debased money at current prices--prices that would increase as the new money flowed into circulation.

In the last segment there seems to be a slight-of-hand--the fact that reserves are not lent is paraded as a reason inflation cannot occur; but the reality, which is glossed over when the deposit multiplier is mentioned, is that 10 times reserves (as much as 30 times by investment banks before the financial crisis) may be lent. The fact that the Fed pays interest on excess reserves (reserves that reduce the ratio of lending to reserves) reduces the incentive to make loans, reducing inflation.

Finally, Wray suggests that unemployment will keep inflation down, ignoring the data from 1961 to 1984, along with "rational" increased net savings by firms and households. The latter, of course, increases reserves and, without the demand or the incentive (due to interest being paid on excess reserves) reduces the deposit multiplier and, hence, inflation.

MMT seems to rest on assumptions that are easy to criticize, and it seems to have a very limited following (Bernie Sanders seems to be their political champion). It contradicts our view of the state as incompetent at best and evil at worst. Did some bureaucrat invent money, or was it that a monarch saw the possibilities of wealth extraction that coinage provided? Was it Menger's evolution or political fiat?

So, what do we have here? Primarily, I would say that it is an argument that creation of money by the state does not necessarily lead to hyperinflation. On this point we can agree, as that is rarely the argument. But is money the creation of the state, or simply the commanding of an instrument created by individuals in order to enslave them? The latter is the view of economists in the Mengerian tradition.

* It has come to mind that the MMT people must think that the population of a country, no matter how little confidence they have in the money still must use it to pay debts and taxes, while people of other countries do not need to purchase, causing a collapse in the foreign exchange markets. However, in Zimbabwe, my understanding is that the US$ was being used in private commerce as the currency collapsed. In When Money Dies, Adam Ferguson documents the fact that farmers in Saxony would not accept German paper currency for produce (p 151). The fact is that unlimited production of fiat money can and will produce hyperinflation, even without the mistakes MMTers claim are required.

The Myth of a (Classical) Liberal or Libertarian Utopia

Cover via Amazon

In reading online articles and blogs it is common to find references to a "libertarian utopia."  These references are both supportive and derisive, distorting what I will claim is the idea of true liberalism.  Hayek is even referenced in this Freeman article bemoaning the fact that "we lack a liberal Utopia."  The problem with this phrase first became clear to me when I read the following words:

Contemporary socialists – "light" totalitarians in mindset and vocabulary – go wrong when they imagine that liberals are busily planning the perfect society, the best that is possible in the world, but of opposite sign to their own. [emphasis in original]¹

The reality is that there is no liberal Utopia.  Liberalism and its modern-day progeny, libertarianism, are processes rather than destinations.  In the same sense that the scientific process leads to the discovery of laws of nature, liberalism leads to the discovery of that society that best conforms to human values.  Such a society defies planning, as planning implements the values of a small elite.  It also stifles the wide-ranging experimentation – through trial and error – that is necessary to discover the institutions and businesses that are necessary in building a society that supports human values.

Of course, one may wonder, "What are human values?"  I tend to think, as did Ludwig von Mises, that most people prefer prosperity over poverty, freedom over slavery, and life over death.  There are, and always will be, predators who prey on those who live peacefully and productively.  The latter will use freedom to create the cost-effective defenses that maximize the cost of predatory behavior, eventually discarding the unwieldy blunt instrument of the state.

What is needed then is a total commitment to the free market and its concomitant competition as discovery procedure by which society progresses.  There can be no fear of unacceptable outcomes, as outcomes will reflect human values.  Yes, in some areas of the world those outcomes might be repulsive to modern westerners, but eventual progress in those regions is not going to be accelerated by murdering, threatening, or lecturing the population.

What is most important is to embrace the idea that liberalism – the free (or freed) market – is the platform upon which progress depends.  The end state defies prior description, but we can have confidence that it will conform to human values.

^*In the body of the post an unmodified reference to "liberal" is a reference to "classical liberal."
¹Revel, Jean-François, Last Exit to Utopia, (2009 New York, Encounter Books), 54.