The October Issue ofThe Free Market Is Online!

oct_fmIn case you missed it, be sure and check out the October issue of The Free Market, now online at

October’s issue features a short adaptation of Jörg Guido Hülsmann’s important lecture on The Cultural Consequences of Fiat Money, in which Dr. Hulsmann examines how a century of artificially low interest rates and money manipulation has deeply affected our relationship with money and savings.

In addition, Brendan Brown writes on the Federal Reserve’s role in extending World War One and in setting the stage for the post-war depression in the United States.

And, of course, we include the latest new items on new translations of Austrian-school books, new publications from Mises scholars, and Ron Paul’s trip to Brazil.



Murray Rothbard on Lao-Tzu as the “First Libertarian”

Jeff Thomas at the International Man has an interesting take on Murray Rothbard’s admiration for Lao-Tzu. The founder of Taoism had little good to say about the philosopher-bureaucrats of his time.


Those in power are meddlesome …

The greater the restrictions and prohibitions,
The more people are impoverished.
The more advanced the weapons of the state,
The darker the nation …

Thus the virtuous attend to contracts
while those without virtue collect taxes …

Act before things exist

Manage them before there’s disorder

True Money Supply Decelerates

Michael Pullaro over at warns that the Austrian measure of the money supply is exhibiting a deceleration in its growth rate indicating potential trouble ahead in bubble related economic activity.

Joseph Salerno on the True “Austrian” Money Supply

The U.S. money supply as represented by TMS2 (True “Austrian” Money Supply), our broadest and preferred U.S. money supply aggregate, posted a year-over-year rate of growth of 7.7% in October, down from an 8.3% rate in September. Now down 880 basis points (53%) from the current boom-bust monetary inflation cycle high of 16.5% posted in November 2009, this is the lowest year-over-year rate of growth in TMS2 since the 6.9% rate seen in November 2008 (month 4 in this 75 month long and counting inflation cycle). As a result, although we are not yet ready to declare that the economy is staring at an imminent bust in the face, this decelerating trend in the rate of monetary inflation is bringing us ever so closer to one. To investors and speculators alike, we say time to be especially cautious.

Yes, at 7.7%, the year-over-year rate of growth in TMS2 is not sporting the same sub 5% year-over year rates that ushered in the last two busts. But consider this: The latest installment of the Federal Reserve’s QE asset purchase program is history with the last $15 billion in asset purchases now complete. Over the last 12 months, that program accounted for roughly three quarters of the growth in TMS2. And while the U.S. banking system, the other money creation engine in the economy, has of late been helping to offset the money creation void being vacated by the Federal Reserve, it is going to have to really step it up to ward of a continuing deceleration in the overall the rate of money creation. If not, we could be very well staring a bust directly in the face.

“Welcome to Christie’s”

Con Temporary Art Auction Record–Sheep line up to be fleeced

Inflation revealed its ugly head again in New York City–where the money is.

Christie’s set another record contemporary art auction record of $852.9 million exceeding both the high estimate for the auction and also the recent record it set in May of this year.

How many do you have in your collection?

The sale saw new artist records for 11 artists, among them Cy Twombly, Ed Ruscha, Peter Doig, Martin Kippenberger, Sturtevant, and Seth Price. Seventy-five of the eighty lots on offer found buyers, for an impressive sell-through rate by lot of 94 percent.

Suckers a plenty:

But the evening was primarily made up of people buying for themselves, Brett Gorvy, Christie’s chairman and international head of postwar and contemporary art, said at the press conference after the sale, emphasizing the some 500 bidders from 43 different countries. He said that the new buyers were facilitated by recent “outreach” efforts in Shanghai, Hong Kong, and the Middle East.

“This was a collecting-buying pool tonight, rather than dealers,” he said.

The Grim Centennial of Stalemate

A surprising range of news and opinion outlets have memorialized a string of anniversaries related to the Great War over the last few months: the assassination of the Archduke, the July Crisis, the start of the war, etc. Newspapers, magazines, the blog world, the top ten list sites, and Youtube channels have all feature anniversary observations.

We have now arrived at another grim centennial, but one which may not be as obvious as the murders in Sarajevo. At this moment a hundred years ago, one of the less distinct but nonetheless crucially important “events” of the First World War took shape: the end of the “war of movement” and the formation of stalemate on the Western Front.

[To read more, see the whole post at my blog on World War I]

St Louis Fed Chief : Does Low Inflation Justify ZIRP

President James Bullard dissects the nearly six years of Zero Interest Rate Policy and asks the question: does low inflation call for an earlier return to normal interest rate policy.

During his presentation, Bullard noted that the policy rate has remained near zero for almost six years and discussed whether current macroeconomic data can rationalize this exceptionally low setting for the policy rate. “Labor markets have shown steady improvement this year,” he said, adding, “Lower longer-term interest rates and lower oil prices in recent months should provide additional tailwinds for U.S. macroeconomic performance.”

Inflation, however, is currently running below the Federal Open Market Committee’s (FOMC’s) target rate of 2 percent. In addition, he cited market-based measures of inflation expectations, which declined in recent months but have reversed course. “Global factors, including low inflation in Europe and lower oil prices, may be temporarily holding inflation down in the U.S.,” he said, adding that inflation is generally projected to rise toward the FOMC’s target.

“The FOMC has indicated that the policy rate is likely to rise next year, with the exact timing dependent on macroeconomic data in coming quarters,” Bullard noted. “Analysts sometimes cite the current low level of inflation as a reason why the FOMC may wish to remain at the zero lower bound for even longer. However, while a low inflation rate may suggest a somewhat lower-than-normal policy rate, that effect is not large enough to justify remaining at the zero lower bound.”

Oh Good, Another World Bank

Obama’s recent trip to Beijing revealed that China is ready to begin the operations of the Asian Infrastructure Investment Bank (AIIB)—another international financial institution in the dazzling panoply of development banks—as early as next year. The AIIB is supposed to finance infrastructure projects in the Asia-Pacific region, in the ballpark of $8 trillion over the next decade. Plans for the multilateral bank have been developing since October 2013, when, tired of waiting for Western philanthropy, China began to gather the support of 21 partner countries. In fact, Beijing has been complaining for a long time that the tight purses of the World Bank and the IMF are not satisfying the financial needs of its growing economy, or those of its neighbors. The US has voiced concern about China’s project over the past year, claiming that the standards and procedures of the AIIB are not transparent enough, and thus, its activity might end up crowding out the good work of the two Bretton Woods institutions.greaves

At least, that’s the official story. But if you read between the lines, the narrative unfolds somewhat differently.

First, China and other Asian economies need these reserve pools in the first place because of their growing budget deficits (naturally, spending cuts are out of the question). As some have explained, the $50 billion lent to all countries every year by the World Bank only covers Indonesia’s infrastructure spending plans by 2019. Thus, with the WB and IMF controlled by the US, and the Asian Development Bank under Japan’s foot, China and others feel they aren’t getting their share of the pie. Second, the US is not really worried about transparency at AIIB—the Fed has written the book on how to keep your dealings secret—but about China’s plan to use a part of its dollar reserves to fund these development projects. If the plan is carried through, the AIIB will become China’s own inflation subsidiary, with power to decide who gets flooded with credit in US currency. In the meantime, the United States has no share in the vote, and can only look forward to some price increases.

The rationale for both China’s decision and US’s reaction lies, in fact, with the workings of the current international monetary system. Mises (2010, 81-82) explained the underlying political problem of global fiat inflation:

…the question is who gets the additional money? Everybody, every country, would say the same thing: “The quantity we got is too small for us.” The rich countries will say, “As the per head quota of money in our country is greater than it is in the poor countries, we must get a greater part.” The poor country will say, “No, on the contrary. Because they have already a greater part of money per head quota than we have, we must get the additional quantity of money. […] There will be a tendency toward higher prices in those countries that are getting this additional quantity and those who receive it first will be in a position to pay higher prices. So other people will want more, you know. And the higher prices will withdraw commodities and services from the other nations which did not get this new money or not a sufficient quantity of it.

World leaders, it seems—unlike many economists—do not think inflation has no effect on the distribution of wealth. In fact, control over the printing press is the cornerstone of most geopolitical games states play.

Deposing Liberty for Democracy

B1005One of the central tenets of progressivism has been that more democracy is the solution to “what is wrong with politics.” That is why progressives have aimed at circumventing limitations on popular opinion’s power over legislation and regulation, as if in response to Woodrow Wilson’s lament that “something intervenes between the people and the government…there must be some arm direct enough and strong enough to thrust aside the something that comes in the way,” and Theodore Roosevelt’s declaration that “I have scant patience with this talk of the tyranny of the majority.”

A century of the resultant “democracy is good” drumbeat has led “democratic” to be used for whatever is approved of politically (e.g., “our democratic way of life”), and “undemocratic” to be used for something being condemned (e.g., proposals to override the Electoral College because it is undemocratic). And the words that have lost the most rhetorical market share are liberty and tyranny. It has even led many to treat liberty and democracy as essentially the same thing. That is highly unfortunate for the “good government” idea that became America, because democracy can at least as easily decimate liberty as serve it.

Majority determination is entirely consistent with choices that destroy liberty. And there are many ways to recognize that. America’s founders said so plainly. It is also reflected in our founding documents. Many insightful observers, foreign and domestic, have understood it since then. The many endorsements clear enemies to liberty have given democracy make the same point from the opposite direction. The contractions of liberty that have accompanied “progressive” expansions of democracy reinforce that lesson to any willing to pay attention. And even a few simple questions can reveal the inconsistencies between democracy and liberty.

The American Revolution and the documents it produced are replete with praise for liberty, but far from complimentary about democracy.

John Adams asserted that Americans’ natural rights “cannot be repealed or restrained by human laws.” James Madison noted that under democracy, “There is nothing to check the inducement to sacrifice the weaker party or the obnoxious individual.” Alexander Hamilton wrote that “Real Liberty is never found in despotism or in the extremes of Democracy.” Benjamin Rush said “A simple democracy is the devil’s own government.” Thomas Jefferson wrote that “A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine,” but “elective despotism was not the government we fought for.”

Further, as Ron Paul has noted, “the word ‘democracy’ is found neither in the Constitution nor the Declaration of Independence, our very founding documents.” The existence of a Constitution of limited, enumerated powers, and particularly the Bill of Rights, is clearly inconsistent with unlimited democracy. As Jacob Hornberger observed, “the Bill of Rights…doesn’t give people rights at all. Instead, it protects us from democracy.” If whatever the majority decided “democratically” at a given time was always to be law, there would be no purpose in such restrictions that explicitly put certain rights against government impositions beyond “democratic” determination.

America’s founders were echoed by Alexis de Tocqueville, in Democracy in America. He noted that democracies “undervalue the rights of private persons…often sacrificed without regret and almost always violated without remorse,” but “no private rights are so unimportant that they can be surrendered with impunity to the caprices of a government.” Therefore, to prevent that violation, “the Federal Constitution…disavowed beforehand the habitual use of compulsion in enforcing the decisions of the majority.”

James Fenimore Cooper, America’s first “national novelist,” also followed our founders’ understanding in The American Democrat, particularly in defending the Constitution’s tight constraints against majority abuses. He saw that erosion of its restrictions create “so much public right that private right is overshadowed and lost,” which results in “replacing one tyrant by many.” He recognized that “It must be an equivocal freedom, under which everyone is not the master of his own innocent acts,” as is the case with majority dictation. Cooper also saw the inconsistency between the liberty America sought and the expanded democracy we have gotten:

 By leaving to the citizen as much freedom of action and of being as comports with order and the rights of others, the institutions render him truly a free man…left to pursue his means of happiness in his own manner…in endeavoring to secure the popular rights, an effect has been produced in this country totally opposed to this main object.

F.A. Harper, particularly in Liberty: A Path to its Recovery, was a more recent defender of our founders’ vision, in the face of sharply contrasting practice. Harper saw how useful confusing liberty with democracy is in enabling authoritarian government. When “you enjoy the right to be forced to bow to the dictates of others, against your wisdom and conscience,” it is “the direct opposite of liberty.” Further, “Decision by the test of dominant preference is the same operating principle as… might makes right. If might makes right, one must conclude that liberty is all wrong.”

More warning flags against conflating democracy and liberty come from unambiguous opponents of liberty’s endorsements of democracy. Karl Marx asserted “Democracy is the road to socialism,” and Vladimir Lenin said “Democracy is indispensable to socialism,” Mikhail Gorbachev echoed that “More socialism means more democracy.” Fidel Castro claimed “There is not Communism or Marxism, but representative democracy and social justice in a well-planned economy.” Vladimir Putin promised that “Nobody and nothing will stop Russia on the road to strengthening democracy.” When so many advocate democracy to advance socialism, democracy cannot expand liberty.

Reading what serious thinkers, particularly those in the libertarian tradition, have understood about liberty and democracy, offers protection against the bait and switch of democracy for liberty as America’s central value. But it is only necessary to ask a few simple questions to get the same essential insight.

Would you have liberty in the matter if a majority vote picked your clothes each day? Is the answer any different if the same was true of dinner each night? Is it any different when any other dimension of your self-ownership, from which your rights extend, is overridden by democracy? Extending the same logic further, would a majority vote on whether to enslave a minority offer them liberty? Even if the slaves were allowed to vote for their freedom again and again, would not their ability to vote still leave them slaves?

Both deep thinkers and simple questions remind us that in political democracy, every vote not aligned with majority wishes is irrelevant to the outcome. The General Welfare becomes whatever the dominant faction wants, leaving every individual right at risk. That enables democratic expropriation of rights and property from those who would keep them under liberty. And because no one ever pushed for majority determination of an issue when they expected to be a minority “loser,” we know that is the purpose of deposing liberty for democracy. As Thomas Jefferson put it, “the minority possess their equal rights, which equal laws must protect, and to violate would be oppression,” and such oppression would violate “that liberty…for the preservation of which our government has been charged.”


Jeff Deist: The Case for Optimism

This episode features an abridged audio version of Jeff Deist’s talk from the Mises Circle event in Southern California on 8 November 2014. He argues that the state is losing its primary asset — namely, legitimacy in the eyes of those it would govern — due to its own huge failures. He also argues that we do ourselves, our ancestors, and our progeny a disservice if we give in to despair.

Photos From the Costa Mesa Mises Circle

Hundreds of great photos from our sold out Mises Circle event in Southern California can be found here, including photos of Ron Paul, David Gordon, Lew Rockwell, and Judge Andrew Napolitano. Over 300 attendees participated in our energetic discussion of Society Without the State. Be sure to make plans now to join us in Houston in January!