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Source link: http://archive.mises.org/13724/a-culture-of-fear/

A Culture of Fear

August 30, 2010 by

From the Great Depression to the War on Terror, the state has manipulated its subjects by telling tales of monsters in the dark. Jonathan Catalan turns on the lights and points to where the real danger lies. FULL ARTICLE by Jonathan M. Finegold Catalan

{ 80 comments }

michael August 30, 2010 at 8:57 am

This is pure speculation, of course. But one reason for the American people’s ready acceptance of a strong government and its perpetual wars is that we have become addicted to the easy money that war spawns.

Each of our wars has been paid for cheaply, by a great expansion in the money supply. And each has been followed, after an initial setback, by a period of abundance and prosperity: the Great War by the Roaring Twenties; WW Two by the Fabulous Fifties; Vietnam and subsequent wars by their own periods of great free-wheeling abundance, albeit less widely spread across the whole of society. This may be the real reason we hesitate to put our wars behind us.

Easy money is the food of an abundant economy. If we didn’t feel that it somehow all had to be paid back, but could just freely issue it as the need arose, there might be enough to go around. But then, of course, those who have much could not stand so high above those who had little. They would lose their power to command the labor of men.

Think of what a depression is. There’s just as much physical plant as there was before, just as much manufacturing capacity now standing idle. And just as many men eager to go to work producing wealth again. What’s missing?

Only the money to make it work.

Naturally one can create too much of a good thing, lest the blocks of cash required to buy a loaf of bread become bulkier than the bread they buy. It would seem only prudent to draw a firm line, beyond which excess money must be retired. I would set that line at around four percent. Whenever the CPI went above that mark, monetary policies should tighten up. And whenever unemployment went below that point, monetary policies should similarly tighten up.

This kind of economic engine would be simple to maintain, if only our affairs were led by men of good will. Just my thought for the day.

Seattle August 30, 2010 at 9:46 am

Once again, michael assumes capital homogenity and turns reality upside down. You can’t cut off the top half of the blanket, sew it to the bottom, and call it longer.

michael August 30, 2010 at 10:03 am

Seattle: IMHO you confuse the symbol with the thing itself. Money alone is not wealth, it’s a representation of wealth… as well as the facilitator of commerce.

Therefore whenever commerce is stalled, you have to invent more money. It acts as the grease that greases the wheels, and gets things rolling again.

The important thing to remember is that money has no intrinsic value. It’s just a counting device. Were it to have value in itself you would be correct: you can’t increase the value just by making more of it.

But if you have a factory owner just standing around, telling all the men showing up for work that he can’t pay them, are they supposed to all just stand there with their thumbs up their behinds, helpless, waiting for some money to appear? Or should they borrow from future earnings and get to work.

J. Murray August 30, 2010 at 10:19 am

Money isn’t wealth at all, it’s an unused claim against existing wealth. A man with $1 million in cash and without property isn’t wealthy but the man with $1 million in assets and no cash is wealthy.

You can’t just invent more money because the corresponding wealth it can be converted to doesn’t conjure itself up like an extra zero on a bank balance sheet. Inventing more money just allows the guy who did nothing to earn it (aka contribute to the wealth pool from which the other wealth is being extracted) to claim wealth from a limited pool, wealth that someone else legitimately earned now can’t take.

michael August 30, 2010 at 12:35 pm

“You can’t just invent more money because the corresponding wealth it can be converted to doesn’t conjure itself up like an extra zero on a bank balance sheet.”

But that’s exactly what you can do. It just conjures up wealth.

Suppose you have a guy and a paint brush and a bucket of paint. Without money they just sit there, waiting for something to do. But add $200 and presto, you get your apartment painted!

The thing that prevents you from immediately seeing this is the ideology you’ve been taught. It precludes unbiased observation. Money is, in so many applications, the magical ingredient to getting things done.

If we had more of it ready for use as potential payroll, we’d be getting more things done. A lot more things. And when they were ready to sell we’d have a wider market for them as well.

Beefcake the Mighty August 30, 2010 at 12:45 pm

I can’t believe I’m responding to this guy, but tell us, if you will, where exactly all of this money is supposed to come from?

Jonathan M. F. Catalán August 30, 2010 at 12:46 pm

The thing that prevents you from immediately seeing this is the ideology you’ve been taught.

It is interesting you say that, because Mises’s Human Action is notoriously value-free when it comes to describing economic phenomenon.

Seattle August 30, 2010 at 12:54 pm

Suppose you have a guy and a paint brush and a bucket of paint. Without money they just sit there, waiting for something to do. But add $200 and presto, you get your apartment painted!

Tell me, what does the painter do with the $200 once you pay him and he performs the work?

Money is valuable because of what it can buy. Without goods to back it up money means nothing. Printing new money doesn’t make new goods appear.

michael August 30, 2010 at 2:21 pm

“I can’t believe I’m responding to this guy, but tell us, if you will, where exactly all of this money is supposed to come from?”

From the future, Beefcake. It’s a loan that has to be paid back, that’s all.

The problems we’ve encountered have all stemmed from a cowardly government that doesn’t like having to tell the voters it has to be paid back. But after WW Two we didn’t actually find it all that difficult. And we had a higher ratio of debt to GDP than we have today.

Courage is all that’s needed.

Beefcake the Mighty August 30, 2010 at 2:25 pm

““I can’t believe I’m responding to this guy, but tell us, if you will, where exactly all of this money is supposed to come from?”

From the future, Beefcake. It’s a loan that has to be paid back, that’s all.”

This response speaks for itself, I’d say.

Richie August 30, 2010 at 2:26 pm
Eric August 30, 2010 at 12:20 pm

Micheal has been reading Milton Friedman it seems. He wanted to replace the FED with a computer that would regulate inflation to 4% a year.

“if only our affairs were led by men of good will.” And if only the tooth fairy and Santa were real.

Instead of reading Friedman, Micheal should be reading Hazilit.

michael August 30, 2010 at 12:38 pm

“Micheal has been reading Milton Friedman it seems. He wanted to replace the FED with a computer that would regulate inflation to 4% a year.”

A computer’s not smart enough for the job. I’d hire a competent manager.

““if only our affairs were led by men of good will.” And if only the tooth fairy and Santa were real.”

There are plenty of honest men around. I’d just change the paradigm that doesn’t let them get hired for the truly important jobs. The stables need cleaning, and badly.

Seattle August 30, 2010 at 3:18 pm

There are plenty of honest men around. I’d just change the paradigm that doesn’t let them get hired for the truly important jobs. The stables need cleaning, and badly.

Or, perhaps the state isn’t omnipotent, no matter who is in charge?

Eric August 30, 2010 at 3:22 pm

You’d hire a competent manager. What makes you think that YOU would get the job of hiring and firing – or anyone like you. Even if we assume you have a “god’s eye view”, what makes you think that you alone would get to decide things about government.

You might want to read Harry Browne’s essay “If You Were King”

http://savingcommunities.org/docs/browne.harry/ifyouwereking.html

The last thing that determines who gets hired in government is competency. The most important attribute is loyalty to those that bought you your job. A second one is the ability to lie with a straight face. Just look at Ben Bernanke.

michael August 30, 2010 at 3:34 pm

Eric, we’d have to reformulate government to get competent management in and let them do their work. We’re not set up to do that now.

Dedicated public servants employed in executing just laws is at present just a hope and a dream. We’re far away from that goal now, with political appointments and a general atmosphere of indifference to actual performance. But it could be done if we were to replace the people in government now with those who cared about the work.

Such people do exist, and in ample number. They just don’t run things.

Just eliminating government and hoping there won’t be problems is a pipe dream put forward by some very naive people. I’ve lived in areas beyond government control– and they’re very far from being ideal.

Richie August 30, 2010 at 3:40 pm

“I’ve lived in areas beyond government control– and they’re very far from being ideal.”

Was this before or after the 30 years you spent in and around Capitol Hill?

michael August 30, 2010 at 4:20 pm

That would be before, during an adventurous youth. I was in a country of men, not of laws. And as an American I was constantly reminded of the fact that life was cheap, while money was dear.

Anarchists who assume this country would run better if the government dissolved and reasonable men were just on ‘scouts’ honor’ are deluding themselves. We need an oppressive government just to keep the wolves at bay. IMO, of course, but one based on first hand knowledge.

Beefcake the Mighty August 30, 2010 at 4:29 pm

“We need an oppressive government just to keep the wolves at bay.”

Actually the problem is quite the opposite: the government needs a sufficient number of brain-dead fools like you to maintain an air of (false) legitimacy, in order to be able to employ oppression.

Jon Leckie August 31, 2010 at 2:25 am

michael: it’s a little too easy to set up the anarchist position as the only position possible under libertarianism or as the only position represented on this website. Perhaps more common ground might be found by focusing on the arguments for limiting government to the provision of a defensive military capacity, law and order and courts, with health, education and infrastructure left to the private sector. Hell you could even throw infrastructure back to the state if you must. Just cut the regulations that are suffocating the private sector and cut the bloated bureaucracy and reduce taxes. Let the market – after a necessarily painful period of adjustment – reallocate all those resources back to that productive function which the price mechanism signals as most valuable. This can be done within a statutory framework of basic company, competition and contract laws (yes fine including weights and measures) that establishes the framework for a market without grossly distorting the price mechanism.

Necessarily broad brushstrokes as it’s a short post. That might be more productive line of discussion.

michael August 31, 2010 at 12:17 pm

Jon: That’s a good suggestion. But I think the thing you leave out of your brief summary of government transgression is its power to regulate in the economic sphere. Am I correct in assuming that you believe that to be meddling? And to believe that without (or with only a minimum of) government rules, everything would work better? That is the austrian position, and I think a majority of Americans would disagree with you.

Economic life without government controls would only be a paradise for the few who cornered the markets. Most of us would be ill served. At least that’s what most of the public thinks. And so we would be unlikely ever to go along with the abolition of the power to regulate commerce.

It’s in our Constitution. And its limitation to interstate commerce only makes the assumption that the individual states have the obligation to their citizens to regulate their own intra-state commerce.

You say “This can be done within a statutory framework of basic company, competition and contract laws (yes fine including weights and measures) that establishes the framework for a market without grossly distorting the price mechanism.” I’m curious as to what laws you would find necessary to regulate competition. The notion seems most un-austrian.

As for health care, without drastic interference, well beyond what we have now, it will become unaffordable for most of us. In fact the way we’re going, it won’t be but a few years before we won’t be able to afford it even with massive federal subsidies. It’s a realm that’s been captured by the health industries.

If profit isn’t pried from the hands of the health givers in some fashion, they will only cater to the super-rich, who can afford treatments well beyond the grasp of the poor peons who will serve the property owners in your ideal world. My problem with your solutions is that the income gap has been widening ever since we began to return to free market principles. And the trend has already proceeded too far for the good of the public.

Schools? In the brave new world of the free market, very few of our now-below-minimum wage earners would be able to afford sending their children to any sort of school. It would be a gigantic step backwards into the medieval era.

There would now be no taxes, in your ideal world. But everyone’s earnings would be much lower than their current after-tax earnings. Everyone except those few at the top.

Would this be a more productive line of discussion?

Jon Leckie August 31, 2010 at 12:31 pm

michael asks: “I’m curious as to what laws you would find necessary to regulate competition. The notion seems most un-austrian.”

I’m not so sure that it is, michael, I think you should read your Hayek. Maybe responses to this post will enlighten both of us: I would have thought that many people who are sympathetic to Austrian ideas would support a basic statutory framework that would provide the institutional setting within which free competition can be facilitated: competition, company and contract laws would not be too difficult for many Austrians to accept taking into account – for example – information and agency costs (I have in mind Oliver Williamson’s work). Note I have in mind the Australian Competition and Consumer Commission and the Trade Practices Act 1974 (?) which appears to be more effective and pragmatic than Hawley-Smoot whatever and the FTC. Even those of the anarchic flavour of the brand would, I imagine, be over the moon to see a roll back of the state to providing such a framework compared to present circumstances.

Thoughts, anyone?

And michael, you cannot say in good faith that the last 80 years has been the reign of free market thinking – that is a scurrilous boondoggle and you should know better.

michael August 31, 2010 at 9:01 pm

“And michael, you cannot say in good faith that the last 80 years has been the reign of free market thinking – that is a scurrilous boondoggle and you should know better.”

Jon: If you go back to wherever I made this statement, I believe you will find that I said thirty years, not eighty. In any event that’s what I meant. Reaganism and Thatcherism formed the beginnings of the return of the pendulum, away from thoughts of equity and toward ideals of the individuals’ freedom to acquire wealth without moral or legal constraint.

Manifestly, the 1930s through the 1950s were the time when the pendulum swung the other way, toward social goals mutually pursued.

I would never attempt to scurrilously boondoggle you. You’re way to cool for that. Besides, it’s not in my nature. I’m a truth teller.

Jonathan M. F. Catalán August 30, 2010 at 12:44 pm

Michael,

Your post can be divided into two separate arguments. First, easy money has justified the growth of government, because easy money has brought prosperity and therefore no reason to oppose this growth of government (or, something similar to this). Second, easy money is the grease by which the mechanisms of our economy operates. The second case is unrelated to this essay, but I will respond to it nonetheless, although hoping that future debate on the topic can be reserved for elsewhere.

The degree to which our wars have been paid through inflation has actually been rather limited. For example, Friedman and Schwartz (A Monetary History of the United States, p. 221) suggest that approximately 5% of the First World War was financed through direct money creation.* They also suggest that majority of the Second World War was paid through taxes (45%) and borrowing, although they also mention that much of this borrowing was conducted in part thanks to direct financing of government securities by the Federal Reserve (Friedman and Schwartz, pp. 567–569). The amount of a war paid through inflation has probably steadily increased since the founding of the Federal Reserve in 1913, but it still makes up a minute portion of war financing. It is also worth mentioning that since the Second World War, wars have been relatively cheap in direct costs (not because they have become cheaper, buy because they’ve been smaller).

So, there is no reason to believe that war, easy money, and economic booms are linked.† Easy money financing private investment booms occur around that purpose, more so than to finance war. In other words, private investment booms are not secondary effects of war financing through inflation, because the amount of inflation which occurs to pay for a war is relatively negligible.

Also, those booms you refer to were not products of war financing. The Roaring Twenties, for example, was the product of monetary expansion which occurred in large part in late-1922 and then between 1924 and 1928. This was after the Depression of 1921, which divides the First World War and the investment boom of the 1920s. This is a similar relationship to the economy after the Second World War, which grew more as a result of an increase in real private investment fueled by real savings. So, it is an error to believe that these eras of prosperity were fueled by war finance.

Moving on to your second point, I hope to spend less time addressing it. It is based on a lot of fallacious economic theory that could probably be corrected by reading a dedicated treatise to economics. What finances wages and investment is not money, but real capital-goods. In fact, this is probably one of the most important insights of the Austrian School, and one which has been largely ignored by other schools of economics. Monetary inflation can increase the financing of capital-goods and lengthen the structure of production, but it cannot itself increase the real pool of accumulated capital. As such, monetary expansion simply distorts the price mechanism which tends to transmit to the entrepreneur the scarcity of capital-goods. This is, in fact, the source of what Austrians term “malinvestment”.

That is as far as I’d like to go with that. If possible, I hope that discussion on the second point continues elsewhere (maybe the forums).

___________________________
* 70% of the war was financed by borrowing, which may have brought about money expansion itself, but not enough to finance the war (which is a consumption boom, and therefore flattens the structure of production [on the effect of financing current consumption through inflation, see: Jesús Huerta de Soto, Money, Bank Credit, and Economic Cycles; pp. 406–408]) and a private investment boom.

Also, the fact that inflation played little role in financing the First World War does not mean that the Federal Reserve did not have a major role. Had it not been for the Federal Reserve, it is doubtful that a “free” banking system (in this case, one without a central bank) could have supported the weight of the voluminous loan network the government was using to finance its expenditure (see: Benjamin Anderson, Economics and the Public Welfare; pp. 55–58).

† Some would say the relationship is actually the opposite, with war coming as a result of depression, but I’m not sure this follows universally. I just think that the chance for war increases the poorer a nation becomes, simply because as society becomes poorer the governing regime has less and less to lose by waging war (which also tends to set the citizenry’s sights on some greater evil—as an example, see the Argentine invasion of Las Malvinas).

michael August 30, 2010 at 1:21 pm

Thanks for posting a well crafted comment, JFMC. It’s easy to see why you’re one of the paid contributors here. I wouldn’t necessarily say that easy money justifies the growth of government. It wouldn’t take a lot of personnel just to task the Fed with keeping inflation below the 3-4% range and unemployment barely above that level. Those are pretty much the tasks the Fed has now. And its tools are IMO well suited to the job.

Naturally this is at a variance with austrian theory. But our non-austrian approach hasn’t busted the bank yet, and we’ve been extending E-Z credit for a long time now.

One thing the federal government could and should do would be to regulate interstate commerce, as stipulated in our Constitution. The states would have the task of regulating their own internal affairs. And any banks permitted to operate on a national scale would have to be regulated so closely they’d be under constant scrutiny. The task would be to employ honest technocrats committed to the task of cleaning things up. First, I think you might have to fire everyone and start over.

2. “The degree to which our wars have been paid through inflation has actually been rather limited.”

Possibly so; I may have spoken too soon. I would guess a major portion would be the purchase of war bonds. Than there’s this distaff view:

“In 1913, with the creation of the Federal Reserve, America mobilized its credit and was able to finance every power in World War 1. Without a centralized system the public’s money could not be used at the discretion of the government, who was under the influence of the banks and corporations that exploited it and controlled the Fed. In fact, World War 1 could not have happened without the Federal Reserve. Europe was broke. American outfitters and the banks themselves got rich (on interest paid on the loans) but the public (who provided the principal) never got paid back. So in reality, American citizens paid for the war in blood and gold and got nothing back. Like all modern wars, it was a scheme by the bankers to get rich at the expense of the public.” (See Eustace Mullins – Secrets of the Federal Reserve.)

But whether financed through bonds or through an expansion of the money supply, the only responsible way to view the debt is as something needing ultimately to be repaid. And that’s where our form of government has a lot of trouble.

Our elected officials find themselves indebted to the moneyed interests who assist them in getting voted into office. So there is very real pressure on them NOT to shut the money tap back off once the economy is up and running again. That, IMO, is what turns every recovery into a boom-bubble-and-burst situation. The prudent approach would be to provide money when times are hard and retire it once we get back on our feet. And we’re unable, in our current incarnation, to do that.

3. “It is also worth mentioning that since the Second World War, wars have been relatively cheap in direct costs (not because they have become cheaper, buy because they’ve been smaller).”

Relatively cheap, for sure. But still, when you continue with wars costing above $100 billion each year, ones with no end in sight, and try to retain a minimum social safety net, you can’t slash taxes to the bone. Nor can you bail out Wall Street indefinitely for its endless series of follies. Nor can you afford ordinary health care without curbing costs. Something has to give.

And 4. “So, there is no reason to believe that war, easy money, and economic booms are linked.”

Here I’ll have to disagree. What happens in a war is that much of the new money gets paid out in the form of wages. So savings rates get really high. Then there is a dislocation, when the war industries pay off help and pause to retool for peacetime (as happened in 1921-22 and 1946-48), while governments strive to pay down wartime debt. Then there is a great surge forward, as new products fill the stores and people with money in their pockets buy them all. Postwar employment remains high for years, until some new dislocation occurs. And if taxes remain high during this period of prosperity, the war debts are not that hard to retire.

However I do like the way you think. We may often hold different conclusions, but at least you arrive at yours through reasoning from evidence.

Jonathan M. F. Catalán August 30, 2010 at 2:36 pm

Michael,

It wouldn’t take a lot of personnel just to task the Fed with keeping inflation below the 3-4% range and unemployment barely above that level.

I will repeat my advice above, and suggest looking at the microeconomic effects of monetary inflation. That is, looking at the change in prices of some goods relative to others. Looking at general price inflation is generally worthless. What matters is the change in relative prices. This is the root of Austrian business cycle theory (and, if you want to argue Austrian business cycle theory, please do it elsewhere).

Naturally this is at a variance with austrian theory. But our non-austrian approach hasn’t busted the bank yet, and we’ve been extending E-Z credit for a long time now.

I’m not sure any Austrian has ever argued that a central bank can bankrupt itself. It may cause hyperinflation, but it cannot bankrupt itself out of existence (the Reichsbank survived the German hyperinflation, much like Zimbabwe’s central bank survived the recent hyperinflation there).

But whether financed through bonds or through an expansion of the money supply, the only responsible way to view the debt is as something needing ultimately to be repaid. And that’s where our form of government has a lot of trouble.

I’m not sure how to interpret this part of your comment. Are you suggesting that debt need not be repaid? Then, what sane creditor would lend money to the government? All debt needs to be repaid at some point, if the borrower wants to maintain some image of reliability.

Now, a different matter is suggesting that government can repay debt through monetary inflation (i.e. monetization of the debt). The government can do this in two ways:

1. Through the Federal Reserve.
2. Through simply changing its books to reflect a repayment of a loan.

Both result in an increase in the supply of money, and thus are naturally limited by inflation. A government looking to maintain low inflation cannot repay its loans through inflationary means.

The prudent approach would be to provide money when times are hard and retire it once we get back on our feet.

The problem is that this leads to recessionary periods.

What happens in a war is that much of the new money gets paid out in the form of wages. So savings rates get really high.

This is untrue. The only war may it may be true is the Second World War, and I have actually put forth a similar thesis. On the other hand, some have argued that most savings committed to by military personnel were in war bonds, so for the most part these savings saw a net decrease in real value, which suggests a net decrease in real savings.

As for the rest of your post, I suggest you read Benjamin Anderson’s Economics and the Public Welfare, which gives a good account on the American economy between 1913 and 1950. Also, Vedder and Gallaway’s Out of Work is a good source for the employment picture within the same time frame.

michael August 31, 2010 at 12:37 pm

Jonathan, you make this suggestion to me: “I will repeat my advice above, and suggest looking at the microeconomic effects of monetary inflation. That is, looking at the change in prices of some goods relative to others. Looking at general price inflation is generally worthless. What matters is the change in relative prices. This is the root of Austrian business cycle theory.”

I think that’s kind of peripheral to the theme of my initial comment. What I did was link wars and monetary expansion. You added the notion of deficit spending. Both are in essence the invention of credit, in the absence of available funding streams from pre-existing money.

It is true that whenever money is abundant in the hands of ordinary people, manufacturers and vendors will try to raise their prices. But the point there is that such signals should tell whoever is minding the fiscal or monetary store that it’s time to start backing off.

And we do have the ready means to curb incipient price inflation whenever it breaks out– as well as a willingness to use those tools. The Fed’s pretty good at that.

The take-away message to me is not that we should forswear for all time the creation of new money when circumstances inform us of its desirability. That leaves us vulnerable, in times of frozen credit, to protracted and painful depressions. And in times of war, to losing that war. Instead, we should recognize money creation to be a powerful tool, one to be used only in a responsible manner.

In the interests of brevity I’ll stop here. Thanks for the reading suggestions.

Jonathan M. F. Catalán August 31, 2010 at 1:54 pm

Deficit spending is not the “invention” of credit. If spending is paid for through monetary inflation then you are no longer spending at a deficit. Deficit spending by definition is expenditure beyond the current fiscal capabilities of the administration. As such, deficit spending is paid for by borrowing (whether it is borrowing through the sale of treasury bills, or it is borrowing from whoever the government is buying from with the promise of future repayment).

In any case, my comment about relative inflation is a response to your consistent belief that the Federal Reserve should keep general price inflation within 3% and 4%. It is also a response to your reiterated belief in tracking general price inflation, in general. I am merely expressing my opinion that looking at inflation targeting like this is extremely naïve, because it ignores real effects monetary expansion may have on the microeconomy as a whole (i.e. it assumes that money is neutral in the long-run).

Instead, we should recognize money creation to be a powerful tool, one to be used only in a responsible manner.

But, I don’t recognize money creation as a “powerful tool”, and it certainly should not be used as such.

mpolzkill August 31, 2010 at 2:06 pm

“In the interests of brevity I’ll stop here.”

Seriously, the funniest guy here since Mark Hubbard.

michael August 31, 2010 at 9:23 pm

Jonathan, you say “Deficit spending is not the “invention” of credit. If spending is paid for through monetary inflation then you are no longer spending at a deficit. Deficit spending by definition is expenditure beyond the current fiscal capabilities of the administration.”

Whether debt financing occurs through the issuing of bonds or through an expansion in the money supply (or, as today, through some combination of the two) the result is the same: a debt has been created that must be paid back.

If there has been expansion in the money supply there needs to be some compensating contraction. Otherwise there are unpleasant consequences. I will note that during the past 30 years though that these have not included ordinary price inflation, beyond what most people consider to be an acceptable minimum.

What happens happens well beyond the sphere of consumer prices. Instead it’s the values given to investments that become inflated. And, being an unsustainable trend, this gives rise to a bubble which pops. It’s the attempt of everyone to make a profit off everyone else. The only way this illusion can be maintained is to constantly increase the money supply, a trap into which we have inadvertently fallen.

What’s needed is the discipline of an orderly contraction. Either federal assets need to be sold off or taxation has to create surpluses, which are then given to the Fed to throw on their bonfire. Drastic either way, but occasionally indicated. And definitely something we should do once the present danger has passed.

I agree that we (meaning America) are overextended and need to climb back down from the ledge we find ourselves on. But I do not agree that the task of reducing our money supply to whatever it was in 1913 or any other year is the highest goal to be aspired to… or even that such a policy would do anything but destroy our economy. What it would do would be to incur a real depression, precipitated by structural adjustments (ultra-high taxes, massive public sector layoffs, etc.) that would paralyze the country. And even though such a policy would appear to the theorist to offer reassurances to our creditors, it would have the opposite effect, of spooking them so they would withdraw their funds to the probable point they would precipitate a stampede.

Absent the ability of our central bank to create more tide-us-over money to quell such a panic, the resulting depression would be deep and long. And would be characterised by everyone who had ever invested in America’s losing a LOT of money.

That wouldn’t soon be forgotten. It would sink this country for good.

Jonathan M. F. Catalán August 31, 2010 at 10:30 pm

Michael,

Whether debt financing occurs through the issuing of bonds or through an expansion in the money supply (or, as today, through some combination of the two) the result is the same: a debt has been created that must be paid back.

If the money was collected through the issuance of a bond, that represents a redistribution of money, not an additional increase in the supply of money. An additional increase in the supply of money can only come about if the government literally fixes its accounting books to suggest that the money paid for whatever expenditure was actually delivered.

If there has been expansion in the money supply there needs to be some compensating contraction. Otherwise there are unpleasant consequences.

Sorry, I don’t know what you mean by this. It is definitely not true (I’m not sure any school of thought would agree with this point, actually, except maybe the monetarists [even they concede that a contraction in the supply of credit will bring about a fall in productivity]).

What happens happens well beyond the sphere of consumer prices. Instead it’s the values given to investments that become inflated. And, being an unsustainable trend, this gives rise to a bubble which pops. It’s the attempt of everyone to make a profit off everyone else. The only way this illusion can be maintained is to constantly increase the money supply, a trap into which we have inadvertently fallen.

Ok? Except for what I highlighted, this is run-of-the-mill Austrian business cycle theory.

What’s needed is the discipline of an orderly contraction.

If we accept that the bubble was created through an accelerating creation of money, it follows that a slow down in the creation of money or a cessation of the creation of money will lead to that bubble popping. Therefore, it’s held that “an orderly contraction” is nothing more than poor theory.

But I do not agree that the task of reducing our money supply to whatever it was in 1913 or any other year is the highest goal to be aspired to…

I don’t think anybody does, actually.

Absent the ability of our central bank to create more tide-us-over money to quell such a panic, the resulting depression would be deep and long.

I think my opinion on the debt-deflation theory and deflationary spiral theory has been made clear elsewhere.

Jonathan M. F. Catalán August 31, 2010 at 10:32 pm

I hate to sound like a broken record, but I would really suggest reading a dedicated treatise on capital theory. Maybe Lachmann’s book, which is sold through the Mises Store, and is a easier recapitulation of the capital theory put forth by Hayek in The Pure Theory of Capital. Monetary theory is ten times as useful when used in conjunction with capital theory.

RTB August 30, 2010 at 8:44 pm

It would be nice, michael, if just once, you would actually reply to the well crafted comments instead of just spewing more of your ill-informed nonsense. I would suspect that it’s because you simply can’t understand them and have your own axe to grind.

michael August 31, 2010 at 12:21 pm

Isn’t that exactly what I did? I addressed each of the points Catalan raised. And where he was on target I agreed with him.

If the theory fits the reality I’ll be the first to admit it. But whenever it doesn’t I will insist on my right to point that out. I would invite you to describe any specifics in which you disagree with me.

Beefcake the Mighty August 30, 2010 at 1:43 pm

“Moving on to your second point, I hope to spend less time addressing it. It is based on a lot of fallacious economic theory that could probably be corrected by reading a dedicated treatise to economics. ”

Precisely what he is NOT going to do. This is wasted advice.

michael August 30, 2010 at 2:14 pm

Catalan says “Moving on to your second point, I hope to spend less time addressing it. It is based on a lot of fallacious economic theory that could probably be corrected by reading a dedicated treatise to economics. What finances wages and investment is not money, but real capital-goods. In fact, this is probably one of the most important insights of the Austrian School, and one which has been largely ignored by other schools of economics.”

So how does one accrue capital goods? If one doesn’t fashion them by hand by himself, he uses labor to build physical plant. Please explain to us how he can acquire that labor without paying them in cash.

I’m thinking that’s the reason mainstream economists don’t think much of the theory. Cash is the ingredient that makes things go. Start with cash and you can end up with all the capital assets the mind can imagine.

Jonathan M. F. Catalán August 30, 2010 at 2:26 pm

Michael,

I, and all Austrians, agree that money is a precondition for advanced indirect exchange. It facilitates indirect exchange, as individuals no longer need to worry about what exact goods they are exchanging. However, limiting the creation of fiduciary media is not synonymous with altogether eliminating money. As such, the following is a non-sequitur,

Please explain to us how he can acquire that labor without paying them in cash.

The point I made in the post you respond to is that while money is used as a form of indirect exchange, what is really paying for that labor are accumulated capital-goods. By increasing he supply of money you are not also increasing the supply of accumulated capital-goods (which can only increase or decrease based on time preference and productivity). So, at best, monetary inflation can only affect the distribution of said accumulated capital-goods.

Furthermore, expansive monetary policy is not a necessary precondition for economic recovery. The favorite Austrian example, the Depression of 1920-21, showcased a return to prosperity without a large increase in the supply of money (indeed, the recovery began with relatively high interest rates). The necessary precondition for economic recovery is a reduction in uncertainty.

It should be noted that Keynes did not really emphasize monetary policy, as much as New Keynesians do (New Keynesianism being much more of a merge between neoclassical economics and Keynesian economics, accounting for the shift in economic theory during the stagflation of the early 1970s). While Keynes did refer to the permanent boom, he focused much more on public expenditure than expansive monetary policy (and, of course, the classic Keynesian liquidity trap is based on the limitations of monetary policy).

Start with cash and you can end up with all the capital assets the mind can imagine.

The relationship is the opposite, actually. Money was developed out of existing economic goods. Money, by definition, is the most widely accepted good on the market (and fits a number of “requirements” that make its supply stable).

Again, I need to reiterate that I have no interest in continuing this discussion over a number of posts. So, this will be my last response on this topic. I instead urge you to consider reading a dedicated treatise on the topic of economics (well, two treatises specifically: The General Theory and Human Action).

michael August 30, 2010 at 3:16 pm

“..limiting the creation of fiduciary media is not synonymous with altogether eliminating money. As such, the following is a non-sequitur..”

Jonathan: Let me shed some light on my apparent non sequitur.

During a credit freeze, jobs and productivity are lost, not because the money is just not there, but because those who are in possession of it are unwilling to lend or spend it. And so every societal function dependent on money to make it work must suffer. There is no capital expansion, no spending, no lending and no payday for many of us.

I truncate that whole notion by saying, in the idiom, that there’s no money.

“The point I made in the post you respond to is that while money is used as a form of indirect exchange, what is really paying for that labor are accumulated capital-goods. By increasing he supply of money you are not also increasing the supply of accumulated capital-goods..” etc.

In a word, no. What is paying for that labor is seed money.

The seed money can then be used to purchase goods. As such, it stimulates demand, spurring profits and employment through increased sales. It does not use up capital assets, but rather offers them fuller employment in satisfying the demand that has been created.

Are you saying that if it uses up capital goods, that is, goods on the shelf being offered for purchase, that that is somehow a bad thing? Those goods have to be moved for the economy to return to normal functioning.

Therefore the act of purchasing goods offered for sale does indeed stimulate the creation of more of those same goods– to fill the shelves again. The only elements needed are manpower, physical plant and enough cash to make payroll.

Donald Rowe August 30, 2010 at 3:10 pm

Michael you surely must be joking.

*Work* is the ingredient that makes things go, not cash. You can’t *start* with cash, it all starts with work. If you jump into an economy and *create* cash, you are just stealing, nothing more. Cash is no more the center of any economy than the earth is the center of the universe. You are still looking at the economy from the perspective of a participant, not that there is any harm in that, but you will have a hard go of understanding it. You are doing the metaphoric equivalent of riding the carrousel horse and dizzying yourself, all the while thinking *you* are the center of attraction.

Bastiat’s purpose in his broken window parable was to show that without taking a larger perspective, we will fail to accomplish our intended goal of understanding our human nature, and thus our economic activities, and perhaps helping to make the lives of *all* people better.
Anyone looking for guidance about the subject of economics should be wary of information given by anyone who appears to have a narrow perspective.

michael August 30, 2010 at 3:27 pm

” *Work* is the ingredient that makes things go, not cash. You can’t *start* with cash, it all starts with work.”

Donald: if you know how to make a man work for you without offering him cash, I’d like to know how you do it.

This is so incredibly apparent to everyone who doesn’t share the Moebius-like austrian perspective it’s hard to imagine anyone who can’t grasp it. In a business depression all the elements are there… except one. You have the men desperate for work, you have the plant owner anxious to get up and running, you have families getting hungrier with each passing day. The only thing you don’t have is payroll.

Cash is easy to invent. It’s just an imaginary substance, invested only with the meaning we assign to it. You can’t eat the paper because it has no food value. Yet its absence can cause everything that makes our society prosperous to come to a screeching halt.

“If you jump into an economy and *create* cash, you are just stealing, nothing more.”

This is another concept non-austrians have no trouble with, while you fellows can’t seem to wrap your heads around it: you’re taking a loan out from future-you. It has to be paid back.

If you don’t intend to ever pay it back, you’re right. THAT is theft. That’s why it would be prudent to take the debt seriously, increase taxes and emphasize fiscal responsibility just as soon as we can afford to begin paying our debt back down.

But not just yet. I would wait until we’ve gotten down to 5.5 or 5% unemployment. That is, reasonably normal times. Then, when everyone can afford to do so, start paying it back. With everyone paying their fair share.

Donald Rowe August 30, 2010 at 4:48 pm

Michael,

I misunderstood what you meant by “Start with cash and you can end up with all the capital assets the mind can imagine.” I took it to be your understanding of how an economy gets started in the first place, when you were actually opining about what you think should be done in the midst of our current crisis. Sorry.

“you’re taking a loan out from future-you.” I don’t quite get this either. When did *I* do this? Why wasn’t I told? What did I do with my money? (If I have to pay it back, then it’s mine, is it not.)

The theory to which you subscribe is a fine concept, that of adding some money and the economy will speed up, and then removing some to keep it all spinning and not slow down too much. It’s just the current implementation that fails. *We* will get it right next time, for sure.

Maybe there is a better concept hiding about, that you may have missed.

michael August 31, 2010 at 9:43 pm

Hi Don, good post.

Thanks for recognizing I don’t speak from First Principles. If we were gods on Mount Olympus, offering our suggestions as to how to create a viable economy in the vacuum prior to the beginning of the world, I might well agree with you.

But we’re not there. I was born here. And in this time-ordered reality, it is always today, currently somewhere in the middle of 2010. My prescriptions always take the form of “what do we do now” or “what did we do then”. The eternal just does not apply to our current situation.

In 1929 the creation of a very large stack of thousand dollar bills, artfully deployed, would have set the country quickly on the recovery path. Inexplicably, though, the Federal Reserve opposed that policy. And so we were in for a long dry spell, with no money entering the functioning economy. Most of the money in existence was tied up in cautious reserves, doing no actual work for us.

The above is a time-sensitive statement, not meant to imply that for every occasion in every historical moment, the answer to it all is to print more money. I’m surprised so few here can even comprehend that kind of thinking. Before I came here, I assumed it was common to all sensible beings.

2. I do note that austrians have trouble with the word “we”. So whenever you read it from me, don’t substitute “me”. That’s not what I mean. Instead, use “one”. Or the “American people”. Or the “USG”, depending on context.

3. “Bastiat’s purpose in his broken window parable was to show that without taking a larger perspective, we will fail to accomplish our intended goal of understanding our human nature, and thus our economic activities, and perhaps helping to make the lives of *all* people better.”

High-flying statements like that try to make a lot out of very little. It’s amazing that with so much information in circulation anyone would devote quite so much time to the analysis of such a tale. But around here, every sixth or seventh thought anyone gives voice to refers back to that damned broken window. To me it shows very serious limitations to one’s imagination.

It’s like those simple souls who have very few words of wisdom, and who say after every occasion something like “What goes around, comes around”. As though that explains everything.

Maybe I’m just cranky tonight. Every time a window is broken, the value of the act is minus one. And every time a window is repaired, the value of that act is plus one. Tell me how the contemplation of this heavenly parable will make everyone’s lives better.

Kenneth Mathews August 30, 2010 at 10:51 am

“From the Great Depression to the War on Terror, the state has manipulated its subjects by telling tales of monsters in the dark.” … The fact that the state has often exagerated threats facing the nation and its people for foolish purposes does not change the fact that there are real threats in the world that have to be dealt with wisely. Sometimes dealt with by force of arms. Mises was certainly an advocate for peace, but he also new that men are not angels, and that societies of man that have given themselves over to evil and agressive doctrines must be opposed and war as terrible as it is – is sometimes, perhaps rarely, necessary and legitimate. All evil does not proceed from the state – the condition of nation-states simply reflects the unfortunate nature of man. Lastly some “tales of monster in the dark” are true – nazism, fascism, socialism, communism, Islamism/Terrorism, are all rather real “monsters.” Don’t think so? Count the corpses. Mises seems to have avoided the childish fantasy of pacifism in favor of the harsher realities of the limitations of man’s nature – again men are not angels – and even the blessings of the free-market and liberty cannot make them so.

J. Murray August 30, 2010 at 11:09 am

Because there are other monsters out there doesn’t justify further throwing bodies onto the pyre of the State. Hitler and Stalin, none of them justified conscriptions or taxation. All of them created by prior abuses of the State. Stalin came to power heavily because of an American wheat embaro of Russia under Woodrow Wilson, causing mass starvation (America supplied Russia with nearly 1/3 of all its food), and the fall of the Czarist empire to communism. Hitler came to power becuase of of Western European demands for wartime repayments. Even modern terrorism is a battle against various governments, not the people themselves. There wasn’t a single instance of Islamic terrorism against the United States until nine months AFTER our government decided installing a brutal dictator as the Iranian leader was a good idea.

All of the problems you mention are just long strings of government abuses turning sour. The answer is not to combat it with more government.

Kenneth Mathews August 30, 2010 at 1:38 pm

“The answer is not to combat it with more government.”

The answer is also not to combat it with anarcho-pacifist fantasies and the desperate faith (or delusion) that evil is found only in government while giving men, all men and their societies, an undeserved pardon. Hitler rose to power primarily because of a evil CHOICE made by the majority (plurality may be more correct) of the Germans of that day. Stalin rose to power with the support of many who loved the lies and deceptions of socialism/communism & envy. Islamists strive to apply a “moral” standard that is not moral it having originated in the mind of Muhammad rather than the mind of the Creator. Mises strove to understand and establish political economic laws by which mortal morally imperfect men could live free and prosperous lives without deluding himself into believing that he could achieve heaven on earth and make angels out of men. Mises knew that as terrible as war is there are times (I pray rarely) when men will have to preserve liberty by throwing their bodies on the pyre, a pyre not of the state but of the hope of liberty and justice – things which ideally our government was established to protect.

Beefcake the Mighty August 30, 2010 at 1:48 pm

Let me guess: you’re a staunch supporter of Israel, yes?

Kenneth Mathews August 30, 2010 at 2:12 pm

Beefcake the Mighty – if your question is directed at me – Yes I am a supporter of Israel…Great name by the way. ;)

Regards,

Ken M.

Harry August 30, 2010 at 2:08 pm

There wasn’t a single instance of Islamic terrorism against the United States until nine months AFTER our government decided installing a brutal dictator as the Iranian leader was a good idea.

Actually, the first instance of Islamic terrorism against the United States was in 1784.
http://en.wikipedia.org/wiki/Barbary_pirates#18th-19th_centuries

Beefcake the Mighty August 30, 2010 at 2:13 pm

You have a pretty flexible definition of “terrorism” here.

Kenneth Mathews August 30, 2010 at 2:23 pm

Flexible but still quite reasonable.

Jon Leckie August 30, 2010 at 3:52 pm

Way off topic, but I’m interested to know how you would connect the Barbary pirates with Al-Qaeda. I see no link at all, other than that they were co-religionists. It seems like a rather silly remark to make.

J. Murray August 30, 2010 at 4:12 pm

I’m aware of the Barbary Pirates. They didn’t specifically target Christian ships or Western merchants. They attacked whoever was carrying goods. There wasn’t a huge “we must attack America” push back then. American merchants just happened to be in those waters.

The Messenger August 31, 2010 at 4:59 pm

Hitchens claims that the ambassador of Tripoli to London informed Jefferson and Adams that the Qu’ran gave the barbary states the divine right to attack their ship and enslave the crew, for they are infidels. About 1.5 milion American and Europeans were enslaved by the barbary states of North Africa.

Guard August 30, 2010 at 2:00 pm

In my opinion the fact that our state exaggerates threats and creates monsters in the dark is not primarily the problem. The problem is that none of the criteria for identifying these monsters is applied across the board to our own state, which allows for a false good guy versus bad guy, us versus them situation. Saddam Hussein deserved to be attacked because he was such a bad guy. What about a country that freely assassinates people throughout the world without any due process of law and often in violation of the sovereignty of other countries? What about a country that may freely arrest a citizen and send them to other countries to be tortured? Or a country that maintains an archipelago of secret torture camps? Or consistently and repeatedly lies about its doings? Or attacks and occupies other countries with which they are not at war? Our own state may differ from the “bad guys” in degree perhaps but not in essence.

Kenneth Mathews August 30, 2010 at 2:58 pm

What about a country that freely assassinates people throughout the world without any due process of law and often in violation of the sovereignty of other countries? The US is at war there is no due process of law in war – only the best efforts of intelligence to seperate friend from foe

What about a country that may freely arrest a citizen and send them to other countries to be tortured? The US wasn’t grabbing nuns and babysitters it was targeting commited terrorists

Or a country that maintains an archipelago of secret torture camps? Secret prisons only necessary because childish leftists are so morally bankrupt they can stand the idea of evil men being interrogated or punished – but are always mysteriously quiet when soldiers and civilians are captured and tortured and killed. If you think waterboarding is “torture” – let me assure you terrorist have far more “advanced” and lethal techniques – and no doctor is present to ensure your welfare

Or consistently and repeatedly lies about its doings? You mean maintain military secrets without which more US soldiers and allies, both military and civilian, would be killed by vicious enemies

Or attacks and occupies other countries with which they are not at war? Indeed the US should follow the constitution and declare war – but the failure to do so doesn’t change the fact that we are at war – does it?

Our own state may differ from the “bad guys” in degree perhaps but not in essence. – A difference of degree can be of great importance. Mother Theresa and Hitler were both imperfect human beings in essence but the difference of degree is kind of important.

michael August 30, 2010 at 3:06 pm

“What about a country that freely assassinates people throughout the world without any due process of law and often in violation of the sovereignty of other countries?”

It’s a curious aspect of human nature that we tend not to mind that a bit– so long as we think it’s being done for our own protection. Show the subhuman hordes no mercy! They just want to subvert our values!

See how easy that is?

fakename August 30, 2010 at 9:13 pm

I’m not going to be snarky about this michael but out of a motive of pure and perplexed curiosity, and having read a lot of your (civil if not correct analysis) I do know that you consider economic knowledge to derive from real life observation. Given this, what would you say if I asked you how you would believe the soviet economy or nazi economy or heck, even roman, or spartan economy worked if you were living in any one of these economies. It seems to me, If I may be so bold, that you would say that each one of these systems had their own economic dynamics. If so, then 1) can you change economic dynamics along with economic systems, 2) is it possibly true that Austrian or even Communist economic analysis is truly able to lead to prosperity in some possible world? For if, given certain conditions, wealth really was created through supply or if, given certain conditions, wealth really was created by central planning, could we logically deduce an economy based on free trade or central planning respectively?

michael August 31, 2010 at 9:56 pm

” It seems to me, If I may be so bold, that you would say that each one of these systems had their own economic dynamics. If so, then 1) can you change economic dynamics along with economic systems, 2) is it possibly true that Austrian or even Communist economic analysis is truly able to lead to prosperity in some possible world?”

Both true propositions, mr. name withheld. Austrian economics would work just fine if everyone ascribing to those ideals were able to populate some distant planet and start anew. As would Marxist economics, if you don’t mind living in a rigid two-class system.

For us, that is, the American working public, though, either of those extremes would be poison. Around here I would defend even our crappy, unsatisfying, fully degraded way of life against them. Because the solutions proffered by either would be a giant step down from what we’re used to.

Between consenting adults, every act is acceptable. But I do not consent to either of those contrasting visions of predatory inequality. Nor do most of us. Therefore the Austrians and Marxists alike must locate their Shangri La elsewhere. Or, should they choose to remain in this country, must learn to live with what we have here, and share their toys with others.

ABR August 30, 2010 at 5:16 pm

Excellent article. I can’t resist the urge to quote Mencken, here:

“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”

The Messenger August 31, 2010 at 5:05 pm

Excellent article. I can’t resist the urge to quote Mencken, here:

“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”

Fly away little parrot.

Mousers09 August 30, 2010 at 8:44 pm

I find this article to be true for the most part, however, I was under the impression that the “communist” way our government was during the FDR administration stayed in place til the 70s-80s when they finally began to be deregulated under the Reagan administration… and that the fear of communism didn’t come until the 50s. Also, we didn’t join WWII until the Japs attacked at Pearl Harbor, as we were big on isolationism at the time, so the fear at the time couldn’t have been the Nazis quite yet, because we were on neutral terms with everyone until that attack of the Japanese.

Jonathan M. F. Catalán August 31, 2010 at 12:52 am

Mouser09,

There is a good article by Rothbard on Reagan archived somewhere on this website, but dealing with deregulation it is ironic to point out that there was probably more genuine deregulation during the Carter administration than the Reagan administration (relatively speaking, of course). There was no decrease in the size of government under the Reagan administration, because if anything Reagan ballooned the military budget and thereby fed the military-industrial complex. Furthermore, the 1980s was also the genesis of various social welfare and prohibition programs, such as the war on drugs.

Regarding the Second World War, I touch upon this subject in the article. It’s true that we were technically neutral until 7 December 1941, it is however also true that Roosevelt tried to sell the war from a much earlier date. This was not just to justify a war with the Axis, but also to justify the intensive military aid the United States was providing to Great Britain and other Allied powers. So, it behooved the administration to paint the Germans and Japanese as a direct threat, and then lure the Axis powers into seemingly firing the first shot (which turned out to be the Japanese offensive against American possessions in the Pacific).

J. Murray August 31, 2010 at 5:35 am

The United States passed the Lend-Lease act in March 1941, 9 months before Japan attacked. The Roosevelt Administration blacklisted the Japanese diplomats from any meetings. The USA placed strict oil and scrap metal embargos on Japan well before entering the war. Roosevelt used civilian shipping to shield British military and merchant ships from submarine attacks, hoping the Germans would create a new Lusitania (a British munitions ship that happened to have a few American citizens on board when it was sunk, which Woodrow Wilson outright lied to America about to get us into the first World War). American spotter planes called out German sub positions as early as 1940. These were hardly neutral, non-interventionist acts. Roosevelt WANTED to be in a war, but no one in America was willing to land the first punch. Roosevelt basically went out of his way to do everything possible short of shooting at the Germans and Japanese to get us into the war.

The United States has never been isolationist. Isolationist is shutting off international trade and withdrawing from ALL interaction from the world. America became ridiculously wealthy due to taking a strong interest in international trade. America was already the world’s leading economy by 1874 and international trade was the key reason for this.

And Jonathan’s referenced article is here:

http://mises.org/daily/1544

michael September 3, 2010 at 8:31 am

JM: Here’s something we can probably agree on. The US and Japan were engaged in escalating military threats in the late 1930s, over the prize of dominance in the Pacific. And the thing that most likely precipitated the Japanese decision to bomb Pearl Harbor was their interception of a classified report put out by what was then the Army Air Corps, stating the opinion of their chiefs of staff that the best way to destroy the Japanese threat would be to launch a pre-emptive air attack, in which they would firebomb Japan’s major cities.

As the cities were largely paper and bamboo, the resulting loss of several hundred thousand lives would presumably deter Japan from attack. It was an early statement of pre-emption theory.

But it had the reverse effect. Funny how the military mind has such an incomplete grasp of human psychology that they never assume the enemy has the same mindset they would have, were their roles reversed. They always attribute idiotic responses to the subhuman beasts they seek to destroy, and assume that “those people just don’t think the way we do”.

Jake_nonphixion August 31, 2010 at 11:02 am

Once we save the world by killing all the bad guys, we can focus on living in peace and prosperity. Too bad that the “bad guys” think the same about us.

Kenneth Mathews August 31, 2010 at 4:24 pm

Better to appease bad guys and enjoy the “peace” of slavery or the perhaps the grave? Better to equate the imperfections and failings of free-societies to the all-consuming evil of totalitarian dictatorships? Guys it is possible to advocate for liberty, free-markets and peace without loosing contact with reality.

mpolzkill August 31, 2010 at 5:17 pm

Zionism, that’s “reality.” The reality is that Zionists, mercantilists and other assorted lunatics are destroying this country with their ventures in the Middle East. Keep it up and we’ll share Israel’s always certain demise in the near future.

The Messenger August 31, 2010 at 5:59 pm

If you were born a women in a country like Saudi Arabia, Jordan, or Iran, Zionists would be the least of your troubles.

mpolzkill August 31, 2010 at 6:02 pm

You are free to go save them on your own dime. I’m sure they’re not too impressed with how much my stolen money has helped them.

The Messenger August 31, 2010 at 6:05 pm

I wasn’t implying that foreign intervention would remedy their plight.

mpolzkill August 31, 2010 at 6:07 pm

Good, we’re in agreement. That’s all there is to it.

Saw that you left out Gaza, though.

The Messenger August 31, 2010 at 6:15 pm

“Saw that you left out Gaza, though.”

Assud ,the Hamas rabbit, would eat all of the Jews and then order you to blow yourself up, Allah willing.

mpolzkill August 31, 2010 at 6:17 pm

Wow, they’re almost as crazy as the Tamil Tigers. Must be something in their water.

The Messenger August 31, 2010 at 4:44 pm

“Guys it is possible to advocate for liberty, free-markets and peace without loosing contact with reality.”

As the old saying goes, “if all you have is a hammer, everything looks like a nail”.

JD August 31, 2010 at 8:29 pm

The Bottom Line, is that those (Conservatives) folk who give lip service to Freedom & Liberty of the marketplace have not been able to contain their “Nation State”!

The Reality is you cannot seperate the Agenda of Domestic and Foreign Policy, as if their were a “God Sent” group of Caring Individuals who get to administer this policy “Appropriately”, without influence from all aspects/bureacracies, etc. Conservatives seem to miss this point. Heck, at this point we better start taking a closer look at thsose Private “Anarcho-Capitalists” Defensive Theories. Too much potential for abuse and collusion to contain.

If you parousig this site, don’t just stop with LVM, as the end-all-be-all regarding War & the Nation State. See Rothbard, and Hoppe, etc., besides as far as I’ve seen LVM took every other path, but War, to enact economic freedom.

Keep on Empowering the State, with the Delusion that it will get better at some point!

Kenneth Mathews September 1, 2010 at 1:25 pm

With all due respect to Rothbard and Hoppe – I’ll stick with LVM…

Kenneth Mathews September 1, 2010 at 1:41 pm

I’ll stick with his commitment to:

TU NE CEDE MALIS, SED CONTRA AUDENTIOR ITO

You should not give in to evils, but proceed ever more boldly against them

Rothbard knew that evil did exist, and that it had to be opposed with reason, morality, sound political economy, and sometimes necessarily with force. Going so far as to warn free nations not to be lured into war socialism – speculating that only the free market could provide free nations with the abundance of war material and other economic goods necessary to survive and defeat the total war-state system of totalitarian powers.

awunor augustine October 17, 2010 at 6:44 am

Fear has naturally been useful to exercise authourity to both the willing and the unwilling. I call it natural because its also a culture in some places. A good example is the Halloween in the western world. Your limiting it (use of fear) to the America is where I disagree in your piece. Its every where and its even used for liberation struggles such as seen in the case of those who are bent on creating a climate of fear as a working tool to get the deaf to hear or understand their grievances. I admire your piece ; In academics, its needful to tell the truth . You are entitled to your opinion, but to me, the understanding of freedom is an individual thing. Of course there are fallouts from the resurgence of aggressive capitalism without human face.
While I agree with Walter Block in his speech on Privatizing Roads ; where he said that Democracy does not justify anything. Yet, America has handed the best form of governance to the world . I think its still too early to take sides. As we are all in the process of learning.

athensguy October 23, 2010 at 11:18 am

The top right drawing with the church and the Nazi boot makes me laugh, primarily because the Nazis probably went to that church considering the Nazis were a christian organization.

The other picture that makes me laugh is the image of Ron Paul’s book about the United States Constitution. His website says that it’s “replete with references to God”. If he believes that, he never even read the document, so it’s pretty hard for him to have any kind of understanding of it.

Retep May 6, 2011 at 3:24 am

Great post. It’s ironic because by calling out the fear that has been strategically induced over decades, you lessen it present effects. At least for me. Thanks!

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