Economics students all over the world learn Gresham’s Law in a severely distorted way. They are told that “bad money drives good money out of the market” as if that was a law of markets. It’s not. It’s a law (inevitable effect) of State intervention in the money market. Bad money drives good money out of the market only when the former is subject to a price control that sets its price higher than it would otherwise be with respect to the latter’s. In other words, valuable goods are hidden/hoarded whenever there is forced equality or at least the least valuable are forced upwards in perceived value.

What does this have to do with manners? Well, if we regard all State property (public areas specially) as the tragedy of the commons it is, we can analyze people’s behavior as more or less valuable. In a free society, people of great manners (and overall superior personal image) will tend to surround themselves with similar people. But in partial socialism, access to public venues is increasingly non-discriminating (of behaviors and attire and even hygiene) thus making a melting pot out of different human groups. The problem is, that some people are put off by others’ behaviors and personal presentation. Rudeness and even perceived aggressiveness scares away families and vulnerable individuals (women with a high sense of femininity, to name one). This we may call Gresham’s Law of Manners: the progressive abandonment of public spaces by the most elegant and sober and its crowding out by the vulgar and aggressive. The State creates this situation and then it’s intelligentzia deplores the abandonment of public/community spaces by some groups who now have to seclude themselves in gated neighborhoods and other discreet spaces in other to enjoy a life of kindness, beauty and truth.

This law of human behavior only goes on to further demonstrate how civic life and personal values are eroded by the State, in the vein of prof. Hans-Hermann Hoppe’s great analytic framework.

We are very glad to announce that the Instituto Ludwig von Mises Ecuador begins its activities this coming week. The first of course, is the launching of www.mises.ec modeled after www.mises.org and following on the footsteps of our Brazil, Belgium, Poland, Sweden, Romania  counterparts.

LVMI-Ecuador has a Facebook fan page and a twitter feed so Spanish-speakers can follow our activities and publications. The idea for the -mainly Web 2.0- think-tank came from a group of outstanding students of my ECN101 class at USFQ that also attended Mises U. and FEE seminars this past summer. I have to mention and thank specially Esteban Perez and Cindy Aguiar for their enthusiasm and dedication. LVMI-Ecuador already has the intellectual support of huge Austrian and libertarian names such as Martin Krause, Carlos Sabino, Tom Woods Jr, Stephan Kinsella and Mark Thornton who are a constant source of inspiration for these young students.

The institute’s coat of arms (put together by former Mises U. attendant David Heinrich) has in it a phoenix bird symbolizing the rebirth of Austrian Economics, a lion rampant representing human liberty and a Phoenician ship symbolizing the global exchange of ideas and goods.

It is truly a wonderful time when we can emulate and multiply the pioneering work of Lew Rockwell, Jeff Tucker and the Mises.org staff for a regional and local public with human enthusiasm as its main -and sometimes only- economic resource.

A selection of prof. Hans-Hermann Hoppe’s essays, articles and book chapters has been translated into Spanish and published in the new book Libertad o Socialismo (Liberty or Socialism). Translated essays include articles such as Natural Elites, Intellectuals, and the State, and The Intellectual Cover For Socialism.

Published by the Universidad San Francisco de Quito in Ecuador, it goes to press with a printing of 3,000 copies for the first printing. A free copy of the book is online here; ordering information for the print version will be available presently here.

More Spanish translations of prof. Hoppe’s works can be found here.

IP is the manifestation on creativity of an underlying Marxist theme: the labor theory of value.

What if I discover/invent something but others market it first? What if they market it better?

Am I not entitled to profits for my discovery or invention?Answering yes to the last question is what lies at the core of so called Intellectual Property.

Well, one does not have a guarantee in any other activity, so why in invention? Shouldn’t that area too be subjected to the rigors of the free market? But of course, I say.

1.- What if another copies my machine?

Learn marketing and keep improving, as we all do in other areas.

2.- What if another uses my brand?

Learn marketing and keep your standards, or you will destroy the brand no law could keep live anyway if you mess up.

3.- What if another plays my tune?

You learned how to walk or talk from others (gestures instead of notes), in very specific cultural combinations too. Be a good musician. Nobody confused a Beethoven or a Mozart with a second-rate musician in any age. The best do better.

Yes, patents, trademark and copyright: the three ugly faces of the labor theory of creativity.

Re-nationalization, high tariffs, Keynesian monetary and fiscal “policy”, and all the U.N.’s CEPAL recipe for disaster is back in Venezuela, Bolivia, Nicaragua and Ecuador. Having to say a lot on the subject, let me just begin with Hugo Chavez’s proposal for an expiring, voucher-based currency.
Besides being anything but original, it would take Venezuelans back to barter and small town self-dependency or just disconnected among themselves and ever more dependent on Caracas and its oil cashflow.

The proposal is very explicit: the inhabitants of those towns won’t be allowed to trade those bartering certificates for money. “And what do you call that?” he asks the audience, “Socialism, we are not here to make profits.” Of course, long term planning will become impossible and the division of labor will suffer even more in a country were shops already are as empty as in Cuba, and political centralization will grow stronger. One can only wonder if there is true ignorance in the proposal or just plain malice from an egomaniacal tyrant who wants all important transations to go checked by his minions.

Mises and Rothbard created a very strong following of fine scholars and brilliant minds. But critiques are always a feature that a very much alive tradition such as the Austrian School needs to have and use for improvement. And sometimes improvement implies bringing back forgotten doctrines of previous generations. In this case, I am referring to the cost-price doctrine for reproducible goods that Eugen Böhm-Bawerk developed but was dismissed entirely by most Misesians and certainly most Rothbardians. On this you can see Robert Murphy’s treatment of cost and price at his MES Study Guide (p.56). Prof. Reisman is rescuing the Böhm-Bawerkian insight that costs, in reproducible goods, are the immediate although not the ultimate determinant of prices, from the Austrian plumb-line that has long ignored that fact, putting an emphasis on marginal utility as if didn’t depend itself on present quantities of fungible goods available. Let’s quote prof. Reisman from his translation and commentary:

“However that may be, the genuine Austrian doctrine on the relationship between value, cost, and marginal utility is to be found first and foremost in the writings of Böhm-Bawerk. Böhm-Bawerk represents the “Real McCoy” of Austrian economics when it comes to the theory of value and price. The present essay is, of course, by no means the only place in which he presents it.”

And prof. Böhm-Bawerk from the same text:

“And now I ask: under these circumstances, has it been worthwhile [337] to raise a great hue and cry against the marginal-value theorists over the fact that they trace the law of costs back to the law of marginal utility? Was it proper to call it a “caprice” when the marginal-value theorists undertook to put forward in the law of marginal utility a unitary law, which subsumed the law of costs rather than merely stood beside it? And is it really the mark of a so much higher scientific standpoint, when one first, with all possible emphasis, declares not marginal utility but costs to be the ultimate cause of the value of goods, however then is forced to explain this alleged ultimate cause in turn on the basis of marginal utility, which is allegedly not ultimate? If it were only a matter of pointing out some injustice to my esteemed opponent, I could confidently conclude my remarks. However, that would be a job only half done, and as a result, fruitless.”

Only when everything has been decided, when the price that has emerged as the result of the interplay of utility valuations as a ready-made price that is already “known,” do people again dredge up cost valuation, which was carefully put aside earlier, and in connection with which, in some measure, they now can no longer be taken at their word, and allow it to “finally triumph.” “A number of buyers appear on the market with the desire for a definite exchangeable good. Each has a subjective utility valuation of the good that differs from that of all other buyers. This utility valuation is the direct valuation. However, as soon the price at which the good is for sale, its objective cost value, is known, cost valuation finally triumphs.”

“Caprices,” therefore, cannot be eliminated from our valuations; nor from “exact” cost valuations. The difference is only this: Where we directly value according to marginal utility, we base our valuation on our own “caprices.” Where we value “exactly,” according to costs, we base it on other people’s caprices; on the result of the caprices of those hundereds, thousands, or millions of buyers whose demand fixes a definite cost figure as the “highest necessary.” It is immediately to be admitted that such a result of caprices is much more stable than the individual caprice.

We can ask any _real life_ entrepreneur for his position on the matter. Avoiding that insight does not make us Austrians “all-around subjectivists” but in fact divorces theory from entrepreneurial practice (a.k.a. reality, and markets), which is absurd. That is too high a price to pay just to stubbornly and unnecessarily avoid all contact with the British Classics and/or …Marx. The former had a lot of valuable things to say, and reading “Capitalism” by Reisman is a must if one is to have a better perspective of their contributions, specially on the “Macro” front.

Finally, prof. Böhm-Bawerk asks himself and responds brilliantly:

Which Is “More Ultimate,” Costs or Marginal Utility?

Namely, the height of marginal utility is in no way an ultimate, causeless fact, but, as we marginal-value theorists point out, is determined by means of the prevailing relationship of demand and supply. And the size of the supply is in turn, as the marginal-value theorists likewise point out with all requisite definiteness and emphasis, in very large part determined by the state of the conditions of production, by the difficulty of attainment, or, as one is accustomed to say in brief, by the costs of production. Consequently—so it seems—since they do indeed help to determine marginal utility itself, costs are a more primary or more ultimate basis of value than marginal utility, which is influenced by them.

In sum, we need not throw away the baby with the bathwater. Prof. Böhm-Bawerk cost-price doctrine needs to be rescued and put back on the central place it deserves.

Humans have discovered the ethics of liberty over and over again throughout history. Of course, an ethical system for rational animals has to take account of the dynamic aspects of conflict, and not just zero sum scenarios. All other species in the world are not characterized after a vigorous a) capability and b) need, for owning and creating property. Men profit from a more advanced division of labor, whereas the animals and plants suffer when they compete for scare resources, since they cannot create more or just conceive of any alternatives for large numbers. The need for property is now evident. But how are we to validate the justice behind property and -of course- its allocation?
The best answer available to us (yet) is Hoppe’s development of Habermas-Apel’s concept of discourse or communicative ethics. Those German thinkers have written about it to justify democracy and even dialog for the sake of dialog. Hoppe, a student of Habermas and a scholar on both, took the concept one step beyond. Thus, we can properly speak of Hoppe’s Argumentation Ethics.

Prof. Hoppe studied and applied the epistemological breakthrough that Ludwig von Mises provided as an answer to Kant’s dilemma: how are categories of the mind supposed to fit reality. Is it that humans create reality or at least that there is no reality but our mind makes sense (arbitrarily) of a senseless cosmos? Is it that reality created the human mind, and because of that human mind can understand reality around him?

The last position fits perfectly with what Neurobiology teaches us about the human brain. Our brain is not, by any means, a tabula rasa. We are born with a brain (mind) that is the result of millions of years of evolution, and even if free will is a fact (which it is), we still have analogical processes that allow us to understand concepts which are key to our survival.

One of those concepts is the concept of property. Intuitively or rationally, men have always known that property homesteaded (by mixing labor with a resource) or created, belongs to the actor. But a contract to homestead a forest implies understanding more than meets the eye: the capitalist is the homesteader, and the employees just play a limited role and accept to receive a reward for it from his capital fund. That someone now owns the forest after some labor exerted over it, may be intuitive to some point. What cannot be is the fact that the capitalist existed, since he hired them over the phone and was not present to the eye of the natives in the zone. Those subtle categories of action (contract, fraud, wages) and the fact of -inevitably- limited information in an individual brain (no human being is omniscient, although I couldn’t know, since I am not and so I have to deal with categories and generalizations). Those categories require reflection upon the meaning of human action, and in this case, human relations. The capitalist-wage earner relation is not self-evident, as we see. But neither is property. From the simplest to the most advanced form of property (say, company stocks or insurance policies), the human mind has to reflect upon basic categories of action in order to establish the proper relation between owner and property.

What about the human body? Nature (before us, that is) never had to deal with organ donation or robbery. Donation implies contract through the will of the parts. Robbery implies just the opposite. In order to distinguish both to a degree that will satisfy the victim or a judge, proper ownership of body parts has to be established.

But it is action what creates property around us. Isn’t action capable of determining property of ourselves too? A right to self-determination embodied (yes, literally) on self-ownership?

Argumentation as action: the act of engaging in an argument is certainly revealing of some facts. First of all, we are willingly interacting in a peaceful way with the interlocutor. Argument, after all, is not any form of talking: it implies at least two people engaging voluntarily and freely in it. A speech to the slaves in a galley may not be an argument although it certainly is communication, of course. But if we talk about ethics, we are talking about principles equally valid (the universalizability of rights is a vital part of its definition, as a table has to hold things from falling to the ground in order to be a table) for all humans in the same situation.

Second, then, some ethical principles are revealed in the course of argumentation. One of them is contract, of course (and this is not tautological by any means, just keep in mind the galley example). But contract requires property. So denying self-ownership to the parts, would be denying the whole argumentation possibility. And yet, the one denying it would be engaging in some sort of argument if he was free to do it or not from the start. So in this case, we have a clear case of proof by contradiction of the opposite.

Human beings have a right to own themselves, as the act of argumentation clearly shows: nobody else can have command of their own bodies.

In sum, Hans-Hermann Hoppe has discovered and developed a system of rights that is grounded on the fact that humans act, that humans have a mind that is analogical to its circundating reality and that does not require an “is-ought” duality in order to show us the proper ethical system for rational animals. We are the rightful owners of our bodies and of property we create through the use of our minds, ourselves or through contract. If slaves in a galley can dream of freedom in the near future, so can citizens of an statist world. Argumentation Ethics provides us with a template based on facts of how to untangle, understand and finally free a world ridden with contradition and denial of justice.

What could these two thinkers, considered to be opposites, have in common? It turns out that Karl Marx inherits from Adam Smith a very basic error, one which has monumental consequences and has changed the world forever.

Adam Smith tells us in his famous treatise on the wealth of nations that in primitive conditions or small towns, those who would go to the market to sell their produce, cattle or manufacturing obtained salaries (wages) from their neighbors in the process. Salaries? Grave error. What is obtained by someone who moves from agricultural self-sufficiency to the market is not a salary but rather a gain or a loss. Gains and losses are obtained by entrepreneurs. By definition, then, this could be a farmer or any independent professional in a city.

A salary does not make an appearance until the role of the capitalist also appears. The capitalist is the person which takes previously produced resources and risks them. He is the one who buys or pays for a good or service to later sell something that is greater than the sum of the parts. And this can only be determined if the product is sold: this is the only signal, a signal that is lacking in totalitarian countries, that society is creating aggregate value. Smith errs greatly when he calls salaries that which entrepreneurs obtain when they trade in the city plaza. It is not until one person hires another, at a fixed, regular rate, that a salary exists. We can call this the pact of capitalism because it implies that the employee is now part of the capitalist’s entrepreneurial risk. In exchange, the employee receives a fixed income (daily, monthly, etc.), a salary.

Salaried employees have no possibility of gains, but –most importantly– are free from losses. Indeed, they have a better chance of receiving income than the capitalist. The farmer, for example, must pay the salaries of his workers even if there has been a frost the day before harvest. He cannot burden them with a loss. Nor can he, to be fair, share with them the gains. A pharmaceutical company will sell its products four or five years after the initial idea of creating a new product. In the meantime, it will have to pay salaries to hundreds, even thousands, of people. That the salary is payed now is not contingent on future sales.

Thus, the problem, brilliantly taught to us by Prof. George Reisman, is that the error shared by Smith and Marx permitted the idea that to obtain gains –the famous exploitative “surplus”– capitalists had to keep a bit of each employee’s salary. In reality, value is created by whomever imparts vision, risks resources and recognizes opportunities, all while creating regular income to others in the process. Capitalism creates a worldwide middle class. Before capitalists, everyone had to fully assume all of the risk of a given activity. Now, however, we can delegate risk to those who are more ambitious and capable in the entrepreneurial game and at the end of the month, we all receive a paycheck. This is infinitely more productive and effective and, ultimately, eliminates poverty.