Political Economy

Document Sample
Political Economy Powered By Docstoc
					Political Economy
 Economic Liberty and
    Political Liberty
   Are Inseparable
 Free People, Free Markets
    The Vanguard School
    Colorado Springs, CO
        July 14, 2009

    Paul T. Prentice, Ph.D.
Left                                  Right
Socialism                                Capitalism

Collective                                Individual

We                                              Me

Us                                                  I

Ours                                          Mine

"What is common to many is least taken care
  of, for all men have greater regard for what is
  their own than for what they possess in common
  with others." - Aristotle
Left                                  Right
Group rights             Individual rights

Public property         Private property

Equal outcomes         Equal opportunity

G’vt gives rights     G’vt secures rights
Left                                  Right
The individual          The government
exists to serve           exists to serve
the government             the individual

Their right to               Your right to
your property               your property
Left                                  Right
Individual must          Government must
be limited                     be limited

The people used to rule the government
  (right); now it rules us (left).

America is split about 50-50 between these
 polar opposite philosophies. It is not a
 sustainable society.
        Economic Principles
(1) Human Action – Ludwig Von Mises
 In any given situation, people take
  purposeful action to maximize their
  values (“utility” in econ-speak).
 Values are subjective and
  individualistic (mine are not
  necessarily yours, and vice-versa).
 Values are situational (subject to
  change, dependent on
  time, space, and circumstance).
     (1) Human Action (cont’)
 In a given situation, people rank-order
  their values from highest to lowest.
 Subject to their resource
  constraint, people maximize their values
  at the margin (MB>MC).
 Each choice implies a different choice not
  made (trade-off)
 The cost of Choice A is the foregone
  benefit of Choice B (opportunity cost).
 (2) People Respond To Incentives

 “Price” is an incentive.
 A high price is an incentive for consumers
  to purchase less.
 But a high price is an incentive for
  producers to supply more.
 A low price is an incentive for consumers
  to purchase more.
 But a low price is an incentive for
  producers to supply less.
(3) Law Of Supply And Demand
 Free markets solve this apparent
  contradiction through supply and demand.
 If the price is too high to clear the
  market, there is a surplus. Producers will
  lower price until consumer demand equals
  producer supply.
 If the price is too low to clear the
  market, there is a shortage. Producers will
  raise the price until consumer demand
  equals producer supply.
 Prices are relative: $3/gal. milk only has
  meaning in the context of $2/gal. gas, or
  in the context of $10/hr. wage.
    (3) Law Of Supply And Demand
         (cont’.): Markets Clear
   Over time, markets clear: there is no sustainable
    tendency to have either surplus or shortage.
   Prices are neither “good” nor “bad”. They are an
    objective reality.
   The “right” price is the market price: the price at
    which the quantity supplied equals the quantity
   Free people exercising their property
    rights, seeking their values in a moral
    framework, achieve the greatest value for the
    greatest number of people (A. Smith’s “invisible
   The chances that a central planner could
    accurately determine the “right” price and
    quantity are virtually zero.
(4) Standard Of Living Depends On
       The Ability To Produce
 Production must necessarily precede
 Income is earned from production.
 Factor payments exhaust the product
  (Say’s Law: Supply creates its own
 In the aggregate, income equals
 Therefore, to stimulate income you must
  stimulate production (supply-side
(5) Trade Makes People Better Off
 Misean Praxeology: People engage in free
  and voluntary trade because it maximizes
  their values.
 Both parties are better off due to trade
  (the double “thank you”)
 If this were not so, people would not
 Therefore, restricted trade makes people
  worse off.
 Geographic or political boundaries
  between trading partners do not change
  this objective economic reality.
    (6) Gross Domestic Product:
          Bogus Measure
  GDP = C + I + G + NX
 According to this formula, when
  government hires people to dig
  holes, then hires more people to fill them
  it, GDP has increased.
 According to this formula, when
  government hires someone to sit at home
  and produce nothing, GDP has increased.
 “Beware of accountants disguised as
  economists.”- Paul Prentice
(7) Government Has No Money
 Before  government can spend $1
  dollar, it must first:
 Tax it (take economic activity from
  one area and give to another).
 Borrow it (take economic activity
  from the future).
 Print it (devaluing all money).
 Santa Claus; Easter Bunny; Tooth
(8) Prices Rise When Government
     Prints Too Much Money
 Inflation   is not caused by higher
 Higher prices are a symptom, not a
  cause, of inflation.
 “Inflation is too much money chasing
  too few goods.” – Milton Friedman
 Therefore only government is
  responsible for inflation.
         (9) Monetary Theory
 Money is a medium of exchange
  (facilitates trade as the most liquid of all
 Accepted by all for legal payment of
 Money is a unit of account allowing
  people to make economic calculation
  (compare MB to MC of a given action).
 Money is a store of value.
 The Link Between a
Degenerating Currency
 and a Degenerating
  Austrian Scholars Conference 2009
      Ludwig von Mises Institute
              Auburn, AL
            March 14, 2009

       Paul T. Prentice, Ph.D.
            Axiom: Man Acts
 Postulate: Human action involves moral
  choices. Man can act morally (voluntarily)
  or immorally (coercively).
 In a natural state of liberty, government is
  by definition limited to securing man’s
  natural rights to life, liberty, and property.
 Free societies choose moral voluntary
 Immoral coercive behavior is by and large
"The Principle of spending money to be paid
 by posterity, under the name of funding, is
  but swindling futurity on a large scale. –
             Thomas Jefferson
 From America’s founding until WWI, total
  government commandeered 5-10% of the
 This means that 90-95% of human
  economic action was voluntary (moral).
 There was little net accumulation of
  government debt. Deficits in one time
  period were by and large offset by
  surpluses in a later time period.
  The moral basis of American
society started to change in 1913
   The 16th Amendment was the beginning of the
    end of formal property rights (the right to the
    fruit of one’s labor).
   The simultaneous founding of the Federal
    Reserve System was the beginning of the end to
    another right – the right to a hard currency.
   "Sound money was devised as an instrument for
    the protection of civil liberties against despotic
    inroads on the part of governments. Ideologically
    it belongs in the same class with political
    constitutions and bills of rights." - Ludwig von
Theorem: A degenerating
currency contributes to a
  degenerating society.
      With a fractional-reserve fiat
    currency, government no longer
    needed to tax or borrow in order
    to spend. Now it could just print
               and spend.
 The true tax rate is the percentage of
  resources commandeered by government.
 Measured by calculating government
  spending as a percent of total spending.
 Commandeering of resources could now
  be accomplished through the printing
  press. Even Keynes acknowledged this.
   Within one generation of the
  creation of the Fed, the Great
    Depression ensued and the
       Welfare State became
institutionalized -- the New Deal.
   Constitutional restraints were gradually eroded.
   No longer restrained by the necessity to tax
    before it can spend, government is set free to
    engage in unlimited “free lunch” promises.
   These promises have misled a mal-educated body
    public into substituting the philosophy of
    individual responsibility with a philosophy of state
  A cultural-political-economic
      death spiral begins

 Society then demands more free
  lunches, leading to more fiat
  currency, etc.
 The State crowds-out the moral
  behavior of the individual.
  The State becomes both The
    Parent and The Spouse

 Eventually, young women and men
  begin to have children without the
  means to support them.
 Out-of-wedlock births skyrocket.

 The family degenerates.
    Behaviors are disconnected
       from consequences

 The social safety net grows along with the
  government printing presses.
 People are empowered to internalize
  benefits but externalize costs.
 Moral hazard becomes the norm for
A nation birthed in liberty slowly
 transforms into a fascist state.

 Generation after generation becomes
  increasingly corrupted.
 Business is not immune, as can be seen in
  the current financial meltdown and
 Fiat currency allows profit to be privatized
  while losses are socialized.
“The spread of collectivist ideas in
  the business world” – Murray
   Rothbard (America’s Great
       Depression, Ch. 10)
   The “Swope Plan” to compulsively cartelize
    American business. (General Electric).
   Endorsed by the U.S. Chamber of Commerce.
   More and more businessmen become “political
    entrepreneurs” rather than “market
    entrepreneurs”. (Thomas DiLorenzo, How
    Capitalism Saved America)
   Liberty is lost, since political
 liberty cannot be disconnected
      from economic liberty

 “Power over a man’s subsistence is power
  over his will.” – Alexander Hamilton
 "To be controlled in our economic pursuits
  means to be controlled in everything." –
  F.A. Hayek
 “The ultimate sanction of a planned
  economy is the hangman.” – F.A. Hayek
  Even Atheists Can Be Prophets
(Today’s headlines written in 1957)
"When you see that trading is done, not by
  consent, but by compulsion - when you see that
  in order to produce, you need to obtain
  permission from men who produce nothing -
  when you see that money is flowing to those who
  deal, not in goods, but in favors - when you see
  that men get richer by graft and by pull than by
  work, and your laws don't protect you against
  them, but protect them against you - when you
  see corruption being rewarded and honesty
  becoming a self-sacrifice - you may know that
  your society is doomed." - Ayn Rand. Source:
  Atlas Shrugged, Francisco's "Money Speech"
          In God We Trust

 Becomes: In Gov We Trust
 But when it comes to money, it should be:

 In Gold We Trust
Theorem: A degenerating currency
  contributes to a degenerating
   QED

   "Paper (money) is a mortgage on wealth that
    does not exist, backed by a gun aimed at those
    who are expected to produce it. Paper is a check
    drawn by legal looters upon an account that is
    not theirs: upon the virtue of the victims. Watch
    for the day when it bounces, marked, "Account
    Overdrawn." - Ayn Rand
              Are we still free?
   "The American people will never knowingly adopt
    Socialism. But under the name of 'liberalism' they
    will adopt every fragment of the Socialist
    program, until one day America will be a Socialist
    nation, without knowing how it happened." --
    Norman Thomas. Six-time U.S. Presidential
    candidate for the Socialist Party of America

   Norman Thomas and Gus Hall, the U.S.
    Communist Party Candidate, both quit American
    politics, agreeing that the Republican and
    Democratic parties by 1970 had adopted every
    plank of the Socialist Party and they no longer
    had an alternate party platform on which to run.
    The Most Important Economic Price
   "The wavelike movement affecting the economic
    system, the recurrence of periods of boom which
    are followed by periods of depression, is the
    unavoidable outcome of the attempts, repeated
    again and again, to lower the gross market rate
    of interest by means of credit expansion. There is
    no means of avoiding the final collapse of a boom
    brought about by credit expansion. The
    alternative is only whether the crisis should come
    sooner as the result of a voluntary abandonment
    of further credit expansion, or later as a final and
    total catastrophe of the currency system
    involved." -- Ludwig von Mises
      Final Thought --
     Friedrich Nietzsche
"The state is the coldest of all
 cold monsters. Coldly it
 lies, too; and this lie creeps
 from its mouth: `I, the
 state, am the people.'...
 Everything about it is false; it
 bites with stolen teeth. "