David Graeber and Robert Murphy have been debating the validity of the monetary regression theory.  They seem to be talking past one another.  Graeber is assuming that Austrian theory agrees with neo-classical theory in areas where it does not, and Murphy is assuming that Graeber is substantially more familiar with Austrian ideas than he seems to be.  To clear up the confusion, we need to take a step back and start at the beginning.

Like all theoretical sciences, economics is concerned with the identification of invariants.  Austrian theory and the more mainstream neo-classical theory agree on this much, but strongly disagree on methodology.

Standard treatments of economics begin by attempting to model human decision making and then apply techniques inherited from classical mechanics to aggregate these individual decision functions into economic relationships.  As Graeber is no doubt aware, the conventional approach relies on the Von Neumann-Morgenstern utility theorem and its normative description of rational behavior.  (More recent approaches use cumulative prospect theory, but the differences need not concern us here.)

Austrians have long contended that this approach is untenable and unscientific.  First, any non-trivial economy is too highly dimensional and too non-linear to be analytically tractable.  Conventional economic theories rely on various idealizing simplifications.  Austrians contend that these idealizations render the results meaningless.  At a minimum, they assume away the very questions economics ought to focus on answering.  More importantly, the analogous physical theories rely on the studied system being linear time-invariant.  (Thus a physicist can model motion in the absence of friction because his answer will merely need a simple correction).  Real economies do not have this property; consequently, the standard idealizations do not produce approximately correct claims, they produce nonsense.

Second, Austrians do not think that economic theories should depend on decision theory.  Because no tractable theory of decision making can capture all the nuances of actual human beings, the “laws” identified by standard economics are not true invariants, they depend on an underlying decision theory that is known to be false.  And, again, because of the inherent complexity and non-linearities involved, we cannot even claim that these “laws” should be approximately correct, as far as we know, they can be arbitrarily wrong.

In the Austrian account, the economy cannot be explained by a series of differential equations modeling the impact of perfectly rational human decisions.  The economy is a complex adaptive system that emerges from the interactions of real human beings.  Barring the development of substantially better mathematical tools, we simply cannot make the kind of quantitatively precise statements made by other schools of thought.  At best we can make qualitative statements about the necessary properties of economic systems.

Thus far, Austrians seem to agree with Graeber:

[Conventional economics assumes] that human beings are rational, calculating exchangers seeking material advantage, and that therefore it is possible to construct a scientific field that studies such behavior. The problem is that the real world seems to contradict this assumption at every turn.

Austrians confront this problem head-on.  Human action is taken as a given; whatever the nature of the underlying decision process, Austrian claims will remain valid.  Instead of making a series of ludicrous idealizations, Austrians develop their theory by a series of thought experiments or, as Ludwig von Mises calls them, imaginary constructions.  Via these thought experiments, Austrians attempt to prove that certain properties of economic systems are logically necessary and thereby identify the invariants of economics.

Graeber believes that he has anthropological evidence disputing the conclusions of Austrian economics.  He is wrong on several counts.  First, he incorrectly assumes that economics does not account for the situations that have been observed.  Second, he relies on observations from economically primitive societies to refute claims only applicable to more developed economies.  Third, he assumes that by showing that a thought experiment is contrived, he has disproved the conclusions drawn from it.

For example, Graeber presents multiple examples of trade as it actually takes place in primitive societies and argues that these examples contradict the predictions of economic theory.  In fact, these examples are well known and explicitly accounted for:

Ethnology and history have provided us with interesting information concerning the beginning and the primitive patterns of interpersonal exchange. Some consider the custom of mutual giving and returning of presents and stipulating a certain return present in advance as a precursory pattern of interpersonal exchange. […]  However, to make presents in the expectation of being rewarded by the receiver’s return present or in order to acquire the favor of a man whose animosity could be disastrous, is already tantamount to interpersonal exchange.

Thus, far from falsifying the claims of economics, Graeber’s examples are actually cases of the very bartering that he wishes to prove did not take place.  (Economically, “barter” applies to all interpersonal exchanges that do not involve money; exactly what form the barter transactions take is an empirical question and beyond the reach of economic theory.)

Moreover, Graeber seems to believe that the Austrian account of money rules out the possibility of credit-bartering.  It does not.  The use of spot transactions to illustrate the nature of pre-monetary price formation is merely a descriptive convenience.  The arguments have nothing to say about credit because it is irrelevant to the thought experiment.  All that is required is that the transactions be “direct” exchanges (as opposed to “indirect,” i.e., monetary, exchanges):

The elementary theory of value and prices employs, apart from other imaginary constructions to be dealt with later, the construction of a market in which all transactions are performed in direct exchange.

Importantly, this construct is 1) imaginary and 2) very general.  A transaction in the economic sense is much broader than formal haggling between merchants; mutual gifting and other such examples are deliberately included.  This imaginary construction is made in full and complete awareness of the fact that true economic calculation requires money; “money prices are the only vehicle of economic calculation.”  In the Austrian account, money’s role as the enabler of economic calculation is paramount.

Turning to the theory of money in particular, economics does not claim that money is a universal phenomena.  Rather,

money presupposes an economic order in which production is based on division of labor and in which private property consists not only in goods of the first order (consumption goods), but also in goods of higher orders (production goods).

Thus economics actually predicts, in complete agreement with Graeber’s evidence, that his primitive tribes will not need or develop money.  Rather, the need for economic calculation, and thus money, will arise in situations like those he describes as existing in ancient Mesopotamia.  A band of a dozen or so people does not need money to make reasonable decisions between alternatives, but a massive temple complex with “thousands of people engaged in agriculture, industry, fishing, and herding” needs to measure inputs and outputs — it needs money.  The question is how money developed.

Once we have money, it is easy to see that it is valued because it can be used in exchange.  But if money is valuable today because it can be exchanged for things people want, this seems to lead to an infinite regress.  At some point there was no money, so how did we go from having no money to having a money that is valued almost exclusively because it can be used in exchange?

The Austrian explanation is that goods in a pre-monetary economy are not all equally marketable. “While there is only a limited and occasional demand for certain goods, that for others is more general and constant.”  People can either exchange directly (barter) or they can exchange indirectly (by trading what they have for something more marketable with the intention of using the more marketable good to acquire what they want).  Thus, even if a person doesn’t need something specific right now, he will be willing to trade his less marketable goods for goods that are more marketable because this will put him in a better position to get what he wants in the future.  This process creates a positive feedback loop — as more people trade less marketable goods for more marketable ones, the value of the more marketable ones is increasingly determined by the marketability itself instead of its original use-value.

In this way an economy sufficiently complex to need money can develop it.  The money will be a good that had preexisting exchange ratios with other economic goods (so that people can trade for it) and it will be a good that was initially relatively more marketable than the others (so that people will want to trade for it).

Graeber’s account of Mesopotamia supports these conclusions.  The economy was sufficiently complex to need money.  Silver had preexisting exchange ratios in the form of cultural understandings and credit arrangements.  It was highly marketable because of the demand by temple complexes and thus it emerged as money (and, hence, the unit of account).

In fact, it would seem that this logic is stronger in an economy dominated by credit transactions instead of spot ones.   Because the future is uncertain, lenders do not know for sure what they’ll need at the time of repayment.  Conversely, the borrower doesn’t know exactly what he’ll have in the future. Consequently, both of them are motivated to demand that repayment be in the form of a highly marketable commodity.  (Indeed, the collection rules for the Judean legal system are based on marketability.)

Thus, despite his claims to the contrary, Graeber has not disproved economics.

Had they charged her with the appropriate crime (negligent homicide), they probably would have won the case.  But apparently sending her to jail for many years wasn’t enough; they wanted her dead.  So, they went for murder despite having no proof of premeditation.  The judge should have dismissed the murder charge after the prosecution rested; that he didn’t is a travesty in itself.

There is absolutely no evidence for murder in this case, and anyone who thinks you should convict someone of a crime they didn’t commit because the state failed to charge them with a crime that they did doesn’t deserve to call themselves a libertarian.

Voters in Madison, Wisconsin recently approved a measure asserting that corporations do not have constitutional rights.

The measure correctly asserts that only individuals have rights.  But then it proceeds to state that corporations do not.  This is collectivism at its finest.  A corporation doesn’t act.  People act.  Although the “corporation” doesn’t have rights as an entity, each and every owner of the corporation does.  The owners exercise those rights by having agents (the management) act on their behalf.  When we speak of a corporation acting, this is merely an abstraction from the individuals involved.  As Stephan Kinsella has explained, corporations are nothing more than a series of contracts enabling a large number of people to work together toward common goals.

This resolution, though purporting to support individual rights, is in reality opposed to such rights because it claims that these rights somehow disappear when the individuals who have them choose to use them in a coordinated manner.

This confusion is sadly typical on the left.  For example, it is often said that there is some “right” to hold a protest rally because of “free speech”.  In reality, the organizers have no such right; the rights that let them hold the rally are the individual rights of all the participants to walk down the street, or go to a park, or otherwise use a public place without being harassed.  If thugs break up the protest, the thugs haven’t violated the rights of “protesters”, they have violated the individual rights of each person they harassed by assaulting, battering, and falsely imprisoning them.

The principles involved here are not unique to libertarianism; they are very fundamental legal principles.  Indeed, A.V. Dicey actually discusses this very point at length in his Law of the Constitution.  One of his many outstanding examples will suffice to illustrate the point:

Suppose group X is planning on holding a rally in a public park.  Group Y is opposed to group X and intends to use violence to stop them.  The residents near the park want to avoid a riot and thus all go stand in the park before the members of group X get there, thus blocking the members of group X from holding their rally.  If the protesters had some right, they could defend it with force and attack the residents, but since using force to remove someone from a place where they have right to be is unlawful, it cannot be that the law provides special protection to “protesters”.  Rather, the law protects the individual rights of every single person involved in the protest by making it unlawful to forcibly remove them.

Apparently, 21st century Americans have regressed to the point that even understanding “introductory” concepts about rights presents great difficulty.

A friend sent me Bob Murphy’s recent wall post:

Robert Murphy was flipping through the TV in the hotel room. On the History channel they were celebrating a sniper who apparently just broke the record for the longest kill shot. (He hit a Taliban guy from over a mile away.) They were interviewing him like he just won a hot dog eating contest. Regardless of your views on foreign policy, that is just sick.

My $.02:  Despite the paleo praise of “the white man” and his culture, the fact is that “white people” have been, are, and seem determined to be nothing but a bunch of self-aggrandizing barbarians. The military culture is the cause, not the effect here.  We are talking about a group of people that, for most of their history, saw nothing wrong with killing each other for sport.  This is just the latest incarnation of that “glorious” cultural tradition.

Here in America it has been difficult to get good reports about everything that is happening in Egypt. Every reporter has some agenda; they are more interested in making you fit their story, than making the story fit you. Still, even with the limited information available, I can see that what you managed to do is impressive.

Organizing non-violent protests to stand up to a brutal dictator takes courage. Bringing down a government supported by a super-power takes dedication. That you managed to do this without waging a war makes your success all the more admirable. You have given hope to the oppressed and energized the defenders of liberty in every nation. We are all inspired by your example: in the midst of the chaos, Muslims and Christians took turns protecting one another’s religious worship; in the absence of police, private citizens organized security to protect lives and property; when confronted by armed thugs, you held your ground in defense of liberty. For all that you have done, and for all that I hope you will achieve, I salute your bravery, integrity, and honor.

As you may know, many in the west are not as inspired or as hopeful. As Lew Rockwell highlighted, many hypocrites have questioned whether your commitment to liberty is sincere. Among those who believe in your desire for liberty, some doubt your willingness and ability to obtain it.

To those who say that Egypt has no national history, no culture of liberty, I can but laugh. Rule of law, the very cornerstone of liberty, what has been called the “distinctive characteristic of the English constitution,” is not a doctrine of European origin. This idea came to Europe when the Normans learned it from the Islamic rulers of Sicily. The common law of England, long celebrated for its protection of property and commerce, did not create these ideas anew. The crusaders left Europe a barbarian horde, they returned as civilized men. They had seen a wealthier, freer society first hand and would no longer tolerate the poverty and squalor of Europe. The legal institutions they learned paved the way for the commercial revolution that pulled Europe out of the dark ages and led to the flowering of western civilization.

Commentators who say that Egypt has no identity, no answers to its problems, reject history. Civilization was absent from Europe for centuries, and yet, civilization did return. Liberty has triumphed before and it can do so again.

Still, there is some truth to the skepticism. Most revolutions fail. The ink on the Treaty of Paris was not yet dry when many Americans set out to recreate a national government with more potential for abuse than the government they had just fought to escape. The storming of the Bastille gave way to the Reign of Terror. The Russian Revolution was widely supported by Russian Jews, but the government that emerged was hostile to Judaism beyond anything they had imagined. The American civil rights movement ended Jim Crow on paper, but white flight kept many schools just as segregated. Despite all that was accomplished, much was not. Blacks in America are disproportionately oppressed and victimized by the police. The government has adopted policies to systemically destroy their communities and trap the majority of their people in poverty.

Judging by the historic record, your odds of success are not good. Still, you are no worse off than anyone else who has tried to free themselves. In many ways you are better equipped than most. As I’m sure you are well aware, Egypt is suffering from an economic apartheid. Efforts to reform your economy were blocked in 2004. Perhaps now the reform will move forward. The constitutional amendments you are demanding are a start, but as you must know, unless you follow the lessons of England’s Glorious Revolution and systematically dismantle the institutions that abused and oppressed you, your new found freedom will not last.

The road ahead will be long and hard, and your failure would cause hope to give way to despair. What can we do to help? Please, have someone (or several someones) get in contact with the libertarian movement. At a minimum we can help you speak to America in your own words. In all likelihood, what we’ve learned in our struggle to preserve and restore liberty here can help restore liberty in your country. Let’s share what we’ve learned and see if there are other ways we can cooperate.

I wish you great success and look forward to hearing from you.

Bruce Schneier talks sensibly about how US politicians and others are over-reacting to “the terrorists.”  Countries with real terrorism problems haven’t had to adopt absurd “security measures” that trample civil rights.  Americans need to get a grip.

Understanding basic economics is crucial for all libertarians.  No other field offers as clear and irrefutable a case for liberty.  Indeed, statism draws much of its support from the public’s flawed understanding of economics.  Even libertarians are occasionally led astray by flawed economic reasoning.  A friend recently brought a book designed to combat such flaws to my attention:  Geoffrey E. Wood’s Fifty Economic Fallacies Exposed.

I haven’t read the entire book yet, but many people would benefit from the parts that I have.  In many ways, the book reminds me of George Reisman’s Government Against the Economy — a work that F.A. Hayek considered essential reading because he knew “no other place where the crucial issues [were] explained as clearly and convincingly.”

Short books like Fifty Economic Fallacies are great starting points for those who want to learn economics and are often outstanding educational outreach tools.  This book makes a solid addition to our growing arsenal.  With this book, Wood joins a long line economic popularizers from Bastiat to Hazlitt and beyond.

P.S. I strongly encourage readers interested gaining in more comprehensive economic understanding to consult Reisman’s Capitalism.

Her Majesty’s Revenue and Customs, stressing “the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid”, has proposed to modernize the UK’s income tax system.  Once employers provide payroll information in real-time, “it further proposes that employers hand over employee salaries to the government first.”

I’m sure that subjects of the Crown have nothing to fear.  The state can be trusted to process their paychecks promptly, correctly, and efficiently.  Only a crank would object to this modernization plan.  After all, everyone fondly remembers the Star Chamber that evolved out of a similar medieval program for keeping tabs on the Jews.  Since it worked out so well last time, how could anyone expect things to go wrong now?

Someone sent me a link to this paper yesterday.

Prof. Harris argues that skilled traders, who consistently profit, do so by taking money from people who trade for extrinsic reasons, to hedge risks, increase their savings, or simply to gamble for entertainment.  He then points out an interesting implication:

If gamblers do indeed contribute to market quality in the long run by subsidizing information acquisition, an intriguing argument can be made about public lotteries.  Lotteries would appear to compete with financial markets for gamblers willing to lose money. Lottery gamblers subsidize the state through their voluntary participation in a negative-sum game. Financial market gamblers subsidize productive information acquisition.  Perhaps prices, and ultimately economic production, would be more efficient if gamblers gambled exclusively in the financial markets.

So there you have it — state lotteries make us worse off by wasting gambling money that would otherwise be productively spent.

Although I find Kenyon’s analysis of the radical socialists interesting, ultimately I disagree with his categorization of libertarianism’s 3 options:

• Libertarians can allow themselves to be absorbed into the Republican Party and work to expand the Liberty caucus.
• Libertarians can abandon the Republican Party to work exclusively through the Libertarian Party.
• Libertarians can jettison electoral politics altogether and refuse to be governed by majoritarianism and statism.

The first one will happen to the Tea Party movement. The second one is not workable, as the author admits.  Nothing can be done about either.  As for the truly radical approach, we are not violent revolutionaries and are never going to be.

What’s missing from that article is something fundamental — people get the government they deserve.  We need to make this country deserve better.  If a choir chants “we” in chorus, it is still the individuals speaking.  Unless libertarians actively change individuals, society will not budge.

Whether or not the Tea Party people win or lose a few national elections is, by itself, irrelevant.  Policies that the public doesn’t support won’t go anywhere, and policies they do will.  Political activists, no matter how dedicated, can’t cram unwanted ideologies down the public’s throat.

The Tea Party will probably manage to send a handful of delegates off to DC. Unfortunately, those delegates won’t be able to get much accomplished without the support of significant political machinery. The two national parties are loose coalitions; a few extra butts in DC don’t change much.  To alter the political landscape, you have to change the make-up of the coalition itself.

Which brings us back around to that article.  In truth, we have only one option. Whether or not you believe the political process is the way to get our ideas implemented, outreach is the only way anything is ever going to happen.

To those who want political action:  No matter how much you support the Tea Party and its candidates, politics is, at the end of the day, still about boots on the ground.  Without a concerted effort to bring individuals around to our point of view, all the political activism is for naught.  Until libertarians can consistently swing a close primary or major election, no one will care.  If libertarians aren’t the people politicians need to go to for money, they aren’t going to listen.  If libertarians aren’t the local office holders and party functionaries politicians need help from to make that big national run, they aren’t going to give our faction the time of day.  All the wonders of the internet and modern technology won’t change that – organizations like governments and political parties are designed to be robust. Until you start changing the key pieces, the machine isn’t going to run any differently.

To those who don’t care for politics:  No matter how much you would rather take direct action — you too need to focus on outreach.  No amount of trouble-making or activism will produce change.  Until the public supports your ideology, all of your civil disobedience and propaganda is in vain.

Thus, at the end of the day, outreach is the only course of action. In contrast to the picture presented by Kenyon’s article, there is not and should not be a split between those who want “action” and those who want “politics” — neither “action” nor “politics” will work unless we have already won the battle of ideas.

No matter what your goal, the road is the same — you can’t change the government without first changing the people.  Having our ideas reach critical mass must be the first step in any plan.

Kenyon is right to say that libertarians should be careful not to repeat the mistakes made by past movements, but a strategic split between radicals and compromisers is not one of them — at this point any infighting only weakens the movement. Instead, the mistake we should be worrying about is moving too quickly. Ideas shape revolutions.  If we want a libertarian revolution, we need to promote libertarian ideas.  Nothing short of that will succeed.  If we try to force our ideas upon a country that does not want them and is not ready for them, things will get much worse before they get better.