(Austrian) Economics – The Libertarian Standard http://libertarianstandard.com Property - Prosperity - Peace Wed, 27 Apr 2016 06:16:21 +0000 en-US hourly 1 https://wordpress.org/?v=4.5.3 A new website and group blog of radical Austro-libertarians, shining the light of reason on truth and justice. (Austrian) Economics – The Libertarian Standard clean (Austrian) Economics – The Libertarian Standard thelibertarianstandard@gmail.com thelibertarianstandard@gmail.com ((Austrian) Economics – The Libertarian Standard) CC-BY Property - Prosperity - Peace (Austrian) Economics – The Libertarian Standard http://libertarianstandard.com/wp-content/plugins/powerpress/rss_default.jpg http://libertarianstandard.com/category/austrian-econ/ TV-G 10 economic lessons (that governments would like to hide from you) http://libertarianstandard.com/2015/01/16/10-economic-lessons-that-governments-would-like-to-hide-from-you/ Fri, 16 Jan 2015 07:29:22 +0000 http://libertarianstandard.com/?p=13619 Subtle, JuanFer. Real subtle. :-P10 Lecciones de Economía (que los gobiernos quisieran ocultarle) is the name of my first book (Spanish), available at http://bit.ly/10LeccionesEcon.



Economist in NYT: Abolish corporate income tax http://libertarianstandard.com/2014/01/06/economist-in-nyt-abolish-corporate-income-tax/ Mon, 06 Jan 2014 22:36:10 +0000 http://libertarianstandard.com/?p=12784 From one of the more unlikely corners of the interwebs — the op-ed section of the New York Times — comes a call to abolish the corporate income tax:

The United States may well have the highest effective marginal corporate income tax rate of any developed country. Jack Mintz, a public finance economist and director of the School of Public Policy at the University of Calgary, puts the rate close to 35 percent, which is also the statutory rate. Other economists, using different techniques, calculate the marginal rate to be as low as 23 percent. But both figures are miles above zero.

They are also miles above our 13 percent average corporate income tax rate — the ratio of corporate taxes to total corporate profits. The fact that the marginal tax rate, whether 23 percent, 35 percent or somewhere in between, is so much larger than the average rate suggests that a sizable share of corporate profits and production is ending up overseas and untaxed.

Making, rather than just stating, this case requires constructing a large-scale computer simulation model of the United States economy as it interacts over time with other nations’ economies, and then seeing how the model reacts when you change the American corporate income tax. I’ve developed such a model with three colleagues through the Tax Analysis Center, a nonpartisan research group. Our findings make a very strong, worker-based case for corporate tax reform.

The author, economist Laurence Kotlikoff of Boston University, argues that eliminating the corporate income tax will produce “rapid and dramatic increases in American investment, output and real wages, making the tax cut self-financing to a significant extent.” It’s an idea even President Obama embraced, at least partially — in 2012, he proposed lowering the corporate income tax a few points. Kotlikoff’s plan is considerably more radical, although he also calls for raising personal income tax rates to make up any decrease in revenues, and taxing capital gains at the same rate as income, among other reforms. Elsewhere, Kotlikoff has proposed what he calls a “Common Sense Tax” plan, which assesses a 13% flat tax on payroll and a 25% tax on personal income above $100,000.

Nobody in the mainstream press ever seems to want to propose ideas to make government do a lot less of what it does now, and thereby reduce the need for taxation, period, let alone “reform”. But talking about lowering or eliminating taxes in the Newspaper of Record is still a pretty good step forward.

Ponzi Argumentation: Gary North’s Rhetorical Mania http://libertarianstandard.com/2013/12/04/ponzi-argumentation-gary-norths-rhetorical-mania/ http://libertarianstandard.com/2013/12/04/ponzi-argumentation-gary-norths-rhetorical-mania/#comments Wed, 04 Dec 2013 16:09:25 +0000 http://libertarianstandard.com/?p=12724 Ponzi Argumentation:  Gary North’s Rhetorical Mania

by John Mather

Gary North has responded to my article critiquing his assertion that Bitcoin is the largest private Ponzi scheme in history.  North’s response is instructive as a lesson in rhetorical tactics.  It doesn’t, however, redeem North’s faulty arguments against Bitcoin.

To summarize, North frames my article as a personal attack on him rather than a critique of his Bitcoin arguments.  Then, despite saying he doesn’t know me, he condescendingly calls me a “kid” (untrue), a programmer (untrue), ignorant of the basics of debate (untrue), and a “space cadet” (I will let readers judge).  He also uses the rhetorical device of repeatedly saying I’m digging a hole for myself.  Repetition is an old technique employed by advertisers and politicians.  Repeat a claim over and over in hopes that people will come to believe it’s true.  All this rhetorical arm waving amounts to playground bullying rather than a substantive response to my critique.

A Bit of Progress

To North’s credit, he starts off by making a large concession to my critique.  He drops the Ponzi scheme claim and titles his response, “Digital Tulips: The Bitcoin Mania.” He devotes the introduction to reframing the debate by giving historical context about tulip mania.  He expresses discontent that I’ve held him to the actual definition of a Ponzi scheme, but “to keep Mr. Mather happy,” he agrees to abandon the Ponzi scheme framework.  I doubt North is concerned about humoring me, but I’m delighted he has let go of the Ponzi scheme canard.  This allows the discussion to move past Bitcoin being a scheme based on lies and deceit to a discussion about whether Bitcoin’s price volatility will drive it to what North claims is its value: zero.  We are making progress.

Unfortunately progress halts after this concession, as North unfurls a raft of of rhetorical gambits which serve to distract rather than inform the reader about the substance of the debate.  I will call them out one by one.

A Personal Attack!

North from the outset attempts to frame this debate about Bitcoin as a personal attack on him.  He advertises his article on his home page by writing, “A young man decided to take me apart in full public view.  This affords me an opportunity to have a little fun. . . ”  I issued no personal attacks against North, and I have no need to do so.  North of course has no idea what my age is, but by calling me “a young man” he can set up a “watch the old pro whip a young buck” rhetoric.  North continues the personal attack frame-up in the body of the response: “His article is published on a site run by Jeffrey Tucker.  Mr. Tucker was wise enough to get a stand-in for this hatchet job.”  After characterizing my article as a “hatchet job,” North continues:  “He dismisses me as if I am an economic ignoramus.”  If I thought North an economic ignoramus, I would not have written the critique in the first place.  In fact I explicitly stated, “North is widely recognized as an expert on Austrian economics, and I make no claim to the contrary.”  The issue is that North does not understand Bitcoin, not that he does not understand Austrian economics.  His ignorance about Bitcoin and misapplication of Austrian analysis to Bitcoin are the sources of my criticisms.  His rhetorical maneuvers fail to refute them.

If North can reframe a substantive debate as a personal attack, then he can appear justified in taking a posture which is personal and aggressive.  This is his strategy.  By saying I’m a “stand-in” for a “hatchet job,” he is making a personal attack on me and Mr. Tucker.  The fact is that I submitted this article, unsolicited by anyone, to multiple publishers.  I did not know where it would be published, though Tucker’s role as former editor at the Mises Institute and publisher at Laissez Faire Books seemed like an appropriate choice given this issue is about Bitcoin and Austrian Economics.  North’s discontent that the article was published publicly – “in full public view” – is odd.  When people disagree with North’s public statements, are they obligated to respond only to him personally?

Argument from Age Fallacy

In addition to the personal attack framing, North several times commits the “argument from age” fallacy.  Namely, because he’s older, he is therefore wiser and correct.  For this trick to work, though, he must first frame me as being young.  Hence he refers to me as “a young man” and a “kid” despite saying he’s never heard of me.  I have far more gray hair than not, but that of course has nothing to do with the substance of the debate.  I could be a teenager and be correct, or I could be older than North and wrong in all my arguments.  North goes back repeatedly to the argument from age fallacy, ending his article with “Old timers can see what’s coming.”  Old timers…. So that must settle it then?  It would be equally silly to say old timers didn’t see the car replacing the horse and buggy, or word processors replacing typewriters.  None of this is valid argumentation.

To recap thus far, he’s framed my article as a personal attack by a naïve youth who doesn’t know better.  He pairs the argument from age fallacy with another effective rhetorical device: repetition.  He continually issues “rules” as if to patronizingly share some tips with the young buck who dared challenge him.  Saying over and over that I’m digging a hole for myself is not a valid rebuttal of my arguments.  It’s up to readers to decide who is in a hole.  Constant repetition by North that my arguments are weak, without actually demonstrating that they are weak, is not a refutation.  It’s just a repetition gambit, and it distracts from the truth seeking process.

North’s first patronizing “tip” is to save the “rhetoric of condemnation for your conclusions.”  Mr. North has not followed his own advice.  He’s already framed this debate as a personal attack launched by a kid who has stupidly poked his stick in a hornet’s nest of truth.  Now I must be schooled in a “let the old pro show you how it’s done” way.  It’s clever posturing, and he closes his piece with a cute Youtube of an Alka-Selzer commercial to reinforce it.  It all makes for good entertainment.  The problem is, it’s just rhetorical arm waving.

Fiat Money ≠ Bitcoin

North says the heart of his article is that “fiat money is ‘spoken’ into existence.  It is not money developed over centuries in market transactions.”  He then equates Bitcoin to fiat money, calling it “wanna-be fiat money digits” that were “spoken into existence.”

This is blurry language that results in blurry thinking.  Fiat money’s key distinguishing characteristic is that it is mandated for use by fiat.  By state decree it must be accepted as money.  Bitcoin is not issued by fiat, and it is not used by fiat.  North seems bent on ignoring this distinction, but it doesn’t change the reality that people are using Bitcoin by choice and as an alternative to fiat money.  Further, some fiat money in the past has been commodity backed and fully redeemable (alas no more), not “spoken into existence.”  The fact that fiat money in the digital age can be instantly created at zero cost in any quantity (witness Japan’s quadrillion yen public debt) contrasts starkly with Bitcoin, which cannot be created instantly, is mined at the cost of enormous computing power, and is limited in total supply to 21 million bitcoins.

The fact that Bitcoin hasn’t “developed over centuries in market transactions” is simply not the crux of what determines whether or not it is a currency.  People’s demand to use it as a currency is the crux of whether or not it’s a currency.  It’s bizarre that North readily says that the US dollar is money, as if the fact that it used to have a commodity backing is the reason it is valued now.  Most people today don’t know any monetary history at all, and they give no thought whatsoever about whether dollars (or any other fiat money) is commodity backed or not.  North raises no objections to the other fiat currencies I mentioned as being money either, some of which have short histories and no commodity roots.   How about the Euro, a total fiat creation hatched in 1999 with no history whatsoever of commodity backing?

“Out of Nothing”

North does not refute my point that Bitcoin is not made “out of nothing.”  Instead he makes a pun about “specie” backing to avoid the fact that he’s made a specious argument.  North wants to play word games by simultaneously defending fiat currencies as money while saying that any private alternative cannot serve as currency unless it has had centuries of market transactions.  It’s simply not true, and North has not demonstrated otherwise.  But to confuse matters more, he says, “I reject fiat currencies that are not the product of long years of use in the free market.”  So he rejects them how?  By refusing to use Euros in Europe?  He wouldn’t get very far, but he at least could survive over there by using Bitcoin.

He continues to dodge the “out of nothing” argument by repeating that “Bitcoins were created out of nothing to perform a service.”  At some point I hope he will recognize that the utility he derives from his website and his ability to write his articles and earn a living from his subscribers are all a function of software, none of which is made out of nothing, and all of which perform a service.  Further, his computer’s processing power and the electricity it consumes is not “nothing” any more than the processing power and electricity that is used to mine bitcoins is nothing.

Fiat Currencies:  Stable and Easily Used?

North makes the surprising claim that fiat currencies are stable:  “My point is this: the volatility of Bitcoins’ price is an indication of why they will not replace central bank fiat currencies, which are easily used in trade, and which are — so far — stable in purchasing power.”  North categorically ignores the numerous fiat currencies around the world which have imploded in his lifetime.  Countless people have been financially wiped out by assuming the mindset of fiat stability.  Here is a long list of examples.

Despite North’s US-centric frame of reference, he still ignores the 96+% devaluation my grandmother has suffered, and the 50+% devaluation since the 1980s.  And we’re only a few years into the age of quantitative easing, so we can reasonably expect things to get much worse.  Bitcoin has been more volatile than US dollars, as I’ve noted, but it doesn’t mean that fiat currencies are stable.  It also doesn’t mean Bitcoin has to be more stable than the US dollar to serve as a currency.

North is also not giving a fair account about ease of use in trade compared to Bitcoin.  I bank internationally, and it is very difficult to do so.  Americans are barred from opening bank accounts in several countries due to FATCA and other reasons beyond the scope of this discussion.  And even when Americans find an international bank who will do business with them, it can take months to open an account.  Then once an account is open, you are charged fees for transferring money to the new account, and then fees again for exchanging your money to the local currency.  With Bitcoin, this is all completely avoided.  I can do business directly with any individual at any time, instantly.  Furthermore, if you walk into a bank and ask for, say, $10,000 out of your account, there’s a good chance you will be denied, questioned as to why you want the funds, and have a suspicious activity report filed.  This is not what I would characterize as “easily used in trade” when compared with Bitcoin.

False Dilemma:  Bitcoin or US Dollar

North continues, “The market has determined that the dollar is money. It has not determined that Bitcoins are money.”  Governments determine what is money by fiat, and the dollar is no exception.  There are a mountain of different fiat currencies in small geographic regions with transaction volumes that are a minute fraction of the US dollar.  I refer readers to this up-to-date list of 182 fiat currencies.

Yet North wants to make it seem like the choice is between the US dollar or Bitcoin, period.  North ignores the fact that Bitcoin is international, and its use is not by fiat.  Bitcoin may be in the same realm of the transaction volume of some of the small countries on that list of 182 currencies.  As time goes on, it’s possible Bitcoin will achieve a transaction volume that exceeds several countries on that list.  I don’t know, and neither does North.  It’s a false dilemma to say Bitcoin can’t be a currency unless it’s more used than the US dollar.  North does it anyway:  “Which is money: dollars or Bitcoins? The answer is obvious: dollars.”

Rule: Value is Subjective

North then goes on to issue a “rule” to me – another rhetorical device which is an argument from authority fallacy – I’m an expert, therefore I’m correct – which has nothing to do with the issue at hand.  He wrote in his original article, “Something that was valuable for its own sake, most likely gold or silver….”  This statement implies gold and silver have intrinsic value, but he takes offense that I call him on it.  He may have written a dozen books in the past on the subjective theory of value, but that is irrelevant to what he wrote in his article.  It would have been constructive to simply say his choice of words is not what he meant and move on.  Yet he says my criticism of him saying gold and silver are valuable for their own sake is an “attack on him” and “rhetoric” with “no supporting logic.”  Here is another of North’s diversionary tricks: when you can’t refute an argument, dismiss the argument as rhetoric.

Network Effect: Programmer Jargon?

North seems to enjoy making assumptions about me.  He appears to believe I’ve invented the term “network effect,” and that I am using it as a programmer.  Neither is true.  Network effect is a term used in economics.  I refer North to the externality Wikipedia entry in which network effects are discussed.  The entry also mentions Mises and Hayek, so I can assure North that no programming knowledge is necessary to understand it, despite him characterizing a network effect good as “programmers’ professional jargon.”  I also refer North again to the network effect entry which begins,  “In economics and business, a network effect (also called network externality or demand-side economies of scale) is the effect that one user of a good or service has on the value of that product to other people.”

In my distinction about network effect goods (and how money is one of them), he says I’m “beating a dead horse” with no actual refutation.  I will take that as agreement.  I do commit the error of making a typo on Carl Menger’s first name, to which North says I’m confused, despite the fact that I hyperlinked the name to the correct Carl Menger.  My apologies for the typo.

Back to Ponzi-ville

Though North at first seemed content to drop the Ponzi scheme claim, he returns to it by saying that he never claimed Bitcoin was a fraud (“I said it was not a fraud”), despite calling it the largest private Ponzi scheme in history and saying the creator(s) of it have been “siphoning off” money.  He does not address my actual point, and instead pulls out the “rule” rhetoric again:  “I see. We should buy Bitcoins as money because Bitcoins’ creators imitated the State.”  He continues to refuse to acknowledge the fundamental divide between fiat money which can be created instantly in any quantity and is foisted on the public by force, versus Bitcoin which is used voluntarily, has a hard limit on its quantity, and cannot be instantly created with a keystroke.  The fact that I point this out in my original article he, amusingly, cites as proof that I’m using his argument against him.  Of course if he had drawn these distinctions between Bitcoin and fiat money in the first place, I may not have felt compelled to write my critique.

News Flash:  Bitcoins NOT Used in Market Exchanges!

North continues his argument from authority fallacy by offering up another rule, claiming I have erred by agreeing that money develops out of market exchanges.  I maintain that Bitcoin is being used in market exchanges.  He disagrees:  “Bitcoins are not being used in market exchanges.”  I of course can point to numerous market providers of products and services which accept Bitcoin.  North could do his Christmas shopping on this site alone.  I know people who exchange Bitcoin every day for various goods and services.  He, on the other hand, makes the proclamation that they aren’t being used in market exchanges without offering any evidence whatsoever.

Further, North ignores the fact that as the price of Bitcoin rises, its purchasing power for goods and services increases.  If you can acquire a desired good or service directly with Bitcoin, why exchange Bitcoin for a fiat currency to make the purchase?  The only way to ignore this is to hold fast to the delusion:  “Bitcoins are not being used in market exchanges.”  I know people who pay rent with Bitcoin, buy food with Bitcoin, buy books online with Bitcoin, et cetera.  North provides no evidence to the contrary.

“Nothing to Consume” and Circular Logic

North completely ignores my criticism of his statement that a good has to be consumed in order to serve the customer.  Neither Bitcoin nor gold are consumed.  Instead he falls back to repetition of the rule rhetoric.

Next North invokes a circular reasoning fallacy to avoid addressing the error in his statement that “the fundamental characteristic of money is its relatively stable purchasing power.”  I again refer to readers to this list and his claim that fiat currencies are stable forms of money.  Purchasing power of fiat money has and will continue to fluctuate, at times wildly and unpredictably.  So it bears repeating:  The fundamental characteristic of money is that it’s the most widely demanded good in an economy.  The rising price of Bitcoin indicates that it’s being demanded more and more.  North claims this is proof that it is destined to be worthless.

Gold and Price Volatility: Confusing Causality

North and I agree that gold is not money, but he implies that it’s because the price is volatile. My pointing out the move from $35 to $1,910 doesn’t dissuade him from recommending it as an investment.  (I agree.)  Yet he says the dollar is stable from year to year.  Could the trillions and trillions of newly created dollars over the past few decades be accountable for gold’s massive price rise?  What is stable, the ounce of gold which has forever been the same, or the US dollar as a measuring stick for that ounce of gold?

Bait ‘n’ Switch

North attempts a bait and switch regarding my explanation that because Bitcoin has no yield, we will only know in retrospect whether it’s in a bubble or in an adoption phase as a currency.  He mistakenly tries to tie Bitcoin to real estate, which is a yielding asset.  I wrote, “During the adoption phase of any good as money, the purchasing power rapidly increases from its initial value as a non-monetary good as more and more people adopt it.”  Notice how North swaps in the word “fiat” for “good”:  “He is making this up. There are no records of any such private fiat money in history. All fiat monies have been extensions of previous government money systems or a previous commodity standard.”

My point was straightforward, but I will step through it to dispel the confusion North attempts to create.  If a person in a given economy believes that a good will be adopted as money, he may act on that speculation by purchasing the good in advance of it becoming money.  If he is correct in his prediction, he will see that good rapidly increase in purchasing power as it becomes money.  Why?  Because that good is in the process of becoming the most widely demanded good in the economy, which is the definition of money.  Bitcoin’s adoption as a borderless medium of exchange by more and more people around the world would cause its purchasing power to rapidly increase.

Ignoring Arguments is Not a Refutation

My comparison of the monetary traits of Bitcoin vs gold and silver is unaddressed by North in any substantive way.  He quotes part of my comparison (and for some reason inserts “Conclusion” into my discussion of durability) without refuting any of it.  But by now it’s easy to spot the tactic:  do not address my actual arguments.  Instead he says I’ve ignored “the entire history of monetary economies” without offering any basis or citing a single example.  Rather than using this opportunity to discuss monetary history, as I did with the continual silver debasement of the Roman denarius, he avoids the entire discussion.

He then goes on to say that legal tender laws are irrelevant to the US dollar’s role as money.  “No one has to accept them,” according to North.  Here’s a dictionary definition of legal tender:  “currency in specified denominations that a creditor must by law accept in redemption of a debt.”


Despite the barrage of rhetorical sound and fury pointed at me, the only valid criticism North offers of Bitcoin is its price volatility.  Because it’s been volatile, he reasons, it’s not being used for market exchange, and therefore can never be currency.  And because it can never be currency, he concludes, it is worthless and destined to collapse.  (Interestingly, because of fiat price volatility, he doesn’t believe he’ll ever see gold used as money, despite serving as currency for centuries.  He does not discuss why the price of gold has been so volatile in recent decades.)  North also does not mention the long history of defunct fiat currencies which he would have designated as money before their implosion.

I maintain that we cannot know Bitcoin’s future.  Its price ascent could be because it’s in a bubble, but it could also be indicative of its increasing adoption as a borderless currency alternative.

North criticizes me for not offering proof of the number of Bitcoin exchanges which take place, yet he claims without offering any proof that none are happening.  I suggest he inspect the public ledger of Bitcoin transactions, and I suggest he Google vendors who are offering goods and services using Bitcoin.  Perhaps he will also hear from readers who are using Bitcoin for market exchanges.  To wit North, in one of his personal swings at me, says I’m a “space cadet,” perhaps without being aware that Richard Branson will be accepting Bitcoin on Virgin Galactic space flights.

My point after all this remains the same, and I repeat it as a non-programmer, non-kid, long-time investor in gold and silver:  Gary North may claim the fate of Bitcoin is already sealed, but his arguments are not compelling.  As I said in my original article, if Bitcoin becomes defunct, the cause will not be explained by North’s faulty arguments against it.  For example, states could attempt to regulate Bitcoin out of use, even outlaw it.  This a risk factor North does not mention.  I’m open to changing my views, as we all should be, if shown better reasoning.  Until then, North’s rhetorical bluster remains hollow.  Here is my question for North:

John Mather is a fan of technology, gold and silver, Bitcoin, and Austrian economics.

Email him at john.mather182 [at] gmail.com.


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Ponzi Logic: Debunking Gary North http://libertarianstandard.com/2013/12/01/ponzi-logic-debunking-gary-north/ http://libertarianstandard.com/2013/12/01/ponzi-logic-debunking-gary-north/#comments Sun, 01 Dec 2013 21:34:17 +0000 http://libertarianstandard.com/?p=12719 Many people have asked me to respond to Gary North’s article on Bitcoin but I’m pretty much over giving detailed responses to people who haven’t done basic homework on the topic. Still, I was thrilled to receive this nice point-by-point rebuttal, which I publish here:

Ponzi Logic: 

Debunking Gary North’s “Bitcoins: The Second Biggest Ponzi Scheme in History

by John Mather


Gary North is no stranger to predictions.  Perhaps his most famous one is his widely publicized prediction that Y2K would end civilization as we know it.  In his Bitcoin article, North makes another technology related prediction:  after Social Security, Bitcoin will go down as the biggest Ponzi scheme in history.  North’s article is riddled with false premises and faulty logic demonstrating that he does not understand Bitcoin.

North is widely recognized as an expert on Austrian economics, and I make no claim to the contrary.  North purports to base his critique of Bitcoin on Austrian economic theory.  However, his arguments are so weak that he makes Austrian economics look bad, to the point that someone unfamiliar with Austrian theory could finish his article doubting the validity of Austrian theory.  One reader who linked North’s article on a message board even commented that the article made him want to stop referring to himself as Austrian.

This article attempts to rectify this unfortunate situation by calling out the faults in North’s arguments and showing how his arguments diverge from Austrian economics.

Is Bitcoin a Ponzi Scheme?

Given that the market of freely choosing individuals has placed a value on Bitcoin, the burden of proof is on North to show that Bitcoin is a Ponzi scheme.  However, the Ponzi scheme Wikipedia entry shows that the very definition of a Ponzi scheme does not apply to Bitcoin.

There are several key differences between a Ponzi scheme and Bitcoin.  First, Ponzi scheme vehicles are inherently fraudulent.  When running a Ponzi scheme, the promoters lie to participants and conceal key information about the where their funds go.  Bernie Madoff, who claimed his firm’s consistently high returns were based on investments which he in fact never made, is a prime example.  The issuance by Allen Stanford of phony certificates of deposit to unwitting customers is another example.  In contrast, Bitcoin is not based on fraud or deception.  Bitcoin is an open book, literally.  The open source model Bitcoin employs means that it cannot claim to be one thing while in fact being another.  Anyone is free to inspect the Bitcoin code base to determine for himself what it is or is not.  This difference alone starkly distinguishes Bitcoin from a Ponzi scheme.

The second key difference between Bitcoin and a Ponzi scheme is revealed in Wikipedia’s differentiation of a Ponzi scheme from a pyramid scheme.  A Ponzi scheme requires an operator.  “In a Ponzi scheme, the schemer acts as a ‘hub’ for the victims, interacting with all of them directly.”  Bitcoin is not run by anyone.  It is a decentralized system – in Hayekian terms, a spontaneous order.  Anyone can mine, buy, or sell bitcoins.  And unlike Charles Ponzi, Bitcoin has no promoter acting as a hub. The creator(s) of Bitcoin are anonymous.  (Note: Bitcoin is capitalized when referring to the software and network as a whole, and uncapitalized when referring to individual currency units.)

The third difference is this: “A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors….”  Bitcoin is the opposite of esoteric.  It is open source, and all are free to use it at their own chosen level of participation.  Computer programmers can read and even modify the source code.  Crytographers can study, and even try to crack, the mathematics of the system.  And everyone, techie and non-techie alike, can buy and sell BTC (the abbreviation for bitcoins) without understanding Bitcoin’s inner workings.

There is a single trait that Bitcoin can be said to have in common with highly successful Ponzi schemes:  a dramatic appreciation in price.  But if that trait is all that’s required to make something a Ponzi scheme, then countless stocks which have soared from a penny per share at corporate founding to hundreds of dollars per share would be considered Ponzi schemes.

North’s Ponzi Logic

Now that the fundamental premise of North’s article has been dispatched, let us address several statements North makes which contain faulty logic or false assumptions.

1)  North says Bitcoin is made “out of nothing.”  This is a specious argument.  The fact is that the Bitcoin currency and payment network is comprised of computer code.  Is the web browser you’re using to read this article made out of nothing?  That Bitcoin is not a physical good doesn’t mean it is made out of nothing.  Billions of people, including North, assign economic value to all sorts of things which have no physical form.  The most obvious example aside from the computer code of companies like Google or Apple is the vast supply of US dollars, the majority of which exist only in digital form.

2)  North writes, “Something that was valuable for its own sake, most likely gold or silver….”  Nothing is valuable for its own sake.  All value is assigned.  This is Subjective Theory of Value 101.  North doubtless knows this, but it appears he’s attempting to imply gold and silver possess some sort of intrinsic value.  It may feel good to believe (especially if you own gold and silver), but it’s just not true.  Gold and silver have many uses, for example in electronics or silver in water filtration.  But most of the value of gold in particular is due to its marketability, meaning, the acceptability of gold by other market participants.  This acceptability is a mutually reinforcing process by which people are more willing to accept gold because others are more willing to accept it.  The existence of a mutually reinforcing cycle of demand is known as a network effect.  Some examples of other network effect markets are cell phones, fax machines, web browsers and web servers, cars/roads/gas stations, and fiat money.

The difference between network effect goods and direct use goods is that, for example, the enjoyment of a steak dinner does not depend on its acceptability or adoption by others.  A direct use good directly meets an individual’s needs, while a network effect good derives a significant part of its value from the network.  Most goods we use today have some combination of both.

It should be clear from the arguments made above that network effects alone are not sufficient to identify a good as part of a Ponzi scheme.   Most network effect goods are not based on fraud, and most of them do not have a central operator who extracts profit out of the system.  Successful network effect goods achieve their success by market adoption based on consumer choice.

Anyone who wishes to show that a good is a Ponzi scheme must demonstrate how it differs from a market network effect good.  As the Austrian economist Karl Menger argued, money itself replaced non-money as a market network effect good.  Gold and silver emerged due to a combination of traits which are desirable to have in a money commodity, namely scarcity, portability, uniformity, divisibility, and durability.  Other commodities which have historically served as money, such as salt or cigarettes in prisons, only possess a subset of these traits.

Network effects can come and go.  An example is the adoption of fashion.  A particular look can go in and out of style either very quickly or over a much longer time frame.  During the time that a fashion is popular, many clothing and shoe retailers can increasingly profit by serving consumer tastes.  When that look goes out of style, garment producers must shift to producing something else or go out of business.  Is fashion a Ponzi scheme, or simply a market following shifting consumer tastes?  Almost nothing is permanent in the market.  Any time a once-popular good falls out of favor, does that mean it was a fraud?

3)  North writes, “But Bitcoins are unique. The money was siphoned off from the beginning.”  By calling it money, North is contradicting himself.  And unique?  With every fiat currency, the state siphons off a portion of the money it prints.  It’s standard operating procedure.

With market money, early adopters have always profited from their foresight.  The creator(s) of Bitcoin may be sitting on lots of them; I don’t know.  But there’s nothing unique about that.  Early adopters also take on a lot of risk.  The founder of every multi-billion dollar company had mountains of stock at the company’s inception.  That doesn’t mean money was siphoned off.  What is unique about Bitcoin compared to all fiat currencies is that there is a hard limit on how many currency units can be created/mined.  Fiat money can be replicated instantly without limit on central bank computers.

4)  North observes, “Money develops out of market exchanges.”  Yes, and that’s what is happening with Bitcoin.  People began using it from the beginning knowing it was not money by the Austrian definition as the most widely demanded commodity.  Yet they kept using it for market exchanges.  They could do so because Bitcoin is also a payment system which allows secure peer-to-peer transactions with no third party fees.  That feature in and of itself has great utility.  If Bitcoin becomes money by the Austrian definition, it will be because it developed out of countless market exchanges.

5)  When North proclaims, “Bitcoins cannot serve the consumer. There is nothing to consume,” he makes an absurd statement.   As if a customer cannot be served without consumption!  When was the last time North consumed a gold coin?  Never, because gold is not consumed.  Even if it’s made into jewelry, it can be refashioned into coins or any other form.  A commodity doesn’t need to be consumable in order for it to be a useful currency.  While it’s true that market forms of money in the pre-digital age originated from consumption goods, billions of people today have only known money in their lives as completely unbacked fiat.

6)  North continues with more nonsensical statements:  “But the fundamental characteristic of money is its relatively stable purchasing power.”  Stable purchasing power is desirable in a money, but it is most certainly not the fundamental characteristic of money.   Rather, the fundamental characteristic of money is that it is the most widely demanded commodity in a given economy.

North keeps pointing to the US dollar as money, yet even the US government’s inflation calculator (which statistically “adjusts” the real figures lower) shows that since 1988, the US dollar has lost half its purchasing power.  In my grandmother’s lifetime, the US dollar has lost over 96% of its purchasing power.  Several goods over those periods have had more stability in their exchange power for other goods than the US dollar.  If stable purchasing power were the fundamental characteristic of money, then the US dollar would no longer be money.

North frequently in his writings points to gold and silver as the most desirable money commodities.  Yet the price of gold went from $35 to $1,910/oz.  Perhaps upside volatility is acceptable to North, with the exception of Bitcoin of course.

7)  North goes on to set up a straw man argument, framing Bitcoin not as an open source international currency and payment system, but rather as a mania-driven, pump-and-dump investment.  He writes, “Whenever somebody tries to sell you an investment that is based on the economic analysis of a market – an analysis that cannot possibly be true – do not buy the investment. ”  Now that his monetary theory arguments regarding Bitcoin have failed, he points to the rapid price increase in Bitcoin as evidence that Bitcoin itself must therefore be fraudulent.  Perhaps Bitcoin is in a bubble and the price will crash.  Maybe it will be overtaken by another crypto-currency some day.  Perhaps the rapid price increase is pointing at an acute worldwide demand for a secure, borderless, person-to-person, expense-free form of payment.  The fact is nobody knows why the price of Bitcoin is what it is right now, or what it will be in the future.  For North to claim he does, and importantly, for him to use Austrian economics as the basis for his claim, is unfounded and misleading.

As noted above, most of the valuation of money comes from its marketability, which is what makes it money, so there is a circular and network effect component inherent in money.  When a good is adopted as money, its value goes up because it is adopted as money.   And unlike yielding assets, there is no way to say that it is over-valued because you can’t calculate a yield.  You don’t have to believe that Bitcoin is a good investment in order to use it for exchange.  Many people use US dollars every day knowing that their purchasing power will very likely continue to dwindle.

8)  A final piece of Northian Ponzi logic masquerading as sound argument:  “The mania has destroyed Bitcoins’ use as money. Bitcoins are too volatile in price ever to serve as a currency.  Which is money: dollars or Bitcoins? The answer is obvious: dollars.”  So to follow his line of thinking, US dollars are money.  Agreed.  Yet every single fiat currency throughout history that has hyperinflated into oblivion was money by North’s standard before its hyperinflation.  Going from money-status to worthlessness is the most extreme case of volatility – terminal volatility so to speak.  Bitcoin has not done that – quite the opposite – making North’s argument contradictory.  Once the US dollar has lost 99% of its purchasing power (rather than the 96+% my grandmother has suffered), will it still be money?  Further, if one defines a currency as a medium of exchange, we see that Bitcoin is used many thousands of times per day in exchange for thousands of different products and services.  So in that regard it already has been and continues to “serve as a currency.”

It is true that if the exchange rate of Bitcoin continues to be highly volatile indefinitely, bitcoins will be ill-suited as a currency over the long term.  But Bitcoin is still in its infancy.  During the adoption phase of any good as money, the purchasing power rapidly increases from its initial value as a non-monetary good as more and more people adopt it.  If we are in the adoption phase of Bitcoin as money, it would be normal for its purchasing power to rapidly increase.

It is also true that in bubbles, the purchasing power of an asset rapidly increases, so increasing price alone does not tell us whether we are in the adoption phase or a bubble.  Bubbles can be characterized by yielding assets, such as equities, stocks, bonds, and real estate, selling at very low yields and high valuations.  But money inherently has no yield; the investment of money has a yield.  Only time will tell if Bitcoin is currently in a bubble or undergoing adoption as money.  If it were to, say, triple from here and then stabilize, clearly this period would not be viewed in retrospect as a bubble.

Bitcoin vs Gold & Silver

Now that it’s obvious Bitcoin is not a Ponzi scheme, we can shift our focus to seeing that Bitcoin stacks up well against gold and silver as a network effect good.  We return to the desirable traits of a money  commodity:  relative scarcity, portability, uniformity, divisibility, and durability.

Scarcity:  Gold and silver are scarce. They have become increasingly difficult to find and extract.  There are trace amounts of gold in all of the earth’s crust and in sea water, but there is no extant technology that can cost-effectively extract it.  It may surprise some that aluminum used to be more highly valued than gold, but technological innovations in the 19th century made aluminum extraction more economic.  Bitcoin is inherently scarce by virtue of the underlying cryptographic math which sets a hard limit of 21 million bitcoins.  As the total already-mined supply increases toward the limit, additional bitcoins can only be mined with ever-increasing difficulty.  In this respect, Bitcoin is different than gold and silver which, while difficult to produce, do not have a known cap on their production.  There is no guarantee, for example, that large undiscovered deposits of the metals could not exist.

Portability:  Compared to some other highly valued commodities, gold and silver are quite portable, but when viewed as a money commodity, they are very heavy to transport in any sizable sum.  That makes them extremely inconvenient as currency, which is why commodity-backed paper money came into use.  Bitcoin wins hands down of course, as the only weight a person must bear is to carry the device the bitcoins are stored on, such as a mobile phone.  And, unlike metals, bitcoins can be transported over any computer network.

Uniformity: Bitcoin is superior to gold and silver because both metals are easily adulterated.  One of the ways gold and silver coins were inflated in the past is by debasing them with more common metals.  The Roman denarius initially was almost pure silver, but subsequent regimes continually debased the denarius until it only contained 2% silver.  A metallurgist can for a fee tell you with a high degree of confidence if a coin or bar contains the purported concentration of gold or silver.  A layperson cannot.  In comparison bitcoins are completely uniform, and there is no mechanism by which they can be adulterated in the way precious metals can. 

Divisibility:  Gold and silver are both highly divisible, but only with specialized skills and equipment.  You can’t readily lop off 1/3rd of a gold coin to pay for an airline ticket, or buy supper for 1.65 silver coins.  Bitcoin wins again, hands down, as it is instantly and exactly divisible down to 0.00000001 of a bitcoin (called a “satoshi”).

Durability:  It would seem at first glance that gold and silver would win hands down, but I submit that Bitcoin actually wins.  It’s easy to dent and scratch gold, yet to its credit gold is practically indestructable.  But if a gold coin gets badly banged up or bent, a vendor would likely hesitate to accept it.  Sure an expert can assay the metal content of the damaged coin for a fee, so it is durable in that sense.  But Bitcoin has a different, and arguably more practical, sort of durability.  Namely, you can make any number of perfect backups of your bitcoins.  While a USB thumb drive containing one’s Bitcoin wallet is susceptible to breakage, that wallet can be stored on any number of other digital storage devices.  This provides for a kind of durability that gold and silver cannot offer.  You can have your bitcoins with you on a mobile device, on a thumb drive in a secure spot at home, even perhaps stored in another state or country in case of local disaster.

Another trait provided by Bitcoin not typically addressed in traditional monetary theory is security.  Bitcoin wallets are encrypted.  If your storage device is stolen, as long as you have a backup of your wallet, you still have your bitcoins to spend.  The same cannot be said of gold or silver.  They are, unfortunately, easily stolen or confiscated.  And if you’re not where your gold and silver are stored when you need them, you’re out of luck.  To be fair, it’s worth mentioning that bitcoins are not categorically immune to digital theft, so depending on the situation, your money is always at some kind of risk.

I have focused on gold and silver because of their historical importance as money, because North focuses on them in his writings, and because the Austrian school has a lot to say about them.  If I had to choose a commodity money, it certainly would be gold and silver for the reasons outlined above.  My purpose was not to suggest that they are unsuitable as money, but rather to show that Bitcoin shares, and in some cases exceeds, the traits which make gold and silver good forms of money.

The big weakness with Bitcoin is also its strength: it requires electric power and a computer network in order to function.  In a catastrophe such as a natural disaster, bitcoins would be of no use.  This is an important consideration, and in an all-out crisis where power grids shut down indefinitely, paper money will likely rapidly become unusable as well.  Having gold and silver on hand would clearly be the desirable choice in this scenario, but food, alcohol, medical supplies, and means of self-defense would probably be of equal or greater priority.  In other words, in a dire catastrophic situation, barter is likely to take over, and since very few people have gold and silver coins on hand, they will not serve as money.


If Bitcoin can never be money for the reasons North argues, how is it that the US dollar has been money for so long while violating North’s own self-imposed standards?  Legal tender laws aren’t a valid answer because legal tender laws have not stopped other fiat currencies from becoming worthless.

The more people who transact with Bitcoin without any coercion or legal compulsion, the more it functions as a free market money.  Because Bitcoin is not tied to any political region, it does not need to surpass the usage frequency of the US dollar to be considered money.  This, too, is another straw man argument North foists on the reader.  It is also a false dilemma.  You can exchange Bitcoin for countless other fiat currencies.  Perhaps North doesn’t consider the currencies of dozens of small countries to be money.  When a greater number of international transactions happen per day in Bitcoin than, say, in Bolivian bolivianos or Bahraini dirhams or Bermudian dollars or Bhutanese ngultrums, will North continue to deny that Bitcoin is a legitimate currency, yet defend the monetary status of those?

North was spectacularly wrong about his technological prediction that Y2K would be the downfall of civilization.  Nobody knows if his prediction that Bitcoin is destined for worthlessness will come to pass.  But if it does, the cause of Bitcoin’s downfall won’t be because of the empty arguments North has made against it.

________________________John Mather is a fan of technology, gold and silver, Bitcoin, and Austrian economics. 

Email him at john.mather182 [at] gmail.com

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Price Theory a la Rupert Murdoch http://libertarianstandard.com/2013/08/19/price-theory-a-la-rupert-murdoch/ Mon, 19 Aug 2013 13:00:07 +0000 http://libertarianstandard.com/?p=12639 RupertMurdochRupert Murdoch was buying up online properties in the mid 1990s, trying to do with the newly commercial Internet what he had done with FOX television during the previous ten years or so. One of his new acquisitions was a gaming company here in Charlottesville. My friend and I became the two "web guys" for the company. It was my first full-time job in the private sector.

When I was discussing my yet-to-be-submitted laugh-track article with Paul Cantor and I mentioned that it was competition from HBO and FOX that pushed canned laughter into retreat, Professor Cantor recommended the book The Fourth Network: How FOX Broke the Rules and Reinvented Television by Daniel M. Kimmel.

He says it was his main source for this lecture:

"When Is a Network Not a Network?" (It’s a great talk!)

I said, "You know, I used to work for Rupert Murdoch."

"Don’t you realize," Cantor quipped, "at some point EVERYBODY has worked for Rupert Murdoch."

Charlottesville, perhaps like most university towns, is famously left-wing. Rupert Murdoch was infamously right-wing long before FOX News became the unofficial media arm of the Republican Party. So I sensed a definite ambivalence, sometimes defensiveness, among my co-workers about the guy in charge. One thing I remember people saying with great respect, however, was that Rupert Murdoch had built his media empire by paying not what property was worth but rather what it was worth to him.

That struck me as profound at the time.

What they meant was this: Rupert Murdoch didn’t think of a newspaper as just a newspaper, a TV station as just a TV station. He thought about them as nodes in a network he was building. This meant he outbid his competitors who saw these organizations as single units of profit and loss, whereas Murdoch saw them as part of a bigger picture: what would they contribute to the larger plan?

FourthNetworkCoverFrom the The Fourth Network:

If there was a single turning point in the history of the FOX network, a moment when the Big Three became the Big Four, it occurred in December 1993 with the simple announcement that NFL football was coming to FOX the following season.

One of the NFL’s attorneys recalled,

"What FOX offered us, the league, was the potential of having a bidder who needed the games, wanted the games, and was willing — in a sense — to overpay for them."

Why would a savvy entrepreneur overpay for anything?

As FOX exec Lucie Salhany later recalled,

"When Rupert took over, Rupert was his most phenomenal. ‘I want it, I have a vision, I’m willing to pay for it.’"

The author comments,

As he had with so many other properties, Murdoch had paid more than the market thought it was worth because he saw a greater opportunity there.

What was his vision? It turns out that 70 percent of the NFL’s viewing audience had never watched FOX.

Salhany again:

"So, in the end, it was actually a bargain to acquire the rights to the NFL to promote the rest of [FOX’s] schedule. It was cheaper. If you went out and spent the same amount of money to promote it, it wouldn’t have been as effective."

What strikes me now is not how brilliant Murdoch was as an entrepreneur (although he was and is) but how my game-company colleagues worded their praise for the man — and what it revealed about the people giving the praise:

Rupert Murdoch didn’t pay what something was worth but rather what it was worth to him.

Notice the unstated assumption that there is such a thing as value independent of an individual evaluator, almost as if "worth" is objective, but Murdoch had the genius to see it as subjective.

Only when I started to read economics almost a decade later did I come to understand that all value is subjective. Consumers pay whatever they feel will benefit them more than the next best thing they could have done with that money, whatever seems better than the opportunity forgone. The difference between consumers and entrepreneurs is twofold:

  1. Consumers pay for things as direct ends in themselves, goods that will directly satisfy their subjective needs (consumers’ goods); whereas entrepreneurs pay for things as the means toward achieving other ends (capital or producers’ goods).

  2. Consumers can make direct price comparisons between, say, a cup of Starbucks coffee and a cup of diner coffee, or between a MacBook and a Windows laptop, but ultimately the comparison isn’t much of a calculation — it remains a subjective preference for the thing purchased over the forgone option; entrepreneurs, however, need to combine the objective data of recent prices for all their factors of production and compare the result to their personal predictions for what people will pay for the final product.

The successful entrepreneur is the better predictor, the more innovative producer, or both.

When my co-workers praised Rupert Murdoch for pricing factors more presciently or using them more innovatively, they were just saying, in essence, that he was a good entrepreneur. Maybe they understood that. Maybe what they meant by "what it’s worth" was what the current market consensus is for this factor’s future earnings, discounted for time, and assuming no innovation.

I certainly didn’t understand that they were merely describing what an entrepreneur does, and admiring Murdoch for doing it so much better than everyone else.

(Cross-posted at InvisibleOrder.com.)

Does capitalism make us dumb? http://libertarianstandard.com/2013/06/03/does-capitalism-make-us-dumb/ http://libertarianstandard.com/2013/06/03/does-capitalism-make-us-dumb/#comments Mon, 03 Jun 2013 12:06:12 +0000 http://libertarianstandard.com/?p=12538 201305301_laughdetail

The anti-capitalists contend that the market fosters whatever has the broadest appeal, even when the lowest common denominator indulges our basest appetites.

Defenders of freedom and markets tend to fall back on one of two strategies: either explaining why capitalism’s apparent vice is really a virtue (would we really prefer a system in which a self-selected elite got to plan the supply independent of demand?), or championing the products impugned by capitalism’s critics.

Ludwig von Mises took the first position. In The Anti-Capitalistic Mentality, he defended the popularity of detective stories not because of any inherent virtue in the genre but because murder mysteries were what the reading public wanted, whether or not the literati approved of their preferences.

Attempts at the second approach include compelling defenses of car culture, panegyrics to the Twinkie, even praise for shoddy products.

Some targets of disparagement, however, deserve a third approach.

One such target is the canned laughter of television comedies, which has been the object of critical censure for over half a century.

As University of Minnesota art history professor Karal Ann Marling says,

Most critics think that the laugh track is the worst thing that ever happened to the medium, because it treats the audience as though they were sheep who need to be told when something is funny — even if, in fact, it’s not very funny.

James Parker, entertainment columnist for the Atlantic, disagrees. In fact, he laments the laugh track’s recent decline:

Silence now encases the sitcom, the lovely, corny crackle of the laugh track having vaporized into little bathetic air pockets and farts of anticlimax. Enough, I say. This burlesque of naturalism has depleted us.… Who knew irony could be so cloying?

So do we file the laugh track in the same category into which Mises put pulp fiction?

Or should we instead follow the model of the staunch defenders, and explain why the elitists are simply wrong?

The third approach is to question the premise. Is the laugh track really a product of the market, or did it dominate TV comedies for decades because of government regulation of broadcast media?

In “Did Capitalism Give Us the Laugh Track?” I act as defense attorney in the case of The People versus Capitalism, pleading not guilty in the case of the laugh track.


Given the limited length of a Freeman article, I had to give an extremely condensed version of the history of broadcast media and cartelization. You can find a more thorough account of that story in my 2006 article for the Journal of Libertarian Studies: “Radio Free Rothbard,” available in PDF and HTML.

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dirty work http://libertarianstandard.com/2013/05/04/dirty-work/ http://libertarianstandard.com/2013/05/04/dirty-work/#comments Sat, 04 May 2013 18:38:15 +0000 http://libertarianstandard.com/?p=12516 gmbook

I first heard of Steven Johnson’s 2006 book The Ghost Map from a George Will piece called “Survival of the Sudsiest.” The book’s full title is The Ghost Map: The Story of London’s Most Terrifying Epidemic — and How It Changed Science, Cities, and the Modern World. Will describes it as “a great scientific detective story about how a horrific cholera outbreak was traced to a particular neighborhood pump for drinking water.”

In the “The Books of Summer” (Liberty, July 2007), Bruce Ramsey also recommends it:

It tells the tale of the deadly outbreak of cholera in London in 1854, and how two men, a doctor and a preacher, proved how it was spread.… In parallel to the detective story is a revolting description of London in the early industrial age. The industrial revolution made London the earth’s largest city with the earth’s largest waste problem. Libertarians will note that market mechanisms did arise to handle this, though they were, in the author’s estimation, not so good. They will note that the first solution imposed by government made matters worse — but that the second one was better. The book also shows how the provision of sewers and a clean water supply ended cholera epidemics by the last quarter of the 19th century.

I’m finally getting around to reading The Ghost Map, and while it is compelling and enjoyable from the first page, it is also an excellent example of why it helps to have some economic literacy to be able to read popular history critically.

Both Johnson’s masterly prose and his questionable economics are evident from the first. Here’s his opening:

IT IS AUGUST 1854, AND LONDON IS A CITY OF SCAVENGERS. Just the names alone read now like some kind of exotic zoological catalogue: bone-pickers, rag-gatherers, pure-finders, dredgermen, mud-larks, sewer-hunters, dustmen, night-soil men, bunters, toshers, shoremen. These were the London underclasses, at least a hundred thousand strong. So immense were their numbers that had the scavengers broken off and formed their own city, it would have been the fifth-largest in all of England. But the diversity and precision of their routines were more remarkable than their sheer number. Early risers strolling along the Thames would see the toshers wading through the muck of low tide, dressed almost comically in flowing velveteen coats, their oversized pockets filled with stray bits of copper recovered from the water’s edge. The toshers walked with a lantern strapped to their chest to help them see in the predawn gloom, and carried an eight-foot-long pole that they used to test the ground in front of them, and to pull themselves out when they stumbled into a quagmire. The pole and the eerie glow of the lantern through the robes gave them the look of ragged wizards, scouring the foul river’s edge for magic coins. Beside them fluttered the mud-larks, often children, dressed in tatters and content to scavenge all the waste that the toshers rejected as below their standards: lumps of coal, old wood, scraps of rope.

Above the river, in the streets of the city, the pure-finders eked out a living by collecting dog shit (colloquially called “pure”) while the bone-pickers foraged for carcasses of any stripe. Below ground, in the cramped but growing network of tunnels beneath London’s streets, the sewer-hunters slogged through the flowing waste of the metropolis. Every few months, an unusually dense pocket of methane gas would be ignited by one of their kerosene lamps and the hapless soul would be incinerated twenty feet below ground, in a river of raw sewage.

The scavengers, in other words, lived in a world of excrement and death.

And here’s his assessment of why we don’t see scavengers today:

The homeless continue to haunt today’s postindustrial cities, but they rarely display the professional clarity of the bone-picker’s impromptu trade, for two primary reasons. First, minimum wages and government assistance are now substantial enough that it no longer makes economic sense to eke out a living as a scavenger. (Where wages remain depressed, scavenging remains a vital occupation; witness the pependadores of Mexico City.)

His second reason is “because most modern cities possess elaborate systems for managing the waste generated by their inhabitants.”

But notice what he implies in his first reason: minimum-wage laws have made the American working poor too well off to stoop to scavenging — in contrast to Mexico, where the laws presumably fail to do enough to raise the pependadores’ wages.

Anyone reading this blog already knows that the minimum wage is a price floor, and price floors can’t raise prices; they can only create a glut of the overpriced goods. Rather than increasing incomes, minimum-wage laws create a larger army of potential scavengers: the unemployed. The substantial government assistance that Johnson mentions may play a role in keeping the unemployed from turning to scavenging, as do today’s elaborate waste-management systems and the culture and legal mandates of recycling. But the most powerful cause — the one that has to come before all the others — gets no mention at all: greater wealth.

Mexico doesn’t have more scavengers because its laws are inadequately progressive. Mexico is poorer. And the reason it’s poorer is because of greater, not less, government interference. Historically, the United States has had more secure private-property rights and offered a more secure political and economic environment for investment. A more productive economy raises the wealth and well-being of even the poorest within the economy. Greater relative wealth means higher opportunity costs, which means that even the poorest Americans are less and less willing to do the most menial tasks even within the “legitimate” economy. This is why we so typically see people from less wealthy countries immigrating to the more wealthy countries to perform the most menial labor.

This influx of the foreign poor to do the jobs we won’t deign to do seems to many like a great social injustice. Rather than seeing it as the key to greater general well-being, the proponents of “social justice” see a violation of egalitarian ethics.

In a similar vein, Johnson writes,

We’re naturally inclined to consider these scavengers tragic figures, and to fulminate against a system that allowed so many thousands to eke out a living by foraging through human waste.

And “in many ways,” he adds, “this is the correct response.” I’ll return to this point.

But in addition to the “correct response” of fulmination, Johnson advocates “wonder and respect” for London’s 19th-century scavengers:

[W]ithout any central planner coordinating their actions, without any education at all, this itinerant underclass managed to conjure up an entire system for processing and sorting the waste generated by two million people.

(If his political reflexes weren’t already evident, he gives away his worldview in expressing wonder that spontaneously complex and efficient order can emerge among the scavengers “without any central planner coordinating their actions.”)

But the respect Johnson feels for the people does not extend to the “system that allowed so many thousands to eke out a living by foraging through human waste.”

Why not? Repulsion to scavenging is an understandable esthetic reflex, but is it a rational reaction to the dirtiest edges of the division of labor?

Triumph of the City

Harvard economist Edward Glaeser, who is far from libertarian, explains in The Triumph of the City that urban poverty — even and especially the shantytowns at the margins of cities and the unofficial jobs at the margins of the economy — can be a sign of the promise and success of a city: as poverty-reduction machines, market-rich cities attract more and more of the rural poor into the ranks of the urban poor. Over lifetimes and generations, the urban poor become the urban (and then often suburban) middle class.

In a free society with a healthy economy, we would see more scavengers, not fewer. As one generation raised itself from the refuse, and became less willing to take on the dirty work, another from elsewhere would step in to take its place. But they would not resemble the Dickensian muck-covered wretches of 19th-century London any more than modern laborers look like the factory workers of the Industrial Revolution. And we have the Industrial Revolution and those factory workers and owners and investors to thank for the greater prosperity that allows the developed world to look so different from the developing world. That was not achieved by labor unions or minimum-wage laws or a larger welfare state, by more regulations or social-justice campaigns. It was achieved despite these wealth-destroying developments.

I’m not saying that popular historians must embrace laissez-faire to make any contribution to our understanding of the past. But more often than not, they do not even show an awareness of the relevant issues or how the substantive arguments affect economic history.

The cause and effect they assume, and the social and political judgments that accompany them, are presented unquestioned. Even the most basic economic theory can give us the necessary tools to question them.

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Launching the Kinsella on Liberty Podcast http://libertarianstandard.com/2013/01/23/launching-the-kinsella-on-liberty-podcast/ http://libertarianstandard.com/2013/01/23/launching-the-kinsella-on-liberty-podcast/#comments Wed, 23 Jan 2013 15:36:36 +0000 http://libertarianstandard.com/?p=12296 Kinsella On Liberty

As many of my readers know, I often lecture and speak and give podcast or radio interviews on various libertarian topics and issues, such as intellectual property (IP), anarcho-libertarians, Austrian law and economic, contract theory, rights and punishment theory, and so on. I also blog and comment regularly on such matters in various blogs (primarily The Libertarian Standard, on general libertarian matters, and C4SIF, on IP-related matters), Facebook, and so on—often posting my take on a given issue in response to a question emailed to me or posted online.

This month I am launching a new podcast, Kinsella on Liberty. I expect to post episodes once or twice a week. The podcast will include new episodes covering  answers to questions emailed to me (feel free to ask me to address any issue of libertarian theory or application) as well as interviews or discussions I conduct with other libertarians. I’ll also include in the feed any new speeches or interviews of mine that appear on other podcasts or fora, as well as older speeches, interviews, and audio versions  of my articles, which  are collected for now on my media page). Audio and slides for several of my Mises Academy courses may also be found on my media page, and will also be included in the podcast feed later this year. Feel free to iTunesSubscribe in iTunes or RSSFollow with RSS, and spread the word to your libertarian friends. I welcome questions for possible coverage in the podcast, as well as any criticism, suggestions for improvement, or other feedback. My general approach to libertarian matters is Austrian, anarchist, and propertarian, influenced heavily by the thought of Ludwig von Mises, Murray N. Rothbard, and Hans-Hermann Hoppe. My writing can be found in articles here and blog posts at The Libertarian Standard and C4SIF, such as:

On IP in particular, which I’ll also cover from time to time in the podcast, see:


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Kinsella on Anarchast Discussing IP, Anarcho-libertarianism, and Legislation vs. Private Law http://libertarianstandard.com/2012/12/30/kinsella-on-anarchast-discussing-ip-anarcho-libertarianism-and-legislation-vs-private-law/ Sun, 30 Dec 2012 13:25:57 +0000 http://libertarianstandard.com/?p=12161 I was a guest on Jeff Berwick’s Anarchast (ep. 51, 36 min), released today. We discussed anarchy and how such a society might be reached; the basis and origin of law and property rights and its relationship to libertarian principles, and implications for legislation versus law and the legitimacy of intellectual property; also, utilitarianism, legal positivism, scientism, and logical positivism. Description from the Anarchist site below; MP3 download. For more background on IP, see the C4SIF Resources page; on legislation vs. private law, see The (State’s) Corruption of (Private) Law.


Anarchast Ep. 51 with Stephan Kinsella

Jeff Berwick in Acapulco, Mexico, talks with Stephan Kinsella in Houston, Texas

Topics include:

– Stephan explains how he became an anarchist and some of the books that pointed him in the right direction including
The Fountainhead (http://amzn.to/VnZwSL)
– Stephan is a practicing attorney that applies his legal knowledge with his libertarian philosophy
– He believes a free law society will only come about if a majority of people agree in libertarian principles
– Law is defined as a concrete body of rules that permits a group of people that want to be able to cooperate to be able to do so
– Jeff asks if it is necessary for everyone to agree with libertarian philosophy in order to have a free society
– Stephan thinks that a majority of people already have libertarian principles but have not been educated correctly in constancy
– He is more optimistic that most because he sees more people not accepting central planning than in the past
– Jeff thinks that there could be a backlash against free market ideas during a financial collapse where the people believe capitalism is to blame
– Stephan hopes that people will slowly find the state to be irrelevant and this will bring about a free society
– Jeff thinks that there will be a financial collapse that will make this transition unpredictable
– Stephan is an expert in libertarian Intellectual Property theory
– He explains the principles of property law
– What most people think is law today is not what law would be based on in a libertarian society
– Stephan explains the problem with legal and economic positivism
– The proper libertarian view is to be opposed to making law through legislation
– The problem with intellectual property is that you are able to use the force of the government against someone who has not aggressed against you
– Stephan explains the problems with the utilitarian Intellectual property justification
– The intellectual property system forces everyone to participate even if they don’t agree with it

Stephan is doing astounding work in libertarian legal theory you can find more in formation on his sites



For more information on The Dollar Vigilante, go to http://dollarvigilante.com. For more information on Jeff Berwick’s anarchist enclave, Galt’s Gulch Chile, go to http://galtsgulchchile.com. And, for more on the anarchist enclave in Acapulco go to http://dollarvigilante.com/acacondos. Come on down and be a guest on Anarchast and live relatively free amongst other anarchists.

Source: http://financialsurvivalnetwork.com/2012/12/anarchast-ep-51-with-stephan-kinsella/?utm_source=rss&utm_medium=rss&utm_campaign=anarchast-ep-51-with-stephan-kinsella



[Cross-posted from C4SIF]

I was a guest on Jeff Berwick’s Anarchast (ep. 51, 36 min), released today. We discussed anarchy and how such a society might be reached; the basis and origin of law and property rights and its relationship to libertarian principles, I was a guest on Jeff Berwick’s Anarchast (ep. 51, 36 min), released today. We discussed anarchy and how such a society might be reached; the basis and origin of law and property rights and its relationship to libertarian principles, and implications for legislation versus law and the legitimacy of intellectual property; also, utilitarianism, legal positivism, […] Stephan Kinsella clean <iframe width="290" height="30" src="http://libertarianstandard.com/?powerpress_embed=12161-podcast&amp;powerpress_player=mediaelement-audio" frameborder="0" scrolling="no"></iframe>
Deck the Halls with Macro Follies http://libertarianstandard.com/2012/12/06/deck-the-halls-with-macro-follies/ Thu, 06 Dec 2012 16:22:00 +0000 http://libertarianstandard.com/?p=12084 The inimitable EconStories gang, which includes the great John Papola, has just released their newest creation just in time for Christmas: Deck the Halls with Macro Follies. It lampoons the idea getting consumer spending going is how to jumpstart an economy. Contra those ideas of Keynes and Malthus (and Bernanke!), the real way to build prosperity is to save and thereby increase production. But watch the video, it’s really fun.