Alan Greenspan, 1926-2026: 'The Undertaker' passes away

Alan Greenspan, dubbed by Ayn Rand as "The Undertaker."  
Ultimately, he took the job that John Galt refused: economic dictator

"Alan Greenspan died [earlier this week], and the man who spent two decades inflating bubbles will be eulogised as a maestro. Fitting, because he understood exactly what he was doing. 

"In 1966 a younger Greenspan wrote an essay called 'Gold and Economic Freedom.' [In it, he states that the gold standard is essential for economic freedom.] He laid out the case with precision. The gold standard protected savers from confiscation by inflation. Welfare statists hated gold because it stood in the way of their deficits. He wrote that the abandonment of gold made deficit spending a "scheme for the hidden confiscation of wealth." He was right. He knew it. Then he took the job running the printing press.

"From August 1987 to January 2006 Greenspan sat atop the Federal Reserve and did the opposite of everything that essay defended. After the 1987 crash he flooded the banks with liquidity and taught a generation of traders that the central bank would catch them every time they fell. They named the reflex after him: the 'Greenspan put.' He cut the federal funds rate to 1 percent by June 2003 and held it there, and you watched housing prices detach from any sane relationship to income. Mortgage credit gushed. He went on television in February 2004 and suggested Americans consider adjustable-rate mortgages, roughly eighteen months before he started hiking rates into those very borrowers. The man who warned in 1966 about the hidden confiscation of wealth engineered the largest credit distortion in postwar history. 

"Then came the apology that wasn't one. In October 2008, sitting before Congress as the wreckage smoked, Greenspan confessed he had found 'a flaw' in his model of how the world worked. He was 'shocked' that lenders [licensed to print money] had not policed themselves. You don't get to spend twenty years pricing risk at zero and then act surprised when men respond to the incentives you built. Any committee of economists cannot set the price of money better than a market can. 

"Greenspan knew the answer at 40 and spent the next half century pretending he'd forgotten it. The savers he warned about in 1966 paid for that performance. ..."

"Every Fed chair since Greenspan has discovered this truth the hard way. Bernanke cranked rates to zero after 2008, then Yellen kept them pinned there, then Powell printed $4 trillion more during COVID. Each crisis demanded bigger interventions than the last."

~ Handre

 

"Greenspan was the Dr. Robert Stadler of our age: the brilliant man who knew the right principles and betrayed them, certain his own genius could control the evil he agreed to serve. 

"He was a member of Rand's inner circle. His essay "Gold and Economic Freedom" appeared in Capitalism: The Unknown Ideal. He argued, correctly, that the gold standard protected savers from confiscation, that statists hated gold because it blocked their deficits, and that abandoning it turned deficit spending into a scheme for the hidden confiscation of wealth. 

"He even understood that Social Security was a Ponzi fraud that would help bankrupt the nation. He knew all of it. Then he took command of the Federal Reserve and did the opposite of everything he had written. 

"The 'Greenspan put,' rates held at one percent, the housing bubble, the very confiscation he had warned of, engineered by his own hand. 

"Here is the irony. Greenspan knew 'Atlas Shrugged' intimately. He watched Rand create Stadler, the genius who lent his mind to the looters' Institute believing he could outwit them, and who lived to see his knowledge weaponised as Project X. Greenspan studied that warning at the source, from the author herself. He understood the character completely. Then he walked the identical road and became the man the novel was written to expose. 

"When the wreckage came in 2008, he told Congress he had found 'a flaw' in his model. There was no flaw in the model. The flaw was in the choice to abandon what he knew. Some men meet the virus and are consumed by it. Greenspan had the answer at forty and spent the next fifty years pretending he had forgotten."

~ The Rational Animal

"Q: Alan Greenspan passed away [this week]. Alan Greenspan was a close associate of Ayn Rand for a while, and the Chairman of the Federal Reserve … these things did not overlap, as people familiar with Ayn Rand’s ideas wouldn’t be surprised to hear. So, Keith, I’m sure you’ve read [Greenspan’s essay] ‘Gold & Economic Freedom’ many times; so let’s get your thoughts on Greenspan’s passing…

"A: For anyone who’s read that essay, which was published in 1966 as part of [Ayn Rand’s] book 'Capitalism: The Unknown Ideal,' and therefore endorsed by Ayn Rand, he had to evade everything he knew in 1966 in order to take the job at the Fed. And ultimately, he took the job that John Galt refused, which was economic dictator.

"Now … everybody is confused about capitalism … but … there is no greater area of confusion than the concepts around money. Both the critics of capitalism and of gold, and the FANS of capitalism and gold will tell you that he was 'a Maestro' — and if you ask “a master of what?’ you’ll be told he was a master of central planning of our economy, and of managing our little lives for us. …

"They’ll say ... ‘he managed a sound money regime’— and the problem with the concept of sound money they use is an anti-concept, that is, [it’s a notion] that destroys and obliterates a legitimate concept in order to smuggle something else in. And what they mean by ’sound money’ is an irredeemable fiat currency jammed down our throats by the government forcing us to use it as if it WERE money, but ‘sound’ because it’s somehow managed to avoid consumer prices going up [by no too much].

"So I’d like people to think about a simple fact, that in every industry seeking greater efficiency, that is, they want to produce more with less — with less cost, with fewer inputs, with less labour, land, physical commodities etc. — and of course that’s happening relentlessly across the entire economy in every sector (unless regulation prevents it…).

"So suppose the average across the entire [economy] is a 2 percent gain in efficiency every year, all else being equal, you’d expect consumer prices therefore to be falling comparatively across industries, as costs are falling. SO your expect consumer prices tl be falling roughly 2 percent per year.

"So imagine it it were possible as the manager of the currency to debase the currency at a matching rate. Now, this is pure fantasy [hoho!]; this is only interesting as a thought experiment … but suppose it were possible to debase the currency at a matching rate so that every company from Intel to US Steel to Rolls Royce making aircraft engines is cutting costs at 2 percent, [while] you are debasing the currency at a matching 2 percent, and the nett result is CPI = zero. Would anybody call that SOUND?

"I wrote an article called ‘Sound Money is Not What You Think It Is,’ and I had a picture that I took from Norman Rockwell [above, with customer and butcher both cheating] … and I asked if that would be considered a sound measurement of the weight of the chicken, and therefore a sound price to pay … And at best, that’s what Greenspan did."

~ Keith Weiner from Monetary Metals, interviewed on the 'Daily Objective'

"Of course you can 'speak ill of the dead' ...  After all, wrote Shakespeare, 'The evil that men do lives after them; / The good is oft interred with their bones.'

"Alan Greenspan, former chairman of the Federal Reserve System, just died at age 100. The general public wants to blame the United States president for the health of the U.S. economy, but the Fed chairman has much more influence over economic conditions. 

"Greenspan spent some time early in his career as an Ayn Rand acolyte, and in fact three chapters of Rand's book Capitalism: The Unknown Ideal, were written by the future Fed chairman.... Greenspan's opponents on the left therefore interpreted his whole career through a Randian lens, which serves to remind us how stubbornly they refuse to understand the world. 

"Had Greenspan wanted to run the Federal Reserve in such a way as to approximate a gold standard as much as possible, he could certainly have done so. Instead, he used it as an instrument for central planning, with disastrous results.

"Initially, Greenspan could do no wrong. He became known as 'The Maestro' ....  Meanwhile, Greenspan's contempt for the public was legendary: he confessed to Lesley Stahl of CBS that before congressional committees he would speak gibberish -- a tactic he called 'syntax destruction.' The next day the headlines would report two different things about what he had said, and for Greenspan that meant he had succeeded. Greenspan's policy moves (like arranging for a bailout of Long Term Capital Management in 1998) gave rise to the belief in a 'Greenspan put,' according to which investors could be assured that the Fed chairman was prepared to use the tools at his disposal to backstop the market if it should ever fall below a certain level. 

"And of course his monetary stimulus after the dot-com bust in 2000-2001, which looked to some observers at the time as a brilliant move, only delayed the reckoning, and transformed that bust into a real estate bubble (and eventual bust). When the lights of the economy should have turned red, Greenspan made them all green. That was the only recession on record in which housing starts rose rather than fell. 

"The Federal Reserve, like the government itself, has no real goods at its disposal, so while its various tricks can redistribute resources and simulate prosperity, it cannot generate real wealth. It simply arranges the economy into an unsustainable configuration that has to come apart. 

"Because of Greenspan's earlier association with Ayn Rand, and because the general public knows so little about the Fed, when the 2008 crash occurred, people generally went along with blaming 'capitalism' -- even though the Federal Reserve is a non-market institution created by act of Congress and enjoying a government-granted monopoly, and even though Greenspan's manipulations overrode what the market was trying to say. 

"Greenspan's legacy is 2008, and the undeserved reputational damage that the market economy suffered as a result."

~ Tom Woods

#250YEARS: "A country of money..."

"To the glory of mankind, there was, for the first and only time in history, a country of money — and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man’s mind and money were set free, and there were no fortunes-by-conquest, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being — the self-made man — the American industrialist.

If you ask me to name the proudest distinction of Americans, I would choose — because it contains all the others — the fact that they were the people who created the phrase 'to make money.' No other language or nation had ever used these words before; men had always thought of wealth as a static quantity — to be seized, begged, inherited, shared, looted or obtained as a favour. Americans were the first to understand that wealth has to be created."

~ Ayn Rand from her 1953 essay '“The Meaning of Money” collected in her book For the New Intellectual

RELATED: 

"The truth is that across all the pages of history there have been two fundamental antagonists who have been variously venerated and eviscerated: the trader, and the warrior -- the former the bringer of peace, the latter the bringer of violence. The man of peace, and the man of war. The man who relies on voluntary exchange to mutual advantage, and the man who loots and plunders. The man who produces value, and the man who destroys it. The bringer of peace and prosperity, and all the benighted horsemen of the apocalypse."

=> The three horsemen of non-apocalypse - NOT PC, 2010

THOUGHT FOR THE DAY: "99% of boomer 'success' was just interest rates falling for 50 years"

 

"Ninety-nine percent of boomer 'success' was just interest rates falling for [forty] years because they destroyed the real economy."

~ Darth Powell

PS: In case you're confused ...

PPS: In case you're still confused:

"How can stock market valuations be at or near historical highs while the average [person] is about as pessimistic as they’ve ever been?

"This contradiction is a perfect illustration of the financial fun house — and the extreme distortions that relentless money printing has pumped into the system.

"If fiat currency is a dishonest measuring stick — and it is — then how do we accurately measure the stock market?

"The best option is to measure value in gold, honest money that no politician can arbitrarily debase.

"If measuring in fiat is like looking into a fun-house mirror, then gold is a mirror of truth. And when we measure the stock market in gold, that truth becomes clear. Below is a chart of the S&P 500 measured in gold going back to 1950.

"Viewed through the lens of gold, the stock market tells a very different story than it does in fiat terms — and this chart makes that unmistakably clear.

"The most striking feature of the chart is what isn’t there: a sustained upward trend. The S&P 500 today is worth the same amount of gold it was in 1995.

"Despite decades of nominal gains, the stock market has repeatedly given back those gains when measured against gold. In other words, the rising stock market was more a reflection of currency debasement than of real wealth creation.

"This helps explain the disconnection at the heart of today’s market. In fiat terms, stock prices appear to be at record highs. But in gold terms — a unit that cannot be printed — the market looks far less extraordinary."

~ Nick Giambruno from his post 'The Melt-Up Trap: Why Stocks Must Rise Until the Dollar Breaks' 

'The Blithering Economic Crackpottery Of Donald J. Trump'

"Just when you thought that the Donald had already won the derby for economic crackpottery, he comes up with another even more fakakta entry. This one spilled forth when asked whether the President should have a say in monetary policy:

".... It should be done,” Trump said....”I don’t think he should do exactly what we say. But certainly we’re — I’m a smart voice and should be listened to.”

Asked how low he would like to see interest rates go, Trump made it clear he wants the new Fed chief to be aggressive. Rates should be “1% and maybe lower than that,” Trump said. “We should have the lowest rate in the world.”

"Well, actually, it was only a matter of time until we got a domineering dufus in the Oval Office who has no compunction about loudly displaying his barking economic ignorance. To our knowledge there has never been an economist—-left, right, or centre—–and possessing intellectual faculties—brilliant, feeble or in-between—- who has claimed that the 'lowest rate in the world' has anything to do with anything when it comes to monetary policy.

"The Donald’s quip here is just sui generis humbug—a word salad, if you will, on a very crucial matter that makes Kamala Harris sound like a deep thinker. After all, who in their right mind would think that having a lower rate then the likes of Zimbabwe, Venezuela (or the Wiemar Republic for that matter) or dozens of other inflaters that dot the world economy even today provides any kind of monetary standard? 
...

"Interest rates are the price of money and debt and provide the benchmark for the valuation of all financial assets and real estate. They are, accordingly, the most important price in the entire capitalist economy and they should therefore be set by the free market, not the FOMC, the POTUS or any other arm or agency of the state.

"However, once the government apparatchiks who comprise the FOMC (Federal Open Market Committee) seized the power to set interest rates decades ago it was foreordained that some unhinged know-it-all would end up in the Oval Office claiming a piece of the action. ...

"[W]here in the hell does the Donald think inflation comes from—-failure of the Peruvian anchovies schools ... ? The Hunt brothers cornering the silver market ...? OPEC meetings ...? The beef processors cartel ...? 

"The fact is, the guy is 79 years old and has been pontificating on how to fuel prosperity and remedy inflation and other economic ills for decades, and most especially since he came down the escalator in June 2015. Yet has it ever once occurred to him that the easy money and ever lower interest rates at the central bank that he has ceaselessly advocated is actually the one and only cause of 'inflation,' and that’s the case with respect to both goods and services and financial asset prices, too?

"As it has happened, since the turn of the century the real Fed funds rate on overnight money 

(blue line, below) has been below the zero bound 75% of the time ... [meaning that s]hort-term money for gambling and speculation on Wall Street and main street alike has been free after inflation for the entirety of this century to date.

"So is there any mystery as to why the purchasing power of the consumer’s dollar earned or saved in the year 2000 has already lost 50% of it value? ... [Yet] the Donald has endlessly denounced [those responsible] for not running the printing presses even faster and hotter....

"Once upon a time, the GOP knew that inflation comes everywhere and always from the printing presses of the central bank. But as of December 2025 it has turned into such a sheepish herd of partisan hacks that it has the audacity to claim that it’s all Sleepy Joe’s fault.

"And yet and yet. The Donald is now demanding the very same 1% interest rates and another central bank printing spree that caused the last inflationary flare-up. And he is doing so while falsely claiming that he has single-handedly ended the inflation that he actually fostered during his first go round in the Oval Office. ...

"At the end of the day, the Donald has made no impact on [lowering] the inflation rate to date, but is fixing to push it materially higher owing to his out-of-this-world TariffPalooza and his utterly insensible demand that the Fed undertake another plunge into 1.0% money.

Then again, easy money, big spending and high tariff-taxes amount to the blithering crackpottery that is the essence of Trump-O-Nomics. And that surely ain’t no recipe for a new Golden Age of Prosperity."

~ David Stockman from his post 'On The Blithering Economic Crackpottery Of Donald J. Trump'

Real Fed Funds Rate Versus Purchasing Power Of The Consumer Dollar, 2000-2025

To remain independent from politics, a central bank must be less political

"Independence isn’t an absolute virtue. Our constitutional order doesn’t include completely independent officials who can print money and regulate banks as they wish. ...

"The [central bank] has vastly expanded its scope of operations, propping up asset prices, monetising debt, channeling credit, directing banks how to invest, straying into climate and inequality, and denying whole business models such as narrow banks and segregated accounts. These actions are political and cross over into fiscal policy and credit allocation. It has had no reckoning with its great institutional failures, including [high] inflation and repeated bailouts.

"It is reasonable to discuss reform. Either the [central bank] must be more 'democratically accountable,' which is the same thing as 'politically influenced' when the other party is in power, or it must be reformed to a narrow, enforced and accountable mandate so it can remain independent."

~ John Cochrane from his WSJ op-ed 'Trump and monetary policy'

Pay no attention to the (mad) men behind the curtain [updated]

Readers here might remember I got some stick for calling John Key a fucking moron a while back. A fucking moron, specifically, for repeated calls for the Reserve Bank to juice up house prices again, just so home-owning voters will feel better again. Feel better again, and then vote National.

"The guts of what’s wrong," explained the moron, "is that the housing market is going down, not up" — and "then you have a negative wealth effect," and voters feel bad. And when they feel bad, they vote for the other team.

Classic short-termism.  Stuff rocket fuel into the economy, and then all things will be jake for the governing political parties. This, by the way, was Key's "one simple trick" while Prime Minister: ensure massive house-price inflation, no matter the economic and social dislocation, and then sit back and watch home-owners fooled into feeling better off, and borrowing and consuming more, regardless of the economic consequences. (Consequences for which we're all still paying, by the way.)

In the US, the discredited "wealth effect" — "a gussied-up version of Keynesian stimulus, only targeted at the prosperous classes rather than the government’s client classes" — is generally felt in the stock market. Pundits there are starting to get nervous about a soaring stock market with anaemic growth in the economic system itself, with "important implications for the path of America’s stockmarket boom and its economy."

The good times could continue, at least for a bit longer [says 'The Economist']. ... [But] might a wealthier society also take a harder fall? Bears would point to the bursting of the dotcom bubble in 2000, when a brutal stockmarket slump pushed America into recession. ... The stockmarket might be more of the economy. It still is not all of it.

It's not. And nor is the housing market. We can't get rich just by selling each other houses. (And kudos to one National minister at least who understands that.)

Yet David Stockman is concerned that nothing has been learned from the last major crash. 

Roughly 15 years ago it was reasonably well understood that the Great Financial Crisis of 2008-2009 had been case of speculation run amuck on both Wall Street and main street alike. These credit and housing bubbles, in turn, had been fuelled by the massive money-printing sprees of the Greenspan and Bernanke Fed.

It might have been presumed, therefore, that the mad money-printers [at the US central bank] would have had second thoughts about the underlying cause of these great economic disasters—that is, the dubious Greenspan policy known as the “wealth effects” doctrine. In simple terms the latter held that if people felt richer owing to soaring home prices and their stock market winnings, they would spend more freely and fulsomely, thereby goosing the Keynesian cycle of ever more spending-sales-production-income-and spending, which was to be rinsed and repeated in an endless round of rising prosperity.

At the end of the day, of course, Greenspan and his heirs and assigns at the Fed turned out to be unreconstructed Keynesians and the wealth effects doctrine a monumental economic con job. The latter did not make society richer; it just made the rich richer. Or stated more directly, main street got inflation at the grocery store, gas pump and doctor’s office—even as the asset-holding class experienced unspeakable windfalls in their brokerage accounts.

Let's not repeat the same mistake again here — especially when local interest rates are already below our trading partners, with no noticeable effect on genuine economic progress. Please: pay no attention to the mad men behind the curtain.

UPDATE:

"The advocates of annual increases in the quantity of money never mention the fact that for all those who do not get a share of the newly created additional quantity of money, the government's action means a drop in their purchasing power which forces them to restrict their consumption. It is ignorance of this fundamental fact that induces various authors of economic books and articles to suggest a yearly increase of money without realising that such a measure necessarily brings about an undesirable impoverishment of a great part, even the majority, of the population."

~ Ludwig von Mises from an interview 'On Current Monetary Problems'

Doug Casey: "The goal is to remake the world’s monetary regime"

 

"Stephen Miran’s appointment to the Federal Reserve isn’t just another personnel move—it’s the placement of Trump’s Reset architect inside the very institution that will help carry out America’s most ambitious economic overhaul in generations.

"If you’re still unfamiliar with what Trump’s Reset entails, I strongly recommend checking out Matt Smith’s comprehensive analysis. He’s done the heavy lifting of connecting dots that were only hinted at in Miran’s original white paper. ...

"The goal is to remake the world’s monetary regime….

"But there are consequences to Trump’s plan - one of which is a guaranteed period of painful adjustment. ...

"Trump doesn’t just want a weaker dollar - he wants a dollar that is radically devalued against every other currency on earth. ... a dollar devaluation of 90%.

"That may sound horrific - but it’s only slightly less than the devaluation of the 1970s, when the dollar lost 75% of its purchasing power.

"Anyone not holding 'real stuff' - like gold, silver, natural resources, commodities, etc. - is going to see a dramatic drop in their standard of living.

"Team Trump will deal with US debt the way governments always deal with debt…

"By inflating it away - and with it, the purchasing power of your US dollar savings....

"But he wants more than just a weak currency.

"He wants to change the nature of the US economy by copying China['s] model of state-backed investment.. ... [and] industrial policy ... [demanding] large profitable corporations reinvest in China. ...

"Trump’s plan will [demand] the same of US companies. And the Trump plan is already in motion. Apple announced a $500 Billion investment in America in late February ... [Intel were forced to give a ten percent cut to the US Government.] ... Expect to see many announcements like these ....

"[Trump's advisor Stephen] Miran makes it clear that nothing good can happen until the burden [sic] of having the reserve currency is shared by our trading partners.

"Does that mean the dollar will lose its status? Probably."

~ composite quote from Doug Casey's 'The Mar-a-Lago Accord Confirmed: Miran Brings Trump’s Reset to the Fed' and Matt Smith's 'Get Ready for Trump's Monetary Reset'

"Let me get this straight: the Republican Party now favours concentrating power in one individual to impose protectionist tariffs, centrally plan the economy, nationalise stakes in private businesses, and use the Fed to create massive inflation to monetise soaring budget deficits."

~ Peter Schiff 

Adrian Orr. Worthless shit.

Money is no longer backed by gold. It's now backed only by debt, by public trust—and by the promises and integrity of its issuers.

In New Zealand, money is backed above all by the promises and integrity of the Reserve Bank of New Zealand.

So it's crucial that the public trust in the Bank is earned, and continues to be earned every day.

Not a trivial thing.

Which is why the spectacular departure of the Reserve Bank Governor in March in what looked like a fit of pique was so disquieting.

Even more disturbing was the abject silence and duplicitous announcements since from the Bank about the reasons for his departure.

Those reasons were revealed this week. Just days after lying, again, to the Parliament, he walked in a fit of pique because he wasn't given an extra few billion to continue expanding his empire.

Adrian Orr. In a field of shitty New Zealand bureaucrats, he has to be the most worthless shit of all.

"We (the public) still have no idea what actually happened to the Reserve Bank governor"

"IT IS ALMOST SIX weeks since the shock announcement early on the afternoon of Wednesday 5 March that the Governor of the Reserve Bank, Adrian Orr, was resigning effective 31 March, and that in fact he had already left . ...
    

"In his seven years in office he’d ... not only let inflation run out of control then ... a (mild) recession to get back in check, [and generated] $11 billion of losses the Bank had sustained punting in the government bond market. ... On many occasions – including at numerous select committee hearings – his relationship with the truth also seemed tenuous.

"It is good to see the back of him, but it really isn’t adequate that we’ve had no explanation at all for the sudden departure. ...

"'Let’s be very blunt,' [said Infometrics’ Brad Olsen on the day of the resignation]. 'The Board of the Reserve Bank needs to front, they need to front urgently, and they need to be open and transparent. Anything less is just not acceptable.'

And yet 'anything less' is just what we have got. No straight answers from either the Board or the Minister of Finance. ...

"If anything, the mystery – and a sense that the Board and Minister are keeping important stuff from us – was highlighted by the OIA response obtained from the Minister of Finance by the Herald’s assiduous Jenee Tibshraeny, as reported here. ...

"Faced with the set of facts (the unquestioned known ones), and applying something like Occam’s Razor, most reasonable people would deduce that something pretty serious and potentially scandalous must have gone on [in the organisation backing this country's paper currency] ...

"We (the public) still have no idea what actually happened. And that really isn’t good enough from either the Board or the Minister about the holder of such a consequential office. But what we do know is enough to lead a reasonable interpreter to fear that it really may have been something around Orr’s conduct. If not (and one genuinely hopes not) a straightforward explanation could set the record straight very quickly. And if so, people shouldn’t be able to hide behind private commitments to secrecy that might serve the interests of some of the powerful, but are hardly likely to serve the public interest."

~ Michael Reddell from his post 'What was the story re Orr’s resignation?'

'China's Trade Surpluses are Not a Source of Strength'

“'China believes it has a mandate to rule the world,' and that it is using trade balances to accomplish this. ... But, ultimately, Chinese trade surpluses [don’t] help ... '[Right up to] 1839 ... trade favoured the Chinese.' Little good it did them: China [eventually] experienced military humiliation, political and social disintegration, and an eventual descent into communism. ...
   "China’s 'strategy of generating massive trade surpluses [would] not have worked [when money was] backed by bullion ... the trade surpluses incurred by exporting more than its imports [would] have caused China’s currency to appreciate ... [making] Chinese manufactures more expensive and less attractive for outsourcing…'
   "'That never happened' ... because [without a gold standard] China [could devalue] its currency, harming its own people...' .... China’s currency manipulations have imposed costs on its citizens in terms of reduced real incomes. 

   "That isn’t all. The currency creation necessary to keep the yuan’s exchange rate with the dollar somewhat stable when new dollars are being produced at an impressive rate has helped fuel one of the biggest property bubbles in history [in both China and the US] .... [A] US deficit on the trade account must be offset with a surplus on the capital account ... [so] to maintain its export advantage was devious: it invested in the United States, 'buying US assets with US dollars ...The CCP today sits atop a $3 trillion hoard of assets, many of them American.' 

    "And, again, little good it did them. Holding significant stocks of depreciating US government debt isn’t, in fact, a source of strength. China cannot dump them to drive Federal borrowing costs up without tanking their value, which the Federal government is doing itself. As for those US assets, like farmland, it isn’t going anywhere, just like the buildings bought to much distress by the Japanese in the 1980s.
   "China’s government might well be running a trade surplus as a matter of policy. It may even be doing so with the aim of strengthening itself relative to geopolitical rivals like the United States. But ... it has tried this before [and] that same history indicates that the prospects for the government in Beijing are not good. Little good it did the Qing dynasty and little good will it do the Communist Party....

   "As Adam Smith observed in 'The Wealth of Nations,' mercantilism can enrich a few individuals but not entire countries – it detracts from, rather than adding to, the general welfare."

~ Composite quote from John Phelan, Kevin Roberts and Richard Fulmer from the post 'China's Trade Surpluses are Not a Source of Strength'

"Disaster Day?"

 

"[Yesterday was] Donald day, or will it be ultimately recorded as disaster day?
    "The world will watch on nervously, fingers crossed that Trump’s minders can restrain his simplistic declarations and pray they don’t impact their nations. ...
    "His ignorance is spectacular and if I could trust an honest test, I’d happily bet a million dollars that he couldn’t point to, say, Belgium on a map.
    "He was substantially restrained in his first term, thanks largely to the limitations forced on him by the Covid epidemic. However, no-one knew him better than his senior colleagues from that term, namely his vice-President, senior office-holders and others, who to a man have all subsequently came out strongly against him. ...
    "Trump is not only driven by ego but arguably more by an obsessive money passion. It’s no surprise that in league with Musk, they’ve created their own crypto currency as an escape route from their financial problems. ...
    "On the positive side the next four years will provide wonderful entertainment as we watch the diverse madness of Trump’s constant whims unfold.
    "We can (hopefully) in New Zealand, remain immune from any damage that will arise, albeit not so America which will ultimately bear the brunt, should for example Trump’s preposterous import taxes come into play."

~ Bob Jones from his post 'D Day'

"The prospective return of Trump's deplorable gang of trade advisers to the top trade policy positions in Washington ought to scare the living bejesus out of everyone."

"Donald Trump has had a lifelong adherence to the most primitive form of trade protectionism imaginable. That is, the utterly mistaken presumption that trade deficits are mainly a result of cheating by nefarious foreigners and/or stupid trade deals foisted on the economy by Washington Swamp creatures.
    "Thus, according to the Donald America will not start winning economically again until a tough businessman/negotiator like himself brings the hammer down on cheaters and slams the gates on imports by tariffs and any other means necessary ...
    "What is worse ... [his crackpot advisers] see trade is way too important to be left to the whims of the free market. ... Thus, if you are an exporter [adviser Peter] Navarro insists that you get state approval for what you may or may not sell to the Chinese. And if you are an importer, you might as well get ready to pay a stiff tariff upcharge for the audacity of sourcing the lowest cost of global supply rather than buying from red-blooded, albeit higher cost, American vendors. ....
    "To be sure, there is a giant problem with the $20 trillion of cumulative current account deficits (2024 $) the US has racked up continuously since the mid-1970s. But those massive, chronic trade shortfalls and the devastating off-shoring of domestic industry which had accompanied them are the result of bad money — not bad trade deals, bad actors abroad, or the free market at work. ...
    "Stated differently, when you look for the culprit behind the collapse of America’s trade account and industrial base ... its wasn’t the Chicoms over there or incompetent trade policy officials over here. It was the money printers domiciled ten blocks from the White House. ...
   
"[N]o more insidious notion is at loose in the beltway [in this context] than the Trade Nanny predicate which underlies the Donald’s revived attacks on China’s alleged technology theft and 'economic aggression.' ... [W]hat actually unfolded [under the Trump presidency] was the very opposite of a traditional trade skirmish. Instead, it was an unprecedented act of Washington-led economic aggression against another sovereign state that happens to have unfortunately saddled itself with a statist economic model that we call the Red Ponzi. ... [T]he attack of Navarro and the Donald on China was an attack on the entire warp and woof of its jerry-built $15 trillion red capitalist economy. ...

"[T]he prospective return of [Trump's deplorable gang of trade advisers] to the top trade policy positions in Washington ought to scare the living bejesus out of everyone. ... Navarro is the most dangerous economic ignoramus and fanatical nationalist ever to hold high office in the White House; and Lighthizer is a career swamp creature and the walking embodiment of Washington’s crony capitalist system. ...
    "[A] return to the Trumpian Trade Wars is [not] a secondary matter.

    "What is actually brewing is an epic upheaval of international commerce that will bury Washington even deeper in the Swamp and batter the living standards of Flyover America in trade-based inflation that will make the recent fly-up on Joe Biden’s watch look like a walk in the park."

~ David Stockman from his post 'The Folly Of The Trumpian Trade Wars'

 

So maybe, just maybe, we shouldn't give central bankers the keys to the whole monetary system.

"To repeat one of my consistent lines, human beings are fallible, they make mistakes. Central banks – here and abroad – are made up of humans, so they make mistakes. Really serious ones, of the sort seen in the last few years, shouldn’t happen but they do. One might even offer perspectives in mitigation: the pandemic was something quite extraordinary, and many people (here and abroad) misread the macroeconomics of it for too long. But those responsible need to take responsibility for the mistakes that were made."

~ Michael Reddell from his post 'Still avoiding responsibility'

After the UK election, what is the future of British conservatism?

Conservative Party MP (and Austrian economics enthusiast) Steve Baker lost his High Wycombe seat in the UK election. He was asked about the future of the Conservative Party, about which he has himself been severely critical even when in government, and if "small c" conservative policies were the cause of Britain's problems. [Starts at 9:16]

“GB NEWS INTERVIEWER: What is the future of British conservatism?”

“Whatever problems Britain has got, they weren't caused by government being limited, by taxes being too low, by budgets being balanced, or by debt being too low — or even by money being too tight with high interest rates, because we haven't had those. …
    “The problem is that we've had big government. High spending. Lots of debt, QE and cheap credit. That is not conservative economic policy. And the problem is we've really — and I've said this in all the interviews I've done for 50 years — the [whole] Western world has been living systematically beyond its means and using cheap credit and now QE to cover the gap. And you can't do that without manufacturing Mass Injustice. This is why people can't afford houses — young people particularly. If you pump lots of cheap credit into houses don't be surprised if the price soars, particularly when planning law constrains the supply of land.
    “These are disastrous policies. But in the end, they arise because the state spends too much. So the future of conservatism actually is to face the real world as it is which is that you can't spend more than you're earning in the long run. And your viewers know that.”

 Meanwhile, Razi Ginsberg and Morgan Carter at the Ayn Rand Centre UK observe that things can only get worse ...

"To repeat, inflation is a purely monetary phenomenon."

"Unfortunately, the entire edifice of the government’s theories [on the causes of inflation] — the assumption of discretionary power, the administered-price theory, the wage-price spiral, the exogenous shocks, the self-sustaining expectations, the idea of 'cost-push' — all of it is the rankest nonsense as an explanation of inflation....

"Inflation occurs, by definition, when the economy’s aggregate volume of money expenditure grows faster than its aggregate real output. The excessive growth of money expenditures can have, again by definition, only two sources: either the velocity of monetary circulation grows excessively or the money stock itself grows excessively (or both). Our current inflation is attributable almost entirely to excessive growth of the money stock.
    "Because the excessive growth of the money stock and the inflation it causes do not happen simultaneously, some people always fail to perceive the relationship. Increases in the money stock take some time before their effect on the volume of expenditure becomes significant. But once the actual lag is recognised, the relationship is seen to be very close....
    "In short, inflation is not caused by cost-pushes, wage-price spirals, depreciation of the dollar on foreign exchange markets, regulatory constraints, minimum wage laws, or lagging productivity growth. Inflation is a purely monetary phenomenon: when the purchasing power of the dollar falls steadily and persistently over many years, it is because dollars have steadily and persistently become more abundant in relation to the total quantity of real goods and services for which they exchange. Inflation, in sum, is caused by excessive growth of the money stock. Period.

"As the [central bank] authorities can control the rate of growth of the money stock, they clearly are to blame for its excessive expansion....
    "[Government] deficits, in the absence of excessive monetary expansion, can not cause inflation. Clearly, the deficits, working through the political process as it influences the [central bank], encourage a loose monetary policy. But it is essential to recognise that it is the excessive growth of the money supply, whether to finance deficits or for some other reason, that causes inflation. Conversely, with a sufficiently slow growth of the money stock, there can be no inflation, no matter what is happening to the [government] budget, labour costs, regulatory standards, minimum wages, and so forth. To repeat, inflation is a purely monetary phenomenon.

"It hardly needs to be added that once excessive monetary expansion has been halted, inflation cannot be kept alive merely by expectations of inflation. People will find that, in the absence of continuing monetary stimulation of aggregate expenditures, the inflation they expected just doesn’t happen. If they are obstinate and continue to act as if inflation is not abating, they will simply price themselves out of their markets in the same manner as the conspiring firm in the example above. It is far more likely, however, that they will adjust their expectations as the rate of inflation falls.
"Expectations cannot sustain an inflationary process unless they are validated by the actual course of inflation; and that validation can occur only so long as the growth of the money stock remains excessive."

~ Robert Higgs, from his article 'Blaming the Victims: The Government’s Theory of Inflation'

 

MMT = Modern Monetary Theory, aka Marxist Monetary Theory. It's the ancient idea, now promoted by modern-day empty heads, that you can get something for nothing — in its MMT guise it's the notion that its power to print dollar bills gives governments a horn of plenty from which to buy votes. In this guest post Jonathan Newman explains to MMT promoter Stephanie Kelton that despite her earnest wishing to the contrary, money still doesn't grow on trees ...

MMT and Boiling Frogs

by Jonathan Newman

“Why do we borrow our own currency in the first place?”

MMT promoter Stephanie Kelton poses this question in her new documentary Finding the Money, and a clip of Jared Berstein’s fumbled response to the question has gone viral on social media. Bernstein is the Chair of the Council of Economic Advisers to Biden, and so we would expect that he would have an articulate answer to Kelton’s question. He didn't.

Instead of trying to parse his response or explain why he fumbled, I want to provide an answer: the State borrows to expropriate real resources from the private, productive part of society.

When I made this claim on Twitter, one MMTer responded (somewhat) approvingly: “We all agree on this part. The question is how they do it and what the effect is. MMT gets that part right [and] Austrians get it wrong.”

So let me go into a bit more detail. The reason the State borrows money (money that it also has the power to tax and print) is so that it can balance the negative political consequences of its various methods of expropriation.

Murray Rothbard would take issue with the original question as soon as the third word, “we,” is uttered:

The useful collective term “we” has enabled an ideological camouflage to be thrown over the reality of political life. If “we are the government,” then anything a government does to an individual is not only just and untyrannical but also “voluntary” on the part of the individual concerned. If the government has incurred a huge public debt which must be paid by taxing one group for the benefit of another, this reality of burden is obscured by saying that “we owe it to ourselves.” (Anatomy of the State, p. 10)

Rothbard was responding to those who downplay the burden of government debt by over-aggregating the groups of winners and losers into one “we.” MMTers, on the other hand, go many strides further by claiming that public debt isn’t a burden at all. For them, public debt is private savings—they literally flip public debts and deficits upside down.

While they describe their framework as providing the “full picture” of government finance, they do not proceed in their analysis (at least not in sufficient detail) by asking what happens when the government pays the people holding the bonds. The money used to pay back the bondholder ultimately comes from taxing and printing, both of which involve expropriation from the private sector.

So MMT’s public-debt-as-private-savings falls apart with just one additional step of analysis. The closest Kelton gets to this insight in her book The Deficit Myth, is this: “In truth, paying interest on government bonds is no more difficult than processing any other payment. To pay the interest, the Federal Reserve simply credits the appropriate bank account.” Later, she describes that the only potential constraint is price inflation: “Every dollar that is paid in the form of interest becomes income to bondholders. If those interest payments become too large, the risk is that total spending could push the economy above its speed limit.”

And that’s the end of it. 

Paying bondholders might have negative consequences in the form of excessive price inflation. 

MMTers don’t connect debt service to their prior claims that public debt is actually private savings because it negates the alleged aggregate benefits of government bonds held by the public. Paying bondholders requires an expropriation from the productive part of society in the form of either taxes or diminished purchasing power, which means that in the aggregate public debt is not private savings.

They employ an individual bondholder’s perspective when it suits them, and employ an aggregate perspective when it suits them. They see, correctly, that holding a bond means that you can receive payments from Uncle Sam in the future, but then gloss over the costs of Uncle Sam servicing this debt. It’s a perfect example of a violation of what Henry Hazlitt described in 1946 as the art of economics: “The art of economics consists in looking not merely at the immediate hut at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

In his seminal book Economics in One Lesson, Hazlitt relied on the work of Frédéric Bastiat from 1850. Despite its name, Modern Monetary Theory is full of old errors. The only thing new about it is the jargon they use to do something people have been doing for millennia: disguise the true costs of government expropriation.

Since the State has nothing and produces nothing, everything it does involves expropriation and distortion. The reason it employs a variety of methods of expropriation is because each one has negative political consequences. If any one method is employed “too much,” the politicians and bureaucrats who wield that particular weapon get blamed and can lose their position. Using one particular weapon “too much” makes the State’s expropriation obvious and risks revolt in either soft or hard forms.

Heavy taxation is unpopular. High interest rates are unpopular. Price inflation is unpopular. But if the State can blend taxing, borrowing, and printing in just the right amounts, then they can boil the frogs without them jumping out of the pot.

This insight reveals something about MMT. As much as its proponents brandish accounting tautologies and purely descriptive claims about government finance, in the end it is 100% political. Their framework is about giving the State maximum power—power to expropriate and power to override what would prevail in unhampered markets. This is on full display in their writings and in their new film. They want to revolutionise the way politicians and voters view money and debt for the sake of their progressive agenda. When it comes to climate change, inequality, healthcare for all, and all the other 'Green New Deal' issues, they want a world in which nobody asks about the costs.

* * * * * 

Dr. Jonathan Newman earned his PhD at Auburn University while a Research Fellow at the Mises Institute. He was the recipient of the 2021 Gary G. Schlarbaum Award to a Promising Young Scholar for Excellence in Research and Teaching. Previously, he was Associate Professor of Economics and Finance at Bryan College. He has published in the Quarterly Journal of Austrian Economics and in volumes edited by Matthew McCaffrey and Per Bylund. His research focuses on Austrian economics, inflation and business cycles, and the history of economic thought. He has taught courses on Macroeconomics and Quantitative Economics: Uses and Limitations in the Mises Graduate School. He is the author of two children’s books: The Broken Window and Ludwig the Builder. 

His post first appeared at the Mises Wire.

Non-inflation is not magic

"If the state does not spend more than it collects and does not issue [money], there is no inflation. This is not magic."

~ Argentine president Javier Milei announcing his country's first government budget surplus in 16 years [hat tip Simon Cooke)

 NB: As Milton Friedman explains  ...

A rum reason to raise a glass on Australia's Day

The only successful armed takeover of government in Australian history happened in 1808, on the same day in the calendar that Australia marks its "Day." During the 19th century, it was widely referred to as the Great Rebellion. As Lawrence Reed explains in this guest post, it started with a mutiny around rum, and it featured a certain Captain Bligh — and it gives us at least two reasons to hoist a glass of rum today ...

Today—January 26—marks Australia's Day [still worth celebrating, argues Adrian Nguyen], still special in the sunburned land, and for at least two reasons. 

First, it was on this date in 1788 that the last of 11 ships in a British fleet landed at what is now Port Jackson near the mouth of Sydney Harbor. Their arrival is commemorated as the founding date of modern Australia.

Second, it was also on January 26 (but 20 years later, in 1808) that the one and only military coup in Aussie history occurred. Known as the Rum Rebellion, it underscores the importance to Australia of the liquor made from fermenting and distilling sugar cane juice.

More than a few Aussies will hoist a glass of rum when they offer a toast to their country on this day.  It’s impossible to do justice to the nation’s history without a generous mention of the stuff. Use of rum as currency in the Australian state of New South Wales even preceded the introduction of metallic coinage. Behind whisky, it’s the #2 spirit beverage there and presently enjoying a spike in popularity.

Partially because of cheap sugar, rum by the late 18th century had become the drink of choice (replacing gin) for two groups of Brits—the poor and sailors in the Royal Navy. The 11 ships that landed at Port Jackson on January 26, 1788, carried lots of both, including 750 convicts and 1,600 liters of rum. It’s no exaggeration to note that Australia was founded as a penal colony by crooks, their booze, and the sailors who escorted them.

(From 1787 to 1868, thousands of convicted felons in Britain were “sentenced to transportation,” which usually meant they were exiled to Australia instead of to a prison or a hanging).

In modern Australia’s first 20 years, “the population of Sydney was divided into two classes,” wrote historian George Mackaness (cited in Matt Murphy’s excellent book, Rum: A Distilled History of Australia), “those who sold rum and those who drank it.” The new colony descended into widespread drunkenness and dependence specifically upon rum. “Sunday, or the Sabbath,” writes Murphy, “was not a day for the Lord; it was a day for drinking, and rum became the new holy water.”

A regiment of the British Army called the New South Wales Corps (better known as the Rum Corps) assumed governance of the new colony and was in full control by the end of 1792. It soon established a government-protected monopoly by buying most or all imported rum and outlawing local stills and rum production not under its control. Less than three years later, Murphy tells us,

…the colony’s population…was about 3200, 1900 of whom were convicts. Most of them, settlers and convicts alike, were idle, living in deplorable poverty, and chronically drunk. Unless they were associated with the Rum Corps, in which case they were corrupt, comparatively wealthy, and chronically drunk.

The Rum Corps was far less interested in running a colony than its officers were in running a rum racket, and in keeping the populace dependent on them for their addiction. Orders from London to stop the nonsense went unheeded. When somebody did go to jail for an offense, his friends simply burned the jail down—including the main one in Sydney. As rum flowed into the colony, the Rum Corps would buy or seize it, then distribute some to its members, and sell the rest at high prices to the colonists. Even an attempt to get the colonists to drink peach cider instead of rum proved (pardon the pun) fruitless.

Enter William Bligh, the very same man of Mutiny on the Bounty fame. Appointed by London as the fourth Governor of the Australian colony, he arrived in Sydney in August 1806 with orders to clean the place up. He aimed to end the corrupt monopoly of the Rum Corps and its self-serving, haphazard effort at government. Tensions rose steadily between Bligh, the legitimate authority, and the officers who resented his moves against their land schemes and liquor trade. When Bligh attempted to arrest one of the Corps’ principal rum racketeers, John Macarthur, the Corps turned on Bligh and arrested him instead. It was Australia’s first and only military coup.

For the next two years, confusion reigned over whose authority oversaw the colony of New South Wales. Writing in The Sydney Morning Herald in January 2008, jurist James Spigelman looked back on this time and asserted,

[T]he colony was controlled by an illegal government. Every appointment, including to judicial office, was invalid. So was every governmental decision, including every exercise of judicial power. Uncertainty was ubiquitous. Personal and property rights were insecure.

Then in January 1810, Britain’s Colonial Office ordered the recall of the Rum Corps back to London and replaced it with a new regiment. Its commander, Major-General Lachlan Macquarie, became the new Governor, and he quickly dismantled the regime and brought long-overdue good sense and public order to the colony.

The coup was over, the rule of law restored. Macarthur was kicked out of New South Wales and could not return before 1817. Bligh was promoted to the post of rear admiral and died of cancer a few years later.

Growth, entrepreneurship, and opportunity followed in the 19th Century. At the Eureka Stockade in 1854, gold miners famously fought for democratic values and property rights and helped ensure freedom. In 1901, the six British colonies of the continent formed a federation and called it the Commonwealth of Australia. [New Zealand rejected the invitation to join. — Ed.]

I love Australia. It’s a beautiful place with a rich history, a country free and inviting. The Heritage Foundation’s Index of Economic Freedom last year ranked Australia as the world’s 13th freest economy, just ahead of Germany and right behind Norway. The U.S. comes in at #25.

Ron Manners is founder of the Mannkal Economic Education Foundation, headquartered in Perth in the state of Western Australia. He and his foundation work tirelessly to educate their fellow Aussies about the importance of freedom and free markets. When I recently asked him why he’s proud of his country, he wrote me this:

There are so many reasons to celebrate Australia as one of the few countries that the world’s displaced persons seek to flee to. That is the ultimate measure of a nation’s success, and this thought should be pondered by the “leaders” of the many countries from which people flee.

On Australia's Day, I plan to raise a glass of rum in tribute ....

For additional information, see:

• Coup that Paved the Way for Our Attention to the Rule of Law by James Spigelman
• Australia in the Making: The Sensational Story of Bligh and Macarthur by Henry Ernest Boote
• Rum: A Distilled History of Australia by Matt Murphy
• William Bligh: Mutiny on the Bounty (video) by Simon Whistler of Biographics
• Why Australia’s Gold Rush Ushered in Political Freedom as Well as Wealth by Lawrence W. Reed

Lawrence Reed is President of the Foundation for Economic Education (FEE), Humphreys Family Senior Fellow, and Ron Manners Global Ambassador for Liberty. Prior to becoming FEE’s president, he served for 21 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.
    A champion for liberty, Reed has authored nearly 2,000 newspaper columns and articles and dozens of articles in magazines and journals in the United States and abroad, and has authored or coauthored eight books. 

    His post first appeared at the FEE blog.

Some Fundamental Insights Into the Benevolent Nature of Capitalism

Just what it says on the label--the book the heart of which F.A. Hayek reckoned
every "fully trained commentator ought to read if he wants to talk sense" [PDF copy here]

"By the 'benevolent nature of capitalism,' I mean the fact that it promotes human life and well-being and does so for everyone. There are many such insights, which have been developed over more than three centuries, by a series of great thinkers, ranging from John Locke to Ludwig von Mises and Ayn Rand. I present as many of them as I can in my book 'Capitalism.'
    "I'm going to briefly discuss about a dozen or so of these insights that I consider to be the most important, and which I believe, taken all together, make the case for capitalism irresistible. I'll discuss them roughly in the order in which I present them in my book. Let me say that I apologise for the brevity of my discussions. Each one of the insights I go into would all by itself require a discussion longer than the entire time that has been allotted to me to speak today. Fortunately, I can fall back on the fact that, in my book at least, I think I have presented them in the detail they deserve.

"1) Individual freedom—an essential feature of capitalism—is the foundation of security, in the sense both of personal safety and of economic security. Freedom means the absence of the initiation of physical force. When one is free, one is safe—secure—from common crime, because what one is free of or free from is precisely acts such as assault and battery, robbery, rape, and murder, all of which represent the initiation of physical force. Even more important, of course, is that when one is free, one is free from the initiation of physical force on the part of the government ...
    "The fact that freedom is the absence of the initiation of physical force also means that peace is a corollary of freedom. Where there is freedom, there is peace, because there is no use of force: insofar as force is not initiated, the use of force in defence or retaliation is not required. ...

"2) A continuing increase in the supply of economically useable, accessible natural resources is possible as man converts a larger fraction of the virtual infinity that is nature into economic goods and wealth, on the foundation both of growing knowledge of nature and growing physical power over it. ...

"3) Production and economic activity, by their very nature, serve to improve man's environment. This is because from the point of view of physics and chemistry, all that production and economic activity consist of is the rearrangement of the same nature-given chemical elements in different combinations and their movement to different geographical locations. The guiding purpose of this rearrangement and movement is essentially nothing other than to make the chemical elements stand in an improved relationship to human life and well-being. ...

"4) The division of labour, a leading feature of capitalism, which can exist in highly developed form only under capitalism, provides among other major benefits, the enormous gains from the multiplication of the amount of knowledge that enters into the productive process and its continuing, progressive increase.

"5) At least since the time of Adam Smith and David Ricardo, it has been known that there is a tendency in a capitalist economy toward an equalisation of the rate of profit, or rate of return, on capital across all branches of the economic system. ... The operation of this principle not only serves to keep the different branches of a capitalist economy in a proper balance with one another, but it also serves to give the consumers the power to determine the relative size of the various industries, simply on the basis of their pattern of buying and abstention from buying ...

"6) As von Mises has shown, in a market economy, which, of course, is what capitalism is, private ownership of the means of production operates to the benefit of everyone, the non-owners, as well as owners. The non-owners obtain the benefit of the means of production owned by other people. They obtain this benefit as and when they buy the products of those means of production. To get the benefit of General Motors' factories and their equipment, or the benefit of Exxon's oil fields, pipelines, and refineries, I do not have to be a stockholder or a bondholder in those firms. I merely have to be in a position to buy an automobile, or gasoline, or whatever, that they produce....

"7) A corollary of the general benefit from private ownership of the means of production is the general benefit from the institution of inheritance. Not only heirs but also nonheirs benefit from its existence. The nonheirs benefit because the institution of inheritance encourages saving and capital accumulation...

"8) Under capitalism, not only is one man's gain not another man's loss, insofar as it comes out of an increase in overall, total production, but also—in the most important cases, namely, those of the building of great industrial fortunes—one man's gain is positively other men's gain. This follows from the fact that the sheer arithmetical requirements of building a great fortune are a combination of the earning of a high rate of profit on capital for a prolonged period of time, and the saving and reinvestment of the far greater part of the profits earned, year after year....

"9) As von Mises has shown, the economic competition that takes place under capitalism is radically different than the biological competition that prevails in the animal kingdom. In fact, its character is diametrically opposite. The animal species are confronted with scarce, nature-given means of subsistence, whose supply they are unable to increase. Man, by virtue of his possession of reason, can increase the supply of everything on which his survival and well-being depend. Thus, instead of the biological competition of animals striving to grab off limited supplies of nature-given necessities, with the strong succeeding and the weak perishing, economic competition under capitalism is a competition in who can increase the supply of things the most, with the outcome being practically everyone surviving longer and better. ...

"10) And now, once more with credit to Mises, so far from being the planless chaos and 'anarchy of production' that is alleged by Marxists, capitalism is in actuality as thoroughly and rationally planned an economic system as it is possible to have. The planning that goes on under capitalism, without hardly ever being recognised as such, is the planning of each individual participant in the economic system. ...

"11) I turn now to the subject of monopoly. Socialism is the system of monopoly. Capitalism is the system of freedom and free competition....

"12) Capitalism is a system of progressively rising real wages, the shortening of hours, and the improvement of working conditions. ...

"13) Finally, my last point: a one-hundred-percent-reserve, precious-metals monetary system would make a capitalist society both inflation-proof and deflation/depression-proof. ...

"Here, for lack of time. I must close. I'd like to do so by saying that if you've found my talk today to be of interest, I hope you will explore the matters I've discussed, at greater length and in detail in my book. Its entire sum and substance can be understood as a systematic exposition of the benevolent nature of capitalism."

~ George Reisman, from his pamphlet 'Some Fundamental Insights Into the Benevolent Nature of Capitalism'. Read it all on the web here. And for the full(est) argument, head to Reisman's full book-length argument in Capitalism -- on free PDF here, on Kindle here, hardback here, or paperback here: Vol. 1 and Vol. 2.