A monetary policy of inflationism is inherently undemocratic

From "The Emergency Argument In Favor of Inflationism" section of The Theory of Money & Credit, Mises writes:
"The government, in this regard supported by only a minority of the people, believes that there exists an emergency that necessitates a considerable increase in public expenditure and a corresponding austerity in private households. But the majority of the people disagree. They do not believe that conditions are so bad as the government depicts them or they think that the preservation of the values endangered is not worth the sacrifices they would have to make. There is no need to raise the question whether the government's or the majority's opinion is right. Perhaps the government is right. However, we deal not with the substance of the conflict but with the methods chosen by the rulers for its solution. They reject the democratic way of persuading the majority. They arrogate to themselves the power and the moral right to circumvent the will of the people. They are eager to win its cooperation by deceiving the public about the costs involved in the measures suggested. While seemingly complying with the constitutional procedures of representative government, their conduct is in effect not that of elected officeholders but that of guardians of the people. The elected executive no longer deems himself the people's mandatory; he turns into a F├╝hrer.

The emergency that brings about inflation is this: the people or the majority of the people are not prepared to defray the costs incurred by their rulers' policies. They support these policies only to the extent that they believe their conduct does not burden themselves. They vote, for instance, only for such taxes as are to be paid by other people, namely, the rich, because they think that these taxes do not impair their own material well-being. The reaction of the government to this attitude of the nation is, at least sometimes, directed by the sincere wish to serve what it believes to be the true interests of the people in the best possible way. But if the government resorts for this purpose to inflation, it is employing methods which are contrary to the principles of representative government, although formally it may have fully complied with the letter of the constitution. It is taking advantage of the masses' ignorance, it is cheating the voters instead of trying to convince them.

It is not just an accident that in our age inflation has become the accepted method of monetary management. Inflation is the fiscal complement of statism and arbitrary government. It is a cog in the complex of policies and institutions which gradually lead toward totalitarianism."
This was a very revealing passage and was the first time I thought about this, and viewed inflation in this light. I thought this would be beneficial to share for a few reasons. The first of course is just to give an example of Mises' genius and his ability to see things from all angles.

Additionally I thought this concept might be useful to those whom are interested in discussing and spreading the philosophy of liberty and Austrian Economics with others. The idea of inflation as an undemocratic policy could provide an additional angle in which one could approach the layman about the evils of inflation, or when discussing the economics of monetary policy with a progressive whom has received mainstream education. Normally the economic argument results in a most unsatisfying standoff between two different fundamental assumptions about what generates economic prosperity, both of which are somewhat non-falsifiable and thus no real progress can be made with someone whom is absolutely convinced of the Keynesian doctrine. Having said that, more often than not such a person tends to be a rather strong supporter of democracy and the idea of a state that is based on representative government. It would be interesting to see how one would reconcile those pro-democracy views with the call for an inflationary monetary policy, given its inherently anti-democratic nature!


If you believe in free markets and free people, Ron Paul is your guy!

 I always love being able to get some much deserved positive press out there for the great Ron Paul!

 From, "Western voters size up GOP field on three big issues", they saved the best for last:

Less government resonates loudly with Robert Fellner, a professional Las Vegas poker player who's seen his income drop since it became illegal to play online. Playing at casinos is not as lucrative, he said.

"If you believe in free markets and free people," he said, "you'll like Ron Paul."


The government does a terrible job of keeping you safe.

As always, this anecdote of government failure in and of itself, is quite appalling. But what I want to emphasize, and what I think is of much greater importance than this one specific example of government failure, is the incentives and institution behind this failure.

So the video below (direct link here) documents how the government agency that determines what is the safe level of radiation exposure to the brain via cell phones, or rather, what the maximum allowable radiation emitted from cell phones can be, is all based on studies that use the head of a 6 foot 2 inch, 220 pound man as their model. So the government agency which has the power to force companies to follow their decree, in order to "promote the public interest", in this case, not being exposed to dangerously high levels of radiation, conducts their research to determine what is the safe level for radiation exposure from cell phones, and does so using a human head that is different than 97% of the population. Not surprisingly, the results of these tests are going to be inaccurate for those people whom do not share the same characteristics of the model used.

As a result of this failure, a group of independent scientists that comprise the organization known as the Environmental Health Trust, conducted some research of their own and their findings were quite shocking. They found that the brain of a child received roughly 150% more radiation than that of the model being used. One may begin to see just how woefully dangerous it becomes when assuming a device is safe, because the government "tested it" and declared it to be.

Some of the interesting things of the Environmental Health Trust's research was that they made an effort to study and model the heads of all different types of people, both in size and gender. One would think this would be a pretty straightforward and obvious approach when determining whether or not a device is harmful for mass consumption by everyone, but hey the government apparently thought using a model that does not accurately reflect 97% of the population was close enough!

<a href='http://money.msn.com/money-video?vid=634d45e2-cc8d-4d59-bffc-d350f3aa97d9&src=CPPlayer:embed::uuids' target='_new' title='Study: Most Cell Users Exposed To Alarming Radiation Levels' >Video: Study: Most Cell Users Exposed To Alarming Radiation Levels</a>
Okay, so moving on from my rant at how colossally the government has failed the people it is tasked with protecting in this regard, let us now consider the mechanisms involved and ponder if there is a superior alternative to government-run regulatory agencies. The government agencies are comprised of mostly anonymous and almost entirely unelected bureaucrats. In a situation like this, where it is clear the quality of research and testing has been woefully inadequate to the point of criminal negligence, what are the consequences of such action? Nothing. The agency continues to receive its funding, the bureaucrats whom comprise said agency continue to receive their taxation-funded salaries and extravagent health packages, and if anything, the agency will receive even more funding, once their failures have been brought to light by free people, as now surely more (government) research must be done to look into this matter!

Now in such an institution, a bureaucracy, which is devoid of the profit and loss test, we might hypothesize that without the check of losses for failure, and the reward of profit for success, such sub-optimal performance is not only expected, but an inherent feature of bureaucratic management itself. And we'd be right.

The amazing thing about this example is that I don't need to ask the reader to engage in imagining what the free market alternative would look like. Even in spite of the existing government regulatory agency that de facto prevents competing free market ones from entering the industry, the free market still provides a superior product! For free! Without even the incentive of profit! Now if agencies like the Environmental Health Trust can spring up and produce such results in the current climate, can you imagine the free market alternatives that would grow in a free market regulatory environment? Where they could charge for their certification and thus be incentivized to produce reports that measure the safety of a product as it pertains to most, if not all, people, as opposed to merely 3%! And that very same incentive, only the inverse, of losses, would be used to bankrupt and eliminate agencies that produce government-quality work, and be a robust check on an agencies attempt to "cut corners" or produce sub-par results.
This example of government failure is an intrinsic feature of bureaucracy. Asking for the head of the agency to be replaced, or better scientists, or the right kind of people, or what not, is not going to make any difference in the long run. It can not. It is the institution itself that is responsible for such failures.  Ludwig Von Mises elaborates further in his short book on the matter here: http://mises.org/Books/bureaucracy.pdf.

The market literally produced a superior product, for free, in today's world, under our existing governmental monopoly environment. If that doesn't compel you to recognize that the idea that "only the government can keep us safe" or "only the government can provide X product" is a myth, I don't know what will. And in fact, the government can not and has never produced a superior product in a more efficient manner than the free market alternative. Good lord, look at what free people can produce now! Imagine if the shackles of government were substantially loosened or even removed altogether! Calling for the abolition of the TSA or the FCC or the EPA or any of the other dozen of government agencies tasked with regulating various industries and protecting the consumer, is not a call for less safety.  I care about safety too. So how about we start looking towards solutions that will actually provide a reasonable degree of it, and not just empty rhetoric for the continued existence of programs that merely pretend to.


Letter to the Editor

The city government here in Las Vegas is notorious for their "special use permits" that tack on thousands of dollars in fees to small business owners or those looking to bring jobs and business to Las Vegas. The local paper just ran a story of how a thrift store that "employed veterans and a place for donation and food items" was just shut down due to the failure to pay an additional $1,000 to pay for a special permit to...wait for it...sell used goods.

Anyways something about this particular story, maybe it was the absurdity of a special permit to be allowed to sell used goods, or maybe it was the tragedy of the government once again abandoning veterans - this time tossing them out of a job, but whatever it was, I felt compelled to write a letter to the editor immediately after reading. Here is that letter:


I read the article in today's View about the closure of the Fort Haven Thrift Store, and felt compelled to write. I am tremendously upset at what is being done here. The government is not supposed to be the mafia, whom shuts down honest, charitable, people whom go into business to provide opportunity and jobs for those struggling, simply because the store owner failed to pay up whatever arbitrary sum of money they are demanding from you in order to be allowed to operate. I couldn't help but notice that Mr. Huff had already paid the fee for a business license, but failed to pay an additional $1,000 "special fee" for a permit to sell used goods. Why is there an additional fee required to obtain a special permit to sell used goods?

I assisted in helping a friend of mine open a new martial arts business here in Las Vegas recently and was floored by the amount of fees and licenses required. Naturally in addition to all the standard fees, we also had to pay a "special fee" for a "special" permit to practice martial arts. There was no safety check, no verification of our competency or anything of that degree. Just more demands to pay more money to a government that habitually squanders revenue and produces sub-par products for ever escalating costs. The answer to why these extra fees exist is simple. Because they can. It is why this fee is set at $1,000 and not $10, the government functions to extract wealth from the people it allegedly serves, protects, and "creates jobs" for. Despite hiding beneath generations of rhetoric of how government only exists to help the public and act in the best interest of those it rules over, the actual result is quite clear. Government destroys and consumes the wealth that free people create. This is a perfect microcosm of this much larger issue.

There are so many tragedies in this one relatively small story. Mr. Huff is running a low-end thrift store and employing veterans. The $1,000 additional fee is preposterous on its face, and has no defensible rationale for existing other than the government can and thus will take money from the people it is supposed to be serving, at any opportunity they see fit.  For $1,000 the city is shutting down a business that provides jobs and a much needed store that caters to those less fortunate. What is truly in the best interest of the city of Las Vegas here? An extra $1,000 to the city government, or the jobs and services this thrift store provides to those in need?

Yet, this comes as virtually no surprise to anyone. We expect this from government. The government does not act in the city of Las Vegas' interest, the city government acts in the best interest of city government. So why do we consent to such a system?

There was a time when people understood that the government was supposed to serve and protect them, not act as an gang of thieves writ large that will imprison you or shut you down if you fail to pay them their tribute. This is one small example of a much greater problem. People left to their own devices can do amazing things. If we wish for an expedited return to prosperity, perhaps it is time we gave serious thought to removing the roadblock to liberty and prosperity that government is, and allow people the freedom to discover the best ways to serve one another.


Robert Fellner

Update: Letter Published!


Where Keynes Went Wrong

If you are looking for a basic, easy to read, and approachable book that outlines where the economic policies of our day come from, and why both the policies and theories behind them are flawed, you can do no better than starting with Hunter Lewis' fantastic book, Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts.

This book was specifically written for the introductory student, or just the curious layman, whom is interested in understanding the economic policy decisions made all around us, every day, that ultimately end up directly affecting us all. Hunter Lewis is a graduate of Harvard University, co-founded the global investment fund Cambridge Associates, LLC, and has served on The World Bank. 

The book is broken down into several sections where first Keynes himself is quoted, an explanation of Keynes' position on certain matters is given, and then the sensible approach to these economic matters is given quite succinctly by Mr. Lewis. To learn more, check out the link above for a detailed summary as well as several excerpts from the book. Here is one of my favorite passages:

"The greatest obstacle to sound banking is government. The US Federal Reserve was established in 1913, in part, to reduce bank reserves. [Bank reserves are what dictates how much or little the bank can inflate the money supply. A detailed explanation of this process is found in the preceding chapters. - Robert Fellner] Over the years, it has lowered reserve requirements repeatedly, always seeking in this and other ways to create more money and pour it into the economy through the banking system. In the eyes of politicians, more money is almost always better. It will help the economy look better in the short run, and that will help incumbents get reelected. The idea that the government (in the form of the Federal Reserve) guards us from inflation makes no sense. The record tells us otherwise. The Fed is the source, not the cure, for inflation." - Hunter Lewis, Where Keynes Went Wrong, 195-196.

I meet with many people whom generally agree that things are bad, traditional government-administered solutions are not working, and in many cases are making things worse, yet tend to fall into apathy and indifference as they lack any clear understanding of specifically what is wrong, not to mention what we should do about it. If you are one of those people and are interested in getting solid footing to stand on when you criticize the way things are, as well as to be able to propose workable and economically sound solutions, I highly recommend this book. No previous education in economics is necessary.

Furthermore, the book is broken down into self-contained sections such that if you are only interested in certain areas, it is easy to navigate to them and digest the material directly without having to read hundreds of pages of unrelated material first. If you need even more convincing, a glowing review by the Mises Institute is given here!