The Libertarian Party candidate for governor of North Carolina posed this question on Twitter a few days ago:

The question is poorly worded, but that is mainly the fault of the way the term “inflation” has fared in common parlance. Ross probably got the poll results he desired – he was trying to reinforce the idea that increasing the supply of money results in higher prices. The issue, however, is that those who understand that relationship are also usually the ones who think inflation ought to refer to increases in the money supply. For them, the question reads, “Does increasing the money supply create increases in the money supply?” The answer to the question now depends on how one interprets “create” instead of one’s understanding of economic cause-and-effect. Indeed, many of the discerning commenters said something to the effect of “printing money IS inflation.”

Ludwig von Mises lamented these terminological shifting sands in Human Action:

The semantic revolution which is one of the characteristic features of our day has also changed the traditional connotation of the terms inflation and deflation. What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates. This innovation is by no means harmless. It plays an important role in fomenting the popular tendencies toward inflationism.

First of all there is no longer any term available to signify what inflation used to signify. It is impossible to fight a policy which you cannot name. Statesmen and writers no longer have the opportunity of resorting to a terminology accepted and understood by the public when they want to question the expediency of issuing huge amounts of additional money. They must enter into a detailed analysis and description of this policy with full particulars and minute accounts whenever they want to refer to it, and they must repeat this bothersome procedure in every sentence in which they deal with the subject. As this policy has no name, it becomes self-understood and a matter of fact. It goes on luxuriantly.

I’m reminded of Ronald Reagan’s pithy way of saying the same thing: “If you’re explaining, you’re losing.” Mises realized that jumbling up the meanings of economic terms makes it easier for the state to implement disastrous policies. It’s difficult to criticize a policy when there is no consensus on what words mean.

The difficulty has only intensified over the years. Today, “inflation” is used by politicians, economists, commentators, and the public to refer to a host of different causes and even more effects.

• Robert Reich refers to inflation as the higher prices caused by corporate greed and consolidation.
• Kamala Harris, in her typical unscripted word salad, said inflation is “the cost of living going up,” and that it is “something that we take very seriously, very seriously.”
• Paul Krugman thinks about inflation through the Keynesian aggregate supply and demand framework. For him, inflation is whatever is revealed in the various official price level statistics.
• Jerome Powell also looks to the official statistics, but with an eye toward manipulating interest rates to minimize the difference between the year-over-year changes and the central bank’s two percent target.

Michael Bryan documented the evolution of the term inflation in three phases. Its original definition involved “a change in the proportion of currency in circulation relative to the amount of precious metal that constituted a nation’s money.” Later, economists started using the term to refer to increases in the supply of money relative to “the needs of trade” or the demand for money. Over the course of the 20th century, inflation became synonymous with price increases, “and its connection to money is often overlooked.”

Rothbard favored the original definition. Mises mainly dealt with the second. Modern Austrian economists make use of both definitions, but overwhelmingly reject the last. You will often hear modern Austrian economists (somewhat awkwardly) deal with the terminological problem by adding clarifiers: “monetary inflation,” “price inflation,” or “in this context, by ‘inflation’ I mean _____.”

The third definition (inflation is an increase in prices) has many serious problems. Chief among them, according to Mises, is that it conjures an

image of a level of a liquid which goes up or down according to the increase or decrease in its quantity, but which, like a liquid in a tank, always rises evenly. But with prices, there is no such thing as a “level.” Prices do not change to the same extent at the same time. There are always prices that are changing more rapidly, rising or falling more rapidly than other prices.

Another problem is that it leads the public and politicians to think that the consequences of monetary expansion can be arrested by further interventions like price controls: “While merely fighting symptoms, they pretend to fight the root causes of the evil. Because they do not comprehend the causal relation between the increase in the quantity of money on the one hand and the rise in prices on the other, they practically make things worse.”

Finally, the definition is causally naked. If inflation is an increase in prices, then anything that results in higher prices can be called “inflationary.” This became obvious in recent years when covid-era supply chain disruptions were said to have caused inflation. The same reasoning, with a dash of Marxist class conflict, allows the Robert Reichs and Elizabeth Warrens of the world to blame inflation on corporate greed. It has led to the segmentation of “inflation” by sector or industry: we have health care inflation, shelter inflation, inflation in higher education, energy inflation, and on and on. While disaggregation can be analytically useful, and often it is necessary when countering the highly-aggregated mainstream macroeconomics, this kind is not. It muddles the water regarding the nature of inflation, and it can’t capture the step-by-step process by which new money results in a “price revolution.” Fiat money inflation distorts the market as individuals receive it in exchange and then use it to increase their demands for goods produced in a variety of industries. Money goes from individual to individual, not industry to industry.

Mises was absolutely right when he concluded: “It is obvious that this new-fangled connotation of the terms inflation and deflation is utterly confusing and misleading and must be unconditionally rejected.”

Originally Posted at https://mises.org/

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This article is adapted from a lecture presented on August 3, 2024 at Mises University 2024 in Auburn, Alabama. 

The full name of this talk is “Self-Determination, Imperialism, and Secession: 3 Sides of the Same Coin.” So, I abuse the metaphor a bit, be we might also say that self-determination and secession—and self-determination’s opposite, imperialism—are three ways of looking at the same object.

The defense of self-determination is well-established within the so-called “classical” liberal tradition, and so let’s start with Ludwig von Mises, who understood liberalism well.

In his 1927 book Liberalism, Mises took a strict and expansive view in favor of self-determination. Specifically, he noted that respect for the right of self-determination required states to allow the separation of new polities via secession. He writes:

The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time … their wishes are to be respected and complied with.

Put another way, secession is the means or tool by which self-determination is expressed and preserved in real world politics. The two concepts go hand in hand.

Where does Mises get this idea of self-determination? He was drawing upon currents of thought alive and well in Europe in the late nineteenth and early twentieth centuries.

Origins in the American Revolution

The concept of self-determination—albeit not the phrase—was already well-known as the driving force behind the American revolutionaries when the colonies seceded from the British Empire in the 1770s. Historian David Armitage describes the United States’ war for independence as essentially the practical and political starting point for modern ideas of self-determination. While the philosophical roots of self-determination are often attributed to Immanuel Kant, the prototype for a real-life secession movement was found in the American war for independence. Referring to Jefferson’s Declaration of Independence, Armitage writes: “The notion that ‘one People’ might find it ‘necessary’ to dissolve its links with a larger polity—that is, that it might legitimately attempt to secede . . . was almost entirely unprecedented and barely accepted at the time of the American Revolution.”

The success of the United States in asserting a right of self-determination provoked similar movements in Europe and Latin America in the decades following American independence. For instance, Armitage notes that “language for self-determination” found in the Declaration of Independence would show up repeatedly with Latin American, European, and Asian movements seeking political independence.

In the Declaration, Jefferson was, of course drawing heavily on the thought of John Locke who himself recognized a right to self-determination secured through secession. But not as explicitly as Jefferson does. According to political scientist Lee Ward, Locke “had a highly developed right of revolution analogous to a remedial right of secession.” Based, in part, on “property rights of a conquered people.” Locke, for example, recognized that that Greeks within the Ottoman empire possessed a right to secede to defend themselves and their property against their Turkish overlords. That is, the Greeks had a right to self-determination.

Locke did fear where all this was leading if some sort of limitation was not put on who could assert a right to self-determination.

Locke suggested that only groups with size, institutions, and cohesion substantial enough to form their own legislatures could exercise a right to secession and political self-determination. Even here, however, Locke is not overly rigid. That is, there remains within Locke’s formulation the potential for a wide variety of communities to assert independence and self-determination. Ward notes that in Locke’s thinking “[t]he claim that legislative power can never revert to individuals does not preclude the possibility that one community within a larger society can assume legislative power.” From this power then flows a right to secession and self-determination.

Jefferson adopts a more flexible attitude than Locke, and assumed that new secession movements in America would arise in the future. He never expressed much concern with the details of which groups would secede or with what institutions. Jefferson supported efforts that would mitigate the need for secession as a means to realizing self-determination.

The Idea Spreads to Europe

In Europe, the concept spread in the late eighteenth century and into the nineteenth. For example, self-determination was a central theme in Poland’s fight in 1794 to fully separate from the Prussian, Austrian, and Russian states. Poland’s leading separatist was Tadeusz Kościuszko, who had been an officer in the Continental Army during the American Revolution and who was quite familiar with the Declaration of Independence. As historian Victor Kattan notes, Kościuszko was pushing for self-determination well before the concept entered the common lexicon in Europe.

Mises, who was well-versed in Polish history, was likely aware of this. Mises would have been even more familiar with the battles over self-determination that raged across Habsburg lands a generation before his birth. Chief among these was Hungary’s attempt to secede from the Austrian empire in 1848. These conflicts were very much couched in terms of self-determination.

By the 1870s, the phrase “self-determination” appears to have been increasingly common—especially in the German language. The German form of the phrase shows up among Czech parliamentarians of the Austrian Imperial Council in 1870. It is also found in French writings at least as early as 1862. It is notable that in the English version of Mises’s Liberalism that we now all read—a translation by Ralph Raico—that Raico translates the relevant German phrase as “self-determination.”

Self-determination via secession also gained support among French radical liberals Gustave de Molinari and Charles Dunoyer. Indeed, it is with Molinari that we see what is perhaps the first explicit endorsement of more or less top-to-bottom secession with what Molinari called a “double right of secession.” The idea here is that the commune can secede from the province, and the province can secede from the central state. That is, self-determination is in no way limited to any large recognized political entity, ethnicity, or religious group.

Here we see a similar view to that which Mises took about 40 years later. The right to self-determination, expressed and secured through a plebiscite, extends all the way down to even the smallest political entity.

Murray Rothbard, a disciple of both Mises and Molinari, unsurprisingly adopted a very flexible view on self-determination via secession. Rothbard wrote in 1969:

Secession is a crucial part of the libertarian philosophy: that every state be allowed to secede from the nation, every sub-state from the state, every neighborhood from the city, and, logically, every individual or group from the neighborhood.

This view of secession and self-determination should not be confused with limited or distorted views of “self-determination” offered by some other secessionists.

For example, the Hungarian nationalists in 1848 wanted self-determination for themselves within the Austrian Empire, but denied the same to other ethnic groups like the Croatians and Slovenians.

Another example is the American secessionists of the nineteenth century who denied a general right to self-determination. Theorists like John C. Calhoun, for example, did not allow for secession for any group other than state governments. Rothbard pointed out the inconsistency and the lack of any general theory of self-determination underlying this position.

Needless to say, these views fell far short of the sort of self-determination supported by Mises or Molinari or Rothbard.

By the early twentieth century, self-determination was not just a phrase used by liberals like Mises. The term was also used —although with far more cynical intent—by the likes of Vladimir Lenin and Woodrow Wilson, neither of whom were Jeffersonian liberals, of course.

Lenin used self-determination as a tool against what he saw as capitalist imperialism. Woodrow Wilson used the term for purposes of realpolitik—that is, to justify breaking off pieces of Austria and Germany following the First World War. It is notable that Wilson did not grant self-determination to Germans enclaves in countries with non-German majorities, however.

The United Nations and Self-Determination

Bizarrely, there are many American political commentators today—including even many so-called libertarians—who attempt to designate modern efforts at secession and self-determination as some kind of rightwing or reactionary strategy.

This would likely be news to the authors of the United Nations Charter which explicitly lists a right of self-determination—and therefore the right to political separation via secession— among the basic rights it enumerates.

Self-determination is a well-established right across the political spectrum, and at this point the debate over self-determination is only a debate over when and where this right may be invoked.

When the charter was adopted in 1945, colonial powers such as Britain and France were reluctant to approve any broad interpretation of the concept of self-determination. Winston Churchill, after years of denouncing Germans for violating self-determination rights in Europe, turned around and insisted that the concept did not apply to Africans. Eventually, however, many colonies managed to use the UN Charter’s words on self-determination to justify secession from their colonial masters.

In response, many UN member states insisted that self-determination via “unilateral secession” only applies to colonial subjects of an obvious nature—i.e., people in places like Kenya and Nigeria. “Noncolonial” subjects, the thinking went, did not have the same rights of secession and self-determination. The basis for this distinction between colonial and noncolonial secession has always been murky, however, largely because there is no undisputed definition of what regions or populations are “colonial” in nature. The definition of this status has at times become so arbitrary that one criterion has been whether or not the colony and the metropole are separated by a body of salt water. A dividing line of mere fresh water, or a desert or a mountain range, wouldn’t count. This conveniently denies Australian aborigines, North American Indians, and Siberian natives the right of self-determination. Moreover, member states of the UN have frequently insisted that self-determination can only be invoked as “remedial self-determination” in cases of major violations of human rights such as genocide. That is, secession can only be resorted to as a remedy for rights violations in extremis.

Of course what qualifies as “in extremis” has never been established. There is no agreement over how many abuses must be endured at the hands of an imperial government before a remedial right of secession can be invoked. There is no agreement over the means by which public support for separation can be asserted. Nor is there agreement over what constitutes colonial subjugation.

What is not in dispute, however, is that a right to self-determination via secession exists, and that secession is justified in at least some cases. Thus, the current borders of the world’s sovereign states are therefore neither sacrosanct nor perpetual.

On the other hand, and not surprisingly, the status quo powers tend to only grudgingly accept a right to self-determination, and even then only for some people suffering outrageous war crimes. Unfortunately, this position essentially means that the right of self-determination for victims of regime abuse are not recognized so long as the state’s crimes fall short of outright genocide, slavery, and similar crimes.

Since the 1940s, the concept of self-determination in international law has broadened—although nowhere near Mises’s interpretation. For example, the UN’s 1970 “Declaration on Principles of International Law Concerning Friendly Relations and Co-operation among States” explicitly expands self-determination beyond colonial subjects. The declaration predictably lists colonial subjugation as a justification for secession, but A careful reading of this section also leads one to conclude that those states that lose the support of “the whole people”—whether in a colonial relationship or otherwise—can legitimize the dismemberment of the state.

Moreover, the declaration’s language may further open the door to legitimizing the use of secession to address violations of self- determination “in moderato.” That is, international law discourse increasingly recognizes that secession need not be justified only by war crimes and genocide.

What constitutes “serious injustices,” of course, remains a matter of debate, as is the “acceptable” means of obtaining and enforcing this separation. The Misesian approach would be what philosopher Allan Buchanan calls the “pure plebiscite theory” of the right to secede. According to Buchanan the theory proposes that “any group that can constitute a majority (or, on some accounts, a ‘substantial’ majority) in favor of secession within a portion of the state has the right to secede.” This approach has indeed been used to establish political support and legitimacy for secession movements in many cases over the past century. Modern examples include Iceland in 1944, Malta in 1964, Slovenia in 1990. One might also include here Norway’s secession from Sweden in 1905. Yet plebiscites are not always used, as the examples of the American Revolution and the post-Soviet Baltic states make clear.

Limiting the Scope of Self-Determination

As to the question of when self-determination can be enjoyed and exercised, we might appropriate an old joke about socialism and say that “self-determination is like food in a socialist state. Not everybody gets some.“

And why doesn’t everyone get some? Because existing polities—states in the modern world—are not inclined to reduce their own power by granting self-determination to separatists.

Consequently, we observe that although radical liberals like Rothbard maintain that self-determination is an individual right, in the real world, it is exceptionally rare that an individual ever has the means to demand and secure self-determination on his own. The realities of life on planet earth requires some sort of collective action to secure these rights. As Allen Buchanan has observed, however, the fact that secession movements seeking self-determination are often brought about by groups of people does not mean self-determination cannot be an individual right.

For Buchanan, John Locke’s right of revolution falls into this category as well. It is an individual right generally exercised by groups. So, when Jefferson writes that “one people” can “dissolve the political bands” between polities, he’s not saying this right is a communal right only. Buchanan suggests that both revolution and secession in pursuit of self-determination should be “understood as the right of persons subject to a political authority to defend themselves from serious injustices” (emphasis added).

Even in a world where political leaders admit on a theoretical level that a right to self-determination exists, political leaders seek to manufacture many reasons why self-determination must not be allowed.

Essentially, nearly all reasons given for this boils down to various types of paternalism, colonialism, and imperialism.

This is easy to see both in nineteenth century colonialist rhetoric, but also in modern-day centralist rhetoric that denies self-determination to those labeled as “backward” or as not sufficiently enlightened to be allowed self-determination.

Self-Determination is Denied through “Humanitarian” Imperialism and Colonialism

It is important to keep in mind that the opposite of self-determination is imperial subjugation. As Locke, Jefferson, Mises, and many others state, to be held within a polity against your will is to be subject to a type of colonial rule. Thus, to deny self-determination and its realization through secession, is to embrace imperialism and colonialism.

Modern imperialists deny this, of course, and think themselves humanitarians who only want to protect human rights by maintaining their enlightened despotism over others.

We see this in how so-called humanitarianism remains a common excuse for imperialist centralization of power.

Preventing human rights violations, and Spreading civilization in general has long been used as an excuse for state-building through colonialism and imperialism—that is, through political centralization. This idea dates back at least to early Spanish and colonial efforts in the New World, and the rationale was initially employed as just one of many.

The importance of the conquest-spreads-civilization claim increased, however, as liberalism gained ground in Europe in the nineteenth century. Liberals were more skeptical of the benefits of imperialism. So, in this period, as political scientist Lea Ypi notes: “During the late nineteenth century and early twentieth century, the purpose of colonial rule was declared to be the ‘civilizing mission’ of the West to educate barbarian peoples.” The implied conclusion was that it was necessary that the European rulers “take over [the natives’] administration, and set up new officers and governors on their behalf, or even give them new masters, so long as this could be proved to be in their interest.”

That last caveat would become important to late colonial rationales: colonial rule was said to be in the interests of the natives themselves, who were incapable of proper and legitimate self-government. The British adopted these Spanish notions as their own in later centuries, and by the nineteenth century, we find John Stuart Mill claiming that “barbarians” were the be denied self-determination for their own good.

Today, the same thinking takes the form of support for humanitarian intervention both internationally and domestically. Just as the traditional imperialists assumed the residents of the colonies were too backward to be capable of enlightened self-government, modern opponents of a broad application of self-determination rights assume that central governments still must serve as enforcers of human rights across the globe.

The old imperialist mentality still prevails: political independence must be opposed in the name of protecting human rights.

Not surprisingly, by the way, the old radical liberals who broadly supported self-determination didn’t fall for this imperialist humanitrain ruse.

Indeed, many classical liberals—such as the great Richard Cobden—have long denied that such policies were ever worth it. Ludwig von Mises was a typical liberal in this regard when he wrote in the 1920s:

No chapter of history is steeped further in blood than the history of colonialism. Blood was shed uselessly and senselessly. Flourishing lands were laid waste; whole peoples destroyed and exterminated. All this can in no way be extenuated or justified. The dominion of Europeans in Africa and in important parts of Asia is absolute. It stands in the sharpest contrast to all the principles of liberalism and democracy, and there can be no doubt that we must strive for its abolition.

It is also notable that Mises wasn’t fooled by the claim that the imperialists are spreading peace and civilization. Mises writes:

Attempts have been made to extenuate and gloss over the true motive of colonial policy with the excuse that its sole object was to make it possible for primitive peoples to share in the blessings of European civilization.

The fact that modern humanitarian interventions often end in bloodbaths and poverty for the local populations —as in Iraq and other countries that have fallen victim to American humanitarian interventions in recent decades—reminds us of what results from denying self-determination. When we add up the human cost of the Scramble for Africa, American westward expansion, the Russian conquest of Siberia, the French annexation of Algeria, and the long march of the British empire, it is hardly evident that this was all “worth it” to bring enlightenment to the provincials. In fact, Western imperialism has largely functioned to create animosity against the West.

The humanitarian excuse for increasing regime power over retrograde locals has domestic applications as well. In the United States today, we often see the humanitarian excuse applied to deny self-determination to state and local governments. We are often told that only the central government in Washington is qualified to make final rulings—via the Supreme Court—as to what constitutes the “correct” interpretation of human rights. Local interpretations are considered suspect, and null and void if in conflict with the value of the metropole. (This reasoning differs little from a pith-helmet wearing British imperialist of old droning on about the white man’s burden.) Humanitarianism is similarly invoked whenever secession is mentioned as a means of protecting self-determination for some groups. Self-determination cannot be tolerated, many anti-secessionists tell us, because we have the Supreme Court and the White House to impose “humanitarian” and enlightened rule in all parts of the country. Those state legislatures or city councils who choose not to rule in line with the rulings of the Washington elite have rendered themselves threats to human rights, and thus have given up their right to self-government.

Indeed, vehement opposition to self-determination for separatists and decentralists remains plentiful. Among the writers of the pundit class, any number of arguments are used to claim that self-determination for out-of-power minority groups is not desirable or moral.

The centralizing elites in these cases insist that self-determination for separatists cannot be tolerated because its advocates are racists and fascist barbarians and cannot be trusted with self-government. Here’s a representative example of this line of thinking from MSNBC’s Joy Reid commenting on what would happen if people who don’t agree with her are able to obtain self-determination via so-called national divorce:

Today, roughly half of African Americans still live in the 11 Southern states that comprised the Confederacy, and so if this national divorce happened, they would be trapped in an apartheid hellscape of a new country with zero health care, crappy public schools, barely a right to vote, and a full return to ownership by someone else of their bodies — except this time it wouldn’t just be Black women, it would be all women.

Social democrats aren’t the only ones who embrace this line of thinking, however. This same rhetoric is employed by some libertarians. For example, Zach Weissmueller at Reason magazine writes:

In post-divorce America, California would have freer rein to confiscate guns. Florida lawmakers could shrug off the First Amendment and ban “offensive” speech. Cops everywhere wouldn’t need to concern themselves about violating citizens’ constitutional rights.

In both the social-democratic and the libertarian views shown here, the argument is essentially that if any region of the country is allowed to separate from Washington’s control, then the breakaway region will immediately set to work violating human rights. The conclusion we are supposed to draw is that support for self-determination amounts to support for slavery, gun bans, censorship, and a police state. By this way of thinking, it is assumed that the regime in Washington, DC is a reliable defender of human rights. This latter claim is a naïve view, to say the least.

Leftists and the libertarians differ in which human rights are put at risk by the spread of self-determination, but in both cases the arguments amount to this: without coercion and enforcement from the enlightened central government, state and local governments in the United States are simply too prone to tyranny and mismanagement. If allowed independent and localized government, those people over there might adopt policies I disagree with. Therefore, they must be subjugated to a central government with policies I prefer.” Therefore, no self-determination allowed.

We have words for this sort of thinking: imperialism and colonialism. Indeed, the assumption that potential separatists must be forced to submit to more “enlightened” government from the center—for the locals’ own good—is standard colonialist propaganda. It is essentially what European and American imperialists were saying 200 years ago to justify continuation of their respective governments’ efforts as conquerors and imperial metropoles. After all, most people living in the conquered colonial territories had their own ideas about government, culture, and natural rights. Many of these ideas were objectionable to the sensibilities of the elites back in the capital cities such as London, Paris, Moscow, and Washington, DC. Thus, the American regime regarded the Indian tribes as barbarians.

Why It’s Critical to Define Aspiring Separatists as Inferiors Unfit for Self-Government

Philosopher Uma Narayan has identified these tactics as core to the effort to centralize and enhance political power over populations deemed unfit for political independence. To consolidate the metropole’s rule, it becomes necessary, Narayan notes, to employ “stereotypes about the negative and inferior status” of the people in the conquered provinces and to “construct the colonized as childish and inferior subjects…” Thus, imperialists employed words like “savage,” “barbarian,” “backward,” and “patriarchal” to describe the conquered populations and support the claim that the colonial territories required enlightened rule from the central state.

In more recent decades, new terms are employed including ”undemocratic,” “misogynist,” racist, “gun nut,” or “redneck.”

An additional tactic is to insist that any attempt at self-government by the conquered population would not just be unenlightened, but downright illegitimate. For instance, as Ypi has shown, imperial states have employed a “legitimate-state theory” under which local claims to territorial rights are made “conditional upon the satisfaction of a number of internal and external conditions.” That is, the metropole insists it cannot allow self-determination unless it is satisfied that the population seeking self-determination will set up political institutions that are to the liking of the central state. Similarly, colonialists might employ what John Ladd calls the “doctrine of moral disqualification.” This doctrine is employed when the in-group—in this case the central state’s ruling class—defines “the other” or out-group as moral inferiors, and whose backward ways disqualify them from “full membership in the moral community.” More importantly, as Eric Reitan puts it, those deemed to be outside the moral community “may thus be treated in ways that would never be permitted” to members of the moral in-group.

No matter how exactly it is phrased, the message from opponents of self-determination is clear: separatists must not be allowed to leave peacefully because they are either unwilling or incapable of legitimate or moral self-government. Rather, these separatists require the central regime to ensure the administration of enlightened and orderly government. It’s an old claim with a long pedigree among the imperialists of old.

Originally Posted at https://mises.org/

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In the popular book “The Trading Game,” British author Gary Stevenson recounts his journey as a trader at a major U.S. bank in London. He has made lofty claims about his trading career and used it as a springboard for his successful YouTube channel, “Garys Economics.”

A tailwind to his popularity is that he holds many fashionable views — for example, that money “is a token,” that printing money is akin to creating wealth, and that capitalism is the problem. He holds these views while noticing that the inflation in the prices of consumables and assets hurt working people at the expense of the wealthy.

An impassioned take on wealth inequality animates his work, but his is a common case. Having observed a problem, ad hoc and confused theorizing stands in the way of identifying the root causes and real solutions. (Readers interested in inequality should listen to Mark Thornton’s “Unanimity” podcast.)

Economics mischaracterized

Economics is the study of how individuals act to satisfy virtually limitless wants in an ever-changing world of limited resources. However, when talk of wealth inequality abounds, one can be sure that economics is about to be mischaracterized as a means of weaponizing the state to distribute a given stock of wealth in a zero-sum and static world. This is redistributionism, or antieconomics.

And so it was that in a recent video, Stevenson set out his solution: “Tax the rich!” In making his case, he distinguished between income and wealth to explain that it is not those with high salaries he wants to fleece more but those who own a lot of wealth. (What about a doctor with a high net worth?)

He explains that the people in his crosshairs own the nation’s resources, land and buildings — they even own your mortgage! He says that salaried people can leave the country, but the wealthy — often based abroad — are not in the same position because the assets they “hoard” are within the nation. It is unclear why this means the capital investment cannot leave for friendlier jurisdictions.

Where does income stem from?

Stevenson takes umbrage with “passive” income. However, Austrians understand that the return on assets arises from capital’s discounted marginal value product, plus whatever entrepreneurial profit or loss comes to pass. This is determined by the valuations of consumers — what is there to criticize? Further, in the abstraction of an unhampered market, there is no guarantee of profit.

But reality is not unhampered. In fact, the major hampering comes from the state apparatus, particularly the central bank and the government treasury. So what about those who credit the government by buying its bonds? They receive an income that derives from taxation and inflation — there is no service toward demonstrated consumer preferences here.

The position of Frank Chodorov, that buying government debt is unethical, is both shrewd and defensible.

Who credits the British government?

The British government is heavily indebted, and the population is taxed heavily. That said, the burden falls extremely unevenly; over half of the households are net receivers of tax revenue. However, it is true that those who contribute, which includes the shrinking middle class, are paying the government’s creditors, which includes the wealthy. But note that most wage earners also own assets, so the pitting of one against the other is misleading.

In fact, the largest owners of the British government’s debt are workers’ pension funds and insurance companies (24%); the Bank of England (30%); and overseas holders (30%). The first is largely owed to the middle class, and the second remits interest income to the Treasury. Presumably then, it is only the third that would face Stevenson’s extra tax, which amounts to economic nationalism.

The elephant in the room here is that if the government spent less, it would not need to run large deficits. It could then tax everyone less as its debt reduces. However, it has run surpluses in only three out of 52 years!

This fiscal illusion hides the true cost of government spending and condemns successive working populations to pay interest on yesteryear’s spending.

The era of permanent inflation

Compounding the problem is the fact that there is rarely a shortage of creditors to the singular entity that can always (nominally) pay its debts. Now we come to the root cause of the problem: the central bank.

For monetary policymakers, a sustained deflation in nominal gross domestic product is intolerable. Though they use fashionable macro modeling to rationalize it, the mechanism that ensures the GDP goes up is that of broad money creation. This is the era of permanent inflation.

Policymakers ensure, by means of pronouncements and open market operations, that the trend rate of broad money growth remains positive enough to achieve their target price inflation. There is no limit — they have increased the central bank balance sheets to great extents to ensure it.

To the extent that this mechanism works through credit markets, it distorts relative prices and shifts income and wealth in favor of those who have collateral for yet more borrowing. To the extent that government debt is directly monetized, the government boosts its real income at money holders’ expense. That is, big corporations, the wealthy and the government gain at the expense of the rest, zero-sum.

However, the most insidious consequence of permanent inflation is that it causes durable goods to trade at a structural premium to perishables. This is the phenomenon that presents as a squeezing of the middle class.

As Guido Hülsmann explains, the most perishable good is that of labor: a moment of labor service cannot be stored to any degree. Contrast this to durable goods such as real estate and financial assets, and we see that everyone who trades their labor for wages is really engaged in a race to swap them for durables.

One of the consequences is that wages earned by the working population are worth less in terms of durable assets as time progresses. Given that one’s nominal income generally increases during a career, the earlier a career begins, the better off one can be.

The drawbridge is being raised on younger generations and anyone whose nominal income remains low.

Why not spend less?

Added to the structural drag of inflation is the tax burden. Contrary to the idea that taxpayers are working to pay the wealthy so long as most debt is constantly rolled over (with deficits it is), creditors in aggregate are only receiving interest payments from taxpayers — in Britain, these are 7-8% of spending.

The rest of the tax take, on top of new borrowing, finances current government spending, which by its nature is a centrally planned, uneconomic use of resources directed at the whim of politicians and bureaucrats.

A superior argument to reduce the tax burden would advocate for cuts to government spending, for “public” assets to be sold off and for greater private investment to replace public spending.

What if “we” wanted to raise the drawbridge more?

But Stevenson’s proposal is politically expeditious. So, what would it mean?

It would mean a reduction in investment as investors either consume more or move capital elsewhere. Were foreigners to be targeted, it would reduce foreign direct investment, which tend to weaken the currency. Borrowing costs would go up for all, increasing the tax burden due to the interest on government debt. It would tend to increase unemployment, cut total output and reduce real incomes.

In the current paradigm, the Bank of England would respond by cutting the base rate. This would reduce the current tax burden resulting from interest but would exacerbate price inflation and the Cantillon gain to those with assets, who can borrow more. Creditors would get capital gains as their assets are repriced in accordance with lower rates, raising the drawbridge even faster.

Stevenson might counter that increasing the tax on the wealthy would enable workers to pay less and increase their nominal net income. Indeed, he asserts that “if we tax them more, we can tax you less.”

But you cannot simply shift the tax burden from income to capital, as if carving up a pie differently. The size and composition of the pie is altered.

Taxing capital increases production costs and leads to a lower supply of future consumption goods and lower real incomes. Labor needs capital to increase its productivity, after all, and the U.K. is a nation with sclerotic productivity. The results would be felt mostly by lower earners, who are forced to cut consumption as prices rise ahead of incomes.

Summary

It does not follow that heavier taxes on the “rich” lead to greater wealth for the middle class. It might help the state’s employees continue to evade the market order of income and wealth, but it cannot help standards of living in general.

A reduction in the tax burden on workers is part of the solution, but a plan to heavily reduce government spending — and the volume of resources in the public sphere generally — is necessary.

The ultimate cause of the problem is the era of permanent inflation. It is this that enables lavish government spending aimed at self-serving ends, that increases the cost of living, that cheapens labor relative to real estate and wealth, and finally, that raises the drawbridge on younger generations and lower earners. All the ire should be pointed at the central bank and the political apparatus.

Originally Posted at https://mises.org/

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The 2024 Republican National Convention will be remembered for the raw emotions evoked by an attempted assassination the preceding weekend of its presidential nominee Donald Trump and for the now mostly Trumpified Republicans posing as the populist champions of American workers against the elitist Democrats.

This convention, however, should be remembered for another reason too. It marks the entrenchment of an organized “national conservative” movement within the party that espouses an anti-free-market ideology, overtly scorning individual liberty in favor of a powerful nation-state. This shift in Republican thinking is most clearly evident in Trump’s choice of J.D. Vance as the party’s nominee for vice president (who recently explained his “NatCon” principles in a Foundation for American Innovation podcast) but is also hinted at in Trump’s advocacy of retaliatory tariffs in his acceptance speech:

“And right now as we speak large factories, just started, are being built across the border in Mexico. So with all the other things happening on our border and they’re being built by China to make cars and to sell them into our country, no tax, no anything. The United Auto Workers ought to be ashamed for allowing this to happen and the leader of the United Auto Workers should be fired immediately and every single auto worker, union and non-union should be voting for Donald Trump because we’re gonna bring back car manufacturing and we’re gonna bring it back fast. The ability, some of the largest auto plants anywhere in the world, think of it, in the world.

“We’re going to bring it back, we’re going to make them, we don’t, we don’t mind that happening. But those plants are going to be built in the United States and our people are going to man those plants and if they don’t agree with us, we’ll put a tariff of approximately 100 to 200% on each car, and they will be unsellable in the United States.”

For his part, Vance closely echoes the talking points of such NatCon champions as American Compass and the Claremont Institute. While conceding that free markets are better than government planners at allocating resources and empowering people to meet each other’s needs (Vance even cites the Austrian economist F.A. Hayek on that point), NatCons like Vance protest that America already has a de facto industrial policy that punishes capital-intensive industries while leaving them vulnerable to the malign policies of the Chinese Communists. According to the NatCons, Americans have a moral obligation to reorient their existing interventionism toward favoring American victims of Communist Chinese policies, not continue to favor the Wall Street and Big Tech elites that profit from the existing globalist order.

There are two fundamental errors in the NatCon portrait of America’s deindustrialization and the NatCon recommendation of “industrial policy” as a remedy, one theoretical, the other historical. From a theoretical perspective, the erection of new trade barriers and fresh governmental malinvestments of labor and other productive inputs can only diminish, not increase, the productivity of workers and thus can only lead to a deterioration of their living standards.

Only the removal of existing policies that hamper private investments in capital-intensive industries in America — that is, a shift toward laissez-faire policies — can demonstrably improve labor productivity and thus the real labor incomes of Americans. If the problem with the American economy is its existing globalist version of corporatism, then the solution is to get rid of such interventionism altogether, not hobble the productive sector further by layering a nationalist form of corporatist planning on top of existing interventions. Government investments can’t turn dying industries into a net gain for American workers, not even in counteracting deviations from laissez-faire by other governments.

Vance’s failure to understand the failures of industrial policy seems to be rooted in a misunderstanding of the Austrian School critique of socialist central planning. A little over a century ago, Ludwig von Mises demonstrated that forward-looking cost/benefit calculations for comparing alternative investment plans are impossible without the use of prices for capital goods and factor inputs that are generated by competitive profit-and-loss-driven markets.

Central planners aren’t merely ignorant of things known to other actors and thus more liable to make costly mistakes in their calculations (a point often stressed by Hayek); they literally can’t come up with prices that are meaningful in the real world to plan with at all. When the NatCons grandly declare that mere individuals owe it to their nation to protect fellow citizens against losing their jobs due to interventions by foreign governments, they neglect to warn us that they have absolutely no idea what the costs of their job protection schemes will be, much like the unknowable costs of the equally muddle-headed environmental, social and governance policies that globalists of the World Economic Forum have been foisting onto the corporate world.

From a historical perspective, the deindustrialization of America — which started in the 1970s — can’t honestly be blamed on China, which didn’t even become a significant player in international trade until some 30 years later when China joined the World Trade Organization in 2001 and didn’t catch up with America as a recipient of foreign direct investment until 2020. The Trumpian narrative that Wall Street financed a net offshoring of American industrial jobs to China thanks to rotten trade deals is fake news.

Communist Chinese policies over the first two decades of the 21st century in fact offered what could have been an enormous boon to American industries: China’s enormous merchandise trade surpluses with America contributed a great deal to the pool of savings available in America, since the Communist planners were loath to hurt Chinese exporters by repatriating their dollar earnings and making their export prices uncompetitive. China’s blundering industrial policy could have helped reverse the chronic long-term stagnation of American industries had more of the increased savings in America found their way into productive American investments.

Unfortunately, this opportunity to leverage greater savings to the advantage of American industries was squandered, and the well-being of American workers continued to deteriorate. Both Democratic and Republican politicians doubled down on their spendthrift ways to win votes, just as they have been doing since the dollar was cut off from its gold backing in 1971. The share of America’s gross domestic product devoted to net private domestic investment (i.e., the share that actually grows the American economy) has been languishing ever since then, largely displaced by a doubling of the GDP share devoted to Social Security, Medicare, and other governmental transfers.

Figure 1: Personal current transfer receipts as compared to net domestic investment, 1965-2024

Source: FRED.

China, by contrast, got rid of its Maoist “iron rice bowl,” with even the poorest Chinese taking to heart Deng Xiaoping’s admonition that “to get rich is glorious” and increasing their personal savings rates to much-higher levels than your typical American; it’s not hard to spot the enormous difference in the shares of GDP devoted to gross capital formation over this period.

China has reaped the rewards of its people’s thrift with a rapidly growing economy in spite of the shortcomings of its government’s interventionism. America, on the other hand, has reaped the whirlwind of both its major parties embracing the principle that all Americans are entitled to economic security at the federal government’s expense and of financing this expense by putting the dollar on a fiat basis so it can resort to unrestrained debt monetization. In short, America has resorted to a policy of capital consumption.

Trump made it clear in his acceptance speech that he has absolutely no intention of dealing with the Social Security/Medicare crisis nor have he or his NatCon allies expressed much interest in monetary or banking reforms that would restore serious fiscal discipline by shutting down the bipartisan debt monetization racket. Instead, he promised a stupendous miracle of simultaneously reducing interest rates, reducing government debt, reducing tax rates and reducing the rate of dollar depreciation while allowing Social Security and Medicare to grow unchecked.

He also promised not to provoke World War III, as if rival trade blocs resulting from a breakup of the international division of labor won’t be incentivized to fight over access to natural resources as was the case leading up to the first two world wars. Instead of addressing the actual causes of America’s decline, Trump and his party are blaming foreigners for America’s shortcomings and using that blame as a pretext for waging war on the American economy, creating yet a new set of vested interests to live at the expense of the declining productive sector.

Originally Posted at https://mises.org/

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There is a widespread perception that capitalism is a system designed to encourage greed, envy, selfishness, and other moral failings to flourish. Popular writing on capitalism, notably Ayn Rand’s “The Fountainhead” and “Atlas Shrugged,” recognizes the importance of addressing the moral case for capitalism. No economic system, no matter how efficient and productive, can flourish if it is widely regarded as the root of all evil. Given that the science of economics is value free and does not address questions of morality, this misconception about capitalism often festers and propagates with little demur.

The assumption of many capitalists is that the demonstrable benefits of capitalism ought to speak for themselves – people will enjoy the material comforts that only capitalism can produce, and that will suffice to make the case for capitalism. Add to that the fact that socialism is invariably accompanied by tyranny, deprivation, and ultimately death, and it is reasonable to suppose that there is no need for debates about morality – the facts will speak for themselves.

While the facts to a large extent speak for themselves, socialists who cling to their ideological interpretations with a cult-like devotion have now achieved dominance in most schools and institutions of higher learning. They offer an interpretation of history that seems superficially attractive – the rich are rich because the poor are poor, wealth comes from theft and exploitation, those who oppose wealth redistribution are motivated by hate, socialism only fails because the wrong people are put in charge, and the like.

These arguments are central to the “decolonize the curriculum” movement that has swept universities in the last few years. Underpinning this ideology is a commitment to egalitarianism, and the belief that inequality of income, wealth, or circumstance is wrong. The notion that inequality is presumptively evil, and that capitalism is therefore immoral because it produces inequality, persists. As Michael Tanner argues in his critique of Thomas Piketty’s “Capitalism”:

“Piketty takes the evilness of inequality as a given, ignoring the broader question of whether the same conditions that lead to growing wealth at the top of the pyramid also improve material well-being for those at the bottom.”

One of the challenges in making the moral case for capitalism is that the inequality debates have spawned their own use of terminology, in which liberal means egalitarian and capitalism means exploitation. Thus, the first step in defending capitalism is definitional. For example, in South Africa the term “capitalism” was historically seen as indelibly linked to imperialism, conquest, and racial segregation. Walter Williams’ book “South Africa’s War Against Capitalism” addresses this issue, aiming to clarify the importance of freedom of association and contractual freedom to capitalism. Williams was concerned that apartheid was seen as “a tool of capitalist enrichment”:

“The dominant black opinion in South Africa is that apartheid is an outgrowth of capitalism. Businesspeople are often seen as evil forces seeking racially discriminatory laws as a means to higher profits through the economic exploitation of non-Europeans. Therefore, in the eyes of many black Africans and their benefactors in Europe, the United States and elsewhere, a large part of the solution is seen as being – inter alia – in the promotion of socialist goals, such as state ownership and income redistribution, as a means to bring about a more just society.”

This explains why many Africans consider communism an attractive ideology – they regard communism as “antiracist” and are enthusiastically encouraged in this belief by Western communists.

The need to address these misconceptions by offering a moral defense of capitalism shows the importance of Murray Rothbard’s “The Ethics of Liberty.” Understanding the ethics of liberty is important in defending liberty and private property, and beyond that it is also important as the foundation of a moral defense of capitalism.

In our book, “Redressing Historical Injustice,” David Gordon and I ground our moral defense of capitalism on the ethical standards set out by Rothbard. We argue that capitalism, in itself, is neither moral nor immoral. It is a system of free market exchange based on private property, and in our view “it is no more reasonable to seek a moral standard within the processes of free market exchange than it would be to seek a moral standard in hills or forests or other natural features.” We argue that “instead, the tenets of capitalism ought to be evaluated according to an independent moral standard, namely the ethics of liberty.”

We therefore defend the morality of capitalism by highlighting the importance of capitalism for liberty, and in turn emphasizing the importance of liberty for justice and peace. We argue that whether people have the same amount of wealth or different amounts of wealth is neither moral nor immoral. The moral debate concerns neither equality nor inequality, but people’s natural right to live in peace and liberty. Liberty is the foundation of morality and justice.

We defend capitalism not because we think systems of free exchange are inherently moral, but because we understand free exchange as an attribute of self-ownership and property rights. In a wider context different foundations for morality and justice may be held by different people, based on moral philosophy or religion, for example, but such foundations would not be objective or universal. Self-ownership and property rights are the only moral foundation of justice in an objective and universal sense.

Those who see capitalism as immoral essentially depict free exchange, freedom of association and contractual freedom as “evil” because liberty cannot guarantee wealth equality – liberty is indeed bound to produce unequal wealth distribution. However, as Amartya Sen points out, it is odd to see free exchange or economic liberty as “immoral”: “To be generically against markets would be almost as odd as being generically against conversations between people.” It is clear that a moral defense of freedom of expression and freedom of association, or “conversations between people,” does not depend on whether the experience or outcomes of such interactions is equal. A moral defense of capitalism is therefore premised on our inherent and inalienable right to life, liberty, and property.

Originally Posted at https://mises.org/

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Wow, what a week Mises University 2024 was! I have been a Mises University faculty member for over 30 years, and this—the 38th year of Mises U—may have been the best! Students came from 12 countries, 29 states, and 69 colleges and universities, including Yale and Princeton. The faculty, always outstanding, was truly inspiring and the students responded with great enthusiasm and endless questions.

A true highlight of the week was the presentation by Dr. Robert Malone, our special guest speaker. Dr. Malone discussed his forthcoming book, “PsyWar: Enforcing the New World Order” (written with his wife, Jill). It was an engaging and important talk, and the students were utterly captivated by it. You can also listen to this engaging talk here. As of this writing, it has 355,000 views!

Dr. Malone informed us of the government’s new term, “malinformation,” which is information that is true but makes the recipient of the information “distrustful of government.” What could be more American and more patriotic than that, you might say. The Department of Homeland Security, however, wants to use it to declare the purveyors of such information as possible “domestic terrorists.”

Dr. Malone was so inspired by Murray Rothbard’s “What Has Government Done to Our Money?” that he reviewed it (along with Murray’s “Anatomy of the State”) in his Substack column which has over 500,000 readers. After reading his intelligent review, I immediately invited him to speak at Mises U and he and his wife Jill graciously and excitedly accepted our invitation and thoroughly enjoyed their two days at the Mises Institute.

My own lecture, “Axis of Evil: America’s Three Worst Presidents,” has 70,000 views as of this writing, but the Big Moment of the conference was the appearance of our “mystery speaker,” Dr. Ron Paul, on Friday. The students were indeed surprised and ecstatic. Ron presented an hour-long lecture, took questions, and stood for pictures. Recalling the advice of Leonard Read, Ron said that “the most important thing you can do is educate yourself” and that the type of education offered by the Mises Institute “absolutely . . . is the answer.”

Mises University students have always been impressive and motivated, and they seem to be getting more and more so every year. In attendance were several successful entrepreneurs who had not yet turned 20! The student who won the first prize in the oral exam was Russian-born Guriy Borodkin (now a U.S. citizen) who is only 18 years old and he competed against much older Ph.D. students.

The week ended on Saturday afternoon with guests arriving to help us celebrate Lew Rockwell’s 80th birthday. We celebrated with a catered barbecue dinner and a beautiful birthday cake in honor of my friend and hero, the great Lew Rockwell. On display was a poster with birthday wishes from around the world, and I would like to share part of one of them by my friend, Hans-Hermann Hoppe. “I know you are too humble to say this, but I can certainly do it,” wrote Hans. “You are the world’s greatest living promoter of sound economics in the tradition of Ludwig von Mises and Murray N. Rothbard and, more generally, of liberty, peace, common sense, and reason.”

What a thrilling experience this year’s students had: eye-opening lectures, wisdom from our special guests, meeting new friends and establishing relationships to last a lifetime. The students take all of this with them as they go forward and it is thanks to the generosity of supporters like yourself. Thank you for all your support of Mises University and of the Mises Institute in general. I hope to see you soon at one of our upcoming events.

If you would like to help next year’s students have their “best week of the year,” please consider donating to Mises University 2025 today. You can donate here.

Originally Posted at https://mises.org/

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