Why did humans make the transition from customary law to formal statutory law? There is an exhaustive body of literature examining this issue, but in his paper Economic Freedom and the Evolution of Law (1998), Bruce L. Benson provides some intriguing insights. Benson tackles this question from a Hayekian perspective, asserting that modern legal institutions are the byproduct of social evolution.
The paper presents the gradual shift as the byproduct of “entrepreneurship”; individuals with leadership qualities were able to persuade a group of people to adhere to their governance. What makes this persuasion credible, especially in the absence of a state? Benson suggests that such a leader or political faction would have a comparative advantage in violence (p.219). Audaciously, detailing how the development of formal law has its roots in extortion. In these primordial legal regimes, those who acted as law enforcement officers were those who lacked entrepreneurial/leadership skills but had an advantage when it came to violence (p.220). In effect, operating as a legal application of the division of labor.
Any astute observer will also recognize there is a stark difference between voluntary acceptance of such leadership and when imposed by force. One problem with having a high concentration of authority monopolizing the capacity for violence is that such an institution is hard to disrupt. Even more concerning are the perverse incentives that arise due to the desire to retain this authority. The contribution of tributes or taxes from those seeking protection may create reasons for the leader and their law enforcement officials to engage in rent-seeking behavior to keep their monopoly in place. (p.222). Bring a great degree of clarity to why Benson categorizes this arrangement as a form of extortion.
Frequently in economics, the views of a specific theorist are exploited for the interests of various political factions. The most salient examples are economic theorists are labeled as “free market” economists. Conservatives generally celebrate Adam Smith as a defender of unfettered commerce but conveniently ignore his concern for the blight of the poor. Smith was too multidimensional to be distilled to a simplistic bumper sticker slogan. The great F.A, Hayek suffered from a similar syndrome as many Conservative and Libertarian pundits disregard the nuances of his work and paint him as radical. However, there are also instances of the intellectual advances of various theorists being embellished by their opponents for partisan purposes. For example, the moderate and subtle rationalizations of James M. Buchanan are characterized as extreme libertarianism. Nancy Maclean is unacquainted with the work of Murray Rothbard!
The inaccurate framing of economic theory for political interests is not limited to right-of-center economists. Many left-wingers exaggerate the beliefs and postulations of their favored economists, the most conspicuous example being the abuse of John Maynard Keynes . Yes, in the eyes of most Conservatives and Libertarians, Keynes had a flawed perception of market processes. Although, he was not communist. Keynes still had some semblance of a pragmatic filter, which placed constraints on his sanguine view of consumption. Keynes did believe that after the end of an economic downturn, deficits should be eliminated. Therefore, Keynes did not advocate for a policy of perpetual deficit spending, most likely would take issue with the massive debts amassed by the United States over the past couple of decades.
It wouldn’t be outlandish to examine the embellishment of Keynesian economics for political gain from the precepts of Bruce Yandle’s Bootleggers and Baptists (1983) coalition paradigm. A political relationship between various factions of policy advocates where some supports sincerely believe in the normative intention of the policy (the Baptists). In contrast, the tacit beneficiaries (the Bootleggers) merely ride the coattails of the moralistic advocates (either silently or vocally alongside the Baptists). The support for various stimulus policies would have its share of Bootleggers and Baptists to defend “stimulus spending”. The most recent examples are the Obama-era stimulus programs (American Recovery and Reinvestment Act of 2009) and multiple rounds of COVID stimulus allocations. Often, Keynesianism is justified when it becomes politically suitable to do so. The most recent examples of economic stimulus initiatives exemplify this point quite well. This observation becomes more striking when you consider that the convergence of our monetary and fiscal policy has amounted to a hand-selected bastard-breed mutation  of Keynesian economics and Monetarism. The conception of this flawed system is being spurred by policymakers trying to select the most politically advantageous characteristics of both economic philosophies.
We could consider the founder of Keynesian economics the Baptist of stimulus spending policies. As Keynes envisioned stimulus spending as being a temporary remedy amid an economic downturn. Despite his good intentions, Keynes failed to recognize the political incentives to politicians, bureaucrats, technocrats, activists, and even ordinary voters; factors that only serve to reinforce one of Milton Friedman’s most enduring dictums “There is nothing more permanent than a government program”. While stimulus initiatives come and go, policymakers still keep implementing them as a remedy to soothe economic turmoil. Stimulus policies were adopted with little regard for the implied discipline advocated for by Keynes. After all, he was still an economist and was not ignorant of the discipline’s conceptual pillars. Stimulus spending is an unsound policy, but he never intended for it to be at the regular disposal of politicians and lawmakers. Dating back to the observations of Niccolò Machiavelli,politics is a game of perception, not one of technical proficiency. Conversely, economics is ideally a positive social science unconcerned with popular opinion.
Moral values always enter the equation whenever we enter the realm of actual decision-making, even in economic decision-making. Unfortunately, the line between economic science and public perception is often blurred, especially by the adroit manipulation of politically savvy elected officials, activists, lawmakers, and activists. Promising ever-larger transfer of “free” goods and services to the voting public. Applying the principles of concentrated benefits and dispersed costs, voters believe they have made out like bandits. Thereby, forming a mutually beneficial feedback loop of voters believing they have won and political actors presented in a positive light; as being defenders of the common man. Elected officials portrayed as advocates for the “little guy” helps establish social currency with the voting public. Social currency dovetails nicely with a politician’s incentive to remain in their position of political power.
Maclean is aware of Rothbard’s work to a superficial extent, but if she sincerely understood his work, she would not be portraying Buchanan as a radical.
The author is not an exponent of Keynesian economics.
Despite the intense debate between Keynesians and Monetarists, both have their commonalities.
However, is this statement even true? Do platforms have a responsibility (legally or morally) to moderate and suppress factually incorrect content? Even though Spotify is a Swedish-based company, this rhetoric parallels the talking points of the Section 230 debate in the United States. Section 230, in most instances, shields service providers from liability for the media generated by content producers. This amendment of the Communications Act of 1934 (230 falls under the Communications Decency Act of 1996). Section 230 states :
‘….‘(c) PROTECTION FOR ‘GOOD SAMARITAN’ BLOCKING AND SCREENING OF OFFENSIVE MATERIAL.— ‘‘(1) TREATMENT OF PUBLISHER OR SPEAKER.—No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider. ‘‘(2) CIVIL LIABILITY.—No provider or user of an interactive computer service shall be held liable on account of— ‘‘(A) any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected; or ‘‘(B) any action taken to enable or make available to information content providers or others the technical means to restrict access to material described in paragraph (1)….” (p.84).
This subsection of Section 230 could easily extend to streaming services. Spotify exercises no editorial discretion and merely provides the tools to content creators to distribute music and podcasts. ****Ethically, there are free speech concerns regarding social pressure to moderate and censor content. While the First Amendment only protects citizens from government censorship, it is evident that Spotify is not troubled by the content produced on Joe Rogan’s podcast. If Spotify takes any action, it would be due to public scrutiny.
BOOTLEGGERS AND BAPTISTS:
The outcry for Spotify to address the JRE podcast’s proliferation of misinformation may not have manifested in a formal policy proposal, but there are still individuals that stand to benefit. Making the JRE controversy a perfect scenario for a Bootleggers and Baptist (1983) coalition dynamic. One subset of the coalition acting as the public face presented the moral argument for Spotify acting against Joe Rogan. Quietly, lurking in the background, are the callous beneficiaries hoping their ulterior motives are not recognized.
The Baptists in this scenario are the experts that drafted the open letter to Spotify and other notable public health professionals that have vocally expressed condemnation of Rogan’s commentary on the pandemic. One of these renowned crusaders is Dr. Katrine Wallace of the University of Illinois, who catastrophically describes Rogan as “a menace to public health,” particularly for espousing anti-vaccine rhetoric”. Whether or not you find this statement hyperbolic or false, it still conveys an ethical concern for the influence of Rogan’s podcast influence on public health. Therefore, making Wallace and like-minded professionals Baptists. Although, there is the potential that Wallace is a Dual-Role Actor, simultaneously being concerned about public health and seeing an opportunity to raise her public profile. After all, she is a blogger.
There are two categories of Bootleggers that operate as silent beneficiaries in this scenario. The first group is the other Podcasters that distribute their content through Spotify. If the JRE podcast becomes removed from Spotify or suffers other forms of sanctions, that would mean less competition for Tim Ferriss. The second category of Bootleggers would be the medical establishment. Not to treat this faction as an amorphous blob, considering it is a collective consortium of various people, organizations, and businesses, it would be nearly impossible to identify all the potential players in the subset of the anti-JRE coalition. The vast networks of the medical establishment are so pervasive it has even been referred to as the Medical-Industrial Complex, paralleling the concept of the Military-Industrial Complex.
There are a lot of individuals that stand to profit from keeping the status quo intact. Any professional possessing heterodox perspectives stand potentially disrupt the current public consensus resulting in fewer profits for pharmaceutical companies and other appurtenant facets of the industry. Over the past couple of years, there has been an ongoing assault on expert consensus. In a world of “alternative facts, the gap has continued to widen between popular opinion and professional consensus. Few things can be threatening as a credentialed professional who holds positions that go against the grain of the establishment. These individuals appeal to a public that is disillusioned and skeptical of expertise. The medical establishment aimed to reclaim its throne by targeting influential voices that have contrary views. In the hopes that people will stop patronizing herbalists and reading articles written by Robert Malone. When persuasion is ineffective, censorship becomes the preferred mechanism.
The problem remains of how do we distinguish fact from fiction? Is it Dr. Malone or the medical establishment that is being dishonest? The average American citizen lacks the knowledge, time, and resources to effectively qualify the claims of either faction in the COVID debate. This situation parallels the phenomenon of rational ignorance examined in Public Choice Theory; deference to experts and public figures is cost-effective to the average layman. No need to read dozens of medical journals filled with opaque jargon. When there are have several sets of experts with competing opinions whom do you listen to? It is possible to find an expert in any field that can confirm our priors.
One brilliant suggestion comes from UCF professor and scholar Enrique Guerra-Pujol, who suggests we should utilize prediction markets to assess the veracity of conspiracy theories. In any decision-making process, we are grappling with the fact that no one can have all the information. As stated in the Hayekian Knowledge Problem; information is naturally dispersed, meaning effective top-down decision-making is impossible. If we could hypothetically remedy this by creating an incentive-based mechanism that can aggregate all perspectives on a given topic we will have a better (not perfect) outcome. By including the vaccine skeptics rather than excluding them, they become part of the validation process. When we look at range-voting in jury trials it becomes quite apparent that even including erroneous perspectives does not drastically impact the overall outcome.
Perhaps instead of capitulating to public pressure to remove all of Joe Rogan’s “COVID episodes, Spotify could run a user poll or a modified prediction market (to avoid the ire of SEC and CFTC) to get the listener feedback on the veracity of the content of these episodes. Instead of removing the episodes, if deemed to be inaccurate, Spotify should merely place disclaimers.
****Correction- The 230 immunity argument does not hold up for two reasons:
Following Dr. Block’s supposition that a person can commodify themselves and effectively sell or alienate themselves (p.6), we must address the issue of capital destruction. The economic costs go beyond losses in productivity but also have more subtle ramifications throughout the economy. The act of suicide destroys a person’s body; however, the intangible assets lost are arguably the most detrimental. Most notably, in the form of squandered human capital and social capital. While these forms of social capital are refutably mere constructs, they still seem to possess a priceless qualitative value. In the absence of the knowledge, credentials, and necessary social networks financial success is not possible.
Commodifying these abstract concepts applies them to John Locke’s postulations regarding wasting resources (p.12). But if the value of commodities is subjective, we have to evaluate Locke’s assumptions regarding frivolous resource consumption. Furthermore, if we accept this notion of wasteful consumption, we must apply it to other areas of resource allocation. For example, investing too in production can be considered a wasteful form of resource allocation. Under Locke’s theory, if extrapolated, we should bar entrepreneurs from making overinvestments in their firms. Not only would such a law be unenforceable, but it also suffers from the Hayekian Pretense of Knowledge. Neither the businessman nor the lawmaker has access to perfect information. How would the lawmaker even know if a business owner engaged in malinvestment until the downstream effects have come to full fruition, paralleling the flaws of proactive legal sanctions? Entrepreneurial decision-making is enveloped in uncertainty. To quote the great Frank H.Knight:
It will appear that a measurable uncertainty, or “risk” proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. We shall accordingly restrict the term “uncertainty” to cases of the non-quantitative type. It is this “true” uncertainty, and not risk, as has been argued, which forms the basis of a valid theory of profit and accounts for the divergence between actual and theoretical competition. (p.84)
To preemptively declare a form of capital use or manipulation as “…wasteful..” is fallacious. At best, we can attempt to use market signals as a guide for appropriately deploying capital. Whether an investment was prudent or foolish will only be known once the downstream consequences are evident. In this respect suicide is just a form of managing the “… social..” capital structure through the informal destruction (p.21) of such social assets. Allowing people to dispose of capital at their own free will allows for the unfettered restructuring  of productive activities utilizing human and social capital. Allowing the substitution or destruction of “..social..” inputs.
The Consequences of various policy prescriptions oftentimes are cannot be easily predicted. This can alone can explain the enduring influence of F.A. Hayek’s observations regarding the pretense of knowledge. Ironically, one of F.A. Hayek’s admirers and one of the most notable exponents of Austrian economics fell into this very trap. This individual would be former Texas congressman Ron Paul. In a provocative piece published on Alt-M George Selgin describes how Dr. Paul is partly responsible for the exponential growth of the Federal Reserve’s balance sheet.
To any reader familiar with Ron Paul’s policy positions, this charge sounds completely absurd. Arguably Dr. Paul has been more hostile towards the Federal Reserve than any other politician in modern history. How could this longtime critic of the Federal Reserve possibly have emboldened this institution? Most libertarians and conservatives understand that the results of policies that support government intervention can yield unpredictable and lackluster results. Could the same be said for policies that aim to curtail the power of government agencies and firms with contractual obligations to the state? Purportedly the Federal Reserve is a “private company”. Much like another central bank boasting similar claims, this point is debatable considering without the federal government its existence would most likely be a paradox. Even in the arena of curtailing state power good intentions, sometimes do not amount to good results.
Defining the Basic terms
Due to the complex and jargon-heavy nature of monetary economics, it is important to define a few important terms before proceeding.
Open Market Operations: The purchase and sale of assets (securities) by any central bank. This is done to maintain the money supply held on reserve by domestic banks. When the Federal Reserve purchases Treasury securities it increases the money supply. When securities are sold it decreases the money supply.
TGA (Treasury General Account): An account kept by the treasury at the Federal Reserve where taxes and bond payments are transferred. The government utilizes these funds for payments ranging from social security distributions, employee payroll, and even interest payments on debt. Funds transferred to this account are considered a liability to the Federal Reserve and an asset for the U.S. Government. (p.1-2). Per George Selgin, this account also provides a source of funds for relief and emergency spending. For every dollar the treasury transfers to this account, the Federal Reserve must take on in asset purchases.
Back in 1979, congressman Ron Paul supported a bill that aimed to amended Federal Reserve Act’s section 14(b) that would prohibit the Fed from direct asset purchases from the treasury. This was a privilege that was awarded to the Federal Reserve during World War II to quickly raise emergency wartime funding. This power was renewed in 1947 and 1950 by congress, however, this was never intended to be a permanent privilege. By the late-1970s it became evident that the Fed was engaging in direct assets purchases outside of the context of a war emergency. Dr. Paul vehemently supported H.R. 3404 due to this abuse on the part of the Fed for utilizing this function in the absence of war. He went on to recommend that the Fed could gain greater access to liquid cash through the “ establishment of interest-bearing TT&L accounts”. Thus relinquishing the need for the direct purchase authority. Unfortunately for Paul, the bill failed to pass, however, the direct purchase privilege was not renewed in 1981. At least temporarily Dr. Paul’s appeal for fiscal responsibility won out over the Fed’s tacitly accepted overreach with the direct purchase authority. Limiting the Federal Reserve’s procurement of money to open-market operations which in theory should curtail (to some extent) inordinate money creation.
Paul’s argument in favor of fiscal responsibility unquestionably makes him a Baptist. This normative argument for preserving the financial health of our nation and fighting the ills of institutional abuses. Paul’s advocacy has a populous appeal and while no politician is perfect, at least his intentions were (in this scenario) laudable. The question becomes how did Ron Paul’s praise-worthy policy position result in an inadvertent unholy alliance with the Federal Reserve? Well, it is not quite that linear. It is more of a policy constraint meant to curtail the authority of the Fed ended up aiding them in expanding their balance sheets years down the road. No one could have foreseen this consequence that seemingly would have contained the expansion of their balance sheet.
The Federal Reserve the Unintended Beneficiaries of Paul’s Purposed reform (Our Bootleggers):
The obvious observation that can be made is that the Federal Reserve stands to benefit from being able to easily expand its balance sheet. Making them the Bootleggers. Per Selgin, it was not until October 2008 that the Federal Reserve opted to “pay interest on bank reserves”. Making it fruitful to accumulate “TGA balances”. After the Fed lost the ability to direct purchases from the treasury, they found another loophole that has enabled them to expand their balance sheet to unprecedented levels. While no one directly engineered this loophole, it still was an unpredictable blind spot in the 1979 initiative.
In terms of formulating effective rules, one needs to have a panoramic understanding of the potential consequences. Even the downstream outcomes are not easily foreseen. Providing some validation of F.A. Hayek’s notion of the Pretense of Knowledge. No one person, organization, or collection of governing institutions has all of the information required to plan for every scenario. Making it foolhardy to enact inflexible rules that operate as if the definite outcomes can be methodically calculated. Treading down the path of the socialist calculation debate is fruitless as the refutations on both sides of the aisle have already been exhausted. The fall of the Soviet Union alone should serve as a historical anecdote of the fallacy of planned economies.
It should be noted that information asymmetries and unforeseeable outcomes are a natural consequence of having limited information. Explaining phenomena such as cobra effects, because certain repercussions cannot be known until it is too late. These distorted outcomes as the result of flawed rules can happen on a much smaller scale than that of the national economy or a country’s legal system. Something as mundane as a birthdate cutoff to participate in youth hockey can spur some surprise inequities in the trajectory of young hockey players. This example springing from the pages of Malcolm Gladwell’s 2008 book Outliers gives us some keen insights into the potential for implicit flaws in rule formulation. Gladwell details the observations of psychologist Roger Barnsley (p.22-23) upon perusing the program of the Canadian national youth hockey championship. Barnsley noticed that the majority of the players had birthdays ranging between January and March. Is it possible that there is a certain qualitative factor distinguishing children with birthdays earlier on in the year? If we examine the zodiac symbols of those born in January and February there are characteristics that are conducive to success. However, there is little scientific merit to astrology anyhow. Barnsley had another explanation for this discrepancy between Canadian Hockey players born in January versus July.
Barnsley astutely directs us towards the factor of birthday cutoffs for eligibility to play youth hockey in Canada. This fact was substantiated when Barnsley discovered that roughly 40 percent of all elite hockey players were born between January-March, 30 percent between April-June (p.23) Demonstrating the role of the individual player’s birthday in determining success. Having a January first cutoff, privileged prospective players born in the earlier months of the year (p.24). The main difference being that the boys born in earlier months were more physically mature. In turn, received more attention from the coaches lending this dynamic to an early delineation between talented and untalented players (p.25). Due to the difference in age eligibility cutoffs in American youth football and basketball leagues, they did not exhibit the same distortions in the distribution of talent (p.26). Engendering a Matthew Effect or what is otherwise known as an accumulative advantage. Adam Smith even points to the concept of accumulative advantage in The Wealth of Nations. Explaining how in a sense the poor pay the price for the poor decisions of their forefathers.
Many proponents of meritocratic social arrangements may scoff at the idea of making rules that are fair. However, if the rules are providing a lopsided advantage to one group, are the results truly the result of superior performance or the distortion created by the rules? Few would ever view the occurrence of instances of regulatory capture or rent-seeking as a triumph of free-market competition. Rather just the opposite, it is an example of interest groups bending the rules to suit their own needs. Careful consideration needs to be made in how we set and enforce rules to avoid distorted effects that handsomely benefit a few and harm a great many. Gladwell succinctly sums up this point very eloquently:
“Because we cling to the idea that success is a simple function of individual merit and that the world in which we all group up and then we choose to write society don’t matter at all.” (p.33)
While variables such as luck, talent, ingenuity, and hard work can all have a role in success, we cannot forget that how the rules are written can also have an inseparable impact on outcomes. Even rules that are inadvertently written in a manner to favor one group over another without consideration of merit is a flawed rule. Marred by an unforeseeable blind spot that nevertheless has generated distorted outcomes. These outcomes are not truly the byproduct of talent or work ethic but by technicalities that create illusory perceptions of actual skill.
The Hayekian Triangle is a visual representation of the stages of production. Many professional Austrian economists refer to it as a pedological device for explaining the Austrian Business Cycle Theory (Block & Barnett, 2006, P.2) . Above all, it is something of an outlier in the Austrian School of Economics. Due to the methodological rejection of the Neo-Classical approach, graphs and equations are rarely ever used. Despite this methodological consideration, the Haykeian Triangle is viewed by many as being imperative in understanding “boom-bust” business cycles. Even though some prominent Austrian economists such as Walter Block have expressed their grievances with this depiction of ABCT.
The triangle was first introduced by Nobel Laureate F.A. Hayek in his 1931 book Prices and Production (revised in 1935). Presenting the variable of time on the Y-axis and output of consumer goods on the X-axis. Forming a right triangle. Per Hayek’s own explanation:
…. means of production is expressed by the horizontal projection of the hypotenuse, while the vertical dimension, measured in arbitrary periods from the top to the bottom, expresses the progress of time, so that the inclination of the line representing the amount of original means of production used means that these original means of production are expended continuously during the whole process of production. The bottom of the triangle represents the value of the current output of consumers’ goods. The area of the triangle thus shows the totality of the successive stages through which the several units of original means of production pass before they become ripe for consumption. (Hayek, 1931, P.39-40) 
The triangle diagrams the relationship between time and productive output. It measures this relationship from the harvesting and producing higher-order goods (those in earlier stages of production. All the way to the final phases of production such as packaging. Hayek’s diagram also details the amount of capital deployed into production per a specific stage. Per his observations, all variables unencumbered by manipulation, more money is spent in the earlier stages of production (Hayek, 1931, P.53) . The amount tends to decrease in the later stages. Much of the variance in resource allocation throughout the stages of production mirrors consumer demand.
Understanding consumption patterns is key to production. As acting individuals, we can either save, invest, or spend money. The entrepreneur who is managing the production of consumer goods will cater it patterns of buying behavior (Hayek. 1931. P.50) . If consumers are saving more and spending less demand will go down. Consequentially, savings are not necessarily detrimental. Despite the Keynesian consensus that drop-in aggregate demand will bring the economy to grinding stop. Commonly known as the Paradox of Thrift. When consumers start saving they become more future ordinated as Dr. Roger Garrison would put it. They put off present consumption today for future consumption. This can include investment. Investment differentiates itself from consumer consumption by aiding production potential. An increase in investment now can help producers acquire capital to expand production capacity later (Hayek, 1931, P.60, 88) .
One fact that cannot be overstated is how the loanable funds market parallels production. When demand is low prices are low and vice versa. It is important to remember that all sectors of the economy are interconnected. Under normal conditions, interest rate fluctuations, supply-and-demand drives the rate. Much how consumer prices do the same. If consumer demand is low prices will reflect demand. The same goes for acquiring a loan. When consumer demand is low production hits a lull. However, consequentially the going interest rates will be low as well. Making it an ideal time to get a loan to upgrade old and worn-out equipment. As more business people acquire loans the interest rate will naturally increase. It is no more different than any other segment of the economy. Just a different product.
Because consumers are not ravenous demand new products, more money is spent on starting production. Hence, the greater expenditures in the earlier stages. There isn’t any immediate need to have completed products. Once consumer demand starts to increase more business owners will be acquiring loans to increase production. Driving the interest rate upward. Then as the interest rate increases, fewer entrepreneurs will be taking out loans. This will impact demand on the loanable funds market. Once the price for consumer goods increases there will be a decline in demand for products and services. Bringing us right back to where we started. Lower interest rates, prices, and product demand. This cycle is cylindrical and self-regulating. Per popular consensus of Austrian economists will result in economic growth.
The problem becomes that often policymakers seek to interfere with this process. This circles back to the Paradox of Thrift. When consumer confidence is down, lowering interest rates operate as a form of stimulus. Whether they are lowered to out of genuine concern for the economy or callous political opportunism is irrelevant. It is still an erroneous course of action. Artificially decreasing the interest rate will lead to malinvestment (Hayek, 1931, P.58) . Entrepreneurs borrow money for projects that would not be profitable to undertake with higher interest rates (Hayek, 1931, P. 86) . They will invest more money into the earlier stages of production when consumer demands reflect more emphasis on the later stages. Also, they will be bold enough to undertake entrepreneurial ventures that require long production times.
The mechanism by which institutions such as the Federal Reserve lowers interest rates is important to note. They engage in credit creation by injecting more currency into the money supply. In other words, they get the printing presses up and running. Trading purchasing power for liquidity. This will result in higher prices for consumers. This is known as inflation. Prices will continue to rise until the institution manipulating the interest rate finds the rate of inflation to be exorbitant. Subsequently decides to lower the interest rate (Hayek, 1931, P. 90) . Alternately, the rate of inflation becomes so hight that people stop using U.S. fiat currency altogether (Murph, 2015, P.253) . That is an extreme example, reserved for the most extreme cases of hyperinflation. Unfortunately, the bubble has burst and the fall out is just beginning. All the ventures started under the low-interest rates are now insolvent and cannot be completed (Hayek, 1931, P. 92). Unless the borrower is able to complete the project at a loss. Resulting in mark failures and economic depressions. Assumably worsening economic conditions than if the interest rate had remained unmanipulated.
In part II: we will examine the innovations made to the Haykeian Triangle by Dr. Roger Garrison. He attempted to revise the triangle, making it easier to be applied in a Neo-Classical context.
Planning on an intuitive level always appears to be the most logical course of action. If we could only harness the same methodical rigor of a physics experiment, we could all live in the blessed light of “reason”. Few of a scientific disposition stop to question if there are certain aspects of life we shouldn’t attempt to control. In their haughty hubris, the proponents of planning bumptiously trudge forward. In full faith that they can implement the next pivotal stage of progress in the history of man. For those who pray at the altar of pure reason, such oversights are a consequence of believing that they possess more knowledge than it is possible to know. A point clearly elaborated on by Nobel Laureate F.A. Hayek decades prior to 2019. Most notably in his seminal book The Road to Serfdompublished at the tail end of World War II, an era when the debate about economic planning was raging.
Even when we are armed a plethora of empirically verified statistics and data planners are still merely guessing. Often guessing with information collected under idyllic experimental conditions. Conditions that are meticulously controlled and don’t account for the invariability of a natural environment. An environment that is more constrained by natural law than by experimental controls. While science has brought forth the advantages of modern medicine and technological advances, there are specific areas where its breadth of knowledge is insufficient or inappropriate. Social engineering and economic matters being sublime examples.
If such measures could bring about a utopian society it would have already been implemented. Attempting to subvert the effects of the law of Supply and Demand through price-fixing and subsidizes will invariably fall flat. Regardless of their intentions, the central planners will always fail. Venezuela’s financial woes spiraled out of control after a subsequent chain of ill-fated interventions initiated by artificially manipulating oil prices. However, Venezuela is merely a drop in the bucket, such measures have backfired on just about every country that has entertained similar policies. It starts to become quite salient that when immutable laws are violated the ramifications can be disastrous. This premise isn’t merely regulated to economic law, but all forms of natural law. The intellectuals, bureaucrats, technocrats, and other authority figures rank among men foolish enough to attempt to undermine static and enduring.
The sin of such arrogance is far from a new pathology of the human condition and has proven to be quite a pervasive vice. From the dawn of civilization to the Middle ages gout-ridden men reeking of entitlement and excess felt their privileged station was anointed by the will of God. Making them immune to the conventions and morals that bound common men. While monogamy was imperative for the butcher, baker, and the brewer; the king had his court filled with concubines. The king not only felt he was above moral convention, but that of natural law. After all, he is literally a step away from being a deity in his own right. Many medieval rulers in an attempt to keep wealth within their own national boundaries implemented highly protectionist policies. Composited policies that reflect the economic system known as Mercantilism. Which erroneously disregarded just about every basic economic law we hold in high regard.
At the apogee of the Scottish Enlightenment, there was one man who saw the folly in the lofty assumption of central planners. He was also an outspoken critic of Mercantilism, that man was the moral philosopher Adam Smith. He expounds upon this phenomena in his 1759 book The Theory of Moral Sentimentsin the personified construct dubbed “The Man of System”:
The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder. (Page 212, para 2)
The king believes he can circumvent the will of his subjects and impose import tariffs that will encourage them to buy domestic goods. By virtue of natural law, purchasing cheaper imported goods does not constitute theft or assault, but rather a byproduct of free will. Due to the tariffs being legitimate in the eyes of the royal subjects an expansive smuggling ring is formulated. Illegally importing untaxed goods into the kingdom. People are not chess pieces, nor are they objects. They possess free will (or the illusion of such), an individual set of morals, and the capacity for subjective attributions. It is faulty to surmise that people can be treated as pawns when social law and their own volition will most likely hamper any attempts at planning.
It becomes truly horrifying when individuals believe they can legislate morality. The abject failures of alcohol and drug prohibition provide sufficient insight into the shortcomings of such endeavors. Utopia does not exist on planet Earth. The nature of man is imperfect and is incapable of mimicking the pristine deportment of cherubs. We are not saints, no amount of legislation or penalities can correct for this deficit. This not intended to provide immunity for the murder, rapist, or thief. However, they have transgressed against a higher moral code making their actions universally reviled. While the moral indiscretions of the prostitute, the drug addict, and the bookie are not universally seen as wrong. In the sense that they are victimless crimes. More of a passive acquiescence than an endorsement.
It isn’t natural law that decrees the need for punitive measures for such conduct, but government fiat. This is where we cross the line into legal positivism. An action is either moral or immoral purely on the basis of legislative command. A Pentagon directed bombing campaign that kills innocent civilians was justifiable. A convenience store owner shooting a burglar that is attempting to rob his establishment at gunpoint is a civil infraction. Considering the gross insensitivity to property rights and higher moral values can we truly trust ” The Man of System” (bureaucrat, legislator, etc.) to codify morality in a self-serving legal system? The prison unions have a storied history of lobbying against the legalization of Marijuana. Who is to say that many of our petty laws exist purely for justifying the existence of a task force or bureaucratic department?
It isn’t merely just the conservative Christian or the “law-and-order” types that can assume the proverbial role as “The Man of System”. The progressive left-wingers have also utilized the government apparatus to legally impose their own brand of “morality”. Any form of government funded safety-net or subsistence program is a legal attempt at evening the odds for the economically disadvantaged. While it is fair to disagree or agree with such policies, the real line of demarcation is when initiatives to criminalize intolerance are suggested. Most of these policy suggestions amount to compelled speech laws. If certain speech is deemed as hateful it must not be tolerated. To such an extent that there are legal repercussions for using “hate speech”. As outlandish as it may sound you need to look no further than Bill C-16 passed in Canada to see the ultimate outcome of such ill-advised policies. Implement such sanctions against our speech is purely an assault on the principle of free speech. Even criminalizing the right to be a member of a hate group tramples upon the relished right to free association. If either right is nullified by legislative constraints you are an inch away from living in a dictatorship.
These legislative crusaders may be well-intentioned they are willfully ignorant of human nature. Much how you cannot legislate Judeo-Christain values into the psyche of an individual the same holds true for the virtues of social justice. Despite what you do, intolerance will never be completely relinquished as long as humans walk the Earth. The human mind is glutted with biases that push many to favor individuals that are similar to themselves. Similar to themselves in a shared language, values, religion, political identity, ethnic identity, national identity, sexual identity, etc. Considering these proclivities for tribal behavior it becomes quite conspicuous that tolerance is merely another incurably ill of mankind. Sure you may be able to enlighten individuals of the errors in their thinking, but not on any kind of grand level. Intolerance dies on the same day that man longer yearns for a pint of beer, a dose of opium, and no longer lusts for a voluptuous misteress. Anyone convinced otherwise is profoundly mistaken.
I am still perplexed by people who unquestionably trust the judgment and authority of those who insist upon controlling the lives of others. Politicians, bureaucrats, intellectuals, judges among others. All of these individuals are human and none are infallible. All are cable of sin, all are subject to psychological biases, and other influences that would make them biased.Why is the law contrived and fabricated by these purported experts superior to the “golden rule”? Holding the authority of mortal men in such a high degree operates as a perverse form of deification. Their credentials and education are what separate them from ordinary people. That is it. There aren’t any further qualifying factors that make these individuals morally superior to common folks. In most cases, laws don’t even make us any safer or product our property rights. Most laws if anything is hostile to our property rights. Leaving it reasonable to question, why are lawmakers incentivized to legislate such grotesque sanctions against some of our most basic rights?