Month: March 2016

Why Don’t Tribes Transition to Market Defense?

Mike Reid Culture, Economics, Liberty , , ,
Ongka
Ongka, a “big man” of the Kawelka tribe. Image from http://www.stewartstrathern.pitt.edu/

Watch almost any anthropological film about a newly discovered “isolated tribe,” and you’re likely to see at least one “tribesman” wearing a t-shirt.

People in bands and tribes and chiefdoms — who have since time immemorial handled most of their economic transactions for food, clothing, and shelter through traditional economies of gift exchange and family sharing — eagerly become buyers and sellers for products on the global market as soon as they get the chance.

They grow coffee beans or trap furs, and they use the money to buy firearms, machetes, cell phones, and jean shorts. In other words, they jump right in to the market. And usually, the tendrils of global trade have arrived way before the anthropologists and their film crews.

But people in the same bands, tribes, or chiefdoms seem to hang on to their family and gift-based economies for political, military, and legal services.

They do not jump to create or hire market solutions (mercenaries, defense corporations), and they instead eventually transform — by hook or by crook — into a state or into a people subjugated by a state.

Why does this happen? Why do we get states for defense and markets for everything else?

Let me back up and explain my terms:

In the examples I’m familiar with, humans use one of four main methods to organize law enforcement and military protection:

1. Kin-based. Your extended family (a “band,” “clan,” or a “lineage”) and maybe an alliance of intermarried and neighbouring extended families (a “tribe” or a “village”), protects you. You are technically free to leave the family or the village, but that could leave you without protection unless you are marrying into a new one.

Examples: Cree, Tahltan, Ju/‘hoansi

2. Prestige-based. A famous leader (a “big man” or “chief”) and his warriors protect you in return for material gifts and social deference. You can pull your support from the leader — more easily if he’s just an informal “big man” and less easily if he’s a formal “chief.” And there are usually other nearby leaders or aspiring leaders who would happily accept your patronage.

Examples: Yanomamo, Kawelka, Trobriander

Systems #1 and #2 are often blended together, as in the Trobriander case, where each man’s connections to the chief are determined partly by family relatedness and partly by gift exchange.

3. State-based. A compulsory ruler (a “king” or “president”) and his warriors protect you in return for taxes and/or labor. You are never free to pull your support, although you are sometimes free to leave through emigration.

Examples: Aztec Empire, Canada, People’s Republic of China

4. Market-based. A private enterprise (a “defense contractor”) protects you in return for money. You are free to pull your support and choose another contractor, or go without.

Example: Detroit’s Threat Management Center

Now, we could also sketch out the same 4 methods for the basic kinds of economic exchange people do for food, shelter, and all the other goods and services in life besides defense. People can give and receive the things they want and need through #1 family networks, #2 prestige-oriented gift exchange, #3 state redistribution, and #4 markets.

What I see throughout the world in the last 500 years is that as globalisation advances, people in all or almost all cultures eagerly take their systems of food, shelter, etc. out of systems #1 and #2 and go into system #4. In other words, people in bands, tribes, and chiefdoms all over the world desperately want the metal tools, firearms, t-shirts, cell-phones, and everything else that the market offers, and so they find ways to sell goods or services and thus money that lets them buy that stuff.

For instance, hunter-gatherers who once collected food to share with their family now collect furs to sell internationally, or instead serve as bush guides to wealthy tourists from foreign cultures.

But people almost never eagerly or rapidly take their law and defense systems out of kin and prestige and into markets.

Instead, they tend to hang on to kin or prestige-based methods of law enforcement and warfare until they (a) get conquered by a state or (b) organize themselves as a state (whether to fend off would-be conquerors or to become conquerors themselves).

So in highland Papua New Guinea for instance, the Dani and the Kawelka were happy to grow coffee beans and other crops to put on the market by the 1970s. But they didn’t start hiring mercenaries for defense. Instead, they stuck to their big men and their tribes until their military organizations were absorbed into state militaries or turned into paramilitary movements aiming to create or seize control of a state.

Markets became the center of food production. States became the center of defense production.

Later on, after states have arrived as military organizations, sometimes they start expanding and controlling parts of the economics of food, shelter, education, etc., through compulsory redistribution.

Conversely, shifts to market-based defense seem to occur after a society has already had state-based defense — like in Moresnet or Kowloon (PDF). And the market organizations arise when, for some reason, the state-based defense system relaxes or collapses.

Why does this bifurcated trend keep happening?

Why do people in these societies transition into markets for most goods and services but states for law and war?

Do state-based militaries and police forces simply outcompete (or outfight) market ones?

Am I missing major counterexamples, or even misunderstanding my own examples?

Declining to Wed Gay Couples: Right or Wrong?

Warren Gibson Culture, Current Events, Liberty , , , , , , ,

News item: the Georgia governor has just vetoed a bill that would, among other things, have allowed ministers to decline to wed gay couples.

What a tangle. Let’s see if we can sort things out.

First of all, many decent people, your humble servant included, find the concept of “gay marriage” troubling. I believe any two adults (or three or more) should be free to make any contract they like regarding sharing assets, pledging fidelity, and so forth. I just wish they wouldn’t call it “marriage.” That term is taken.

Second, hate is not a crime. Some people express repugnance or hatred for homosexuality. Ayn Rand called the practice immoral, an attitude that is hard to fathom in this day and age but perhaps understandable given the tenor of her times. Some go farther and express hatred for homosexuals per se. But as long as these people refrain from initiating force or fraud, they should not be molested. Boycotts, shunning, and criticism are legitimate responses to such people, but forcible restraint is not.

Third, rights are not granted by governments. Rights derive from our basic nature as humans, as thinkers such as Ayn Rand and Murray Rothbard have so eloquently demonstrated. Contractual “rights” should have a different name, perhaps “privileges.” These are actions that have been legitimized by a voluntary agreement. Thus for example, no one has free speech “rights” on a campus. Students may have free speech “privileges” on a campus if the owners of the campus have granted that privilege in a written or implied contract.

Fourth, freedom of association is a basic human right, and includes freedom of dissociation, whether in personal or business relations. Some years ago I posted a defense of the late Lester Maddox who famously attempted to exclude blacks from his chicken restaurant. My post generated considerable blowback, but I stand by it and note that in this day and age, anyone who tried to exclude blacks would not be elected governor of Georgia as Maddox was, but instead lose most of his customers and close his doors.

In summary, no minister needs permission from the state to deny wedding services to a gay couple. And religion has nothing to do with it. Anyone should free to decline business or personal relationships with anyone, for any reason whatever, or for no reason at all.

How Fascism Will Come To America

Warren Gibson Books, Current Events, Liberty , , , ,

John T. Flynn’s As We Go Marching was written in 1944, but there isn’t a line in this excerpt that doesn’t fit today’s situation perfectly.  I read the book many years ago and will pull it out and read it again.

Fascism will come at the hands of perfectly authentic Americans who have been working to commit this country to the rule of the bureaucratic state; interfering in the affairs of the states and cities; taking part in the management of industry and finance and agriculture; assuming the role of great national banker and investor, borrowing billions every year and spending them on all sorts of projects through which such a government can paralyze opposition and command public support; marshaling great armies and navies at crushing costs to support the industry of war and preparation for war which will become our nation’s greatest industry; and adding to all this the most romantic adventures in global planning, regeneration, and domination, all to be done under the authority of a powerfully centralized government in which the executive will hold in effect all the powers, with Congress reduced to the role of a debating society.

HT: Jacob Hornberger, Future of Freedom Foundation

Were Confucians the first internationalists?

Brandon Christensen Culture, History , , , , , ,

Sheng [Hong] uses the term in this broader sense, so that we can say that tianxia zhuyi is the idea of a global civilization that encompasses a diversity of cultures. In fact, this interpretation matches with the historical evolution of the Chinese empire, which was a multiethnic body politic based on certain universal civilizational principles and artifacts such as the Chinese script.

It is essential why Sheng makes that distinction. He claims that globalism, which he considers to be a Western term, is actually violating basic principles of economic liberalism in opting for trade liberalization but containing international migration.

That is from Carsten Herrmann-Pillath, a Professor of Business Economics at the Frankfurt School of Finance and Management, in a chapter titled “Smith, Confucius and the Rise of China.” The chapter is in Volume 8 of The Adam Smith Review, edited by Fonna Forman, which in turn was a gift from Edwin to me. There is no mention of Mises or Hayek (or NOL!) in the bibliography. Herrmann-Pillath continues:

So, globalism is a conceptual framework which still builds on the conception of the nation state and hence economic nationalism […] Ideas about the transition from the ‘nation state’ to a new political order based on culture and civilization continue to flourish among Chinese intellectuals until today. (88)

Unlike Chhay Lin and Matthew, I don’t know very much about ancient or medieval Chinese political thought,  but I can buy Sheng’s argument. In fact, I’m surprised it has taken this long for scholars anywhere in the world to realize that certain schools of thought in an empire would be internationalist. What is more curious to me, though, is this “new political order based on culture and civilization.” Why not base it on the individual? It seems to me that basing political orders on hard-to-define terms like “culture” and “civilization” will only lead to major problems, such as cultural chauvinism, down the road.

Let us think together

Evgenii Grigorev Current Events

It is always hard to start again from the vacuum, but I’ll try to do my best. Today we all survived another act of animal-like agression in Belgium. Our thoughts should be with ones who didn’t make it out alive and with their families. I still remember attacks in Volgograd in late 2013. What can I see now? While police and army trying to deal with situation, politicans make their loud announcements. Traditionally, weird things come from Ukraine: “There may be a trace of russians!”. I really try to understand, but I can’t. What should be in your head, that you let yourself to say such a nonsense?

Demonic face of Russia and russians – it’s like a stamp now, a cliche. When something happens somewhere – it’s our fault. Your kitty pooped on your new carpet? Just check under it! Probably there’s a russian flag forgotten, or Putin’s portrait. It’s hard to live and understand, that even if you a gardener or an engineer – you can read disturbing content about yourself when something happens, and it’s unacceptable. Why can’t we find a terrorists first, and then make a conclusions?

Why can’t we live and trust each other a priori. I know, that in some ways our politic decisions are wrong (from western position), but try to understand us too, as we trying to understand you.

What does complexity theory tell us about government?

Rick Weber Economics, Liberty , , , ,

I’m reading Complexity: The Emerging Science at the Edge of Order and Chaos which has the absolute best testimonial on the front cover: “If you liked Chaos, you’ll love Complexity.”

This book was written in 1993 so I’m pretty late to the show, but it’s worth raising the issue: complex systems require governance, but that need not mean government.

In the copy below the author is writing about how complex systems–systems with components that affect one another in simple ways resulting in emergent orders at the system-wide level–occupy an interesting space between chaos and order. Too much order and you end up with something fixed and unchanging. Too much chaos and you’ve got noise.

The second full paragraph misses an important point that should have been obvious to the author and the researchers who he’s paraphrasing. The government is an endogenous element in the wider economy. If we think of the economy as a network of people (individual nodes) who cluster into sub-networks (organizations), the government is just a collection of nodes and clusters that follow different rules than the rest. Granted, these clusters often serve important roles (e.g. courts). But the anarchist branches of economics have pretty clearly demonstrated that removing the state from these roles doesn’t always lead to chaos. Ripping the state out like a band-aid would be an awful idea, but gently scaling (scoping?) back the state need not be a disaster.

This band between chaos and order is wider than they’re giving it credit for. We can only examine this band from our own perspective… as human beings who are tiny components of this much larger network of networks. The range of configurations that could allow a peaceful, flourishing society is essentially infinite. Yes, governance is necessary, but strengthening any particular set of nodes cannot allow for governance of the system as a whole. It can only allow for governance of a sub-set of the wider network.

Emergent orders cannot be controlled from within.

Evernote Snapshot 20160316 202147

A hypothesis implied by Galbraith

Rick Weber Economics, Liberty , , ,

pp. 171-172 of Competition and Entrepreneurship has J.K. Galbraith asserting, “that independently determined consumer desires [do not] dictate the pattern of production. The ‘institutions of modern advertising and salesmanship…cannot be reconciled with the notion of independently determined desires, for their central function is to create desires–to bring into being wants that previously did not exist.'”

Beyond the obvious first step (recognizing that consumers’ desires could not possibly be determined independently of the market process), this raises an interesting hypothesis: Advertisers should a) recognize that they’re selling snake oil and consume significantly less than similar people, or b) be particularly excited about the prospects of new and exciting products generally. In either case advertising should affect them differently than regular consumers and they should consume a different amount than consumers generally. At the very least, their consumption patterns should be different from regular consumers in the particular goods that they are advertising.

The criticism of advertising as socially wasteful (i.e. using up resources without actually making consumers better off) may hold up if evidence is found in support of the above hypothesis. In the case of pattern ‘a)’ it may be clear that advertising is manipulative and anti-social. But in the case of pattern ‘b)’ or the null (advertisers buy the same junk as the rest of us) we either have to abandon the criticism of advertising or come up with some ad hoc story about how everyone is stupid and their preferences shouldn’t matter.

An overview of India-China boundary disputes

Amit Ranjan Current Events, History, Links , , , , , , , ,

I have a new paper that has just been published in Asian Affairs. Here is an excerpt:

Questions over the India-China border are not a new phenomenon. They are asked whenever there is a Sino-Indian state visit. Despite having close to $100 billion of trade between them, China and India have failed to bring their frontier disputes to an end. In the 1980s and 1990s it was thought that the increasing economic cooperation between the two countries would act as a prompt to resolve their political disputes, but it has not. Military stand-offs and confrontations between border guards from India and China occur at regular intervals. To address their boundary disputes, they have engaged in frequent dialogues (17 rounds of focused dialogues can be counted between 1988 and 2015), but nothing substantive has yet been yielded through such engagements.

The boundary disputes between India and China have their ultimate origin in the ‘Great Game’ played during the British Empire. At present, the two main areas of dispute along the Himalayan frontier are the western sector (Aksai Chin around 37,250 sq km/14,380 square miles) and the eastern sector (Arunachal Pradesh, around 83,740 sq km/32,330 sq mile). This article traces the roots of the boundary disputes between India and China and attempts to discuss sources of tensions and probable solutions.

The link to the whole paper can be found here [pdf].

Why Rising Prices May Indicate Abundance

Vincent Geloso Economics, Liberty , , ,

I am currently writing a piece with Pierre Desrochers (University of Toronto at Mississauga) regarding environmental trends and economic theory for the conference of the Association for Private Economic Education (see here). In the process of writing up the first draft of the article, I had to revisit another article I wrote (with Desrochers) and I found a passage which now offers me a greater value than when I initially wrote it. In that piece, me and Desrochers basically argued that rising prices for certain environmental goods may not always indicate rising scarcity. In fact, we argued that prices could increase even if a resource grew in abundance.  Here is the passage from our article currently undergoing revise and resubmit:

Thirdly, technological innovations that increase productivity might drive up the price of a commodity without this truly reflecting the scarcity of the resource. Whale oil is a case in point. The decline of the whaling industry in the United States began around 1850 at which point real prices began to increase (Bardi 2007). However, economic historians agree that this was not because of resource depletion or overfishing (Davis, Gallman and Hutchins 1988). Brook Kaiser (2013) thus found that the increasing demand for illuminants created pressures on prices, which in turn motivated the development of substitutes like petroleum-derived kerosene. However, whale bone and oil prices did not fall as kerosene production expanded and, in spite of falling demand, prices stayed high and even increased. The answer to this conundrum is opportunity cost as the important surge in American labor productivity was greater than the observed increase in productivity in the whaling industry. This meant that the opportunity cost of using workers, capital and other resources in the whaling industry was great. These workers, capital goods and other resources were progressively reallocated to other industries. In the process, the whaling industry faced higher costs relative to productivity. While marginal players in the whaling industry exited, the supply of inputs to the whaling industry decreased and prices had to be increased [by the remaining firms in order for economy-wide equilibrium to be achieved]. Hence, prices in that situation are not reflective of depletion or expansion of resource stock.

 

The Dark Side of Polycentricity

Rick Weber Liberty, Politics , , , , , , ,

Who’da thunk?!

This raises the question: would anyone pay attention if the federal government wasn’t such a mess? I don’t think so. Oh well… can’t win ’em all.

On Scottish Free Banking (a Canadian Perspective)

Vincent Geloso Economics, Liberty , , , ,

Yesterday, George Selgin responded on Alt-M to a series of (relatively) recent paper that posit the impossibility of private money. While Selgin does criticize the theoretical reasoning of the papers, the majority of his case is based on the historical experience of private money – notably the Scottish experience with free banking.

I wanted to write something on this, but Selgin got there faster. Indeed, the historical evidence of free banking in Canada, Scotland, Sweden and the limited experiences observed in France and elsewhere provide a strong backing for soundness of private money. Selgin is right to emphasize this.

However, I can provide a small piece of evidence to support his case. It is not only scholars like Selgin who believe that the historical experience of Scotland was positive. As far back as 1835 and as far away as Canada, the robustness of the Scottish free banking experience was lauded. Consider the following quote from a report to the House of Assembly of Upper Canada (modern day Ontario):

“In Scotland, private banking has long existed and fewer failures have occurred there than in any other part of the world; their Joint Stock Banking Companies embrace some of the following principles by which the public are quite secured and the institutions useful as Banks of Deposit and circulation, while the stock is above par, and proved to be a good investment”

This report was actually presented in Canada arguing that Scottish free banking was a solution to a longstanding problem in the colony : dearth of small denominations. The “big problem of small change” was a real issue in the colony and created important frictions. The problem was most likely created by the fixing of exchange rates between the different currencies at levels dissonant with the actual value of different currencies so that “bad money drove out good money” (see Angela Redish’s work). The report recommended legislative actions to encourage the formation of banks that would issue private notes to solve this problem. Newspapers in the neighboring colony of Lower Canada also praised (in the early 1830s) the role that banks played in easing the problem of “poor money”.

I have made an initial foray on this with Mathieu Bédard of Aix-Marseille School of Economics (and we plan to make another few) and  showed that the role of free banking in improving economic growth was considerable exactly because of the issue of private money. While Canada is a small, it provides some additional support to the claim that private money can indeed exist, survive and be superior to state money.

Source:  House of Assembly of Upper Canada. 1835. Report of the Select Committee to which was referred the subject of The Currency. Toronto : M.Reynolds Printer.

P.S. Below there is a picture of a half-penny issued by the Quebec Bank in 1837 showing that there was even private coinage in Canada.

IMG_6955

“Landscapes of Nationalism” interview

Andrei Znamenski History, Links , , , ,

Here is an interview a colleague of mine did with me last month regarding my summer trips, which somewhat are connected by a same thematic thread – on how I stumbled upon incidents of big and small nationalisms. It appeared in our obscure university newsletter with an open access. An excerpt:

When I left Estonia and arrived in St. Petersburg, which is in northern Russia, the first thing I saw, when coming out of the airport, was a large posh car that was passing me. Its windshield was decorated with an orange and black “St. George ribbon”; this ribbon (a symbol of the patron saint of the Russian military) is currently a badge of patriotism for millions of my former compatriots. The back of the car sported big letters in blue: “Onward to Berlin! I honor WWII vets.” The irony of the situation was that the car driven by that well-to-do patriot was a German Mercedes! By the way, the topic of World War II is a “sacred cow” in Russia. From the Soviet times to the present, the government and conservative elements have been constantly bombarding people with two pieces of propaganda. First, they have being arguing that the Soviet Union/Russia had singlehandedly saved the world from fascism. For this reason, the whole world owes them everything. Second, since the country lost in that war more people than any other country, Russians suffered more than anybody else and, again, for this reason, the world owes them. Many people internalized this mythology.

A libertarian argument for an FDA

Rick Weber Economics, Liberty , , , , , ,

Whoa! Yeah, I’m going to do this, but let me start with some caveats. First, this is an argument, not the argument. Every silver lining has a storm cloud, and acknowledging the silver lining doesn’t mean you’re in favor of tornadoes. Second, I’m being sloppy with the term libertarian; classical liberal is closer to the truth, but doesn’t make for as good a title. Most importantly, I think my argument is swamped by the traditional libertarian arguments against the FDA. All that said, this argument has some interesting implications for how we think about intervention generally. Here goes…

The human body is a complex system that we do not fundamentally understand. Although every complex system is unique, they have similarities. In the case of both the human body and society/markets, interventions lead to unintended consequences which can offset the (ostensible) gains from the intervention. At the end of the day, although the FDA intervenes in the complex system of human society, it also prevents intervention in the complex system of human physiology.

The Hippocratic Oath instructs its speaker to not play God and to avoid over-treatment, and the justification for that is made clear in a recent Econ Talk. The guest was on to promote his book which discusses the problem of medical reversal–the phenomenon of medical practices that are adopted and subsequently abandoned after evidence shows the practice to be ineffective or worse. From this position he argues that the FDA’s mandate to ensure not just safety, but efficacy, is especially important. His argument is that because of the cost of type II error the FDA ought to go further.

Let’s look at two extreme cases. In the “anything-goes” world, we might have a lot of people trying good and bad interventions with a lot of harm being done to the unlucky ones. You and I know that the real problem is one of information and that in a perfect world we would have “anything-goes-that-consumers-with-access-to-good-information-from-Consumer-Reports-®-or-a-competitor” but this world still leaves us with the problem (which we face in today’s FDA-evaluated world) that consumer trial-and-error is a poor substitute for randomized control trials.

At the other extreme we have the “first-do-no-harm-second-do-real-good” world of an ideal FDA. This world has very steep type I errors but instead of two steps forward, one step back, we would have one step forward, then another, and never any steps back…. but of course each step forward would cost a few billion dollars.

Neither extreme is ideal, but the second world is one where standards of evidence are taken very seriously. In that world I’d be a third grade teacher instead of a college professor. The standards of evidence are at the core of the problem of medical reversal, but also the problem of economic intervention (which is far less likely to be reversed, even in the face of good evidence indicating that it should be).

As far as medical intervention is concerned, my position is bullish on better efficacy evaluation of medical procedures but still bearish on the FDA itself. But looking at the FDA from this angle opens up an interesting thought experiment: what might be the effects of an Economic Intervention Standards Authority? In practice it would probably be awful (my guess is a federal bureau that attempts to quash Tiebout competition), but in a libertarian utopia it would be the bureaucracy that libertarian kids with administrative bents would dream of heading.