Liberty

Declaration of the Establishment of the Provisional Government of Hong Kong

Chhay Lin Lim Liberty, Politics , , , , ,

The chief executive of Hong Kong has passed the anti-mask law today, further escalating Hong Kongers’ anger. Large groups of protesters in Hong Kong have now declared the establishment of a provisional government of Hong Kong in several neighborhoods.

The main premise of the declaration is that when a government does not represent the people anymore, the people have the right to establish their own government. The English version of the full declaration is as follows:

In the development of human civilisation it is inevitable for a dysfunctional institution to be abolished and replaced by a better one. This is how progress is made. If a government is not of the people, by the people, for the people, then it is inevitable that the people will establish a government of the people. The Hong Kong Special Administrative Region Government has proved itself to be not of the people, by the people, for the people. We hereby declare the establishment of the Provisional Government of Hong Kong.

‘We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.’ We have always identified with this inviolable principle of truth. The government and the legislature are established by the people to ensure that their rights will be protected against encroachment. All the powers of the government are derived from the people. If a government violates this principle, then the people have an absolute right to abolish it and establish a new one.

The HKSAR government, which is controlled by the People’s Republic of China and the Chinese Communist Party, has turned a blind eye to the demands of the people, deprived the people of their rights, failed to enact laws safeguarding the wellbeing of the people, and taken away the freedoms of the people. Today, against the wishes of the majority of the people, the HKSAR government bypassed the Legislative Council and enacted the Anti-Mask Law in a deliberate attempt to deny people the right of assembly. We believe that the HKSAR government has lost its legitimacy as well as the authorisation from the people. We thereby declare the immediate abolition of the powers of the Chief Executive and the principal officials of the HKSAR government.

The Provisional Government of Hong Kong declares:

  1. The departments of the HKSAR government from now on shall be placed under the authority of the Hong Kong Provisional Government;
  2. The chief executive, the chief secretary, the directors and deputy directors of the bureaus, the heads and deputy heads of the departments shall leave office and the new post holders shall be appointed by the Provisional Government;
  3. All departments shall immediately cease all the new policies promulgated by the HKSAR Government since 2018, and personnel at all levels of personnel shall retain office and maintain the operation of necessary services of the departments until further notice;
  4. The Provisional Government’s term ends in five years or until the formation of a government under a chief executive nominated and elected by universal suffrage (whichever is sooner); the Provisional Government shall prepare for the election within one year of its establishment and complete the election within three years;
  5. The chief executive and the appointed officials of the Provisional Government shall not be eligible for appointment as officials of the government or public organisations once they leave office;
  6. The provisions of the Laws of Hong Kong shall remain in force until new laws are enacted by the Hong Kong Provisional Government;
  7. The Legislative Council shall be dissolved and the Provisional Legislative Council shall be elected within three months and the Legislative Council shall be elected within one year; there shall be 70 seats in the Provisional Legislative Council: 12 seats each for Hong Kong Island and the Kowloon West constituencies, 10 seats for East Kowloon East, and 18 seats each for the New Territories West and New Territories East.

Thoughts on Time from a College Library

Kevin Kallmes Culture, Economics, History, Liberty, Philosophy , , , , ,

Note: This was written by my brother Keith, and he did not originally post it online but sent it to our family members. For being a younger brother, he brings a hell of a lot of wisdom to the table, and I think this thought-provoking epistle deserves to be shared more widely. I am publishing it here, with permission:

From Keith:

I learn a great deal from my family.  The facts, figures, and articles that commonly result from discussing and arguing with each other are a reward in and of themselves.  As might be expected, many of these experiences and facts are soon forgotten, making way for new debates.  Once in a while, however, when discussing a topic, we–or I–stumble upon an insight which radically changes, clarifies, or re-enforces my understanding.

In recent months, I had two routine, incidental, and unrelated conversations, one with my brother, and the other with my sister.  The conversation with my sister did not start during some contentious economic debate, but when we were eating dinner together.  Offhand, my sister said to me:  “Keith, I have really come to appreciate the ideas from your econ classes you told me about, like opportunity cost, especially the opportunity cost of time spent on one task being a loss of all other possible actions.  When I applied those ideas to my everyday life, I saw a marked improvement, because I had become more efficient, simply from valuing my time appropriately.”  We often complain that few people these days recognize how econ is not a theory of how society works but of how math can represent human reality at any level. This is one case where there are real, personal benefits from understanding the math of limited lifespan.

My second recent conversation of note did not concern this day and age, in fact, it concerned the ideas of a wealthy 2000-year-old Roman by the name of Seneca.  My brother had recently been translating his Epistulae morales ad Lucilium (literally “Moral letters to Lucilius” in Latin, courtesy of Wikipedia), and had stumbled upon Roman intellectual gold.  Any attempt of mine to summarize the ideas in the letter would be less than adequate, so I shall copy it here.  I know that it is long, and rather Latin-ish, but I would encourage anyone to take the time to read it, if only because reading it will pay your time back, with interest:

Greetings from Seneca to his friend Lucilius.

Continue to act in the way you described, my dear Lucilius: set yourself free for your own sake; gather and save your time, which till lately has been forced from you, or stolen away, or has merely slipped from your hands. Make yourself believe the truth of my words, that certain moments are torn from us, that some are gently removed, and that others glide beyond our reach. The most disgraceful kind of loss, however, is that due to carelessness. Furthermore, if you will pay close heed to the problem of lost time, you will find that the largest portion of our life passes while we are doing ill, a goodly share while we are doing nothing, and the whole while we are doing that which is not to the purpose. What man can you show me who places any value on his time, who reckons the worth of each day, who understands that he is dying daily? For we are mistaken when we look forward to death; the major portion of death has already passed, Whatever years be behind us are in death’s hands.

Therefore, Lucilius, do as you write me that you are doing: hold every hour in your grasp. Lay hold of today’s task, and you will not need to depend so much upon to-morrow’s. While we are postponing, life speeds by. Nothing, Lucilius, is ours, except time. We were entrusted by nature with the ownership of this single thing, so fleeting and slippery that anyone who will can oust us from possession. What fools these mortals be! They allow the cheapest and most useless things, which can easily be replaced, to be charged in the reckoning, after they have acquired them; but they never regard themselves as in debt when they have received some of that precious commodity: time! And yet time is the one loan that even a grateful recipient cannot repay.

You may desire to know how I, who preach to you so freely, am practising. I confess frankly: my time account balances, as you would expect from one who is free-handed but careful. I cannot boast that I waste nothing, but I can at least tell you what I am wasting, and the cause and manner of the loss; I can give you the reasons why I am a poor man. My situation, however, is the same as that of many who are reduced to slender means through no fault of their own: everyone forgives them, but no one comes to their rescue.

What is the state of things, then? It is this: I do not regard a man as poor, if the little which remains is enough for him. I advise you, however, to keep what is really yours; and you cannot begin too early.  For, as our ancestors believed, it is too late to spare when you reach the dregs of the cask. Of that which remains at the bottom, the amount is slight, and the quality is vile.  

Farewell

After listening to my brother dictate the whole of this letter, I felt genuine chills.  The truth it contains is so blatant, a simple calculation could yield the same result:  life is made up of a limited number of hours, therefore life is time.  Whenever you work, you are giving up your time for money (hence the old adage that time is money).  This means that whenever you waste time, or money, you are wasting your life, and wasted life is death.  This single fact horrifies me every day, because like most every other human, I waste an obscene amount of time.  Time watching a movie I have already seen, trolling through Facebook without really reading any of the posts, or having the same argument all over again:  rarely, when I am doing these things do I think about what else I could be doing.

Therein lies the link, which most will have already seen, between my two conversations.  Our time is not free.  Every moment we spend sleeping, eating, studying, etc., has a cost–an opportunity cost–and once it has been spent, if it was not truly the best way to spend it, then some small part of your life has been lost without reward.

I see this nearly everywhere:  students doze off in class or idly check their email or texts, they, when “studying” in the library, will spend a majority of the time effectively idle.  Writing this, I am in a college library, and with sample size n=11, I may, without prying too much, say that ~7/11ths  of my fellow computer users are not doing what they came intending to do.  They are wasting time they will not get back.

And so I say to you, whoever you may be reading this (perhaps idly), much the same as what Seneca might say to you, only I will say it less eloquently, and more directly:  value your time.  Do not waste it.  Work on being efficient not for the sake of productivity, but for the sake of leisure, for we all have our jobs to do, and if we get them done faster then there is more time for enjoyment.  If you spent less time complaining, you might spend that time actively addressing your problems, solving them rationally and thus eliminating your cause for complaint.

Vale.

Global Warming: Take Off My Sweater?

Jacques Delacroix Current Events, Liberty , , , , , , , ,

There is a new UN Intergovernmental Panel on Climate Change report. It contains nothing but bad news, of course. But I am busy with my real life; I have obligations to others; I have to feed myself and shower; I even go to the gym regularly. What to do? Just trust a hysterical sixteen-year-old? (Yes, I mean Greta.)

When someone or something claims that there is, has been, change in something I perceive might be important, I apply the following four quick tests. I do this to decide how much I must attention I should pay to the change news.

1 Source credibility

Not all sources are created equal. Some stink, some have a long record of being reliable. The Wall Street Journal is one of the latter. Almost all anonymous internet sources are not even sources. The National Enquirer will publish anything (although it has had a few remarkable scoops). Normal sixteen-year old girls are only credible when they pronounce on show biz stars or on something related to a skill they have personally acquired, such as piano or gymnastics.

2 Main text: description of process

I scrutinize the description at the heart of the announcement of change though only for a short time. Does the process described make sense? Is it derived in an intelligible way from a study, or studies, that conform to conventional scientific, or other scholarly standards? If no claim is made that they do, they don’t, ever. If there is such a claim, there can still be abuse but there will shortly be a denunciation, in most cases, at least.

3 Narrative around description

Most change descriptions not directly in a scholarly journal come wrapped up inside a narrative. The narrative is often more interesting than the findings to which they are supposed to be linked. That’s intentional but dangerous. Suppose your doctor carefully measures your heartbeat and records his observations. Suppose that then, he gives you a very good lecture on the faults of Social Security. However valid the latter is, it should gain no authority whatsoever from the impeccable measurement of you heartbeat. This is a crude example but people do this sort of things all the time. Do you think climate activist do?

I ask myself how tightly connected the narrative is to the straightforward description of the relevant change? Often the answer is: barely, sometimes: not at all.

4 Gauging critically the order of magnitude of change

Suppose I tell you that I have lost weight. (I could use that.) Courtesy requires that you congratulate me but rationality demands that you ask: How much? If my response is one ounce, you will tend to dismiss my announcement and you will be right. One ounce out of 220 lbs is like nothing. (That’s aside from the fact that it might actually be nothing, a measurement error.)

The mysterious issue of “statistical significance” (that I will resist going into here though I am tempted) is only indirectly related to this matter. A difference between before and after, for example, may be statistically significant but yet, completely unimportant.

The short Wall Street Journal piece (1) covering the publication of the report is rich in narrative and short on figures. (That’s usually the case with climate change announcements, I think.) On rare figure drew my attention:

In the past 140 years -covering most but not quite all of the Industrial Age – global surface temperatures have risen by one (unit) degree Celsius.

To give you a practical idea, that’s not enough of a rise to cause me to take off my cotton sweater, or even to unbutton the top of my shirt. If the temperature rose by only one C between 8 am and noon, I would think something was wrong with the weather! I can easily believe that at this rate, in another 1400 years, it will be ten degree centigrade (Celsius) warmer and, we will still be here. That’s unless something else, something much more likely, like an epidemic. wipes us out. (2) and (3).

As this example illustrates, it may often be wise too reverse the critical sequence described above. Why bother to assess the source credibility associated with an announced change, or the conformity of the description change process to good scientific practice, or check out the attachment of the surrounding narratives to the process in the description, why do all this if the measured change is too small to merit attention?

My more complete ruminations on climate change skepticism are in Liberty Unbound: “Climate Change Denier.”

Endnotes

1   “U.N. Panel Sees Threat to Ocean” – by Robert Lee Hotz, Wall Street Journal 9/26/19, P. A8.

2     I am well aware that this is a sort of arithmetic average. Surface temperature may have gone up more in some areas and less in others. They may have declined in some places. If the subject is dealt with, it will be in: Watts Up with That.

3      The WSJ accounts implies that the UN report is oddly concerned with fisheries. This is odd because fishermen have known forever that there are warm and cool patches at the same latitude in the oceans. They also know that those shift positions and that the positions of such warm and cool patches affect the movements of fish.

Musings on opinions: de gustibus non est disputandum

Joakim Book Comments, Culture, Economics, Liberty , , , , ,

A well-known Latin adage reads “de gustibus non est disputandum”, roughly translated as “about tastes it should not be disputed”. In English, we usually refer to the maxim as “over tastes there is no argument”, indicating the economist’s fundamental creed that tastes and preferences may very well come from somewhere but are useless to argue over. We can’t prove them. We can’t disavow them. Ultimately, they just are and we have to live with that.

In November last year, ridiculing a prominent Swedish politician, I used the example of ice-cream flavours to illustrate the point:

“I like ice-cream” is an innocent and unobjectionable opinion to have. Innocent because hey, who doesn’t like ice-cream, and unobjectionable because there is no way we can verify whether you actually like ice-cream. We can’t effortlessly observe the reactions in your brain from eating ice-cream or even criticize such a position.

Over tastes there is no dispute. You like what you like. We can theorize all we want over sociological or cultural impacts, or perhaps attempt to trace biological reasons that may explain why some people like what they like – but ultimately we must act in the world (Proposition #1) and so we shrug our shoulders and get on with life. We accept that people believe, like, and prefer different things and that’s that.

Being strange rationalising creatures, you don’t have to scratch humans very deeply before you encounter convictions or beliefs that make no sense whatsoever. Most of the time we’re talking plainly irrational or internally inconsistent beliefs, but, like most tastes and political opinions, they are very cheap to hold – you are generally not taxed or suffer noticeable disadvantages from holding erroneous or contradictory beliefs. Sometimes, by giving the speaker social kudos for believing it, the cost of holding an erroneous belief might even be negative – openly portraying it gives us benefits with our in-group. (yes, we’re all Caplanites now).

Let’s continue the “what to eat” comparison since, apparently, the personal is political and what I eat seems recently to be everybody else’s business too.

When I make a decision in the world (as I must to stay alive, Proposition #1), I occasionally feel the urge to explain that choice to others – because they ask or because I submit to the internalised pressure. I might say “eating ice-cream is good for me” (Proposition #2a).

Now, most people would probably consider that statement obviously incorrect (ice-cream is a sweet, a dessert; desserts make you fat and unhealthy, i.e. not good for you). The trouble is, of course, that I didn’t specify what I meant by “good for me”.  It’s really unclear what that exactly means, since we don’t know what I have in mind and what I value as “good” (taste? Longevity? Complete vitamins? How it makes me feel? Social considerations?).

This version of Proposition 2a therefore essentially reverts back to a Proposition 1 claim; you can like whatever you want and you happen to like what ice-cream does to you in that dimension (taste, feeling, social consideration). Anything still goes.

I might also offer a slightly different version (Proposition #2b) where I say “eating ice-cream is good for me because it cures cancer”.

Aha! Now I’ve not only given you a clear metric of what I mean by ‘good’ (curing cancer), I’ve also established a causal mechanism about the world: ice-cream cures cancer.

By now, we’ve completely left the domain of “everything goes” and “over tastes there is no argument”. I’m making a statement about the world, and this statement is ludicrous. Admittedly, there might be some revolutionary science that shows the beneficial impacts of ice-cream on cancer, but I seriously doubt it – let’s say the causal claim here is as incorrect and refuted as a claim can possibly be.

Am I still justified in staying with my conviction and eating ice-cream? No, of course not! I gave a measure of what I meant by ‘good’ and clear causal criteria (“cure cancer”) for how ice-cream fits into that – and it’s completely wrong! I must change my beliefs, accordingly – I am no longer free to merely believe whatever I want.

If I don’t change my behaviour and maintain enjoying my delicious chocolate-flavoured ice-cream, two things happen: First, I can surrender my outrageous claim and revert back to Proposition 1. That’s fine. Or I can amend Proposition 2b into something more believable – like “eating ice-cream makes me happy, and I like being happy”.

What’s the story here?

If we substitute ice-cream for – I posit with zero evidence – the vast majority of people’s beliefs (about causality in the world, about health and nutrition, about politics, about economics and religion), we’re in essentially the same position. All those convictions, ranging from what food is good for you, to how that spiritual omnipotent power you revere helps your life, to what the government should do with taxes or regulations to reduce poverty, are most likely completely wrong.

Sharing my own experiences or telling stories about how I solved some problem is how we socially interact as humans – that’s fine and wonderful, and essentially amounts to Proposition 1-style statements. If you and I are sufficiently alike, you might benefit from those experiences.

Making statements about the world, however, particularly causal relations about the world, subjects me to a much higher level of proof. Now my experiences or beliefs or tastes are not enough. Indeed, it doesn’t even matter if I invoke the subjective and anecdotal stories of a few friends or this or that family member. I’m still doing sh*t science, making claims about the world on seriously fragile grounds. It’s not quite Frankfurt’s “Bullshit” yet, since we haven’t presumed that I don’t care about the truth, but as a statement of the world, what I’m saying is at least garbage.

I am entitled to my own beliefs and tastes and political “opinions“, whatever that means. I am not, however, entitled to my own facts and my own causal mechanisms of the world.

Keeping these spheres separate – or at least being clear about moving from one to the other – ought to rank among the highest virtues of peaceful human co-existence. We should be more humble and realise that on most topics, most of the time, we really don’t know. But that doesn’t mean anything goes.

Hyperinflation and trust in Ancient Rome

Kevin Kallmes Books, Economics, History, Law, Liberty , , , , , ,

Since it hit 1,000,000% in 2018, Venezuelan hyperinflation has actually been not only continuing but accelerating. Recently, Venezuela’s annual inflation hit 10 million percent, as predicted by the IMF; the inflation jumped so quickly that the Venezuelan government actually struggled to print its constantly-inflated money fast enough. This may seem unbelievable, but peak rates of monthly inflation were actually higher than this in Zimbabwe (80 billion percent/month) in 2008, Yugoslavia (313 million percent/month) in 1994, and in Hungary, where inflation reached an astonishing 41.9 quadrillion percent per month in 1946.

The continued struggles to reverse hyperinflation in Venezuela are following a trend that has been played out dozens of times, mostly in the 20th century, including trying to “reset” the currency with fewer zeroes, return to barter, and turning to other countries’ currencies for transactions and storing value. Hyperinflation’s consistent characteristics, including its roots in discretionary/fiat money, large fiscal deficits, and imminent solvency crises are outlined in an excellent in-depth book covering 30 episodes of hyperinflation by Peter Bernholz. I recommend the book (and the Wikipedia page on hyperinflations) to anyone interested in this recurrent phenomenon.

However, I want to focus on one particular inflationary episode that I think receives too little attention as a case study in how value can be robbed from a currency: the 3rd Century AD Roman debasement and inflation. This involved an iterative experiment by Roman emperors in reducing the valuable metal content in their coins, largely driven by the financial needs of the army and countless usurpers, and has some very interesting lessons for leaders facing uncontrollable inflation.

The Ancient Roman Currency

The Romans encountered a system with many currencies, largely based on Greek precedents in weights and measures, and iteratively increased imperial power over hundreds of years by taking over municipal mints and having them create the gold (aureus) and silver (denarius) coins of the emperor (copper/bronze coins were also circulated but had negligible value and less centralization of minting). Minting was intimately related to army leadership, as mints tended to follow armies to the front and the major method of distributing new currency was through payment of the Roman army. Under Nero, the aureus was 99% gold and the denarius was 97% silver, matching the low debasement of eastern/Greek currencies and holding a commodity value roughly commensurate with its value as a currency.

The Crisis of the Third Century

However, a major plague in 160 AD followed by auctions of the imperial seat, major military setbacks, usurpations, loss of gold from mines in Dacia and silver from conquest, and high bread-dole costs drove emperors from 160-274 AD to iterative debase their coinage (by reducing the size and purity of gold coins and by reducing the silver content of coins from 97% to <2%). A major bullion shortage (of both gold and silver) and the demands of the army and imperial maintenance created a situation where a major government with fiscal deficits, huge costs of appeasing the army and urban populace, and diminishing faith in leaders’ abilities drove the governing body to vastly increase the monetary volume. This not only reflects Bernholz’ theories of the causes of hyperinflations but also parallels the high deficits and diminishing public credit of the Maduro regime.

Inflation and debasementFigure 1 for Fiat paper

Unlike modern economies, the Romans did not have paper money, and that meant that to “print” money they had to debase their coins. The question of whether the emperor or his subjects understood the way that coins represented value went beyond the commodity value of the coins has been hotly debated in academic circles, and the debasement of the 3rd century may be the best “test” of whether they understood value as commodity-based or as a representation of social trust in the issuing body and other users of the currency.

Figure 2 for Fiat paper

Given that the silver content of coins decreased by over 95% (gold content decreased slower, at an exchange-adjusted rate shown in Figure 1) from 160-274 AD but inflation over this period was only slightly over 100% (see Figure 2, which shows the prices of wine, wheat, and donkeys in Roman Egypt over that period as attested by papyri). If inflation had followed the commodity value of the coins, it would have been roughly 2,000%, as the coins in 274 had 1/20th of the commodity value of coins in 160 AD. This is a major gap that can only be filled in by some other method of maintaining currency value, namely fiat.

Effectively, a gradual debasement was not followed by insipid ignorance of the reduced silver content (Gresham’s Law continued to influence hoards into the early 3rd Century), but the inflation of prices also did not match the change in commodity value, and in fact lagged behind it for over a century. This shows the influence of market forces (as monetary volume increased, so did prices), but soundly punctures the idea that coins at the time were simply a convenient way to store silver–the value of the coins was in the trust of the emperor and of the community recognition of value in imperial currency. Especially as non-imperial silver and gold currencies disappeared, the emperor no longer had to maintain an equivalence with eastern currencies, and despite enormous military and prestige-related setbacks (including an emperor being captured by the Persians and a single year in which 6 emperors were recognized, sometimes for less than a month), trade within the empire continued without major price shocks following any specific event. This shows that trust in the solvency and currency management by emperors, and trust in merchants and other members of the market to recognize coin values during exchanges, was maintained throughout the Crisis of the Third Century.

Imperial communication through coinage

This idea that fiat and social trust maintained higher-than-commodity-values of coins is bolstered by the fact that coins were a major method of communicating imperial will, trust, and power to subjects. Even as Roman coins began to be rejected in trade with outsiders, legal records from Egypt show that the official values of coins was accepted within the army and bureaucracy (including a 1:25 ratio of aureus-to-denarius value) so long as they depicted an emperor who was not considered a usurper. Amazingly, even after two major portions of the empire split off–the Gallic Empire and the Palmyrene Empire–continued to represent their affiliation with the Roman emperor, including leaders minting coins with their face on one side and the Roman emperor (their foe but the trusted face behind Roman currency) on the other and imitating the symbols and imperial language of Roman coins, through their coins. Despite this, and despite the fact that the Roman coins were more debased (lower commodity value) compared to Gallic ones, the Roman coins tended to be accepted in Gaul but the reverse was not always true.

Interestingly, the aureus, which was used primarily by upper social strata and to pay soldiers, saw far less debasement than the more “common” silver coins (which were so heavily debased that the denarius was replaced with the antoninianus, a coin with barely more silver but that was supposed to be twice as valuable, to maintain the nominal 1:25 gold-to-silver rate). This may show that the army and upper social strata were either suspicious enough of emperors or powerful enough to appease with more “commodity backing.” This differential bimetallist debasing is possibly a singular event in history in the magnitude of difference in nominal vs. commodity value between two interchangeable coins, and it may show that trust in imperial fiat was incomplete and may even have been different across social hierarchies.

Collapse following Reform

In 274 AD, after reconquering both the Gallic and Palmyrene Empire, with an excellent reputation across the empire and in the fourth year of his reign (which was long by 3rd Century standards), the emperor Aurelian recognized that the debasement of his currency was against imperial interests. He decided to double the amount of silver in a new coin to replace the antoninianus, and bumped up the gold content of the aureus. Also, because of the demands of ever-larger bread doles to the urban poor and alongside this reform, Aurelian took far more taxes in kind and far fewer in money. Given that this represented an imperial reform to increase the value of the currency (at least concerning its silver/gold content), shouldn’t it logically lead to a deflation or at least cease the measured inflation over the previous century?

In fact, the opposite occurred. It appears that between 274 AD and 275 AD, under a stable emperor who had brought unity and peace and who had restored some commodity value to the imperial coinage, with a collapse in purchasing power of the currency of over 90% (equivalent to 1,000% inflation) in several months. After a century in which inflation was roughly 3% per year despite debasement (a rate that was unprecedentedly high at the time), the currency simply collapsed in value. How could a currency reform that restricted the monetary volume have such a paradoxical reaction?

Explanation: Social trust and feedback loops

In a paper I published earlier this summer, I argue that this paradoxical collapse is because Aurelian’s reform was a blaring signal from the emperor that he did not trust the fiat value of his own currency. Though he was promising to increase the commodity value of coins, he was also implicitly stating (and explicitly stating by not accepting taxes in coin) that the fiat value that had been maintained throughout the 3rd Century by his predecessors would not be recognized going forward by the imperial bureaucracy in its transactions, thus signalling that for all army payment and other transactions, the social trust in the emperor and in other market members that had undergirded the value of money would now be ignored by the issuing body itself. Once the issuer (and a major market actor) abandoned fiat currency and stated that newly minted coins would have better commodity value than previous coins, the market–rationally–answered by moving quickly toward commodity value of the coins and abandoned the idea of fiat.

Furthermore, not only were taxes taken in kind rather than coin, but there was widespread return to barter as those transacting tried to avoid holding coins as a store of value. This pushed up the velocity of money (as people abandoned it as a store of value and paid higher and higher amounts for commodities to get rid of their currency). The demonetization/return to barter reduced the market size that was transacted in currency, meaning that there were even more coins (mostly aureliani, the new coin, and antoniniani) chasing fewer goods. The high velocity of money, under Quantity Theory of Money, would also contribute to inflation, and the unholy feedback loop of decreasing value causing distrust, which caused demonetization and higher velocity, which led to decreasing value and more distrust in coins as stores of value kept this cycle going until all fiat value was driven out of Roman coinage.

Aftermath

This was followed by Aurelian’s assassination, and there were several monetary collapses from 275 AD forward as successive emperors attempted to recreate the debased/fiat system of their predecessors without success. This continued through the reign of Diocletian, whose major reforms got rid of the previous coinage and included the famous (and famously failed) Edict on Maximum Prices. Inflation continued to be a problem through 312 AD, when Constantine re-instituted commodity-based currencies, largely by seizing the assets of rich competitors and liquidating them to fund his army and public donations. The impact of that sort of private seizure is a topic for another time, but the major lesson of the aftermath is that fiat, once abandoned, is difficult to restore because the very trust on which it was based has been undermined. While later 4th Century emperors managed to again debase without major inflationary consequences, and Byzantine emperors did the same to some extent, the Roman currency was never again divorced from its commodity value and fiat currency would have to wait centuries before the next major experiment.

Lessons for Today?

While this all makes for interesting history, is it relevant to today’s monetary systems? The sophistication of modern markets and communication render some of the signalling discussed above rather archaic and quaint, but the core principles stand:

  1. Fiat currencies are based on social trust in other market actors, but also on the solvency and rule-based systems of the issuing body.
  2. Expansions in monetary volume can lead to inflation, but slow transitions away from commodity value are possible even for a distressed government.
  3. Undermining a currency can have different impacts across social strata and certainly across national borders.
  4. Central abandonment of past promises by an issuer can cause inflationary collapse of their currency through demonetization, increased velocity, and distrust, regardless of intention.
  5. Once rapid inflation begins, it has feedback loops that increase inflation that are hard to stop.

The situation in Venezuela continues to give more lessons to issuing bodies about how to manage hyperinflations, but the major lesson is that those sorts of cycles should be avoided at all costs because of the difficulty in reversing them. Modern governments and independent currency issuers (cryptocurrencies, stablecoins, etc.) should take lessons from the early stages of previous currency trends toward trust and recognition of value, and then how these can be destroyed in a single action against the promised and perceived value of a currency.

Atomistic? Moi?

Nick Cowen Liberty, Links, Philosophy , , , ,

I have written a brief paper entitled ‘Hayek: Postatomic Liberal’ intended for a collection on anti-rationalist thinkers. For the time being, the draft is available from SSRN and academia.edu. Here are a couple of snippets:

Hayek offers a way of fighting the monster of Rationalism while avoiding becoming an inscrutable monster oneself. The crucial move, and in this he follows Hume, is to recognize the non-rational origins of most social institutions, but treating this neither as grounds for dismissal of those institutions as unsound, nor an excuse to retreat from reason altogether. Indeed, reason itself has non-rational, emergent origins but is nevertheless a marvelous feature of humanity. Anti-rationalist themes that appear throughout Hayek’s work include: an emphasis on learning by processes of discovery, trial and error, feedback and adaptation rather than knowing by abstract theorizing; and the notion that the internal processes by which we come to a particular belief or decision is more complex than either a scientific experimenter or our own selves in introspection can know. We are always, on some level, a mystery even to ourselves…

Departing from Cartesian assumptions of atomistic individualism, this account can seem solipsistic. When we are in the mode of thinking of ourselves essentially as separate minds that relate to others through interactions in a material world, then it feels important that we share that world and are capable of clear communication about it and ourselves in order to share a genuine connection with others. Otherwise, we are each in our separate worlds of illusion. From a Hayekian skeptical standpoint, the mind’s eye can seem to be a narrow slit through which shadows of an external world make shallow, distorted impressions on a remote psyche. Fortunately, this is not the implication once we dispose of the supposedly foundational subject/object distinction. We can recognize subjecthood as an abstract category, a product of a philosophy laden with abstruse theological baggage… During most of our everyday experience, when we are not primed to be so self-conscious and self-centered, the phenomenal experience of ourselves and the environment is more continuous, flowing and irreducibly social in the sense that the categories that we use for interacting with the world are constituted and remade through interactions with many other minds.

The mythology of Lochner v. New York

Ethan Blevins Law, Liberty , , , , , ,

In the highly competitive world of most misunderstood Supreme Court decisions, Lochner v. New York sits high on the list. The reason is simple enough: it has undergone a transcendent ascent to the world of abstraction, where it now embodies the platonic essence of a black-robed cadre of old, straight, white men hankering to smash the plebeian’s face in the dirt.

Yesterday, the Intelligencer–a publication of New York Magazine–dragged out these old tropes with the galumphing rhetoric typical of someone simply parroting a battered playbook with no real concern for its accuracy. The article is entitled, “Conservatives Want a ‘Republic’ to Protect Privileges.” Its basic premise is to push back against the anti-democratic tendencies of those who oppose direct, untrammeled democracy.

The article lists several “limitations on democracy to justify and even expand privilege.” The second references the conservative legal movement’s supposed attempt to resurrect the “Lochner era,” in order to protect the wealthy from democratic majorities.

First, off, it’s wrong to say that the “conservative legal movement” wants to revive Lochner. Both progressive and conservative jurists are generally united in their rejection of Lochner. Robert Bork, a thoroughly majoritarian conservative, railed against the case, as did Justice Antonin Scalia. Granted, this is because the conservative legal movement, sadly, has largely embraced the progressive juridical project of the 30’s, which was devoted to weakening the judiciary in order to shove the New Deal down the nation’s throat.

Second, Lochner‘s many detractors almost never grapple with the facts of the case. As a result, they frequently misunderstand it. Here’s what actually happened. In the early 1900’s, New York enacted a nitpicky law that saddled bakeries with an avalanche of finite requirements–limits on ceiling heights, limits on the kind of floor, and the demand to whitewash the walls every three months, among other things. But the provision dealt with in Lochner was this: “No employee shall be required or permitted to work in a biscuit, bread or cake bakery or confectionary establishment than 60 hours in one week or more than 10 hours in any one day.”

A Bavarian immigrant named Joseph Lochner who owned a Utica bakery was criminally indicted for violating this law. Aman Schmitter, another immigrant, lived with his family above the bakery and worked for Joseph. Aman happily worked over sixty hours a week in order to care for his family and increase his skills, and he said so in a sworn affidavit.

It is undisputed that New York’s law was not about health, safety, or protecting workers, though New York tried to say so at the time. Rather, New York passed the law at the behest of powerful bakeries and baker unions in a patent attempt to crush small, family-owned bakeries that relied upon flexible work schedules. It gets worse–the law intentionally targeted immigrant bakeries in particular, which tended to be of the small variety that leaned on overtime. The state’s legal brief contained a detestable line that progressives today would certainly associate with Trump: “there have come to [New York] great numbers of foreigners with habits which must be changed.” This is the law that progressives who hate Lochner are defending.

In a 5-4 decision, the Supreme Court thankfully struck down this law that was passed to serve the powerful and crush a weak immigrant population. Put that way, it seems startling that anyone today would wish to stand up for this piece of anti-immigrant, protectionist garbage.

But then again, Lochner is no longer about Lochner. It’s about rejecting a mythical “Lochner era.” Progressives believe that Lochner represented an entire ecosystem of turn-of-the-century jurisprudence in which corrupt judges were smothering the will of the people wholesale. Turns out that era never existed. Law professor David Bernstein has examined old court records concerning state exercises of their police power during that time period and found that there simply was no lengthy period in which courts were whack-a-moling every piece of social legislation that dared to lift its head.

To the extent that courts of that era did strike down social legislation under the liberty of contract, they did so not to serve the wealthy, but to protect weak minorities–which is of course why robust judicial review exists in the first place. For instance, the Illinois state supreme court struck down a deeply misogynistic law limiting women’s maximum work hours. The Court used the same liberty-of-contract reasoning as Lochner, arguing that women “are entitled to the same rights under the Constitution to make contracts with reference to their labor as are secured thereby to men.” And in Bailey v. Alabama, the wicked Lochner Court struck down a Jim Crow law that created a presumption of fraud when a worker quit after getting an advance payment. The law was aimed at penalizing black workers–an attempt essentially to revive peonage. Do progressives really want to own up to disagreeing with these “Lochner era” precedents? Somehow I doubt it.

Lochner did not, as Lochner‘s enemies love to claim, replace the legislature’s judgment with the judgment of the Court. Instead, the Court was willing to look skeptically at the legislature’s motives and demand that the legislature do its work and show that a law burdening a basic right is necessary. The New York law failed that test spectacularly.

Of course, Lochner‘s legacy does demand that courts counter democratic will when it conflicts with fundamental rights. Alexander Bickel famously called this the counter-majoritarian difficulty, something that has preoccupied the judiciary for a century. If you really care about minorities, though, you might consider Judge Janice Rogers Brown’s insight: “But the better view may be that the Constitution created the countermajoritarian difficulty in order to thwart more potent threats to the Republic: the political temptation to exploit the public appetite for other people’s money–either by buying consent with broad-based entitlements or selling subsidies, licensing restrictions, tariffs, or price fixing regimes to benefit narrow special interests.”

In any case, if progressives continue to take a polly-anna view of unfettered democracy despite the evidence, they should at least bother to get the facts right on Lochner.

 

Thoughts on ‘For Method’

Rick Weber Books, Liberty, Philosophy , , , ,

Our project hasn’t seen much public-facing action, but it’s still happening. For my part, I have (so far) read Lakatos’s lectures that were meant to form the basis for his joint project with Feyerabend.

Before I jump into it, let me start with my favorite quote:

The social sciences are on a par with astrology, it is no use beating about the bush. (Funny that I should be teaching at the London School of Economics!)

Imre Lakatos, p. 107 For and Against Method

These lectures were an entertaining evisceration of some old (and still prevalent) superstitions about the functioning of science, plus Lakatos’s own view on how science actually works. I think his picture (which I’ll describe below) is a pretty good one, but doesn’t actually solve the demarcation problem.

The Big Question (TBQ) is this: how do we separate good science from bad? Lakatos presents three main schools of thought (besides his own):

  1. Demarcationism — a set of schools of thought that share a belief in something like an objective answer to TBQ.
  2. Authoritarianism — the belief that there are some people who can identify good science, but can’t necessarily enunciate their positions.
  3. Anarchism — which argues (according to Lakatos) that there is no good or bad science.

He quickly rejects the various flavors of Demarcationism. These schools of thought are either logically impossible (e.g. inductivism), inconsistent with the history of science, and/or too subjective. They’re popular caricatures of science–cartoons with heroic scientists battling ignorance, limited only by funding. But they aren’t true.

For example, Falsificationism (which is alive and well, half a century later, in the minds of many practicing scientists) tells us that scientists are only swayed by disconfirmatory evidence. But in practice scientists tend to ignore anamolies (i.e. disconfirmatory evidence) with the hope that they’ll be explained away later–and they tend to be swayed by confirmatory evidence in spite of Falsificationist priors.

All told, Demarcationists run into the problem of not being able to come up with a theory that doesn’t make significant errors such as classifying Newton as bad science.

On the far side of the spectrum are anarchists. Far from believing in any formula, criteria, or line in the sand, they say TBQ misses the point entirely. There isn’t such thing as “good” science or “bad” except from the perspective of whatever the current orthodoxy says. For the objective-truth-seeking philosopher, science ultimately boils down to “anything goes!”

For Lakatos, the anarchists have basically surrendered in the face of the demarcation problem. But it’s not clear to me that Lakatos hasn’t joined them. He’s got his progression criterion (more on that later), but can we really pin that down in any objective way? Motterlini seems to think Feyerabend thought Lakatos was really an anarchist after all, and I’m inclined to agree based on what (little) I’ve seen. Lakatos offers heuristics, but makes no guarantees that any formula will work reliably.

Let me come back to Authoritarianism after describing Lakatos’s theory of research programs.

A research program is (if I’m understanding this correctly) basically a mix of scientific framework and community. Austrian Economics is a research program comprised of a common theoretical view (with some disagreements), a network of citations, and a social network across space and backwards through time. Austrian Econ contains smaller programs within it: entrepreneurship, political economy, history of thought, capital theory, etc.

Any given research program (RP) may look relatively “good”(ish) or “bad” at any given time, but the future is always uncertain. I wouldn’t bet money on it, but how am I to prove that astrology won’t turn out to be true at some point? It’s the Grue problem writ large.

What we can evaluate is whether an RP is “progressing” or “degenerating.” In the former case it’s gaining predictive power. In the latter case it’s turning into an ad hoc mess in the face of evidence.

It’s up to individual scientists to make the entrepreneurial [my word, not his] decision to invest some effort in whichever program they think is promising. The natural move would be to join a progressing RP. But there might be an opportunity to save a degenerating RP.

In other words, Lakatos wants to describe what science is doing, but he wants to avoid making value judgements about unknown futures. Rather than draw a demarcation line he instead offers a way to ask if a RP is going in the right direction (right now or retrospectively).

Let’s digress a minute and consider objective reality. Putting aside Cartesian skepticism, it seems reasonable to take the existence of an objective universe as a basic axiom. But just as surely, that objective universe has far more complications than humanity will ever be able to fully account for. The universe has more dimensions than us; what did you expect? In considering science’s ability to grasp objective reality, we have to understand that there’s always going to be some degree of (radical) uncertainty, even at the best of times.

“Good” science is that science that gets us closer to capital-T Truth. But we’ll never be in the omniscient position necessary to conclusively judge a bit of science as actually being good or not.

I think Lakatos and I share a sense that there is this objective reality that we can move towards. I think we also share an understanding that this objective reality is fundamentally inaccessible. I also share his position that the demarcationists are wrong. But I’m not ready to give up on the anarchists or the authoritarians.

Authoritarians basically argue that although there is good and bad science and that they can identify them even if they can’t explain how. Lakatos deals mostly with the uglier side of this school of thought, but misses a nicer side. That nicer version, ironically, includes him telling us things like astronomy is more valid than astronomy. To be fair, he hedges by acknowledging that the future is always uncertain… maybe in 1000 years astrology switches from a degenerating body of knowledge to a progressive one.

Hayek’s notion of tacit knowledge applies to scientific knowledge. The tacit knowledge of scientists allows them to tell future scientists things like “don’t even bother with alchemy.”

Still, just because you know something, doesn’t mean it’s right. We all “know” that Roman soldiers spoke with English accents because that’s how they’ve always been portrayed in movies. Try imagining Gladiator with Italian accents; it doesn’t work!

Sometimes authorities give us useful advice like distinguishing between astronomy and astrology. But sometimes they turn out to be wrong (after encouraging us to pursue eugenics in the meantime).

Authority is a useful guidepost, and represents the (current) structure of knowledge. I am not willing to give up my own authority because when it comes to economics, I know it’s not a matter of “anything goes!”

Reading Lakatos, I can’t quite settle on a camp between the anarchists and authoritarians. The anarchists are literally correct, but the authoritarians are able to actually make bets on a reality I think exists.

We’re all in the position of the blind men and the elephant. When someone tells me an elephant is like a tree, I think it behooves me to a) accept that as evidence about what the world is like, and b) take it with a grain of salt. The bumper sticker version of my stance might be “the Truth is out there… and its bigger than you think.”

So what about Lakatos? It’s all a bit rusty at this point so please push back in the comments. But here’s my tl;dr:

  • Don’t trust anyone who tells you they’ve got the formula for “good science.”
  • The way science actually works (as opposed to the mythology we’re taught in high school science) is that RP’s build up complex bodies of knowledge around a few core postulates. Normal science is concerned with attacking the knowledge that isn’t in that core.
  • Scientific progress (e.g. the shift from Newtonian to Einsteinian physics) isn’t an Occam process… we’re not eliminating anomalies, but changing the set of anomalies we deal with.
  • The mark of bad science is adding ad hoc theory that hand-waves away anomalies but doesn’t generalize to describing novel facts (if Nasim Taleb were in the audience, he’d be shouting via negativa! right now)

Financial History to the Rescue: The Harder Money Wins Out

Joakim Book Economics, History, Liberty , , , , , ,

This article is part of a series on bitcoin (and bitcoiners’) arguments about money and particularly financial history. See also:

(1) ‘On Bitcoiners’ Many Troubles’, Joakim Book, NotesOnLiberty (2019-08-13)
(2): ‘Rothbard’s First Impressions on Free Banking in Scotland Were Correct’, Joakim Book, AIER (2019-08-18)

(4): ‘Bitcoin’s Fixed Money Supply Is a Weakness’, Joakim Book, AIER (2019-08-28)

The great monetary economist and early Nobel Laureate John Hicks used to say that monetary theory “belongs to monetary history, in a way that economic theory does not always belong to economic history.”

Today I’m going to illustrate exactly that with respect to the Bitcoiner’s (mistaken) progressivism in another episode of Financial History to the Rescue.

In the game of monetary competition, the Bitcoin maximalists posit, the “harder” money always wins out. I’ve been uneasy with the statement as it (1) isn’t clear to me what “harder” money (or money’s “hardness”) really means, and (2) probably isn’t historically true. So we end up with something that’s false, or vague – or both! Clearly unsatisfactory. As I pointed out in my overview post to this series, financial and monetary history is almost always more nuanced than what such simple generalizations allow.

Luckily enough, Saifedean Ammous at the Soho Forum debate last week, did inadvertently provide me with a useable definition – and I intend to use it to debunk the idea that money’s history is one of increased hardness. Repeatedly Saif claimed that monetary history, before the advent of central banking, showed us that the harder money always won out: whenever two monetary networks clashed (shells and silver; wampum and gold) the “harder” money won. The obvious implication is that Bitcoin, being the “hardest” money, will similarly win out. Right off the bat, there’s some serious problems here.

First, it’s not altogether clear that such “This time is not different” arguments apply. Yes, economic history teaches us not to discount what seems to be long-standing or universally applicable phenomena – but also to take notice of the institutional setting in which they happen. Outcomes specific to, say, the Classical Gold Standard, rarely generalize into our hyper-modern financial markets with inflation targeting central banks.

Second, over the twentieth century we literally went from the hardest money (gold) to the “softest” money (central bank-created fiat paper money). Sure, you can argue that this was unfair or imposed upon us from above by wars and welfare states, but discounting it as irrelevant strikes me as overly cherry-picking. If the hardest money “lost” before, what makes you think that your new fancy money will win out this time around?

Then Saif returned to the topic of hardness and defined it as a money whose supply is “the hardest to increase.” The hardness of Cowrie shells or Wampum or gold or Whale’s teeth or Rai stones or the other early money that Jevons listed and discussed in 1875, all rely on a difficult, costly and inconvenient process of extraction and/or production. Getting Rai stones from far-away islands, stringing beads together into extended strips of Wampum, or digging up gold from inaccessible patches of the earth were all cumbersome and expensive processes. In Saif’s mind, this contributed to their hardness. Their money stock were simply difficult to expand – in jargon: their money supplies were inelastic.

The early 1600s Dutch Republic struggled with another problem. As the main financial centre of the time, countless hard money (coins) from all over the world were used in Amsterdam. Estimates say over a thousand legally recognized kinds of coins – and presumably even more unrecognized coins. A prime setting for monetary competition: they were all pretty hard (Saif’s definition: difficult and costly to expand) commodity moneys, of various quality, origin, and recognition in trade.

Another feature of 17th century Amsterdam was the international environment of Bills of Exchange (circulating private credit notes). Briefly summarized, merchants across the world traded debts on Amsterdam bankers or traders, and rather than holding and transporting bullion across the world, they transported the debt of the most trustworthy and reliable Dutch financiers. As all such bills required a settlement medium in Amsterdam, trade on thin margins was very sensitive to fluctuations in prices between the commodity moneys in which their bills were denominated – and very sensitive to debasements and re-defined values by various European proto-governments.

In 1609, the City of Amsterdam created the Wisselbank (initially a 100% reserve exchange bank) specifically tasked with standardizing the coinage and to insulate the bill market from currency fluctuations (through providing a ‘neutral’ unit of account for bills settlement). The Bank accepted deposit of whatever coin at the legally recognized rate (unrecognized at metal content) and delivered ”high-quality Dutch trade coins” upon withdrawal. To fund itself, it added a withdrawal fee of 1.5%, but no internal transfer fee, which made holding currency at the Bank very expensive in the short-term, but very cheap in the long-term. Merchants also avoided much of the withdrawal fee by simply trading balances with one another rather than depositing and withdrawing trade coins. In return for this cost-saving, sellers of bank balances would share a portion of the funds saved with the buyer in what’s known as the “Agio”: the price of Bank money in terms of current money outside the Bank’s accounts. This price would fluctuate like any other price on the market and would indicate the stance of liquidity demands.

In a classic example of Alchian’s monetary competition by transaction costs, Dutch merchants and financiers “outsourced” the screening and assaying of unfamiliar coins. They preferred settling their transactions through the (cheaper) medium that was deposits in the Bank.

And it gets worse for the bitcoiner’s story. In 1683, the Bank coupled its deposits with specific receipts for withdrawal; to gain access to coins, one was required both to hold balances and to purchase a receipt issued by the Bank (they also changed the pricing). Roughly speaking, the Bank became a fractional reserved bank (with capped withdrawals) overnight – and contrary to what the hardness argument would imply, the agio on Bank money rose to above par!

Two monetary historians, Stephen Quinn and William Roberds, summarize one of their many writings on the Wisselbank as follows:

“imaginary money on the Bank’s ledgers succeeded because it was more reliable than the real stuff. […] The most liquid asset in the economy was no longer coin, but a sort of ‘virtual banknote’ residing in Bank of Amsterdam accounts.”

Further,

“the evolution of the agio shows that the market valued irredeemable balances as if they were closely tied to backing trade coins” (my emphasis)

The story of the Amsterdam Wisselbank’s monetary experiments and innovations show us that monetary adaption relies on many more dimensions than “hardness.” Sometimes “hard” money is defeated by “soft” money, since the softer money brought other benefits to its users – in this case a cheap and reliable settling medium.

The lesson for bitcoin-vs-fiat-vs-FinTech is pretty clear: hard money doesn’t always “win”; and sometimes “soft” money can better serve the needs of consumers in a free market.

What Albert Camus taught us about freedom

Alexander Albrecht Liberty, Philosophy , , , ,

The French-Algerian author and philosopher Albert Camus is unarguably one of the most read and thought-provoking intellectuals of the 20th century. Although he mainly gained attention through his philosophical theory of the absurd, which he carefully and subconsciously embedded in his novels, Camus also decisively contributed significant ideas and thoughts to the development of freedom in the post Second World War era. That is why I want to present you five little known things we still can learn from Albert Camus’ political legacy.

  • Oppose every form of totalitarianism

After the Second World War, socialism spread across Eastern Europe and was proclaimed the alternative draft to capitalism, which was regarded to be one of the reasons for the rise of fascism in Germany. On the other side, socialism was believed to bring about freedom for everybody in the end. Even though many intellectuals at first were attracted by the socialist ideology, Camus instantly saw the dangers of its predominant “the ends justify the means” narrative. He justifiably considered the vicious suppression of opposing views in order to obtain total freedom in the future as an early shibboleth for totalitarianism.

To achieve self-realization, an individual needs personal freedom, which is one of the first victims of totalitarian despotism. Thus, Camus vigorously fought against right or left authoritarian proposals – and for individual liberty, which lead to his conclusion: “None of the evils that totalitarianism claims to cure is worse than totalitarianism itself”.

  • A diverse Europe

If one thing is for sure, then it is Camus’ unbroken love for Europe. However, his conception of Europe does not portray the continent as a possible source for collectively controlled industry, military or thoughts. In contrast, he depicts Europe as an exciting intellectual battlefield of ideas, in which for 20 centuries people revolted “against the world, against the gods, and against themselves.” Thus, European people are unified through shared ideas and values rather than divided by borders.

That is why he forecasts the emergence of an unideological Europe populated by free people and based on unity and diversity already in 1957. Although he felt a strong love for his homeland France, he notes that an expansion of the realm he defines as “home” does not necessarily affects his love in a negative way. That is why he later on even argued for the “United States of the world.”

  • Nihilism is not a solution

In “A letter to a German friend” Camus remarks certain similarities between him and the Nazis regarding their philosophical starting point. They both reject any intrinsic, predetermined meaning in this world. However, the Nazis derive an arbitrariness of defining moral categories such as “good” and “evil” as well as a human subjugation to their animal instincts from this perception. Thus, it is allowed to murder on behalf of an inhuman ideology.

Contrary, Camus insisted that this nihilism leads to self-abandonment of humanity. In turn, he argues that we must fight against the unfairness of the world by creating our own meaning of life in order to achieve happiness. If there is no deeper meaning in our existence, every person has to seek happiness in his or her own way. When we accept our destiny, even if it devastating at first glance as he describes it in “The myth of Sisyphus”, we can pursue our own goals and therefore fulfil our personal meaning of life.

  • Total artistic freedom

Considering his artistic background, Camus’ conception of the value of freedom is quite interesting. Classical liberalist such as Locke and Mill regard freedom as the state of nature: The man is born free and thus freedom is the natural state of any person. Liberty for Camus instead is a necessary condition to fulfil every personal perception of the meaning of life. That is why he particularly emphasizes the invaluable worth of liberty for humanity: When people are not free, they cannot pursue their own meaning of life and thus achieve happiness in an unfair world.

Considering the immense value art personally has for Camus, it certainly reflects a major component in his personal equation towards fulfilment, alongside other interests such as sports and love. Hence, it is not surprising that he was a lifelong supporter of total artistic freedom, which prevents nobody from obtaining happiness through individual perceptions of art. That is why he famously concludes “Without freedom, no art; art lives only on the restraints it imposes on itself and dies of all others.”

  • Abrogate the death penalty

In the chilling essay “reflections on the Guillotine” Camus insists on the abolishment of the death penalty. Apart from different scientific arguments such as low efficiency and a non-existing deterrence-effect, Camus also points out the general moral fragility of the death penalty: He is deeply worried by the state privilege of deciding over life and death. This privilege is exploited through the death penalty, which solely is a form of revenge. On the contrary, it is only triggering an unbearable spiral of violence instead of preventing it. Alternatively, he argues for being set at labour for life as maximal punishment.

Albert Camus was not an Anarcho-capitalist nor was he a libertarian. Nevertheless, he regarded individual freedom as an essential element of society and examined the inseparable relation between freedom and art. Every true work of art increased the inner freedom of its admirer and thus free art gives scope for individual happiness. One can never solely serve the other – they presuppose each other. Because of his artistic and philosophical roots, Camus provides an unusual moral argument for individual liberty, which makes him worth reading even today.

The Case for Constructivism in IR Pt. 2

Alexander Albrecht Liberty, Philosophy, Politics , , , , , , , ,

After a not so short break I took from blogging in which I submitted my Bachelor Thesis and took some much-needed vacations, I finally got my hands back on writing again. Before opening up something new, I first need to finish my Case for Constructivism in IR.

In my first post, I described how constructivism emerged as a school of thought and how the key concept of anarchy is portrayed. In this part, I want to discuss power and the differences between moderate constructivism, radical constructivism and poststructuralism.

The social construction of… everything? Where to draw the line.

The connection between moderate constructivism and radical constructivism is more of a flowing transition than a sharp distinction. Scholars have further developed the idea of social constructivism and expanded it beyond the realms of the international system. Not only the international system but also states, tribes and nations are socially constructed entities. Thus taking “states” as given entities (as moderate constructivist do) in the international system neglects how national identities are constructed. Why do nations act so differently although they are subjugated to the same international system? The implications of these findings have been the subject of many influential works, notably Francis Fukuyama’s latest book “Identity” or Samuel Huntington’s “Clash of Civilization”.

The most important component which radical constructivist brought into consideration was language. The linguistic turn induced by Ludwig Wittgenstein disrupted not only philosophy but all social sciences. For decades language has been portrayed as a neutral mean to communicate between the human species which evolved from spontaneous order. Wittgenstein dismantled this image and explained why we so often suffer from linguistic confusion. Friedrich Krachtowil further applied Wittgenstein’s findings to social sciences by dividing information into three categories: Observational (“brute”), mental and institutional facts. All these three dimensions need to be taken into account in order to understand a message. The institutional setting of spoken words directly builds a bridge between speaking and acting (speech act theory). If I say, let’s nuke North Korea, I might get a weird look on the streets, but nothing significant will happen. On the other hand, if the president of the USA says the same, the institutional setting has changed, and we might have a problem with the real-world implications of this statement. The social construction of the institutional setting is highlighted by paying special interest to language as a mean of human interaction. However, how far one can go with analyzing the results of a socially constructed language without losing the bigger picture out of sight remains a difficult task.

While the radical constructivists first established a connection between language and physical action, the poststructuralists sought to discover the immanent power structures within social constructs. Michel Foucault (one of the most prolific sociologists of the 20th century with some neoliberal influence) brought the discourse and moreover discursive action into perspective, whilst Derrida or Deleuze focused more on the deconstruction of written texts. Contrary to many poststructuralists, moderate constructivists avoid being constantly fooled by Maslow’s Hammer: While it is irrefutable that power relations play a vital role in analyzing social structures, an exceedingly rigid focus on them conceals other driving forces such as peaceful, non-hierarchical cooperation for example.

Why Constructivism at all?

Moderate Constructivism puts special emphasis on the institutional setting in which certain behaviour is incentivized. This setting, however, is subject to permanent changes and perceived differently by every subjective actor in the international system. Thus, the driving problem of IR remains a coordination problem: Instead of simple state interest directed to maximize their share of the Balance of Power (as Hans Morgenthau, the father of modern IR theory, proclaimed), we must now coordinate different institutional settings in the international system resulting in a different understanding of key power resources. None of the traditional IR schools of thought hypothesizes that ontology may be subjective. Moderate constructivism manages to integrate a post-positivist research agenda without getting lost in the details of language games (like radical constructivist) or power analytics (like poststructuralists).

Is Dominic Cummings a hypocrite, or does the EU’s Common Agricultural Policy just suck?

Nick Cowen Economics, Liberty, Politics , , , , , , ,

Tedandralph

On Saturday, The Observer revealed that Prime Minister Boris Johnson’s recently appointed chief of staff received around £235,000 of EU farm subsidies over the course of two decades in relation that his family owns. Dominic Cummings is often portrayed as the mastermind behind the successful referendum campaign to Leave the European Union. So he is currently enemy no.1 among remain-supporters.

I am unconvinced this latest line of attack plays in Remainers’ favor (I was a marginal Remain voter in the referendum and still hold out some hope for an eventual EEA/EFTA arrangement). Instead, this story serves as a reminder of probably the worst feature of the current EU: the Common Agricultural Policy.

The CAP spends more than a third of the total EU budget (for a population of half a billion people) on agricultural policies that support around 22 million people, most of them neither poor nor disadvantaged as Cummings himself illustrates. Food is chiefly a private good and both the interests of consumers, producers and the environment (at least in the long-term, as suggested by the example of New Zealand) are best served through an unsubsidized market. But the CAP, developed on faulty dirigiste economic doctrines, has artificially raised food prices throughout the European Union, led to massive over-production of some food commodities, and denied farmers in the developing world access to European markets (the US, of course, has its equivalent system of agricultural protectionism).

These economic distortions make an appearance in my new paper with Charles Delmotte, ‘Cost and Choice in the Commons: Ostrom and the Case of British Flood Management’. In the final section, we discuss the role that farming subsidies have historically played in encouraging inappropriately aggressive floodplain drainage strategies and uneconomic use of marginal farming land that might well be better left to nature:

British farmers currently receive substantial subsidies through the European Union’s Common Agricultural Policy. This means that both land-use decisions and farm incomes are de-coupled from underlying farm productivity. Without the ordinarily presumed interest in maintaining intrinsic profitability, farmers may fail to contribute effectively to flood prevention or other environmental goals that impacts their output unless specifically incentivized by subsidy rules. If the farms were operating unsubsidized, the costs of flooding would figure more plainly in economic calculations when deciding where it is efficient to farm in a floodplain and what contributions to make to common flood defense. Indeed, European governments are currently in the perverse position of subsidizing relatively unproductive agriculture with one policy, while attempting to curb the resulting harm to the natural environment with another. These various schemes of regulation and subsidy plausibly combine to attenuate the capacity of the market process to furnish both private individuals and local communities with the appropriate knowledge and incentives to engage in common flood prevention without state support.

Our overall argument is that it is not just the direct costs of subsidies we should worry about, but the dynamics of intervention. In this case, they have led not only farmers but homeowners and entire towns to become reliant on public flood defenses with significant costs to the natural environment. There is limited scope for the government to withdraw provision (at least in a politically palatable way).

Turning back to The Observer’s gotcha story, it isn’t clear to me that Cummings is a hypocrite. I think the best theoretical work on hypocrisy in one’s personal politics comes from Adam Swift’s How Not To be Hypocrite: School Choice for the Morally Perplexed. In it Swift argues that the scope to complain about supposed hypocritical behavior, especially taking advantage of policies that you personally disagree with, can be narrower than intuitively imagined, mainly because of the nature of collective action problems. Swift’s conclusion is that, in some circumstances, leftwing critics of private schools are entitled to send their own children to private schools so long as others continue to do so and burden of doing otherwise is too strong. Presumably, this also means that strident libertarians are not hypocritical to use public roads so long as a reasonable private alternative is unavailable.

In an environment where every farmer receives an EU subsidy, it might be asking too much of EU-skeptic farmers to deny it to themselves. Instead, it seems legitimate and plausible to take the subsidy while campaigning sincerely to abolish it.

Do we want criminals to ‘feel terror at the thought of committing crimes’?

Nick Cowen Current Events, Economics, Liberty , , , ,

Last week, Priti Patel, the new British Home Secretary, provoked a media stir when she announced that she thought the criminal justice system should aim to strike fear into the heart of criminals. Critics combined her new interview with her previous support for the death penalty, banned in the mainline UK since 1965, to suggest that Patel represents a draconian and reactionary turn in British law enforcement.

Then a couple of days ago, a YouGov survey showed, that 72 per cent of the British public agreed with her. Media commentators can forget quite how high support is for law and order among ordinary citizens. Support for the death penalty itself still attracts almost half of the population.

Are the public right? The meat of the Government’s new policy is an increase in the number of police officers; this at a time of increasing violent crime and concerns about rising knife crime in London. On that front, the evidence points in Patel’s favour. More police often reduce crime and do so through a variety of mechanisms, including situational deterrence (for example, patrolling in high-crime areas) as well as increasing detection rates. There is general agreement that increasing the certainty of apprehension contributes to deterrence.

What about punishment severity? There the evidence is decidedly more mixed. There is remarkably little evidence, for example, that the death penalty deters crimes like murder more than an appropriate prison sentence.  Using a new data set of sentencing practice in all police force areas in England and Wales, myself and some great colleagues at the Centre for Crime, Justice and Policing at the University of Birmingham produced a study just printed last month: ‘Alternatives to Custody’. We compared the way a previous year’s sentencing influenced the subsequent year’s recorded crime.

What we found was that for property crime, our largest category, and robbery, community sentences generally reduced crime more than prison. In fact, one of our models suggested increased use of prison caused subsequent crime to go up. On the other hand, prison seemed to work (and was the only thing that worked) to reduce violent crime and sexual offences. (We summarised our results for the LSE British Politics and Policy blog.)

The lesson that we draw is that deterrence isn’t an overwhelming explanation of the impact of sentencing. Harsher sentencing probably works to deter some offenders. But at the same time carrying out punishments can have criminogenic effects. Experience of prison often makes convicts less employable and can effectively socialise them into having an enduring criminal identity. Of course, many offenders in the real-world are not particularly well informed about the criminal justice system. They may also have less self-control than a typical member of the public. So information about an increased penalty for a crime may never effectively filter into the deliberation and reflection of some offenders until they are sentenced, at which point you get the high financial and social costs of prison kicking in.

Getting caught by the police, perhaps on a few occasions,  is a more immediate sign to an offender that their behaviour is unlikely to pay off in the long-term. What does this mean for Patel? It suggests that fear of the consequences can play a role, but what we really need is graduated sanctions, avoiding prison when possible. This gives offenders plenty of options to exit a criminal career path. Relying on terror, by contrast, can lead to a large prison population producing a lot of stigmatized and harmed individuals who quite possibly will re-offend when they are released.

One weird old tax could slash wealth inequality (NIMBYs, don’t click!)

Nick Cowen Current Events, Economics, Law, Liberty , , , , , , , ,

yesnoimputedrent

What dominates the millennial economic experience? Impossibly high house prices in areas where jobs are available. I agree with the Yes In My Back Yard (YIMBY) movement that locally popular, long-term harmful restrictions on new buildings are the key cause of this crisis. So I enjoyed learning some nuances of the issue from a new Governance Podcast with Samuel DeCanio interviewing John Myers of London YIMBY and YIMBY Alliance.

Myers highlights the close link between housing shortages and income and wealth inequality. He describes the way that constraints on building in places like London and the South East of England have an immediate effect of driving rents and house prices up beyond what people relying on ordinary wages can afford. In addition, this has various knock-on effects in the labour market. Scarcity of housing in London drives up wages in areas of high worker demand in order to tempt people to travel in despite long commutes, while causing an excess of workers to bid wages down in deprived areas.

One of the aims of planning restrictions in the UK is to ‘rebalance’ the economy in favour of cities outside of London but the perverse result is to make the economic paths of different regions and generations diverge much more than they would do otherwise. Myers cites a compelling study by Matt Rognlie that argues that most increased wealth famously identified by Thomas Piketty is likely due to planning restrictions and not a more abstract law of capitalism.

Rognlie also inspires my friendly critique of Thomas Piketty and some philosophers agitating in his wake just published online in Critical Review of International Social and Political Philosophy: ‘The mirage of mark-to-market: distributive justice and alternatives to capital taxation’.

My co-author Charles Delmotte and I argue that for both practical and conceptual reasons, radical attempts to uproot capitalism by having governments take an annual bite out of everyone’s capital holdings are apt to fail because, among other reasons, the rich tend to be much better than everyone else at contesting tax assessments. Importantly, such an approach is not effectively targeting underlying causes of wealth inequality, as well as the lived inequalities of capability that housing restrictions generate. The more common metric of realized income is a fairer and more feasible measure of tax liabilities.

Instead, we propose that authorities should focus on taxing income based on generally applicable rules. Borrowing an idea from Philip Booth, we propose authorities start including imputed rent in their calculations of income tax liabilities. We explain as follows:

A better understanding of the realization approach can also facilitate the broadening of the tax base. One frequently overlooked form of realization is the imputed rent that homeowners derive from living in their own house. While no exchange takes place here, the homeowner realizes a stream of benefits that renters would have to pay for. Such rent differs from mark-to-market conceptions by conceptualizing only the service that a durable good yields to an individual who is both the owner of the asset and its consumer or user in a given year. It is backward-looking: it measures the value that someone derives from the choice to use a property for themselves rather than rent or lease it over a specific time-horizon. It applies only to the final consumer of the asset who happens also to be the owner.

Although calculating imputed rent is not without some difficulties, it has the advantage of not pretending to estimate the whole value of the asset indefinitely into the future. While not identical and fungible, as with bonds and shares, there are often enough real comparable contracts to rent or lease similar property in a given area so as to credibly estimate what the cost would have been to the homeowner if required to rent it on the open market. The key advantage of treating imputed rent as part of annual income is that, unlike other property taxes, it can be more easily included as income tax liabilities. This means that the usual progressivity of income taxes can be applied to the realized benefit that people generally draw from their single largest capital asset. For example, owners of a single-family home but on an otherwise low income will pay a small sum at a small marginal rate (or in some cases may be exempted entirely under ordinary tax allowances). By contrast, high earners, living in large or luxury properties that they also own, will pay a proportionately higher sum at a higher marginal rate on their imputed rent as it is added to their labor income. Compared to other taxes on real estate, imputed rent is more systematically progressive and has significant support among economists especially in the United Kingdom (where imputed rent used to be part of the income tax framework).

This approach to tax reform is particularly apt because a range of international evidence suggests that the majority of contemporary observed increases in wealth inequality in developed economies, at least between the upper middle class and the new precariat, can be explained by changes in real estate asset values. Under this proposal, homeowners will feel the cost of rent rises in a way that to some extent parallels actual renters.

For social democrats, what I hope will be immediately attractive about this proposal is that it directly takes aim at a major source of the new wealth inequality in a way that is more feasible than chasing mirages of capital around the world’s financial system. For me, however, the broader hope is the dynamic effects. It will align homeowners’ natural desire to reduce their tax liability with YIMBY policies that lower local rents (as that it is what part of their income tax will be assessed against). If a tax on imputed rent were combined with more effective fiscal federalism, then homeowners could become keener to bring newcomers into their communities because they will share in financing public services.

Nightcap

Brandon Christensen Liberty , , ,
  1. What it’s like to be black in Europe Christopher Kissane, Financial Times
  2. America’s other rebellious border Maxime Dagenais, Age of Revolutions
  3. Capitalism in America: Up, up, and away Deirdre McCloskey, Claremont Review of Books
  4. How Italy made me think about America Addison Del Mastro, American Conservative