Wednesday, September 26, 2018

Austerity in Pre-1938 Fascist Austria

From 1933 to 11 March 1938, Austria was ruled by the clerical fascist Fatherland Front in a regime called the Austrian Federal State.

The two dictators of Austria in this period were as follows:
Dictators of the Austrian Federal State
5 March 1933–25 July 1934 – Engelbert Dollfuss
29 July 1934–11 March 1938 – Kurt Schuschnigg
Although the Fatherland Front had some anti-capitalist elements, the fact is that in power Engelbert Dollfuss and Kurt Schuschnigg pursued spending cuts, austerity, budget balancing and wage and price deflation.

In this period, Ludwig von Mises had a fascinating relationship with the clerical Austro-fascist regime.

Already around 1930, before the Austrian fascists seized power, Mises joined an Austrian government economic commission to study the causes of the depression in Austria, along with (interestingly enough) the future Austro-fascist leader Engelbert Dollfuss (Hülsmann 2007: 614), to whom Mises was later to give economic advice. The report of the committee blamed (1) inflationary expectations in Austria and (2) rises in taxation and government spending and increased wage rates (which had all squeezed business profits) for the inability of Austria to attract foreign capital needed to facilitate quicker adjustment and recovery from the depression (Hülsmann 2007: 614–615).

On February 28, 1931, Mises gave a lecture called “The Causes of the World Economic Crisis” in Czechoslovakia (Mises 2006 [1931]), and, as a remedy for the depression, Mises advocated eliminating unemployment relief (presumably forcing the unemployed to starve and accept lower wages), cutting government spending and taxes (Mises 2006 [1931]: 175), not only to cut wages, but also to make wage determination free from labour unions (Mises 2006 [1931]: 169).

Hans-Hermann Hoppe (an Austrian economist) relates that Mises was later a close adviser of Dollfuss:
“Engelbert Dollfuss [sc. was] ... the Austrian Chancellor who tried to prevent the Nazis from taking over Austria. During this period Mises was chief economist for the Austrian Chamber of Commerce. Before Dollfuss was murdered for his politics, Mises was one of his closest advisers.”
Hans-Hermann Hoppe, “The Meaning of the Mises Papers,” April 1997
https://mises.org/library/meaning-mises-papers
Even after his move to Geneva in 1934, Mises was still employed by the Austrian government, visited Austria periodically, and continued to do work for the government (Hülsmann 2007: 884). And, as late as February 1938, the Austro-fascist regime of Schuschnigg asked Mises to become Chief of the Department for Monetary and Financial Affairs, and Mises came to Vienna to discuss this offer in February 1938 as well (Hülsmann: 2007: 723).

The clerical fascist pursued many of the policies Mises had advocated:
“In tackling the economic crisis the Dollfuss-Schuschnigg dictatorship pursued harsh deflationary policies designed to balance the budget and stabilize the currency. The government’s program featured severe spending cuts, high interest rates, and frozen wages. …. In a sense the Christian Corporative regime demonstrated the viability of the Austrian state, but it did so at the cost of alienating a majority of the Austrian people. On the eve of Anschluss a third of the population was still out of work, while those fortunate enough to have jobs were bringing home paychecks considerably smaller than before the Great War” (Bukey 2000: 17).

“Beginning in in 1931, [Austrian] unemployment grew rapidly, reaching a peak in 1933–6, with between 24 and 26 per cent of the labour force out of work .... When, in 1937 and 1938, there was a modest recovery, unemployment never dropped below the 20 per cent value. This had a devastating effect on the legitimacy of the Austrian system .... As the Austrian government sustained its reluctance to apply Keynesian policies, the economic recovery never entered a serious tale-off phase in the second half of the 1930s. Linked to an exhausted determination of the Austrian government to resist the pressures from Germany, the economic crisis of the 1930s should be seen as an additional reason why the Austrian society was receptive to the annexation by Germany in March 1938” (Gerlich and Campbell 2000: 55).
The Austrian clerical fascists also smashed trade unions and banned the Social Democratic party.

We can see the spending cuts and attempts to balance the budget in the graph below of budget deficits in pre-1938 Austria from 1934–1938 in millions of schillings (data from Fibich 1977: 170 ff.; to get a high quality version of the graph, click on it or open it in another tab).



As we can see, the budget deficit was radically cut right down until 1936, and was virtually eliminated, since by October 1936 the budget deficit was about 0.5% of GDP (Berger 2003: 90).

Some of the austerity policies included:
(1) the elimination of the works council in 1934;

(2) a series of cuts to welfare, and

(3) slashing of unemployment benefits to the point where only 50% of the unemployed in 1936 received benefits (Obinger 2018: 86).
How did the economy perform under this austerity?

The Austrian economy was awful.

Real GNP growth was mostly feeble in the 1930s in the years after the actual contraction ended as we can see here:
Real GDP in Austria 1928–1938
Year | GNP* | Growth Rate

* in millions of international Geary-Khamis dollars
1928 | 24 295 | 4.64%
1929 | 24 647 | 1.44%
1930 | 23 967 | -2.75%
1931 | 22 044 | -8.02%
1932 | 19 769 | -10.32%
1933 | 19 113 | -3.31%
1934 | 19 277 | 0.85%
1935 | 19 652 | 1.94%
1936 | 20 238 | 2.98%
1937 | 21 317 | 5.33%

1938 | 24 037 | 12.75%
(Maddison 2003: 50).
In fact, by 1937 real GDP had still not recovered to its 1929 level.

Austrian unemployment was also a disaster. There are two estimates of Austrian unemployment I have found: Maddison (1982: 206, Table C6) and Stiefel (1979: 29), but I would assume that Stiefel’s estimates are better, given that he is an Austrian scholar and his estimates are cited in Emmerich Tálos’s Das austrofaschistische Herrschaftssystem: Österreich 1933–1938 [The Austro-Fascist Regime: Austria 1933–1938] (2nd edn. 2013, Vienna; p. 330, Tabelle 1).

We can see the two estimates of Austrian unemployment in the 1930s in the graph below (to get a high quality version of the graph, click on it or open it in another tab):



As we can see, unemployment soared to high levels by 1933, and remained stubbornly high until 1937, by either measure.

History also ran a most fascinating experiment for us from 1933 to 1939.

While in Austria, the clerical fascists pursued austerity and wage and price deflation from 1934 to 1937, in Germany the National Socialist government of Hitler implemented a series of economic interventions that involved large government deficits, direct public works programs, and rearmament. This program was undoubtedly Keynesian in its fiscal effects, despite some modern attempts to deny this like Tooze (2008) (on the simulative nature of Germany’s deficits and policies after 1933, see Cohn 1992; Fremdling and Stäglin 2015; Overy 1996). The fact that German military spending was higher by 1935 than some historians have thought does not change the reality that military Keynesianism is still Keynesianism. It is clear that German policy down to 1936 was a mix of military and civilian Keynesian spending.

So how did Austrian unemployment compare to unemployment in Germany?

We can see this in the graph below (with German unemployment rate from Mitchell 1992: p. 160 and 163, B2, and Austrian unemployment from Stiefel 1979: 29; to get a high quality version of the graph, click on it or open it in another tab):


While Austrian unemployment remained high, German unemployment fell rapidly.

Popular support for the Austro-fascist regime collapsed by 1938 given the economic disasters and high unemployment, and when Hitler annexed Austria in March 1938 there was no doubt a great deal of support for the Anschluss within Austria.

Paradoxically, Mises – even though he declared that Italian fascism “saved European civilisation” from Communism (Mises 1978: 51) – had a real role in killing Austrian fascism through his policy advice to pursue austerity and wage and price deflation, which failed to induce any real recovery from the high unemployment.

I have rarely seen Austrians and other libertarian supporters of Mises address the question of why their cult leader’s austerity policies failed so miserably to produce any serious recovery in Austria.

BIBLIOGRAPHY
Berger, Peter. 2003. “The League of Nations and Interwar Austria: Critical Assessment of a Partnership in Economic Reconstruction,” Günter Bischof, Anton Pelinka, Alexander Lassner (eds.), The Dollfuss/Schuschnigg Era in Austria: A Reassessment. Transaction Publishers, New Brunswick, N.J. 73–92.

Bukey, E. B. 2000. Hitler’s Austria: Popular Sentiment in the Nazi Era, 1938–1945. University of North Carolina Press, Chapel Hill, North Carolina.

Cohn, R. L. 1992. “Fiscal Policy in Germany during the Great Depression,” Explorations in Economic History 29: 318–342.

Fibich, Alexander. 1977. Die Entwicklung der österreichischen Bundesausgaben in der Ersten Republik (1918–1938). Dissertation, Wien.

Fremdling, Rainer and Reiner Stäglin. 2015. “Work Creation and Rearmament in Germany 1933–1938: A Revisionist Assessment of NS-Economic Policy Based on Input-Output Analysis,” IDEAS Working Paper Series, Discussion Papers 1473
https://www.diw.de/documents/publikationen/73/diw_01.c.502764.de/dp1473.pdf

Gerlich, P. and D. Campbell, 2000. “Austria: From Compromise to Authoritarianism,” in D. Berg-Schlosser and J. Mitchell (eds). The Conditions of Democracy in Europe, 1919–39: Systematic Case Studies. Macmillan, Basingstoke. 40–58.

Hülsmann, J. G. 2007. Mises: The Last Knight of Liberalism. Ludwig von Mises Institute, Auburn, Ala.

Maddison, Angus. 1982. Phases of Capitalist Development. Oxford University Press, Oxford.

Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.

Mises, Ludwig von. 1978 [1927]. Liberalism: A Socio-Economic Exposition (2nd edn; trans. R. Raico). Sheed Andrews and McMeel, Mission, Kansas.

Mises, Ludwig von. 2006 [1931]. “The Causes of the Economic Crisis,” in Percy L. Greaves (ed.). The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression. Ludwig von Mises Institute, Auburn, Ala. 155–181.

Mitchell, Brian R. 1992. International Historical Statistics: Europe 1750–1988 (3rd edn.). Stockton Press, New York.

Obinger, Herbert. 2018. “War Preparation, Warfare, and the Welfare State in Austria,” in Herbert Obinger, Klaus Petersen and Peter Starke (eds.), Warfare and Welfare: Military Conflict and Welfare State Development in Western Countries. Oxford University Press, Oxford. 67–98.

Overy, Richard James. 1996. The Nazi Economic Recovery, 1932–1938 (2nd edn.). Cambridge University Press, Cambridge.

Stiefel, Dieter. 1979. Arbeitslosigkeit: soziale, politische und wirtschaftliche Auswirkungen – am Beispiel Österreichs 1918–1938. Duncker & Humblot, Berlin.

Tálos, Emmerich. 2013. Das austrofaschistische Herrschaftssystem: Österreich 1933–1938 (2nd edn.). Lit Verlag, Vienna.

Tooze, Adam. 2008. The Wages of Destruction: The Making and Breaking of the Nazi Economy. Penguin, London and New York.

Friday, September 21, 2018

Academic Agent versus Reality on the US Industrial Recession of 1873–1878

In this recent stream on economics, Academic Agent attempts to defend Rothbard’s views on the American economy in the 1870s.



In my Twitter debates on this issue with Academic Agent – who is an unusually ignorant libertarian – I directed him to my post here.

I said explicitly in that post that, while Rothbard was correct that there was no depression in the sense of a fall of GDP/GNP of 10% or more, Rothbard was nevertheless wrong to claim that the 1873–1878 period saw “extraordinarily large expansion of industry.”

Here is what Rothbard said:
“Orthodox economic historians have long complained about the ‘great depression’ that is supposed to have struck the United States in the panic of 1873 and lasted for an unprecedented six years, until 1879. Much of the stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie payments in 1879. Yet what sort of ‘depression’ is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent per-annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged ‘monetary contraction’ never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction.

It should be clear, then, that the ‘great depression’ of the 1870s is merely a myth—a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Indeed they fell from the end of the Civil War until 1879. Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8 percent per annum. Unfortunately, most historians and economists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. For they have overlooked the fact that in the natural course of events, when government and the banking system do not increase the money supply very rapidly, free-market capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too) economic growth, and the spread of the increased living standard to all the consumers.” (Rothbard 2002: 154–155).
The central claims of Rothbard about the 1870s are therefore as follows:
(1) there was no “depression” in GDP/GNP between 1873–1879.

(2) in the period between the panic of 1873 and 1879, there was an “extraordinarily large expansion of industry”.
While assertion (1) is true on the basis of the most recent GNP/GDP estimates, assertion 2 is false.

To see this we need only look at the best indices of industrial/manufacturing output in these years.

First, a graph of Frickey’s manufacturing index (Frickey 1947; for a high quality version of the graph, click on it or open it in a new window):



The data from Frickey shows an industrial recession from 1873–1876 in which there was a 9.67% fall in manufacturing output (almost a depression in the manufacturing sector).

Next, a graph of the data from Davis’s US industrial index (Davis 2004: 1189), which uses 43 annual components of the manufacturing and mining industries in the US, which represented about 90% of manufacturing output in the 1800s (Davis 2006: 105; for a high quality version of the graph, click on it or open it in a new window):



We can see the data here in table form from Davis’s US industrial index:
US Industrial Index, 1870–1880
Index base is 1849–1850 = 100
Year | Index

1870 | 242.97
1871 | 255.29
1872 | 275.74
1873 | 302.17
1874 | 300.7
1875 | 284.2

1876 | 294.0
1877 | 297.8
1878 | 314.0
1879 | 356.4
1880 | 400.9
(Davis 2004: 1189).
So the data is clear: there was a real industrial recession and stagnation until 1877. Both industrial indices, whether the older data of Frickey (1947) or newer, better index of Davis, show serious problems in the manufacturing sector.

By contrast, it is true that the real GNP estimates of Balke and Gordon (1989: 84) on the annual growth rates in the US in this period only show a recession in 1874, and low growth in 1876:
Year | GNP* | Growth Rate
1869 | 78.2 |
1870 | 84.2 | 7.67%
1871 | 88.1 | 4.63%
1872 | 91.7 | 4.08%
1873 | 96.3 | 5.01%
1874 | 95.7 | -0.62%
1875 | 100.7 | 5.22%
1876 | 101.9 | 1.19%
1877 | 105.2 | 3.23%
1878 | 109.6 | 4.18%
1879 | 123.1 | 12.31%
* Billions of 1982 dollars
Average real GNP growth rate, 1870–1879: 4.69%.
(Balke and Gordon 1989: 84).
But given our data from Frickey and Davis that shows a manufacturing recession, the data of Balke and Gordon – if accurate – can only mean that it was agriculture and services that continued to grow in order to provide positive real GNP in 1873 and in 1875–1877.

But this is the precise opposite of what Rothbard said: Rothbard wanted us to believe that there was an “extraordinarily large expansion of industry” from 1873 to 1877. That is clearly false.

There is also considerable contemporary evidence from the 1870s of serious unemployment in the manufacturing sector as catalogued by Bernstein (1956).

A report of the Bureau of Statistics in Pennsylvania in 1875 reported the following:
“… in October, 1873, occurred the revulsion in trade (known as the panic) which immediately checked industrial operations, and which, although it was generally supposed its effects would be temporary, has continued to grow in force and intensity ever since.

This has materially obstructed the operations of the Bureau in its attempts to procure returns that could be used for tabular statements, in fact making it impossible. Those who have not given particular attention to this phase of the subject, would be astonished in making anything like an extended inquiry among our industrial establishments this year, to find in how large a proportion of them, there was so little being done that detailed reports would be impracticable.

Very many are entirely closed, having given up the attempt to keep their machinery moving at all. Many more just doing sufficient to have the appearance of running, while those doing what could be called sufficient business to cover expenses, were so very small a proportion of the whole as to constitute them exceedingly rare exceptions to the general rule. Probably never in the history of the country has there been a time, when so many of the working classes skilled and unskilled, have been moving from place to place seeking employment that was not to be had—never, certainly for so long a time.” (Commonwealth of Pennsylvania 1875: 433).
The unemployment data in Vernon (1994) shows rising unemployment from 1873 to 1878 (for a high quality version of the graph, click on it or open it in a new window):



This would strongly confirm problems in the US economy in these years. Another point is that, on the basis of analysis of the 1890s and the likelihood that 19th century labour force participation rates were countercyclical in the sense of rising during recessions, there is at least a reasonable case that Vernon’s data seriously underestimates US unemployment in the 19th century, so that the real unemployment rate for the 1870s may have been considerably higher.

Finally, we can look at immigration into the US in the 1870s (data from Historical Statistics of the United States: Colonial Times to 1970. Part 1, 1975, pp. 105–106, Series C 89–119; for a high quality version of the graph, click on it or open it in a new window):



As we can see, immigration fell in every year from 1873 to 1878, which suggests a bad economy which discouraged immigration. The falling periods of US immigration in the late 19th century generally line up with recessions.

So, all in all, our data shows that the United States from 1873 to 1877 had a recession within the manufacturing sector, even if GDP (with the exception of 1874) continued to grow owing to agriculture and services.

Unemployment seems to have risen in every year down to 1878 (consistent with contemporary evidence reporting bad industrial unemployment), and there cannot have been a healthy economy in these years if manufacturing – the most important sector – was internally in recession. Rothbard was wrong to think there was an “extraordinarily large expansion of industry” between 1873 and 1879, and that there was some economy-wide boom in these years.

BIBLIOGRAPHY
Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

Bernstein, Samuel. 1956. “American Labor in the Long Depression, 1873–1878,” Science & Society 20.1: 59–83.

Commonwealth of Pennsylvania. 1875. Second Annual Report of the Bureau of Statistics of Pennsylvania, for the Years 1873–1874. B. F. Meyers, Harrisburg.

Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790–1915,” The Quarterly Journal of Economics 119.4: 1177–1215.

Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Frickey, Edwin. 1947. Production in the United States, 1860–1914. Harvard University Press, Cambridge, Mass.

Rothbard, Murray N. 2002. A History of Money and Banking in the United States. Ludwig von Mises Institute, Auburn, Ala.

U.S. Department of Commerce. 1975. Historical Statistics of the United States: Colonial Times to 1970. Part 1. US Government Printing Office, Washington, DC.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

Wednesday, September 12, 2018

Academic Agent on Herbert Hoover: A Critique

Academic Agent’s video on Herbert Hoover is below:



First of all, it is true that Hoover was not a strict liquidationist. He supported limited interventionism, and was – for his time – a type of corporatist Republican. But was Hoover an “interventionist” relative to the interventions that became commonplace in Western mixed economies after 1933 and certainly after 1945? The answer is: no, Hoover was relatively non-interventionist in relation to the mixed economies of the post-1945 period. Hoover himself rejected effective Keynesian economics, which was the key to escaping the Great Depression.

What is wrong in this video?

Let us break it down as follows:

1. Hoover’s “high wage” policy
Hoover’s “high wage” policy was largely limited to certain industrial markets, and was not generally forced on industrialists, contrary to libertarian myths. Academic Agent (citing Rothbard) is wrong. Most of the industrialists of Hoover’s day agreed with his high wage policy.

The proof can be seen below.

On November 21 1929, Hoover met with business leaders and labor representatives in the White House. The press release makes interesting reading:
“The conference this morning of 22 industrial and business leaders warmly endorsed the President’s statement of last Saturday as to steps to be taken in the progress of business and the maintenance of employment. The general situation was thoroughly canvassed, and it was the unanimous opinion of the conference that there was no reason why business should not be carried on as usual; that construction work should be expanded in every prudent direction both public and private so as to cover any slack of unemployment. It was found that a preliminary examination of a number of industries indicated that construction activities can in 1930 be expanded even over 1929. ….

It was considered that the absorption of capital in loans on the stock market had postponed much construction and that the flow of this capital back to industry and commerce would now assist renewed construction.

It was the opinion that an indirect but very substantial contribution could be made to the extension of credit for local building purposes and for conduct of smaller business if the banks would freely avail themselves of the rediscount privilege offered by the Federal Reserve Banks.

The meeting considered it was desirable that some definite organization should be established under a committee representing the different industries and sections of the business community, which would undertake to follow up the President’s program in the different industries.

It was considered that the development of cooperative spirit and responsibility in the American business world was such that the business of the country itself could and should assume the responsibility for the mobilization of the industrial and commercial agencies to those ends and to cooperate with the governmental agencies. ….

The President was authorized by the employers who were present at this morning’s conference to state on their individual behalf that they will not initiate any movement for wage reduction, and it was their strong recommendation that this attitude should be pursued by the country as a whole. They considered that aside from the human considerations involved, the consuming power of the country will thereby be maintained.

The President was also authorized by the representatives of labor to state that in their individual views and as their strong recommendation to the country as a whole, that no movement beyond those already in negotiation should be initiated for increase of wages, and that every cooperation should be given by labor to industry in the handling of its problems.”

http://www.presidency.ucsb.edu/ws/?pid=22009
So the “high wage” policy was not some alien, evil government intervention imposed on unwilling and hostile business people and industrialists: it was a policy they largely agreed with.

Vedder and Galloway (1997: 92) – who themselves think that the high wages were the major cause of the unemployment during the depression – nevertheless point out that Hoover received “wholehearted support” from businessmen at his White House meeting on November 21, 1929. Even Henry Ford agreed with it (Vedder and Galloway 1997: 92).

Furthermore, even though there was some degree of “jawboning” of certain business people who wished to cut wages,
“In a survey of business leaders in mid-1930 by Printer’s Ink magazine, corporate executives were near-unanimous in their support of the high-wage policy coming out of the November 1929 conference at the White House. Howard Heinz, the ketchup maker, said: ‘In this enlightened age, large manufacturers . . . will maintain wages ... as being the far-sighted and . . . the constructive thing to do.’ Carleton Palmer, president of E. R. Squibb & Son, advocated increasing hourly wages by reducing the workweek and maintaining weekly wages constant. William Wrigley, the gum magnate, said he would not reduce wages, while Charles C. Small, president of the American Ice Co., said he believed in ‘good wages to aid purchasing power.’ George F. Johnson, president of Endicott Johnson Corp., echoed that sentiment, declaring that ‘reducing income of labor is not a remedy for business depression; it is a direct and contributing cause.’

Big business felt it had a duty to carry through the high-wage-policy.” (Vedder and Galloway 1997: 94)
Now let us assume for the sake of argument that the “high wage” policy really was the single worst policy endorsed by Hoover. But why aren’t Austrians blaming the private industrialists and business people who supported and endorsed this “high wage” policy, since it was clearly their fault as much as Hoover’s? It is doubtful that the “high wage” policy could have been carried out without so much support from the private sector: in fact, very many corporate leaders already held the same opinion as Hoover.

Secondly, Gardiner Means, in his own contemporary work on prices in the 1920s and 1930s, noted how it was in fact industrial prices that had already become relatively less flexible than other prices in the US economy during the early years of the Great Depression (Lee 1998: 28).

So, given that relative inflexibility in industrial prices, to what extent did the high wages per se with (less severe) price cuts in those industries really exacerbate the depression? Although it stands to reason that, when industrial prices did start to fall significantly, this would have squeezed profits in the relevant industries, the fact is that output and employment was already directly reduced in many firms anyway as a response to the demand shocks, which were the primary cause of the increased unemployment.

Most important of all, far from being the solution to the depression, severe wage cuts even in 1929 would have severely worsened the debt deflationary spiral and increased the real burden of debt for debtors, putting pressure on them and eventually driving many into bankruptcy, and in turn driving creditors into bankruptcy. Of course, that is exactly would did happen in the depression as nominal wages fell after 1931 and continued to fall in 1932 and 1933.

Moreover, as is now well known, the extent of nominal wage flexibility in the West before 1929 is grossly exaggerated. In reality, wages had already started to become relatively inflexible downwards in recessions after the late 1880s, as can be seen here. It is a complete myth that US recessions were cured by flexible wages, because there were numerous recessions after the 1880s where this was not the case.

2. Comparing the Recession of 1920–1921 with the Great Depression
Academic Agent compares the money wage falls in the recession of 1920–1921 with the less flexible money wage data in the early years of the Great Depression (whose contractionary phase ran from 1929 to 1933).

Unfortunately, the recession of 1920–1921 was highly anomalous, coming as it did after the First World War and the extensive wartime inflation which eroded the value of private debt, and cannot be usefully compared with the situation in 1929–1933, as I have shown here. In short, in 1929–1933 wage and price deflation caused a severe debt deflationary spiral, which was avoided in 1920–1921, because of the different conditions then.

And, of course, libertarians like Academic Agent cannot explain why severe wage and price deflation in Weimar Germany or in Austria in the 1930s did not lead to a rapid recovery there.

3. The Smoot Hawley Tariff
Academic Agent makes much of the Smoot Hawley Tariff and argues that it was a “massive” cause of the depression, and even that it was the major cause. This is a blatant falsehood, contrary to the data we have.

The Tariff Act of 1930 (or Smoot–Hawley Tariff) became law on June 17, 1930. While Smoot Hawley undoubtedly hurt foreign export-led growth nations dependent on the US market, it was not a major factor in the US contraction from 1929–1933.

Peter Temin explains:
A tariff, like a devaluation, is an expansionary policy. It diverts demand from foreign to home producers. It may thereby create inefficiencies, but this is a second-order effect. The Smoot-Hawley tariff also may have hurt countries that exported to the United States. The popular argument, however, is that the tariff caused the American Depression. The argument has to be that the tariff reduced the demand for American exports by inducing retaliatory foreign tariffs … Exports were 7 percent of GNP in 1929. They fell by 1.5 percent of 1929 GNP in the next two years. Given the fall in world demand in these years from the causes described here, not all of this fall can be ascribed to retaliation from the Smoot-Hawley tariff. Even if it is, real GNP fell over 15 percent in these same years. With any reasonable multiplier, the fall in export demand can only be a small part of the story. And it needs to be offset by the rise in domestic demand from the tariff. Any net contractionary effect of the tariff was small (Temin 1989: 46).
America was not an export-led economy in the 1920s and 1930s, and export growth was not the primary engine of American growth at all. As noted by Temin, exports were just 7% of US GNP in 1929.

Contrary to Academic Agent, it is a complete myth that the United States suddenly faced economic collapse because foreign companies suddenly left and closed factories in America after Smoot Hawley.

Worse still for Academic Agent, the Smoot Hawley Tariff was not some exception in American history. The United States had a long history of high tariffs, as can be seen here. In fact, the average level of duties on manufactured goods in 1875 in the United States was about 40–50%, and the Republicans in September 1922 had returned to a high tariff policy with the Fordney–McCumber Tariff, which raised the ad valorem tariff rate to an average of about 38.5% for dutiable imports, which was years before the Great Depression even happened (Bairoch 1993: 38).

Why, then, didn’t the Fordney–McCumber Tariff of 1922 crash the US economy if high tariffs had such a bad effect?

Nor, contrary to Academic Agent, was the Smoot Hawley tariff or the collapse in agricultural production the primary cause of the banking failures in the US Great Depression. Those were caused largely by rapid insolvency of banks and then the large-scale bank runs triggered by panic.

The severe worsening of the depression in America was caused to a great extent by the banking panic of 1930 from November 1930 to August 1931, which could have been easily halted by Federal Reserve actions to protect depositors while liquidating bad debts.

4. Hoover’s Spending
Hoover did not in fact massively increase government spending. Total US federal government spending in 1929 was about 2.5% of GDP (Stein 1966), and the rise in US federal government spending as a percentage of GDP from 1929 to 1933 was partly the result of the collapse in GDP, and not huge increases in government spending relative to GDP.

Given that US GDP collapsed by 28.52% between 1929 to 1933, the rise in US spending under Hoover was feeble and far short of what was need to stabilise GDP and end the depression.

We can see in this graph the absurdity of saying that Hoover massively increased government spending (with the circle showing the size of government spending in the 1920s to about 1933):


If huge government spending was a serious cause of depression, then why didn’t the US collapse after 1945 given the huge levels of spending that now occurred relative to the pre-1929 period?
.
Finally, let consider Hoover’s fiscal policy. Hoover’s fiscal policy in fiscal years 1930 and fiscal year 1933 was actually contractionary:
(1) In fiscal year 1930 (July 1, 1929–June 30, 1930), Hoover actually ran a federal budget surplus, not a deficit. Federal policy was contractionary in this fiscal year.

(2) In fiscal years 1931 and 1932, fiscal policy was mildly expansionary, but feeble compared to what was needed.

(3) The Federal Reserve raised the discount rate in 1931.

(4) In fiscal year 1933 (July 1, 1932–June 30, 1933), total federal spending was cut in relation to fiscal year 1932. Hoover introduced the Revenue Act of 1932 (June 6) which increased taxes across the board and applied to fiscal year 1932 and subsequent years.
These were contractionary measures, and these policies are the very antithesis of Keynesianism stimulus.

5. Other Interventions
Most of the other interventions Academic Agent lists were taken in 1932 and cannot possibly explain the severity of the depression from 1929–1931, with one exception: the Revenue Act of 1932 (June 6) which increased taxes.

However, Academic Agent is blissfully unaware that blaming this measure for exacerbating the depression (which is no doubt did do) is nothing but a vindication of Keynesian theory, which does not advocate raising taxes in recessions or depressions.

Finally, let us consider here the Reconstruction Finance Corporation (RFC). Blaming the RFC as some evil government intervention that made the depression worse is absurd. Why? Because the RFC was only established in January 1932, and it did not even exist in 1929, 1930 and 1931 when the US economy was collapsing badly. In 1932, the RFC spent about $1.5 billion in loans to states and businesses, and there are very good reasons for thinking that this policy per se would have aided the economy, not exacerbated the depression. But of course whatever good the RFC did was destroyed by Hoover’s contractionary fiscal policy in fiscal year 1933 – the exact opposite of a Keynesian policy response.

6. Counterexamples where Keynesian interventions worked
I have yet to see any libertarian explain why government interventions and Keynesian stimulus rapidly ended the Great Depression in a number of nations in the 1930s.

For we must ask the question: what nations emerged quickly from the Great Depression to have a strong recovery where unemployment fell to low levels?

Those nations that recovered rapidly and successfully from the Great Depression were New Zealand, Germany and Japan. They did so by large-scale fiscal stimulus and numerous other intervention far more extreme than what Hoover did.

More on the Keynesian policies in New Zealand, Germany and Japan is given in these posts:
“Keynesian Stimulus in New Zealand: 1936–1938,” September 23, 2011.

“Takahashi Korekiyo and Fiscal Stimulus in Japan in the 1930s,” August 27, 2011.

“Fiscal Stimulus in Germany 1933–1936,” September 3, 2011.
It is also notable that some Scandinavian nations also left the gold standard quickly, devalued their currencies, stabilised their banking systems, implemented loose monetary policy, and perhaps some degree of fiscal stimulus to escape the worst ravages of the depression (although the question whether the Scandinavian countries pursued fiscal expansion and how strongly is disputed by some economists).


BIBLIOGRAPHY
Bairoch, P. 1993. Economics and World History: Myths and Paradoxes. University of Chicago Press, Chicago.

Bernanke, Ben S. 2000. Essays on the Great Depression. Princeton University Press, Princeton, N.J.

Keynes, J. M. 1939. “Relative Movements of Real Wages and Output,” Economic Journal 49: 34–51.

Lavoie, Marc. 1992. Foundations of Post-Keynesian Economic Analysis. Edward Elgar Publishing, Aldershot, UK.

Lee, Frederic S. 1998. Post Keynesian Price Theory. Cambridge University Press, Cambridge and New York.

Stein, H. 1966. “Pre-Revolutionary Fiscal Policy: The Regime of Herbert Hoover,” Journal of Law and Economics 9: 189–223.

Temin, P. 1989. Lessons from the Great Depression. MIT Press, Cambridge, Mass.

Vedder, Richard K. and Lowell E. Galloway. 1997. Out of Work: Unemployment and Government in Twentieth-Century America. New York University Press, New York.

Saturday, August 18, 2018

Tony Thirlwall’s Lecture on Nicholas Kaldor

A video of Tony Thirlwall’s lecture on Nicholas Kaldor, given in Hungary in 2017, is below:

Saturday, August 11, 2018

Darwin, Evolution, the pre-1960s Left and Human Races

Charles Darwin – the discover of evolution by natural selection – wrote a book called The Descent of Man and Selection in Relation to Sex (1871), with a second edition of the book published in 1874.

Chapter 7 of The Descent of Man is called “On the Races of Man.”

There is no doubt that Darwin thought evolution applied to human beings, and that all humans descended from a common ancestry and species. But he also thought that there were distinct races or sub-species of man (Darwin 1874: 162, 176).

Darwin is of course worshipped by much of the modern Liberal and even radical Left, but his actual views about evolution and human beings would probably get him arrested for “hate speech” in much of Western Europe.

Shockingly for the modern Left, Darwin also accepted racial differences:
“There is, however, no doubt that the various races, when carefully compared and measured, differ much from each other,—as in the texture of the hair, the relative proportions of all parts of the body, the capacity of the lungs, the form and capacity of the skull, and even in the convolutions of the brain. But it would be an endless task to specify the numerous points of difference. The races differ also in constitution, in acclimatization and in liability to certain diseases. Their mental characteristics are likewise very distinct; chiefly as it would appear in their emotional, but partly in their intellectual faculties. Every one who has had the opportunity of comparison, must have been struck with the contrast between the taciturn, even morose, aborigines of S. America and the light-hearted, talkative negroes. There is a nearly similar contrast between the Malays and the Papuans, who live under the same physical conditions, and are separated from each other only by a narrow space of sea.” (Darwin 1874: 163–164).

“The variability or diversity of the mental faculties in men of the same race, not to mention the greater differences between the men of distinct races, is so notorious that not a word need here be said. So it is with the lower animals. All who have had charge of menageries admit this fact, and we see it plainly in our dogs and other domestic animals.” (Darwin 1874: 26).
So Darwin clearly did believe in racial differences, although he tended to prefer the term “sub-species” to race (Darwin 1874: 176).

How long will it be before the insane Cultural Left demands that we ban Darwin’s works, tear down Darwin’s statues, or ban the teaching of evolution?

For Darwin, quite clearly, thought that there were general, or average, differences in certain cognitive, mental and behavioural traits between the races. So did Thomas Henry Huxley, Darwin’s friend and scientific colleague, who was a famous 19th century British Liberal (see Huxley 1895 [1865]: 66–67).

Contrary to the modern blank-slate Left, these views were normal up until about the 1950s, and even normal and widely believed on the Left itself (though, of course, many people also did have some absurd and false ideas on the issue).

For example, Karl Marx and Friedrich Engels believed in the reality of races (even if they seem to have been confused and slipped into Lamarckian evolutionary ideas at times), and so did many of the Marxists who led the Socialist Party of America such as Ernest Untermann and Victor L. Berger. And even the radical leftist anarchists Pierre-Joseph Proudhon (Proudhon 1869: 221–222) and Mikhail Bakunin noted racial differences (see Bakunin’s book God and the State: “The idealists, all those who believe in the immateriality and immortality of the human soul, must be excessively embarrassed by the difference in intelligence existing between races, peoples, and individuals” [Bakunin 1910: 46, n.]).

Bertrand Russell – who was one of the most radical (but non-Marxist) Leftists/Liberals of his day – thought that racial differences existed (Russell 1929: 266).

John Maynard Keynes, too, also accepted race was real (Toye 2000: 151).

In one respect, Libertarians like Thomas Sowell and Murray Rothbard – though their economics and general political beliefs are flawed and charlatanry – were correct when they noted that much of the early 20th-century progressive Left did in fact endorse the view that race was real and racial differences were real (see here and here).

So were the 20th-century progressive Leftists correct when they thought that race was real and some evolutionary racial differences in average mental traits were real?

The answer is: yes, they probably were, and now the genetic evidence is accumulating rapidly from science, even if there is a desperate attempt to suppress it:
(1) For objective classifications of races based on differences in “tandem repeats” or DNA repeats, see:

Rosenberg, N. A., J. K. Pritchard, J. L. Weber, H. M. Cann, K. K. Kidd, L. A. Zhivotovsky, and M. W. Feldman. 2002. “Genetic Structure of Human Populations,” Science 298: 2381–2385.

(2) For classification of races based on Single Nucleotide Polymorphism (SNPs), see:

Li, J. Z., Absher, D. M., Tang, H., Southwick, A. M., Casto, A. M., Ramachandran, S., Cann, H. M., Barsh, G. S., Feldman, M., Cavalli-Sforza, L. L., and Myers, R. M. 2008. “Worldwide Human Relationships inferred from Genome-Wide Patterns of Variation,” Science 319.5866: 1100–1104.

(3) Admission of the existence of race by a leading geneticist (but with the absurd, dishonest and desperate lie that it is still just a “social construct”):
David Reich, “How Genetics is Changing Our Understanding of ‘Race’,” March 23, 2018, https://www.nytimes.com/2018/03/23/opinion/sunday/genetics-race.html

(4) For the shocking suppression of genetic evidence of racial differences in IQ by the academic world:

Lance Welton, “‘This Will Not Stand’: Academic Establishment Suppresses Italian Anthropologist’s Proof That Race IQ Differences Are Genetic—For Now,” May 5, 2018, https://vdare.com/articles/this-will-not-stand-academic-establishment-suppresses-italian-anthropologist-s-proof-that-race-iq-differences-are-genetic-for-now
When the Leftist media is increasingly faced with such evidence of the objective reality of race, there are horrified cries that this “vindicates” the far right.

In reality, it can just as easily be seen as a vindication of early 20th-century progressive Leftists and Liberals, who accepted race realism. It could even be seen as a vindication of early American race-realist Marxists like Ernest Untermann and Victor L. Berger.

And the trouble is this: at some point, the modern Left will be faced with an overwhelming mountain of genetic evidence about the objective reality of race, and the only people honestly talking about it will be libertarians like Stefan Molyneux (who holds crackpot economic ideas) or the far right (some of whom support outright authoritarianism). As on many issues (like its irrational opposition immigration restriction), the modern Left will be utterly humiliated and defeated.

At some point, the Left will have to rediscover its own earlier intellectuals and intellectual tradition that accepted the reality of race, and think up humane and civilised new ideas about the policy implications of such truths.

BIBLIOGRAPHY
Bakunin, Mikhail Aleksandrovich. 1910 [1882]. God and the State. Freedom Press, London.

Darwin, Charles. 1874. The Descent of Man and Selection in Relation to Sex (2nd edn.). Merrill and Baker, New York and London.

Huxley, Thomas H. 1895 [1865]. “Emancipation–Black and White,” in Thomas H. Huxley, Science and Education: Essays. MacMillan and Co., London. 66–75.

Proudhon, Pierre-Joseph. 1869. La guerre et la paix (new edn.). A. Lacroix, Verboeckhoen & Cie. Paris and Brussels.

Reich, David. 2018. Who We Are and How We Got Here: Ancient DNA and the New Science of the Human Past. Oxford University Press, Oxford.

Russell, Bertrand. 1929. Marriage and Morals. Liveright Publishing Corporation, New York.

Toye, John. 2000. Keynes on Population. Oxford University Press, Oxford.

Wade, Nicholas. 2014. A Troublesome Inheritance: Genes, Race and Human History. The Penguin Press, New York.

Sunday, August 5, 2018

Dinesh D’Souza as a Charlatan

Could there be anything more absurd than the spectacle of Dinesh D’Souza?

His new movie is called Death of a Nation: Can We Save America a Second Time?.

Some videos below give us a summary of his ideas:







The fundamental thesis of Dinesh D’Souza is, in essence, that the Democratic Party and American progressive Liberalism are linked to Nazism and are, by implication, on a moral level with Nazism. Furthermore, D’Souza thinks that Nazism (or German National Socialism) was a fundamentally left-wing ideology.

D’Souza’s narrative and his “arguments” plumb the depths of idiocy.

Dinesh D’Souza is really nothing more than a free market Classical Liberal, as are much of the so-called American “Conservatives” who represent the pre-Trump GOP. D’Souza’s ideology stems from Classical liberalism, which was a 19th-century left-wing movement.

If anything, one could make a much stronger case that Dinesh D’Souza and his free market, individualist “Conservatives” are really just a modern manifestation of 19th-century Leftism, and, furthermore, they are infected with fundamental Cultural Leftist ideas of the late 20th century, e.g., that ethno-nationalism is evil, and that genetic and biological factors that cause individual and group differences do not exist.

First of all, let us take some fundamental points that Dinesh D’Souza never addresses. He strongly implies that the Democrat Party of the early 20th century was somehow unique and anomalous within the American political spectrum for supporting racial segregation and being a kind of “white nationalist” movement.

But what kind of nation did the American founding fathers actually envisage?

We need look no further than United States Naturalization Law of March 26, 1790, passed by the first Congress of the United States:
“Be it enacted by the Senate and House of Representatives of the United States of America, in Congress assembled, That any Alien being a free white person, who shall have resided within the limits and under the jurisdiction of the United States for the term of two years, may be admitted to become a citizen thereof on application to any common law Court of record in any one of the States wherein he shall have resided for the term of one year at least, and making proof to the satisfaction of such Court that he is a person of good character, and taking the oath or affirmation prescribed by law to support the Constitution of the United States, which Oath or Affirmation such Court shall administer, and the Clerk of such Court shall record such Application, and the proceedings thereon; and thereupon such person shall be considered as a Citizen of the United States. And the children of such person so naturalized, dwelling within the United States, being under the age of twenty one years at the time of such naturalization, shall also be considered as citizens of the United States. And the children of citizens of the United States that may be born beyond Sea, or out of the limits of the United States, shall be considered as natural born Citizens: Provided, that the right of citizenship shall not descend to persons whose fathers have never been resident in the United States: Provided also, that no person heretofore proscribed by any States, shall be admitted a citizen as aforesaid, except by an Act of the Legislature of the State in which such person was proscribed.”
http://www.indiana.edu/~kdhist/H105-documents-web/week08/naturalization1790.html
As even the basic discussion of the 1790 United States Naturalization Law here points out, this legislation excluded “American Indians, indentured servants, slaves, free blacks, and Asians” from US citizenship. So the founding fathers of America envisaged the United States as a colony for European people, and if the Democrats of the early 20th century were “Nazis” or “white nationalists” than so were the American founding fathers. Obviously, the founding fathers of America would never have even given Dinesh D’Souza citizenship.

Furthermore, D’Souza’s account of the US Immigration Act of 1924 is also laughable. The Immigration Act of 1924 essentially limited immigration to Europeans, and excluded Africans, Arabs and Asians, and was quite clearly designed to preserve the white European majority in America. This was signed into law by the Republican president Calvin Coolidge (president from 2 August 1923 to 4 March 1929) and passed in both houses by a Republican-controlled 68th United States Congress (4 March 1923–4 March 1925). D’Souza lamely falls to mention this and pretends that it only passed because of “progressive Republicans” (who mysteriously were not real Republicans at all).

Secondly, Dinesh D’Souza compares Donald Trump with Abraham Lincoln, but what did Abraham Lincoln – the first Republican party president – actually think about African Americans?

On 14 August, 1862, Abraham Lincoln received a deputation of African Americans at the White House. This is what Abraham Lincoln said:
“… President [Lincoln], after a few preliminary observations, informed them that a sum of money had been appropriated by Congress, and placed at his disposition for the purpose of aiding the colonization in some country of the people, or a portion of them, of African descent, thereby making it his duty, as it had for a long time been his inclination, to favor that cause; and why, he asked, should the people of your race be colonized, and where? Why should they leave this country? This is, perhaps, the first question for proper consideration. You and we are different races. We have between us a broader difference than exists between almost any other two races. Whether it is right or wrong I need not discuss, but this physical difference is a great disadvantage to us both, as I think your race suffer very greatly, many of them by living among us, while ours suffer from your presence. In a word we suffer on each side. If this is admitted, it affords a reason at least why we should be separated. You here are freemen I suppose.

A VOICE: Yes, sir.

The President – Perhaps you have long been free, or all your lives. Your race are suffering, in my judgment, the greatest wrong inflicted on any people. But even when you cease to be slaves, you are yet far removed from being placed on an equality with the white race. You are cut off from many of the advantages which the other race enjoy. The aspiration of men is to enjoy equality with the best when free, but on this broad continent, not a single man of your race is made the equal of a single man of ours. Go where you are treated the best, and the ban is still upon you.

I do not propose to discuss this, but to present it as a fact with which we have to deal. I cannot alter it if I would. It is a fact, about which we all think and feel alike, I and you. We look to our condition, owing to the existence of the two races on this continent. I need not recount to you the effects upon white men, growing out of the institution of Slavery. I believe in its general evil effects on the white race. See our present condition – the country engaged in war! – our white men cutting one another's throats, none knowing how far it will extend; and then consider what we know to be the truth. But for your race among us there could not be war, although many men engaged on either side do not care for you one way or the other. Nevertheless, I repeat, without the institution of Slavery and the colored race as a basis, the war could not have an existence.

It is better for us both, therefore, to be separated. I know that there are free men among you, who even if they could better their condition are not as much inclined to go out of the country as those, who being slaves could obtain their freedom on this condition. I suppose one of the principal difficulties in the way of colonization is that the free colored man cannot see that his comfort would be advanced by it. You may believe you can live in Washington or elsewhere in the United States the remainder of your life [as easily], perhaps more so than you can in any foreign country, and hence you may come to the conclusion that you have nothing to do with the idea of going to a foreign country. This is (I speak in no unkind sense) an extremely selfish view of the case.

But you ought to do something to help those who are not so fortunate as yourselves. There is an unwillingness on the part of our people, harsh as it may be, for you free colored people to remain with us. Now, if you could give a start to white people, you would open a wide door for many to be made free. If we deal with those who are not free at the beginning, and whose intellects are clouded by Slavery, we have very poor materials to start with. If intelligent colored men, such as are before me, would move in this matter, much might be accomplished. It is exceedingly important that we have men at the beginning capable of thinking as white men, and not those who have been systematically oppressed.

There is much to encourage you. For the sake of your race you should sacrifice something of your present comfort for the purpose of being as grand in that respect as the white people. ….

The colony of Liberia has been in existence a long time. In a certain sense it is a success. The old President of Liberia, Roberts, has just been with me – the first time I ever saw him. He says they have within the bounds of that colony between 300,000 and 400,000 people, or more than in some of our old States, such as Rhode Island or Delaware, or in some of our newer States, and less than in some of our larger ones. They are not all American colonists, or their descendants. Something less than 12,000 have been sent thither from this country. Many of the original settlers have died, yet, like people elsewhere, their offspring outnumber those deceased.

The question is if the colored people are persuaded to go anywhere, why not there? One reason for an unwillingness to do so is that some of you would rather remain within reach of the country of your nativity. I do not know how much attachment you may have toward our race. It does not strike me that you have the greatest reason to love them. But still you are attached to them at all events.

The place I am thinking about having for a colony is in Central America. It is nearer to us than Liberia – not much more than one-fourth as far as Liberia, and within seven days' run by steamers. Unlike Liberia it is on a great line of travel – it is a highway. The country is a very excellent one for any people, and with great natural resources and advantages, and especially because of the similarity of climate with your native land – thus being suited to your physical condition.

The particular place I have in view is to be a great highway from the Atlantic or Caribbean Sea to the Pacific Ocean, and this particular place has all the advantages for a colony. On both sides there are harbors among the finest in the world. Again, there is evidence of very rich coal mines. A certain amount of coal is valuable in any country, and there may be more than enough for the wants of the country. Why I attach so much importance to coal is, it will afford an opportunity to the inhabitants for immediate employment till they get ready to settle permanently in their homes.

If you take colonists where there is no good landing, there is a bad show; and so where there is nothing to cultivate, and of which to make a farm. But if something is started so that you can get your daily bread as soon as you reach there, it is a great advantage. Coal land is the best thing I know of with which to commence an enterprise.

To return, you have been talked to upon this subject, and told that a speculation is intended by gentlemen, who have an interest in the country, including the coal mines. We have been mistaken all our lives if we do not know whites as well as blacks look to their self-interest. Unless among those deficient of intellect everybody you trade with makes something. You meet with these things here as elsewhere. ….

I shall, if I get a sufficient number of you engaged, have provisions made that you shall not be wronged. If you will engage in the enterprise I will spend some of the money intrusted to me. I am not sure you will succeed. The Government may lose the money, but we cannot succeed unless we try; but we think, with care, we can succeed.

The political affairs in Central America are not in quite as satisfactory condition as I wish. There are contending factions in that quarter; but it is true all the factions are agreed alike on the subject of colonization, and want it, and are more generous than we are here. To your colored race they have no objection. Besides, I would endeavor to have you made equals, and have the best assurance that you should be the equals of the best.

The practical thing I want to ascertain is whether I can get a number of able-bodied men, with their wives and children, who are willing to go, when I present evidence of encouragement and protection. Could I get a hundred tolerably intelligent men, with their wives and children, to ‘cut their own fodder,’' so to speak? Can I have fifty? If I could find twenty-five able-bodied men, with a mixture of women and children, good things in the family relation, I think I could make a successful commencement.

I want you to let me know whether this can be done or not. This is the practical part of my wish to see you.”
https://quod.lib.umich.edu/l/lincoln/lincoln5/1:812?rgn=div1;view=fulltext
So, in other words, Abraham Lincoln was what would now be called a race realist and an ethno-nationalist, who thought that African Americans should be given their own nation in Africa or Central America, and that they should all immigrate to that new home. Lincoln favoured racial separation, much like the Democrats of the early 20th century, except that Lincoln was more extreme and wished to see African Americans immigrate overseas.

And then we have the bizarre attempt to blame the 19th century American colonisation of the West and dispossession of Indians on the Democratic Party (which supposedly inspired Hitler’s colonial ambitions in the East), even when the Republican administrations were also deeply involved in this project: Republican Presidents ruled America between 1869–1885, and presided over the Comanche Wars (1867–1875), the Battle of the Little Bighorn (1876), the Nez Perce War (1877), the Great Sioux War of 1876–1877, Bannock’s War (1878), the White River War (1879) and Geronimo’s War (1881–1886), all of which dispossessed Native Americans.

Naturally, Dinesh D’Souza cannot discuss any of these points. There are also numerous other dishonest and simply hare-brained narratives that D’Souza has, such as the idea that Nazis were “left-wing.” This usually hinges on the idea that the German National Socialists had some left-wing economic ideas. This is true, but it is a complete myth that Conservatives cannot support left-wing economics. For example, the American Republican president Eisenhower once said: “Anyone who questions the New Deal doesn’t belong in the political system.”

In fact, most mainstream Conservatives after 1945 accepted the Keynesian Social democratic consensus right up until the early 1970s. And even from the 19th century until today, Conservatism has had its anti-capitalist factions, though their influence has waxed and waned.

By D’Souza’s retarded logic, all such Conservatives were really Leftists.

D’Souza also argues that the Nazis took some of their ideas from progressive American Democrats, like eugenics.

Now the essence of German National Socialism was as follows:
(1) an authoritarian ideology hostile to democracy and Classical Liberalism;

(2) extreme hostility to Communism/Marxism, German Social Democracy, and all other left-wing political ideologies and anti-Semitism;

(3) an extreme German ethno-nationalism and militarism, which extended to the idea of colonising the lands of other Europeans to the east of Germany;

(4) a blend of social conservatism with certain other ideas which were often widely held in the early 20th century like racial theories and eugenics;

(5) an animus towards free market capitalism but not to the extent of abolishing private property or nationalising all industries.
American progressive Democrats did not hold (1), (2), or (3). At most, progressive Democrats supported (5) and of course many would have endorsed race realism and eugenics, which were widely believed all over the political spectrum by the 1920s or 1930s.

In particular, eugenics had prominent Conservative supporters in America and Europe, such as Reginald Ruggles Gates, Madison Grant and Lothrop Stoddard. Indeed, the First International Eugenics Congress (held at the University of London in 1912) had the former Conservative Prime Minister of Britain Arthur Balfour deliver its inaugural address – and in the audience was none other than Winston Churchill, who was at that time a Liberal and First Lord of the Admiralty.

If anything, the eugenics movement of the early 20th century was a bipartisan movement, which included Conservatives, Liberals, socialists, and even some Marxists.

Notably, the Americans Madison Grant and Lothrop Stoddard were both Republicans, and Dinesh D’Souza is forced to invoke the “No True Scotsman” fallacy in his book Death of a Nation and pretend that they were RINOs (Republicans in Name Only).

So the idea that eugenics was somehow only an early 20th century progressive idea is ridiculously false. In reality, eugenic ideas were widely held by diverse figures all over the political spectrum, including Conservatives.

In fact, free market conservative supporters of eugenics used Social Darwinian ideas to attack Leftist proposals for a welfare state and free health care, because they believed such policies would be dysgenic. Paradoxically, it was the die-hard Classical Liberal free market individualists who were fanatical supports of Social Darwinism, the very same people who are arguably the intellectual forefathers of Dinesh D’Souza’s own dumb free market, individualist “Conservatism.”

Monday, July 30, 2018

Robert P. Murphy on Rothbardians versus Free Bankers

Robert P. Murphy recently gave a talk on fractional reserve banking and free banking:



Listening to this video really brings home what a lame cult of losers American libertarians actually are.

Murphy repeats the same tired lies about fractional reserve banking we have all heard before: e.g., that a demand deposit involves two entities (the bank and depositor) owning the same money (when this is a blatant falsehood), and the fake legal history of fractional reserve banking peddled by Rothbard and Huerta de Soto.

A bank is, by nature, an institution that borrows money from “depositors” (a misleading word) by means of the mutuum contract, so that the bank becomes the legal owner of all money “deposited.” The bank client legally forfeits all property rights in the money. In return, the bank customer becomes a creditor to the bank and receives a promise to repay the debt on demand (or whatever specific terms are used): in other words, the bank client simply receives an IOU from the bank. There is nothing fraudulent about this relationship.

The mutuum contract goes back to the ancient Roman law and banking practice, and was the basis of Western banking.

The Rothbardian charlatans failed to understand the nature of the mutuum contract and have falsified the history of fractional reserve banking (see here, here, here, here, here, here).

By creating 100% reserve banks or warehouses, Austrians like Murphy would create an inherently deflationary economy that would tank private sector investment, and cripple the endogenous money system on which capitalism relies.

On the economic consequences of fractional reserve banking, the real problem is poorly regulated financial systems that can blow asset bubbles and create excessive private debt used for speculative purposes. The solution to this is rigorous financial regulation, not abolishing fractional reserve banking.

The few decent points Murphy makes come at the end, when he points out that the claim of free bankers that Canada and Scotland had stable free banking systems is not credible. Worse still, free bankers fail to look at Australia, where free banking was a disaster.

As for free banking in Canada, this was the reality of Canada’s pre-1935 bank system:
(1) the “Canadian Bank Act of 1871” regulated banks and prohibited banks from lending on real estate, a sensible regulatory measure that is hardly in line with free banking;

(2) in 1907, the Canadian government lent $5 million in Dominion notes to the private sector banks to end a credit squeeze that threatened the agricultural sector and wider economy;

(3) the Finance Act of 1914 permitted Dominion banks to borrow notes directly from the Canadian Department of Finance with no gold-reserve requirement;

(4) the consequences of (3) were that from 1914 onwards Canada had a lender of last resort in the form of government-issued money;

(5) in 1924, the Dominion and Imperial Banks experienced runs and turned not just to other banks, but to the Department of Finance for liquidity to avert a crisis.
One can hardly speak of a free banking system when Canada had a de facto government lender of last resort from 1914.

Addendum
In response to George Selgin’s comment below, there is a straightforward response: in order to test whether any particular pre-1933 – or relatively free market – banking system was better than the system I advocate, you need to compare the latter with the period from c. 1945 to the early 1970s, when the finance sector in the Western world was (generally) subject to effective financial regulation. In this period, there were hardly any financial crises, serious asset bubbles largely absent, and the banking sector much more stable than the more laissez-faire periods that preceded it and the Neoliberal era that followed.

I could post all sorts of data here, but let us just look at this graph:



This speaks for itself.

Further Reading
Here are my posts on fractional reserve banking refuting the Rothbardian nonsense below:
“Hayek’s Original View of Fractional Reserve Banking,” February 29, 2012.

“Fractional Reserve Banking, Option Clauses, and Government,” January 31, 2012.

“Are the Public Ignorant of the Nature of Fractional Reserve Banking?,” December 17, 2011.

“Why is the Fractional Reserve Account a Mutuum, not a Bailment?,” December 17, 2011.

“Callable Option Loans and Fractional Reserve Accounts,” December 16, 2011.

“Future Goods and Fractional Reserve Banking,” December 15, 2011.

“Rothbard on the Bill of Exchange,” December 11, 2011.

“Hoppe on Fractional Reserve Banking: A Critique,” December 11, 2011.

“The Monetary Production Economy and Fiduciary Media,” December 11, 2011

“Fractional Reserve Banking: An Evil?,” June 26, 2010.

“The Romans and Fractional Reserve Banking,” February 23, 2011.

“Gene Callahan on Fractional Reserve Banking,” February 18, 2011.

“Lawrence H. White refutes Huerta de Soto on Fractional Reserve Banking,” February 22, 2011.

“Selgin on Fractional Reserve Banking,” June 1, 2011.

“Schumpeter on Fractional Reserve Banking,” June 12, 2011.

“If Fractional Reserve Banking is Fraudulent, Why isn’t the Insurance Industry Fraud?,” September 29, 2011.

“The Mutuum Contract in Anglo-American Law,” September 30, 2011.

“Rothbard Mangles the Legal History of Fractional Reserve Banking,” October 1, 2011.

“More Historical Evidence on the Mutuum Contract,” October 1, 2011.

“What British Law Says about the Mutuum Contract,” October 2, 2011.

“If Fractional Reserve Banking is Voluntary, Where is the Fraud?,” October 3, 2011.

“Huerta de Soto on the Mutuum Contract: A Critique,” August 11, 2012.

“A Simple Question for Opponents of Fractional Reserve Banking,” August 17, 2012.

“Chapter 1 of Huerta de Soto’s Money, Bank Credit and Economic Cycles: A Critique,” August 31, 2012.

“Huerta de Soto on Justinian’s Digest 16.3.25.1,” September 1, 2012.

“Huerta de Soto on Banking in Ancient Rome: A Critique,” September 2, 2012.

“Bibliography on the Irregular Deposit (depositum irregulare) in Roman Law,” September 6, 2012.

“Rothbard on ‘Deposit’ Banking: A Critique,” July 22, 2014.

“Carr versus Carr (1811) and the History of Fractional Reserve Banking,” July 23, 2014.

Mutuum versus Bailment in Banking,” July 24, 2014.

“Foley versus Hill and the History of Fractional Reserve Banking,” July 29, 2014.

“A Critique of Murray Rothbard on the Origins and Legal Basis of Fractional Reserve Banking,” July 30, 2014.

“Coggs v. Bernard and the History of English Bailment Law,” July 31, 2014.

“The Mutuum Contract in Henry de Bracton and English Law,” August 1, 2014.

“Fractional Reserve Banking is a Fundamental Part of Capitalism,” August 8, 2014.

“A Critique of Rothbard on the History of English Bailment Law,” August 11, 2014.

“The Banking Contract in 19th Century US Law,” August 16, 2014.

“Rothbard on how Fractional Reserve Banking would be illegal in Anarcho-Capitalism,” March 2, 2016.

“The Filthy Anti-Capitalist Mentality – of Austrian Economics,” October 17, 2015.

Wednesday, June 27, 2018

Friday, June 8, 2018

Steve Keen on Can we avoid Another Financial Crisis?

Steve Keen gives a talk below on 22nd March, 2018 at the Bournemouth Labour Party members’ meeting on “Can we avoid Another Financial Crisis?”:

Saturday, May 5, 2018

Steve Keen on Banking and the Money Multiplier

Steve Keen gives a talk here on banking and the money multiplier (published on 2 May 2018):

Thursday, April 26, 2018

Steve Keen on Alternative Foundations for Macroeconomics

Steve Keen gives a talk here on alternative (non-Neoclassical) foundations for macroeconomics:

Saturday, April 21, 2018

Steve Keen on Endogenous Money and a Tribute to Basil Moore

Steve Keen gives a talk in March 2018 here on endogenous money as tribute to Basil Moore:

Friday, April 13, 2018

No War on Syria!

Stephen Cohen points out how dangerous the current drive to military action in Syria is:



Fortunately, there are signs that, if any US missile strikes happen, it will essentially be a PR stunt with the Russians being warned in advance of the targets, as Russia Insider has reported. If true, the real danger is that mistakes can be made and things could get out of control quickly, especially if wider Middle East tension erupts and military intervention is taken by Israel, Iran or Hezbollah in Lebanon, which could ignite a regional war. We are approaching the moment of truth.

Friday, March 30, 2018

The Witch Hunt against Sam Harris

Back on April 22, 2017, Sam Harris had Charles Murray on his podcast.

You can hear it here:



Since then, Sam Harris has been hysterically attacked by all the usual suspects: blank slate Liberal journalists, Cultural Leftists, Marxists and so on. The latest attack is here.

But most of these attacks are pure lies, fraud and charlatanry. Rarely do the critics of Sam Harris have anything of substance in their criticisms when it comes to the actual science.

There are certainly a few mistakes that Sam Harris made: for example, he claimed nothing much can be done to increase the IQ of children (at 2.14 in the video above). In fact, the genetic component of children’s IQ seems to be less strong than in adulthood, and so childhood IQ is more malleable, and you can make IQ gains in childhood years. But, unfortunately, it remains true, as Charles Murray has pointed out, that the genetic component of IQ rises as a child becomes an adult, so IQ gains in childhood are generally lost as the person becomes an adult and the genetic determination of IQ rises to something like 75%.

But most of the major contentions of Charles Murray, which are actually just the findings of modern psychometrics, have never been refuted. These include the following:
(1) Culturally unbiased, fair IQ tests measure a person’s general faculty of intelligence, or what is now called Spearman’s g (general intelligence), which is clearly a unified, single cognitive trait of human beings. IQ has extraordinary predictive power in predicting school and academic achievement, socio-economic status, wealth, job productivity, and success in life.

(2) the consensus of psychometrics is that differences in individual variance of IQ between people is about 0.75 heritable. Even the liberal/leftist American Psychological Association (APA) admitted this in the 1990s and accepted the 0.75 figure (see Neisser et al. 1996: 96). Worse still for Leftists, even the democratic socialist James R. Flynn (after whom the “Flynn Effect” is named) – the leading environmentalist on gaps in IQ between population groups – himself accepts that current evidence shows that the heritability of IQ variance between adults is probably about 0.75 (Dickens and Flynn 2001: 346). Very good evidence for this comes from twin studies (especially genetic twins adopted and separated at birth) and adoption studies (Plomin and Petrill 1997; Bouchard 2009 and 1998), and increasingly genetic science. The particularly strong evidence is that siblings (either fraternal or genetic) adopted at birth or infancy will have IQs strongly correlated with their biological parents, while a correlation with their adopted parents is either very low or almost zero (Petrill and Deater-Deckard 2004; Hunt 2011: 230–231; Haier 2017: 47).

(3) Moreover, the heritability of IQ rises with age, so that by the time one is an adult perhaps as much as 80% of IQ is heritable (Plomin and Spinath 2004; Plomin and Deary 2015).

(4) There are real differences between the IQs of men and women. Men and women have a different distribution of IQs when plotted on a bell curve graph: the IQ scores of women tend to cluster around the average (with less distribution in upper and lower ranges), while male IQs tend to be distributed less around the average and more in the upper and lower ranges as compared with the IQ distribution of women (see Hedges and Nowell 1995; Lubs 1999; Roberts 1945; Deary et al. 2007). There may well be a small difference between the average IQ of men as compared with that of women (Lubs 1999; Johnson and Bouchard 2007; Nyborg 2005). Men appear to have a slightly higher average IQ, with about a 3–5 point advantage over women. By examining the sub-tests of IQ tests, we have discovered that – in terms of sub-tests and specific cognitive abilities – men and women also differ. Women tend, on average, to be much better at verbal abilities and language, but men tend on average to outperform women on numerical/mathematical and spatial cognitive abilities (Neisser et al. 1996; Wechsler 1958: 144–149; Lubs 1999; Johnson and Bouchard 2007; Johnson et al. 2008; Halpern et al. 2007).

(5) The average IQs of different human population groups who have been subject to divergent evolution in different regions as measured by modern psychometrics is different. You can see the data as organised by region and by nation here. The average IQ for European people is about 100. We can see the average IQ of population groups as follows:
(1) Ashkenazim | 107
(2) East Asians | 105
(3) white Europeans | 100
(4) Inuit-Eskimos | 91
(5) South East Asians | 87
(6) Native American Indians | 87
(7) South Asians & North Africans | 84
(8) Sub-Saharan Africans | 82.
Notably, the most recent metastudy of Wicherts et al. (2010) finds that the average IQ of sub-Saharan Africans is just 82.

It would appear that these differences in average IQ between populations may well have an evolutionary, genetic and environmental explanation, not just a purely environmental one.
Everywhere we look modern science is exploding the religious cult of blank slateism and social constructivism, as can be seen here, here, and here. But blank slateism remains a fanatical quasi-religious article of faith for Liberals, Leftists and even some Conservatives.

For example, take the case of violence in human societies. Contrary to Leftist mythology, the finding of modern social science is actually that violence cannot be properly explained by poverty or unemployment (see Pinker 2011: 142; Zimring 2007: 63; Levitt 2004). If you think about it and look at the data, the “poverty” explanation is absurd: for example, women are subject in all societies to extreme poverty to varying degrees, but why is it the case that women commit hardly any violent crime at all?

Instead, it is very likely that the general phenomenon of violence is explained by biology: it is a combination of certain genetically-determined cognitive traits that causes a human being to be violent and aggressive. These traits are likely to be as follows:
(1) low impulse control + high time preference;

(2) a high genetically-determined predisposition to aggression and violence, driven either by high levels of testosterone, or the Warrior gene (MAOA-L) and other undiscovered polygenetic factors, and

(3) low IQ.
Notably, it is men who commit the overwhelming majority of violence, not women, and men who are most affected by these traits, which are distributed unevenly in the male population. But the combination of these traits in certain men is deadly: most violence will be from the minority of men who have the misfortune to have inherited these traits, and so most violence in society, fundamentally, has a biological explanation.

At any rate, the hysterical attacks on Sam Harris (or Charles Murray) over IQ and average IQ differences are absurd, because Sam Harris isn’t the source of the scientific data on IQ and genetics that are discrediting the blank slateist Left: the actual source is just mainstream science itself.

But Cultural Leftists and Liberals need a figure of hate to blame their own humiliation and intellectual failure on. That figure is Sam Harris at the moment.

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