Unearned Riches by LEONARD E. READ

ONE of the cornerstones of economic theory is the economic value we attach to commodities and services that possess a relation to our well-being. Economic value is the importance which a good possesses for us because it is useful and scarce.
It is to the everlasting credit and fame of Carl Menger and other scholars of the Austrian School to have found and expounded this elementary knowledge of subjective value. They then proceeded to apply the value analysis in the field of complementary goods, i.e., goods that are required to cooperate in the rendition of use services, and finally in the field of capital goods, which they called “goods of higher order.” The theory of the value of complementary goods then became the key for the solution of one of the most important and difficult problems of economics: the problem of distribution.
The valuations of the consumers in a market economy, in final analysis, determine the way in which the ultimate product is distributed among the cooperating factors of production. How little this elementary knowledge of economic valuation is known can be seen at the widespread acceptance and circulation of wage theories that deny any relation to the valuation process. The American public embraces and most institutions of economic education teach theories of “bargaining-power,” “purchasing-power,” “standard-of-living,” the “subsistence theory,” or even the unadulterated “exploitation theory.” Distribution through the valuation process seems to be known to a few remnants of “reactionary” and “outdated” scholars and writers only. It is to the enduring credit of Ludwig von Mises that he, for several decades, has been the foremost “reactionary” among scholars, a reactionary of reason and economic theory. For this he merits our admiration and gratitude.
Many people sincerely believe that the value of anything is determined by the labor used in producing it; that its price ought to reflect quite objectively the amount of labor put into it. The belief in this labor theory of value, however, is founded in myth, not fact. Day-to-day experiences reveal its error. For a far-fetched example, the same labor could be used to make mud pies as to make mince pies, yet the value in the market place would differ. A service or a product of little value at one time or in one place may be highly valued at another time and place. For instance, an artist may produce hundreds of paintings considered freakish by others and be rewarded with starvation for his labors. But, let his style become the fad, and for less labor than before, he can revel in luxury.
Lost and adrift on a raft for days, a man might offer his fortune in exchange for a hamburger. Yet, the same person, following a lusty meal, might not offer a penny in exchange, though the hamburger had changed not at all.
Individuals have varying value judgments. Value in the market sense, therefore, is a subjective rather than an objective determination. In a way, it is like beauty. What is beauty? It is what you or I or other individuals think is beautiful. It depends on subjective or personal value judgments, judgments characterized by constant variation. Value, as beauty, cannot be objectively determined. That all persons may think of a certain sunset as beautiful, a given monster as hideous, gold as desirable, or mud pies as useless does not alter the fact that these are subjective judgments. Such unanimity merely asserts that some subjective judgments are similar.
It is not at all surprising that many persons in the United States and throughout the world do not subscribe to the subjective nature of value. As far as can be determined, no one understood it well enough to try an explanation until the latter part of the nineteenth century. Prior to that, such a notable as John Stuart Mill and the very best of economists, including Adam Smith and Ricardo, were stymied in their development of economic theory because they accepted the cost-of-production or labor theory of value. They simply could not explain what they otherwise knew to be the great advantages of the free market process of voluntary exchange. They knew full well that both parties must gain when each traded what he wanted less for what he wanted more, yet they could not show that such gain had been “earned,” for they were unable to explain it in terms of labor costs. In short, they were unable to see how the free market price might be competitively or subjectively determined by individuals who had no accurate knowledge of the labor or other costs involved in producing a particular item.
How Adam Smith, holding to this labor theory of value, could have seen the great advantages of trade—the untold blessings of others, or society, to the individual—and could have come out in favor of private enterprise instead of socialism, is a miracle more to be attributed to sound instinct than to economic reasoning.
Marx, as distinguished from Adam Smith, followed the labor theory of value to its logical conclusion: socialism. Marx looked upon all things useful as one great “wages fund” and believed that the entire fund ought to be distributed directly to laborers. To allow any part of this fund as a return on capital would amount to unearned increment and, he argued, would be exploitation. How any advocate of the cost-of-labor theory could believe in anything but socialism is difficult to understand. Smith, Ricardo, Mill, and many others instinctively, not logically, concluded otherwise.
Only if one understands the marginal utility or subjective theory of value based upon the judgments of countless individuals acting freely and voluntarily in the market may he proceed logically to a belief in private ownership and control of property. With this kind of an understanding, he can see why any person may have a perfect right to consume more than he could ever hope to produce by his own labor. He can, it is plain, properly own anything others will freely offer in exchange for what he has to offer them. This means gains for all participants in the exchange process, gains which must always appear to be unearned in terms of labor expended. Nonetheless, it reflects the approval of all who are properly concerned in any transaction. The marginal utility or subjective theory of value needs no other justification. Because it is based on willing exchange, it works without coercing anyone. The labor theory of value—the labor theory of price determination—on the other hand, founded on unwilling exchange, cannot function without coercion.
Now, let us proceed to the person whose father invested $500 in an early auto industry and who now wonders to whom he should give the resulting millions. He is no more the recipient of unearned increment than is the person who today works for a wage in the same company. Both exist on what they themselves do not and could not produce. And if the wage earner were to succeed in cutting off what he might think are the unearned riches of his “lucky” brothers, he would at the same time destroy his own source of livelihood.
Let us contemplate this wage earner. He lives in a house he could not build. Perhaps, given enough materials and tools properly fabricated and the plans some architect has drawn, he could put together something resembling a house. But he wouldn’t know how to make a lowly nail: mine the ore, alloy the metals, construct the furnaces, build the extrusion and other machinery, and so on. Could he make a hammer? A saw? Bring the lumber to its finished state? Even make the string on which his plumb hangs? Grow and gin and spin and comb and weave the cotton from which it is made?
Could he build the machinery that mines the coal he uses to heat his house? He could not make the lamp the miners wear if every ingredient depended solely on his own resources.
What about the automobiles he helps to put together, one of which he owns? Neither he nor any other person on this earth could produce it alone. What about the food he eats? The clothes he wears? The books and magazines he reads? The telephone he uses? The counsel on health that is his? The opportunities that are constantly presented to him? All are done by a vast work and exchange process, millions of individuals with as many varied skills, laboring cooperatively and competitively, a world of complex and flowing energy, the organization of which is more complicated than any one person can understand, let alone control. Others—society past and present—place within his reach goods and services and knowledge in such an array and abundance that he could not himself produce in thousands of years that portion of it which he consumes in a single day. And he obtains all of this in exchange for his own meager efforts.
The astounding thing is that it is possible for him to gain without any change in his efforts, his skills, his knowledge. Let others become more inventive and more productive, and he may receive more in exchange for what he has to offer. Parenthetically, it is also possible for him to lose out entirely, as might happen if he persisted in offering nothing in exchange but buggy whips.
There is a fact still more astounding. Our wage earner may think of his plight as hapless when compared to the one who inherited his millions. True, the millionaire has gained much from the doings of others. But the wage earner himself owes his life to the doings of others. It is not that possessing millions and having life are alternative propositions. That is not the point. The point is that both flow from the same exchange process and that whatever each has—be it autos, houses, food, clothing, heat, millions, knowledge, or life itself—comes to him unearned in the sense that he alone did not produce all of it. We trade because we can all get more satisfaction from our labor by that means. Vast stores are available to those who have anything to trade that others value. In the free market, each earns all that he receives in willing exchange. This is fantastically more than one could produce by himself.
In order fully to grasp the process by which one can consume in a day that which he could not produce in thousands of years—the process by which he can earn in a day that which he could not earn by himself in thousands of years—it is only necessary for one to see that one’s earning power is capable of unlimited expansion by the productivity and exchange and value judgments of others. This world of creative energy, this productivity exterior to self, then, becomes of singular importance to each one of us. Not only does our prosperity—material, intellectual, and spiritual—depend upon it, but life itself comes under its government. In short, each of us is the beneficiary of this productivity through division of labor and capital accumulation and investments by others.
Let us sample this world of productivity through division of labor from the standpoint of oneself as a potential beneficiary of its largess. The mathematics of nuclear fission is known to some scholars. I, however, do not know that much mathematics. Such knowledge conceivably can be mine. But I can possess it only by increasing my own perceptive powers. It may very well be that the required increase in perception is beyond my competency or that I may choose to increase my perception along other lines to the exclusion of perceptive powers along this line. But, assuming that I do gain this knowledge, do I earn it? Yes, as much as though I gained the knowledge by direct revelation. Direct, or indirect through study of the knowledge of others, does not alter the matter.
The same principle applies to a product as to an item of knowledge. Luxurious yachts are available. Their making is as foreign and as unrelated to me as presently is the mathematics of nuclear fission. I do not have one. Such a possession conceivably could be mine. I could become the beneficiary of its existence by increasing my own exchange powers or, should all others become sufficiently productive, I could have one in exchange for efforts no greater than I now exercise. But assume that I do obtain one in exchange for my present meager efforts, do I earn it? Yes, even though it is in the sense I earn a deer by choosing the path I will walk and by pulling the trigger on a gun. All else is supplied. The deer, a miracle about which man had nothing to do, crossed my path. The gun, the powder, the shot represented creative ingenuity flowing through space and time about which I have but the dimmest of notions. As with the deer, so with the yacht. I earn it as though I had done it all myself. Others in their productivity, knowledge, skills willingly exchanged what I offered them.
Someone may argue that I could have exchange power to obtain a yacht had I been born the son of a father who “hit it lucky.” By the same token, I might have the perceptive powers to understand the mathematics of nuclear fission had my parentage been different.
Seeing oneself in true perspective as related to all others is utterly impossible. We but dimly comprehend ourselves; the comprehension of others is much dimmer. However, it is not necessary that this perspective be perfect. It is only necessary that we grasp the idea of being a beneficiary of this benefactor, this division of labor, and that we understand and appreciate our dependence on and our relationship to it.
No better example of the beneficent effects of the division of labor together with capital accumulation is to be found than in the area of our own 48 states. Here, less than 400 years ago, there were perhaps 200,000 Indians. Why was the population limited to this number? Certainly it was not for any lack of natural resources, friendly climates, or fertile soils. Nor was it because of the Indians’ inability to breed. The population was limited and the standard of life was relatively impoverished because of a low form of cooperant society. They lived in a foraging economy, all of them in a near sameness. There was little in the way of division of labor, of variable skills, knowledge. Society was indeed so uncooperative that as a result only 200,000 could live in it, and they not very well.
Today, in this same area, 160,000,000 persons, 800 times as many, live in relative luxury, be luxury measured in terms of goods and services, leisure, opportunities, knowledge, or insights into the nature of things. It is fair to say that 159,800,000 of us have life, and a rather full one at that, due to a higher form of cooperant society, to the freeing of creative energy, to large capital investments per head of population, to an advanced state of division of labor. It is fair to say that nearly all of us exist and have the possessions we enjoy because of a greater division of labor in a market economy. These millions of people with their varied skills and specializations, taken together, constitute a benefactor without which most of us could have no life at all. Each one of us is a beneficiary of this phenomenon.
Looked at in this light—oneself as a beneficiary and division of labor as a benefactor—it becomes pertinent to re-examine one’s own behaviors, attitudes, actions. If we would best serve our individual self-interest, we would do well to live in harmony with the facts of life, not in disharmony with them.
Looked at in this light, one should do everything possible to increase his own perceptive and exchange powers. It is only by self-improvement that one can best serve self. And, clearly, it is only by self-improvement that one can better serve others—that is, add to someone else’s well-being.
Who composes this benefactor of ours, this storehouse of energy? It is composed of individuals who, like ourselves, are different from all others and who, like ourselves, depend on others. And what ought to be our attitude toward these millions of others if looked at from the standpoint of self-interest?
1.   Self-reliance, a great virtue, should be emphasized. The way to be self-reliant is to keep off the backs of others and to engage in willing—never unwilling—exchange. This is the free market.
2.   It is a primary fact of observation that these others, like one-self, will work at their best if permitted the ownership and control of the fruits of their own labor—and of their own participation in the exchange process. It is in one’s interest to preserve his incentive. This is the institution of private property.
3.   As with oneself, these others will act at their best creatively if left free to do so. One should, therefore, look with great disfavor on any interference with creative activity and on any inhibitions to free exchange and communication of creative action. One’s own interest is impaired if there are marauders or robbers or authoritarians among these others; if there are men among them practicing violence, fraud, misrepresentation, or predation. One’s own interest suffers if voters use the political apparatus to gain their own ends at the expense of the vast majority of the public. The form of government that protects the smooth operation of the free market economy and its voluntary division of labor is limited government.
For each individual to save his own skin and soul he must give at least as much concern to the rights of others as he does to his own. He would be as eager to protect the creative energies and the free exchange and communication of others as his own. For each of us can truly say, “I am the beneficiary of their existence.”
If we as individuals would save our own skins and our own souls, we would use all the moral suasion at our command to see that all men are free:
... to pursue their ambition to the full extent of their abilities;
... to associate with whom they please for any reason they please;
... to worship God in their own way;
... to choose their own trade;
... to go into business for themselves, be their own bosses, and set their own hours of work;
... to use their honestly acquired property or savings in their own way;
... to offer their services or products for sale on their own terms;
... to buy or not to buy any service or product offered for sale;
... to agree or to disagree with any other person;
... to study and learn whatever strikes their fancy;
... to do as they please in general, as long as they do not infringe the equal right and opportunity of every other person to do as he pleases.
According to these observations, here is a way of life harmonious with the interests of others. The envy of others for accomplishments or rewards can be made naturally and easily to give way to appreciation and pleasure. Inequality, being but the team-mate of variation without which survival is impossible, would, therefore, be favored rather than disparaged.
Are the riches received in a free society unearned? Only in the sense that all producers reap fantastically more than they could earn in isolation. The benefits flowing from our division of labor are available to all of us in willing exchange if freedom prevails. Such are the thoughts of one who believes himself a beneficiary and who believes that all others who act creatively are his benefactors. I owe my life to them; hence if I would live and prosper, I shall work as diligently for their freedom as for my own.

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The Market Economy and the Distribution of Wealth by L. M. LACHMANN

EVERYWHERE today in the free world we find the opponents of the market economy at a loss for plausible arguments. Of late the “case for central planning” has shed much of its erstwhile luster. We have had too much experience of it. The facts of the last forty years are too eloquent.
Who can now doubt that, as Professor Mises pointed out thirty years ago, every intervention by a political authority entails a further intervention to prevent the inevitable economic repercussions of the first step from taking place? Who will deny that a command economy requires an atmosphere of inflation to operate at all, and who today does not know the baneful effects of “controlled inflation?” Even though some economists have now invented the eulogistic term “secular inflation” in order to describe the permanent inflation we all know so well, it is unlikely that anyone is deceived. It did not really require the recent German example to demonstrate to us that a market economy will create order out of “administratively controlled” chaos even in the most unfavorable circumstances. A form of economic organization based on voluntary cooperation and the universal exchange of knowledge is necessarily superior to any hierarchical structure, even if in the latter a rational test for the qualifications of those who give the word of command could exist. Those who are able to learn from reason and experience knew it before, and those who are not are unlikely to learn it even now.
Confronted with this situation the opponents of the market economy have shifted their ground; they now oppose it on “social” rather than economic grounds. They accuse it of being unjust rather than inefficient. They now dwell on the “distorting effects” of the ownership of wealth and contend that “the plebiscite of the market is swayed by plural voting.” They show that the distribution of wealth affects production and income distribution since the owners of wealth not merely receive an “unfair share” of the social income, but will also influence the composition of the social product: Luxuries are too many and necessities too few. Moreover, since these owners do most of the saving they also determine the rate of capital accumulation and thus of economic progress.
Some of these opponents would not altogether deny that there is a sense in which the distribution of wealth is the cumulative result of the play of economic forces, but would hold that this cumulation operates in such a fashion as to make the present a slave of the past, a bygone an arbitrary factor in the present. Today’s income distribution is shaped by today’s distribution of wealth, and even though today’s wealth was partly accumulated yesterday, it was accumulated by processes reflecting the influence of the distribution of wealth on the day before yesterday. In the main this argument of the opponents of the market economy is based on the institution of Inheritance to which, even in a progressive society, we are told, a majority of the owners owe their wealth.
This argument appears to be widely accepted today, even by many who are genuinely in favor of economic freedom. Such people have come to believe that a “redistribution of wealth,” for instance through death duties, would have socially desirable, but no unfavorable economic results. On the contrary, since such measures would help to free the present from the “dead hand” of the past they would also help to adjust present incomes to present needs. The distribution of wealth is a datum of the market, and by changing data we can change results without interfering with the market mechanism! It follows that only when accompanied by a policy designed continually to redistribute existing wealth, would the market process have “socially tolerable” results.
This view, as we said, is today held by many, even by some economists who understand the superiority of the market economy over the command economy and the frustrations of interventionism, but dislike what they regard as the social consequences of the market economy. They are prepared to accept the market economy only where its operation is accompanied by such a policy of redistribution.
The present paper is devoted to a criticism of the basis of this view.
In the first place, the whole argument rests logically on verbal confusion arising from the ambiguous meaning of the term “datum.” In common usage as well as in most sciences, for instance in statistics, the word “datum” means something that is, at a moment of time, “given” to us as observers of the scene. In this sense it is, of course, a truism that the mode of the distribution of wealth is a datum at any given moment of time, simply in the trivial sense that it happens to exist and no other mode does. But in the equilibrium theories which, for better or worse, have come to mean so much for present-day economic thought and have so largely shaped its content, the word “datum” has acquired a second and very different meaning: Here a datum means a necessary condition of equilibrium, an independent variable, and “the data” collectively mean the total sum of necessary and sufficient conditions from which, once we know them all, we without further ado can deduce equilibrium price and quantity. In this second sense the distribution of wealth would thus, together with the other data, be a DETERMINANT, though not the only determinant, of the prices and quantities of the various services and products bought and sold.
It will, however, be our main task in the paper to show that the distribution of wealth is not a “datum” in this second sense. Far from being an “independent variable” of the market process, it is, on the contrary, continuously subject to modification by the market forces. Needless to say, this is not to deny that at any moment it is among the forces which shape the path of the market process in the immediate future, but it is to deny that the mode of distribution as such can have any permanent influence. Though wealth is always distributed in some definite way, the mode of this distribution is ever-changing.
Only if the mode of distribution remained the same in period after period, while individual pieces of wealth were being transferred by inheritance, could such a constant mode be said to be a permanent economic force. In reality this is not so. The distribution of wealth is being shaped by the forces of the market as an object, not an agent, and whatever its mode may be today will soon have become an irrelevant bygone.
The distribution of wealth, therefore, has no place among the data of equilibrium. What is, however, of great economic and social interest is not the mode of distribution of wealth at a moment of time, but its mode of change over time. Such change, we shall see, finds its true place among the events that happen on that problematical “path” which may, but rarely in reality does, lead to equilibrium. It is a typically “dynamic” phenomenon. It is a curious fact that at a time when so much is heard of the need for the pursuit and promotion of dynamic studies it should arouse so little interest.
Ownership is a legal concept which refers to concrete material objects. Wealth is an economic concept which refers to scarce resources. All valuable resources are, or reflect, or embody, material objects, but not all material objects are resources: Derelict houses and heaps of scrap are obvious examples, as are any objects which their owners would gladly give away if they could find somebody willing to remove them. Moreover, what is a resource today may cease to be one tomorrow, while what is a valueless object today may become valuable tomorrow. The resource status of material objects is therefore always problematical and depends to some extent on foresight. An object constitutes wealth only if it is a source of an income stream. The value of the object to the owner, actual or potential, reflects at any moment its expected income-yielding capacity. This, in its turn, will depend on the uses to which the object can be turned. The mere ownership of objects, therefore, does not necessarily confer wealth; it is their successful use which confers it. Not ownership but use of resources is the source of income and wealth. An ice-cream factory in New York may mean wealth to its owner; the same ice-cream factory in Greenland would scarcely be a resource.
In a world of unexpected change the maintenance of wealth is always problematical; and in the long run it may be said to be impossible. In order to be able to maintain a given amount of wealth which could be transferred by inheritance from one generation to the next, a family would have to own such resources as will yield a permanent net income stream, i.e., a stream of surplus of output value over the cost of factor services complementary to the resources owned. It seems that this would be possible only either in a stationary world, a world in which today is as yesterday and tomorrow like today, and in which thus, day after day, and year after year, the same income will accrue to the same owners or their heirs; or if all resource owners had perfect foresight. Since both cases are remote from reality we can safely ignore them. What, then, in reality happens to wealth in a world of unexpected change?
All wealth consists of capital assets which, in one way or another, embody or at least ultimately reflect the material resources of production, the sources of valuable output. All output is produced by human labor with the help of combinations of such resources. For this purpose resources have to be used in certain combinations; complementarity is of the essence of resource use. The modes of this complementarity are in no way “given” to the entrepreneurs who make, initiate, and carry out production plans. There is in reality no such thing as A production function. On the contrary, the task of the entrepreneur consists precisely in finding, in a world of perpetual change, which combination of resources will yield, in the conditions of today, a maximum surplus of output over input value, and in guessing which will do so in the probable conditions of tomorrow, when output values, cost of complementary input, and technology all will have changed.
If all capital resources were infinitely versatile the entrepreneurial problem would consist in no more than following the changes of external conditions by turning combinations of resources to a succession of uses made profitable by these changes. As it is, resources have, as a rule, a limited range of versatility, each is specific to a number of uses.1 Hence, the need for adjustment to change will often entail the need for a change in the composition of the resource group, for “capital regrouping.” But each change in the mode of complementarity will affect the value of the component resources by giving rise to capital gains and losses. Entrepreneurs will make higher bids for the services of those resources for which they have found more profitable uses, and lower bids for those which have to be turned to less profitable uses. In the limiting case where no (present or potential future) use can be found for a resource which has so far formed part of a profitable combination, this resource will lose its resource character altogether. But even in less drastic cases capital gains and losses made on durable assets are an inevitable concomitant of a world of unexpected change.
The market process is thus seen to be a leveling process. In a market economy a process of redistribution of wealth is taking place all the time before which those outwardly similar processes which modern politicians are in the habit of instituting, pale into comparative insignificance, if for no other reason than that the market gives wealth to those who can hold it, while politicians give it to their constituents who, as a rule, cannot.
This process of redistribution of wealth is not prompted by a concatenation of hazards. Those who participate in it are not playing a game of chance, but a game of skill. This process, like all real dynamic processes, reflects the transmission of knowledge from mind to mind. It is possible only because some people have knowledge that others have not yet acquired, because knowledge of change and its implications spread gradually and unevenly throughout society.
In this process he is successful who understands earlier than any-one else that a certain resource which today can be produced, when it is new, or bought, when it is an existing resource, at a certain price A, will tomorrow form part of a productive combination as a result of which it will be worth A’. Such capital gains or losses, prompted by the chance of, or need for, turning resources from one use to another, superior or inferior to the first, form the economic substance of what wealth means in a changing world, and are the chief vehicle of the process of redistribution.
In this process it is most unlikely that the same man will continue to be right in his guesses about possible new uses for existing or potential resources time after time, unless he is really superior. And in the latter case his heirs are unlikely to show similar success—unless they are superior, too. In a world of unexpected change capital losses are ultimately as inevitable as are capital gains. Competition between capital owners and the specific nature of durable resources, even though it be “multiple specificity,” entail that gains are followed by losses as losses are followed by gains.
These economic facts have certain social consequences. As the critics of the market economy nowadays prefer to take their stand on “social” grounds, it may be not inappropriate here to elucidate the true social results of the market process. We have already spoken of it as a leveling process. More aptly, we may now describe these results as an instance of what Pareto called “the circulation of elites.” Wealth is unlikely to stay for long in the same hands. It passes from hand to hand as unforeseen change confers value now on this, now on that specific resource, engendering capital gains and losses. The owners of wealth, we might say with Schumpeter, are like the guests at a hotel or the passengers in a train: They are always there but are never for long the same people.
It may be objected that our argument applies in any case only to a small segment of society and that the circulation of elites does not eliminate social injustice. There may be such circulation among wealth owners, but what about the rest of society? What chance  have those without wealth of even participating, let alone winning, in the game? This objection, however, would ignore the part played by managers and entrepreneurs in the market process, a part to which we shall soon have to return.
In a market economy, we have seen, all wealth is of a problematical nature. The more durable assets are and the more specific, the more restricted the range of uses to which they may be turned, the more clearly the problem becomes visible. But in a society with little fixed capital in which most accumulated wealth took the form of stocks of commodities, mainly agricultural and perishable, carried for periods of various lengths, a society in which durable consumer goods, except perhaps for houses and furniture, hardly existed, the problem was not so clearly visible. Such was, by and large, the society in which the classical economists were living and from which they naturally borrowed many traits. In the conditions of their time, therefore, the classical economists were justified, up to a point, in regarding all capital as virtually homogeneous and perfectly versatile, contrasting it with land, the only specific and irreproducible resource. But in our time there is little or no justification for such dichotomy. The more fixed capital there is, and the more durable it is, the greater the probability that such capital resources will, before they wear out, have to be used for purposes other than those for which they were originally designed. This means practically that in a modern market economy there can be no such thing as a source of permanent income. Durability and limited versatility make it impossible.
It may be asked whether in presenting our argument we have not confused the capital owner with the entrepreneur, ascribing to the former functions which properly belong to the latter. Is not the decision about the use of existing resources as well as the decision which specifies the concrete form of new capital resources, viz. the investment decision, a typical entrepreneurial task? Is it not for the entrepreneur to regroup and redeploy combinations of capital goods? Are we not claiming for capital owners the economic functions of the entrepreneur?
We are not primarily concerned with claiming functions for anybody. We are concerned with the effects of unexpected change on asset values and on the distribution of wealth. The effects of such change will fall upon the owners of wealth irrespective of where the change originates. If the distinction between capitalist and entrepreneur could always easily be made, it might be claimed that the continuous redistribution of wealth is the result of entrepreneurial action, a process in which capital owners play a merely passive part. But that the process really occurs, that wealth is being redistributed by the market, cannot be doubted, nor that the process is prompted by the transmission of knowledge from one center of entrepreneurial action to another. Where capital owners and entrepreneurs can be clearly distinguished, it is true that the owners of wealth take no active part in the process themselves, but passively have to accept its results.
Yet there are many cases in which such a clear-cut distinction cannot be made. In the modern world wealth typically takes the form of securities. The owner of wealth is typically a shareholder. Is the shareholder an entrepreneur? Professor Knight asserts that he is, but a succession of authors from Walter Rathenau2 to Mr. Burnham have denied him that status. The answer depends, of course, on our definition of the entrepreneur. If we define him as an uncertainty-bearer, it is clear that the shareholder is an entrepreneur. But in recent years there seems to be a growing tendency to define the entrepreneur as the planner and decision-maker. If so, directors and managers are entrepreneurs, but shareholders, it seems, are not.
Yet we have to be careful in drawing our conclusions. One of the most important tasks of the entrepreneur is to specify the concrete form of capital resources, to say what buildings are to be erected, what stocks to be kept, etc. If we are clearly to distinguish between capitalist and entrepreneur we must assume that a “pure” entrepreneur, with no wealth of his own, borrows capital in money form, i.e., in a non-specific form, from “pure” capital owners.3
But do the directors and managers at the top of the organizational ladder really make all the specifying decisions? Are not many such decisions made “lower down” by works managers, supervisors, etc.? Is it really at all possible to indicate “the entrepreneur” in a world in which managerial functions are so widely spread?
On the other hand, the decision of a capital owner to buy new shares in company A rather than in company B is also a specifying decision. In fact this is the primary decision on which all the managerial decisions within the firm ultimately depend, since without capital there would be nothing for them to specify. We have to realize, it seems, that the specifying decisions of shareholders, directors, managers, etc., are in the end all mutually dependent upon each other, are but links in a chain. All are specifying decisions distinguished only by the degree of concreteness which increases as we are moving down the organizational ladder. Buying shares in company A is a decision which gives capital a form less concrete than does the decision of the workshop manager as to which tools are to be made, but it is a specifying decision all the same, and one which provides the material basis for the workshop manager’s action. In this sense we may say that the capital owner makes the “highest” specifying decision.
The distinction between capital owner and entrepreneur is thus not always easily made. To this extent, then, the contrast between the active entrepreneurs, forming and redeploying combinations of capital resources, and the passive asset owners, who have to accept the verdict of the market forces on the success of “their” entrepreneurs, is much overdrawn. Shareholders, after all, are not quite defenseless in these matters. If they cannot persuade their directors to refrain from a certain step, there is one thing they can do: They can sell!
But what about bondholders? Shareholders may make capital gains and losses; their wealth is visibly affected by market forces. But bondholders seem to be in an altogether different position. Are they not owners of wealth who can claim immunity from the market forces we have described, and thus from the process of redistribution?
In the first place, of course, the difference is merely a matter of degree. Cases are not unknown in which, owing to failure of plans, inefficiency of management, or to external circumstances which had not been foreseen, bondholders had to take over an enterprise and thus became involuntary shareholders. It is true, however, that most bondholders are wealth owners who stand, as it were, at one remove from the scene we have endeavored to describe, from the source of changes which are bound to affect most asset values, though it is not true of all of them. Most of the repercussions radiating from this source will have been, as it were, intercepted by others before they reach the bondholders. The higher the “gear” of a company’s capital, the thinner the protective layer of the equity, the more repercussions will reach the bondholders, and the more strongly they will be affected. It is thus quite wrong to cite the case of the bondholder in order to show that there are wealth owners exempt from the operation of the market forces we have  described. Wealth owners as a class can never be so exempt, though some may be relatively more affected than others.
Furthermore, there are two cases of economic forces engendering capital gains and losses from which, in the nature of these cases, the bondholder cannot protect himself, however thick the protective armor of the equity may happen to be: the rate of interest and inflation. A rise in long-term rates of interest will depress bond values where equity holders may still hope to recoup themselves by higher profits, while a fall will have the opposite effect. Inflation transfers wealth from creditors to debtors, whereas deflation has the opposite effect. In both cases we have, of course, instances of that redistribution of wealth with which we have become acquainted. We may say that with a constant long-term rate of interest and with no change in the value of money, the susceptibility of bondholders’ wealth to unexpected change will depend on their relative position as against equity holders, their “economic distance” from the center of disturbances; while interest changes and changes in the value of money will modify that relative position.
The holders of government bonds, of course, are exempt from many of the repercussions of unexpected change, but by no means from all of them. To be sure, they do not need the protective armor of the equity to shield them against the market forces which modify prices and costs. But interest changes and inflation are as much of a threat to them as to other bondholders. In the world of permanent inflation in which we are now living, to regard wealth in the form of government securities as not liable to erosion by the forces of change would be ludicrous. But in any case the existence of a government debt is not a result of the operation of market forces. It is the result of the operation of politicians eager to save their constituents from the task of having to pay taxes they would otherwise have had to pay.
The main fact we have stressed in this paper, the redistribution of wealth caused by the forces of the market in a world of unexpected change, is a fact of common observation. Why, then, is it constantly being ignored? We could understand why the politicians choose to ignore it: After all, the large majority of their constituents are unlikely to be directly affected by it, and, as is amply shown in the case of inflation, would scarcely be able to understand it if they were. But why should economists choose to ignore it? That the mode of the distribution of wealth is a result of the operation of economic forces is the kind of proposition which, one would think, appeal to them. Why, then, do so many economists continue to  regard the distribution of wealth as a “datum” in the second sense mentioned above? We submit that the reason has to be sought in an excessive preoccupation with equilibrium problems.
We saw before that the successive modes of the distribution of wealth belong to the world of disequilibrium. Capital gains and losses arise in the main because durable resources have to be used in ways for which they were not planned, and because some men understand better and earlier than other men what the changing needs and resources of a world in motion imply. Equilibrium means consistency of plans, but the redistribution of wealth by the market is typically a result of inconsistent action. To those trained to think in equilibrium terms it is perhaps only natural that such processes as we have described should appear to be not quite “respectable.” For them the “real” economic forces are those which tend to establish and maintain equilibrium. Forces only operating in disequilibrium are thus regarded as not really very interesting and are therefore all too often ignored. There may be two reasons for such neglect. No doubt a belief that a tendency towards equilibrium does exist in reality and that, in any conceivable situation, the forces tending towards equilibrium will always be stronger than the forces of resistance, plays a part in it.
But an equally strong reason, we may suspect, is the inability of economists preoccupied with equilibria to cope at all with the forces of disequilibrium. All theory has to make use of coherent models. If one has only one such model at one’s disposal a good many phenomena that do not seem to fit into one’s scheme are likely to remain unaccounted for. The neglect of the process of redistribution is thus not merely of far-reaching practical importance in political economy since it prevents us from understanding certain features of the world in which we are living. It is also of crucial methodological significance to the central area of economic thought.
We are not saying, of course, that the modern economist, so learned in the grammar of equilibrium, so ignorant of the facts of the market, is unable or unready to cope with economic change; that would be absurd. We are saying that he is well-equipped only to deal with types of change that happen to conform to a fairly rigid pattern. In most of the literature currently in fashion change is conceived as a transition from one equilibrium to another, i.e., in terms of comparative statics. There are even some economists who, having thoroughly misunderstood Cassel’s idea of a “uniformly progressive economy,” cannot conceive of economic progress in any other way!4 Such smooth transition from one equilibrium (long-run or short-run) to another virtually bars not only discussion of the process in which we are interested here, but of all true economic processes. For such smooth transition will only take place where the new equilibrium position is already generally known and anticipated before it is reached. Where this is not so, a process of trial and error (Walras’ “tâtonnements”) will start which in the end may or may not lead to a new equilibrium position. But even where it does, the new equilibrium finally reached will not be that which would have been reached immediately had everybody anticipated it at the beginning, since it will be the cumulative result of the events which took place on the “path” leading to it. Among these events changes in the distribution of wealth occupy a prominent place.
Professor Lindahl5 has recently shown to what extent Keynes’ analytical model is vitiated by his apparent determination to squeeze a variety of economic forces into the Procrustean bed of short-period equilibrium analysis. Keynes, while he wished to describe the modus operandi of a number of dynamic forces, cast his model in the mold of a system of simultaneous equations, though the various forces studied by him clearly belonged to periods of different length. The lesson to be learned here is that once we allow ourselves to ignore fundamental facts about the market, such as differential knowledge, some people understanding the meaning of an event before others, and in general, the temporal pattern of events, we shall be tempted to express “immediate” effects in short-period equilibrium terms. And all too soon we shall also allow ourselves to forget that what is of real economic interest are not the equilibria, even if they exist, which is in any case doubtful, but what happens between them. “An auxiliary makeshift employed by the logical economists as a limiting notion”6 can produce rather disastrous results when it is misemployed.
The preoccupation with equilibrium ultimately stems from a confusion between subject and object, between the mind of the observer and the minds of the actors observed. There can, of course, be no systematic science without a coherent frame of reference, but we can hardly expect to find such coherence as our frame of reference requires ready-made for us in the situations we observe. It is, on the contrary, our task to produce it by analytical effort. There are, in the social sciences, many situations which are interesting to us precisely because the human actions in them are inconsistent with each other, and in which coherence, if at all, is ultimately produced by the interplay of mind on mind. The present paper is devoted to the study of one such situation. We have endeavored to show that a social phenomenon of some importance can be understood if presented in terms of a process reflecting the interplay of mind on mind, but not otherwise. The model-builders, econometric and otherwise, naturally have to avoid such themes.
It is very much to be hoped that economists in the future will show themselves less inclined than they have been in the past to look for ready-made, but spurious, coherence, and that they will take a greater interest in the variety of ways in which the human mind in action produces coherence out of an initially incoherent situation.

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Gold and Silver

Gold and Silver (via http://www.economicnoise.com)

As everything gets crushed, it is natural to get out of Mr. Market’s destructive path. Although there will be all sorts of conflicting advice and recommendations, standing aside for a while appears to be prudent. That doesn’t necessarily mean leaving completely markets of interest, but reducing…

Gold, Central Banks and The Force of Arms

Gold, Central Banks and The Force of Arms (via http://www.economicnoise.com)

Gold has been a disappointment of late. Perhaps too much was expected from the precious metal. It is up 11 consecutive years, averaging double-digit gains per year. Recent performance, however, has not been good. Gold touched $1,900 in the third quarter of 2011 and currently sells below $1600. Kitco…

Confidence is A Con Man’s First Name And Government’s Last Scam

Confidence is A Con Man’s First Name And Government’s Last Scam (via http://www.economicnoise.com)

Confidence is important in economics. People spend and invest more when they are confident, a fact which should be obvious. Correlation and causation are not the same. To illustrate, let’s use an example. A rooster crows at the crack of dawn. The crowing and sunrise are correlated because they occur…

The Deflation-Inflation Alternate Routes to Depression

The Deflation-Inflation Alternate Routes to Depression (via http://www.economicnoise.com)

The coming economic collapse (Depression) is inevitable but the route taken to this ending is uncertain. The road has parallel routes: Deflationary Collapse Hyperinflationary Collapse Which route is taken depends upon government. In our highly regulated and manipulated economy, economics is important…

The End Is Near

The End Is Near (via http://www.economicnoise.com)

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Rooster Economics

Rooster Economics (via http://www.economicnoise.com)

Pretending that economic health can be returned to an economy via printing more money is a scam used over and over by governments. It does nothing to repair the problems in an economy although may jack up GDP numbers temporarily. Expanding the money supply was a handy scam for central bankers and politicians…

The Bernank’s Plan

The Bernank’s Plan (via http://www.economicnoise.com)

The charade that is represented by world governments is becoming more strained by the day. Ben Bernanke’s decision to do nothing was ridiculous. Not in the sense that he can affect outcomes in any way shape or form, but in the sense that he can prolong the agony that the economy must endure. According…

Bernanke Dutifully (or Ignorantly) Attacks Gold

Bernanke Dutifully (or Ignorantly) Attacks Gold (via http://www.economicnoise.com)

Ben Bernanke spoke out against gold this week. According to Joe Wiesenthal he destroyed the idea of gold returning as a form of money or primary part of a monetary regime:

Ben Bernanke just gave the first lecture of his 4-part series on the origins of the Fed.

… one thing really stood out …

He spent a lot of time talking about the gold standard, and he just murdered it.

Mr. Bernanke’s position should surprise no one who has studied the role of the Federal Reserve. If money were backed by gold, the Federal Reserve would become just another, unimportant Federal agency. Gold would obsolete Mr. Bernanke and his agency. It would also change government, at least as we have known it for the last four decades. Three things that would not have happened had gold remained a part of the monetary system:

1. Government could not have continuously run the massive deficits that threaten to bankrupt the nation.
2. Government would be much smaller and less intrusive.
3. The current financial crisis could not have developed.

Gold is not a perfect solution. It has positives and negatives in terms of playing a role in the monetary system. Clearly, it introduces some inefficiencies as pointed out by Mr. Bernanke and described by Mr. Wiesenthal:

To have a gold standard, you have to go dig up gold in South Africa and put it in a basement in New York. It’s nonsensical.

When discussed in this fashion, gold does appear rather nonsensical. However when the alternative is putting the political class in charge of the value of money, a gold standard appears sensible in spite of this “inconvenience.” In support of that point are the three points enumerated above and an important fourth point: since the Federal Reserve took over management of the currency, the dollar has lost 96% of its value. Most of that loss has occurred since 1971 when gold was fully removed from any constraints against political monetary debauchery.

An entirely different perspective on Mr. Bernanke and gold was provided by Mish (Mike Shedlock). Rather than making the case against gold, Mish argues that Bernanke slandered it and in the process revealed a lot about himself. According to Mish, gold was not the problem but these elements were:

All of the problems allegedly caused by the gold standard are in fact properly attributed to one of the following four things:

1. Central banks and their inept Soviet-style central planning
2. Fractional reserve lending
3. Fed manipulation of interest rates
4. Government sponsored monetary printing, frequently but not always to fight absurd wars that have no justified explanation. The War in Vietnam and the War in Iraq are recent examples.

Gold is to the State as sunlight was to Dracula. Gold is the State’s biggest enemy. If it were to become a meaningful part of the monetary system, government as we know it today would cease to exist. States would be forced to shrink back to the duties for which they were originally intended. The political class has no intention of allowing that to happen. That is why allowing gold to regain credibility must not be allowed.

As an agent of the State, Mr. Bernanke cannot afford to be truthful about the role of gold and its necessity as a political constraint. His predecessor, Mr. Greenspan proved that when you enter the employ of the Devil you leave your principles at the door. We know what Mr. Greenspan believed prior to his role as Fed Chairman.

In 1966 in an article entitled Gold and Economic Freedom Greenspan explained Statists antagonism toward gold:

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

Mr. Greenspan concluded (my emboldening):

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

I am unaware of Mr. Bernanke’s prior beliefs, but suspect they were not too different from those of the pre-political Greenspan. To assume Bernanke did not understand gold as a constraint against political exploitation is to question his intelligence. To assume otherwise is not flattering either, for it is to question his principles. As an aside, these two possibilities are hardly mutually exclusive.

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Gold Bubble? I Think Not.

Gold Bubble? I Think Not. (via http://www.economicnoise.com)

Because gold has risen rather spectacularly over the last ten years, many claim that it has become a bubble. This claim is usually made solely on the basis that the price has risen, rather than any economic argument. Few, if any, of those making the claim correctly identified any other bubbles of the…

Gold Rising or Gold To Fall?

Gold Rising or Gold To Fall? (via http://www.economicnoise.com)

Is this the time to acquire gold? Or is this the time to run away from it? Either answer could be correct, depending upon what course government chooses. Government is at a decision point, one that will determine how our economic malaise next turns. It has two choices: Fight deflation by increasing…

Friedman on Redistribution

Common Sense Video — Friedman on Redistribution (via http://www.economicnoise.com)

Milton Friedman responds to the redistribution issue:

The Quiet Depression, So Far

Common Sense Video — The Quiet Depression, So Far (via http://www.economicnoise.com)

This conversation between Gordon T. Long and John Rubino is an important listen. It deals with our declining standard of living which is expected to get worse. We are early into this economic decline and, as the old saying goes, “you ain’t seen nothing yet!” Thank the political class (and their…

Walter Williams on Role of Government

Common Sense Video — Walter Williams on Role of Government (via http://www.economicnoise.com)

Reagan on Government

Common Sense Video — Reagan on Government (via http://www.economicnoise.com)

They said he was dumb. That was their only defense against his logic. Now he is being proved correct as shown in this video. Isn’t this video a nice prelude to the DNC? Aren’t you proud of the Democrats?

The Federal Reserve Is Destroying What Is Left Of The Country

The Federal Reserve Is Destroying What Is Left Of The Country (via http://www.economicnoise.com)

Economics is little more than common sense, unless you are a politician or an economist employed by government. Those economists who do go into the employ of government seem to be educated beyond their level of competence. Or, perhaps they are prostitutes willing to do or say anything for the pay,…

Common Sense Video — John Stossel on Freeloading

Common Sense Video — John Stossel on Freeloading (via http://www.economicnoise.com)

Another example of the entitlement society that appears to have taken over every aspect of American life:

Why Obamanomics Did Not Improve The Economy

Why Obamanomics Did Not Improve The Economy (via http://www.economicnoise.com)

Almost three years ago, I argued that Obamanomics, President Obama’s version of economics, would fail and explained why. In reviewing Why Obamanomics Will Not Improve The Economy, I found it as relevant in hindsight as it was when it was first written. For the many new readers to this site, I hope…

The Non-Politically Correct Economic Report Card on The Recovery

The Non-Politically Correct Economic Report Card on The Recovery (via http://www.economicnoise.com)

All politicians treat the truth the way Dracula reacted to a Cross. They are threatened by it. They run away from it. The prelude to an election is especially difficult for anyone seeking the truth. Politicians from both sides assault, distort and manipulate it beyond recognition. Media rarely calls…

Why This Depression Will Be Known As The Greatest Depression

Why This Depression Will Be Known As The Greatest Depression (via http://www.economicnoise.com)

Probably the last thing regular readers of this website need is additional evidence supporting the coming governmental and economic collapse. I apologize for yet another article on this topic, but newer readers need to understand what is coming and do what they can to protect themselves. Government…

Economists — What Good Are They?

Economists — What Good Are They? (via http://www.economicnoise.com)

Economists, as a group, are mostly useless. That was not always the case, although it has been so for much of the last fifty years. Captured by “physics envy,” economists sit in the halls of academe trying to impress one another with increasingly useless and arcane studies. This intellectual masturbation…

Welfare States R.I.P.

Welfare States R.I.P. (via http://www.economicnoise.com)

This post appeared over two years ago, but remains relevant today. Bloggers post what they claim to be the “scariest economic chart” or the ”chart of the century.” Indeed, many data sets are frightening, but none more so than the one to the left. Modern government has failed. These countries…

Neither Keynes Nor Marx Understands This Economic Problem

Neither Keynes Nor Marx Understands This Economic Problem (via http://www.economicnoise.com)

  One doesn’t usually expect to get relevant information from a website entitled “World Socialist Web Site.”  But sometimes truth penetrates agendas. Such appears to be the case in the following article by Nick Beams. The author, not beholden to the mainstream State-supporting media, provides…

Western Democracies Are In Collapse

Western Democracies Are In Collapse (via http://www.economicnoise.com)

Most people cannot conceive of an economic collapse. Normalcy bias is common and distorts expectations, especially in areas outside of personal expertise. If it didn’t happen yesterday or last month or in their lifetime, then many people consider the outcome “impossible.” Those who can conceive…

Our Highway To Hell

Our Highway To Hell (via http://www.economicnoise.com)

The Role of The Government in The Economic Crisis At this point, everything the government is doing – and not just the US government but governments everywhere − is not only the wrong thing but exactly the opposite of the right thing. They’re passing more laws, raising taxes, creating more currency…

Bernanke Continues to Pretend He Has Control

Bernanke Continues to Pretend He Has Control (via http://www.economicnoise.com)

QE (quantitative easing), whether it be QE1 or QE10, is a euphemism. It represents the expansion of the money supply (printing money). An expansion of the money supply is inflation. Rising prices are not inflation, they are an effect of inflation. The disease is printing money (or QE if you want to…

All Economic Interventions Make Us Poorer

All Economic Interventions Make Us Poorer (via http://www.economicnoise.com)

Every government intervention is an attempt to thwart the freedom of the marketplace. Markets are nothing more than willing buyers and sellers agreeing to what the consider fair. These voluntary transactions benefit both buyer and seller or they would not take place. When government intervenes to impose…

Ponzi Scheme Government

Ponzi Scheme Government (via http://www.economicnoise.com)

It is interesting to go back and look at thoughts and interpretations of events from the past. Sometimes it is embarrassing. This post from almost three years ago, seems rather accurate in light of subsequent developments. The Ponzi Scheme that government had become only continued, as expected. At…

When will America Collapse? .....answers from Jim Rogers, Marc Faber

http://www.economicnoise.com/2012/09/19/common-sense-video-the-coming-collapse/

http://www.economicnoise.com/2012/09/20/common-sense-video-why-an-economic-collapse-cannot-be-avoided/

Greed - Thomas Sowell

http://www.economicnoise.com/2012/09/19/logic-is-harmful/

Redistribution - Monty Perlin

Redistribution (via http://www.economicnoise.com)

Author: Tom Lester People seem to go ape with an announcement of anything free.  They will often stand in line for hours to get some bobble-head or trinket.  This malady seems to affect most of us and, I admit, free airline miles are my weakness, the means of visiting children and grandchildren too…

Bernanke’s QE Makes Matters Worse

Bernanke’s QE Makes Matters Worse (via http://www.economicnoise.com)

The euphoria initially expressed by markets to unending Quantitative Easing (money printing) may be playing out. The last couple of days were mediocre in terms of stock market performance. For investors, it is a difficult time. Do you play for the inflation-induced bounce in stocks? That is the likely…

For the country, nothing good can come of Bernanke’s latest attempt to kick the can down the road. The problem is caused by overlarge government that is unable to fund itself. This problem is beyond the Fed’s responsibility and one that the Fed cannot solve. All Bernanke has done is enable the political miscreants to continue behaving badly. He has provided them with another hit of heroin when “cold turkey” is the only treatment to which they and the economy will respond.

Tyler Durden discusses the issue and provides some video:

On Santelli’s Queasiness About Bernanke’s Quantitative-Easiness

Submitted by Tyler Durden on 09/21/2012 12:58 -0400

Between CNBC’s Rick Santelli and PIMCO’s Mohammed El-Erian, this brief clip succinctly sums up the ‘less than ideal’ reality of Bernanke’s all-in bet and how the world is trying to ‘trade’ it. Santelli analogizes: “Visualize the biggest fire hose in the world, 20 miles away from a little Geranium plant? Now this hose is going and going and going, and ultimately, that Geranium plant gets a little bit of water but everything around it and leading up to it for miles around is just underwater. That’s QE, in my opinion.” To which El-Erian retorts: “at what point do you tell investors stop focusing on the benefits and make the collateral damage the investment theme?” It seems, given gold’s outperformance, that this is exactly what is occurring as the hose-pipe’s flood spills out everywhere.

 The discussion ensues, with Santelli noting that the Fed-heads (especially Charles Evans) have admitted QE is not ‘ideal’ but ‘We’ve got to do something!!”

From currency manipulators, to China’s problems, to our iGadget obsession, and the destruction of future generation’s wealth – epic rant!

http://www.economicnoise.com (http://s.tt/1oaG9)

Freedom and Economic Performance - Monty Pelerin

Freedom and Economic Performance (via http://www.economicnoise.com)

The rise and fall of countries has everything to do with the industriousness of its people. Wealth is created only by the productive sector, not by government. Governments grow large and powerful only by exploiting the wealth creation of the productive sector. Large and powerful governments are generally…

http://www.economicnoise.com (http://s.tt/1p7QQ)

Why The Economy Is Not Recovering - Monty Pelerin's World

Why The Economy Is Not Recovering (via http://www.economicnoise.com)

That this economy is not recovering in a normal fashion is not in dispute. Why it is not, is. Some believe that government hasn’t done enough in the way of stimulus. These “Krugmanites” have an obsession with the belief that the economy must be managed and that some central planning agency must…

But what if government were the problem instead of the answer? There are an increasing number of observers who believe that may be the case. History favors this latter position. The belief is not new, held by the Austrian School of Economics for about a century and their predecessors, the Spanish Scholastics, of the 15th Century.
http://www.economicnoise.com (http://s.tt/1oaED)

History is not and never was on the side of central planning and intervention. Yet that is what we have because politicians override economists. In order to work for government as an economist, you must parrot the big government line. Unfortunately the same cancer kills employees in other fields like the environment, global warming, etc.

We have reached a point where even the dullest of the political class understands it cannot improve matters. Torn between the desire for increased power and a dying economy, politicians are helpless. Even those who see the need to abandon the Keynesian paradigm are unable to do so and remain in office.

Voters have been brainwashed into believing that government was responsible for their economic success. Politicians always take credit for good things. Now they are cornered. Having convinced people that government is responsible for the economy, it must be government’s fault that the economy has faltered. In a very real sense, that is true — just not in the sense that politicians have convinced voters. As a result, no politician can advocate the proper economic policy — leave the economy alone . Given the brainwashing of voters over the years, anyone who advocated such a position would be voted out of office.

Quite simply, government is not the answer. Government is the problem. Thomas Sowell provides his answer:

The Obama party line is that all the bad things are due to what he inherited from Bush, and the few signs of recovery are due to Obama’s policies beginning to pay off. But, if the economy has been rebounding on its own for more than 150 years, the question is why it has been so slow to recover under the Obama administration.

The endless proliferation of anti-business interventions by government, and the sight of more of the same coming over the horizon from Barack Obama’s appointees in the federal bureaucracies, creates the one thing that has long stifled economic activity in countries around the world — uncertainty about what the rules of the game are, and the unpredictability of how specifically those rules will continue to change in a hostile political environment.

Economies are self-correcting when left alone. Government attempts to remedy an economy always make matters worse, by delaying the correction and by embedding price and allocation distortions into an economy. These distortions are responsible for the next downturn.

http://www.economicnoise.com (http://s.tt/1oaED)
http://www.economicnoise.com (http://s.tt/1oaED)

http://www.economicnoise.com (http://s.tt/1oaED)