State of Innovation

Patents and Innovation Economics

Bitcoin: One of the Greatest Economic Experiments of All Time

Whether you love or hate Bitcoin and cryptocurrencies you have to admit that it is one of the greatest economic experiments of all time.[1]  It is very rare in economics to have a well-defined and controlled experiment.  I learned about this experiment in a decentralized private currency with a limited supply by 2012.  At the time it was not clear if this experiment would ever really get off the ground.  Bitcoin was valued at about $13, with a market capitalization around $15 million.  In addition, it was difficult to buy and sell Bitcoins.  Despite this I had conversations with people about the questions Bitcoin posed, particularly about the nature of money.  There had been other cryptocurrencies before Bitcoin and when they got traction governments shut them down.

Now it is clear that Bitcoin, cryptocurrencies, and the underlying technology (decentralized, trustless, blockchains) are here to stay.  A single Bitcoin is valued at over $6,300.00 and the total market capitalization of cryptocurrencies is around $181 billion.  This is small compared to the FOREX market, but too large to ignore, which means the economic experiments will be played out.  Here are just some of the questions posed by this experiment.

 

1) What is money?

Bitcoin and most cryptocurrencies do not actually have a physical or even computer coin or token.  They are in fact just ledgers where the “coin” is the unit of value.  The ledgers show who paid whom what and a positive account shows that you have provided value and are owed (or at least hope to) obtain value from the community in the future.  If Bitcoin is successful it will show that money is not a thing, it is really just an accounting system that is it is just information.

It will also show that money is technology.  Andreas Antonopoulos points out that the last real upgrade to that technology was the credit card, introduced by Dinner’s Club in 1950.

2) Does Money Have Inherent Value?

Or stated another way does money need to have an inherent value?  Bitcoin does not have inherent value and in fact nothing has inherent value.  For something to have value means it has to have value to someone.  Value cannot be separated from the valuer.  The only things that even come close to having inherent value to humans are food, water, and air.  If Bitcoin succeeds it should settle the question of inherent value.

3) Do We Need Legal Tender Laws for Money to Work?

Most people seem to assume that money must be backed by a government or it will not work.  Legal tender laws are laws that state you must accept the legal tender as settlement for any debts public or private.  Of course, there are many examples in history where people used gold and silver as money that was not endorsed or backed by any government.  The United States did not have any legal tender laws from the Constitution until the Civil War.  If Bitcoin succeeds then it will be clear that money can be private, i.e., not backed by a government and legal tender laws.  If you want to know more about legal tender laws in the U.S. see Money and Banking.

4) Is a Low Rate of Inflation Good for the Economy?

The Federal Reserve and most central banks argue that a little inflation is good for the economy.  We are warned that without inflation we might fall into deflation, which caused the Great Depression.  In the United States the target inflation rate is 2% per year, which means the purchasing power of a dollar today would be ¼ of what it will be in 70 years later.  Even Milton Friedman argued that the money supply should grow at the same rate as the economy.  According to Friedman this would keep the value of the dollar stable.  This means if the economy grows at 3% per year then according to Friedman the money supply would grow at 3% per year.  One question Friedman does not answer is who benefits from this growth in the money supply?  The answer is the Federal Reserve and the U.S. government, essentially get 3% of the value of the economy in this example for doing nothing.  Also note that the U.S. was in a deflationary period in the 1880s and 1890s and it was a time of extraordinary economic and technological growth.

Bitcoin has an inflation rate (supply increase) that is used to pay the miners during the start-up years.  Presently the supply increase is about 4% per year.  In order to convert this into an inflation rate the way the term is commonly used in the United States, we would have to subtract out the growth rate of the economy.  The expected growth rate of the U.S. economy this year is 2.7%.  Thus the inflation rate for Bitcoin is 1.3%, which is less than the Federal Reserve’s target rate.  Also Bitcoin’s inflation rate slows down overtime and the total number of Bitcoins that can ever be produced is 21 million.

If Bitcoin succeeds, we will see whether a little inflation is good for the economy.  We will also see if private citizens prefer to hold a devaluing currency or value increasing currency.

5) Do We Need Central Banks?

Central Banks are a fairly recent phenomenon.  The United States did not have a central bank until the creation of the Federal Reserve in 1913.  The U.S. did have national banks, but these were not central banks.  A central bank has control over the currency of a nation and through convoluted processes creates and destroys money to “manage” the economy and to fund the government.  For more see How Central Banks Create Inflation.  The record of the Federal Reserve of “managing” the economy is very checkered including the Great Depression, the inflation and high unemployment of the 1970s, and losing 95% to 97% of the purchasing power of the dollar during its existence.

If Bitcoin succeeds, it will end the power of or at least significantly diminish the power of central banks.  We will then see if a central bank is necessary to create prosperity and smooth out the ups and downs of the economy.

6) Do We Need Securities Regulations – the SEC in the U.S.?

Securities like stocks and bonds were mainly regulated by common law fraud and contract law until the 1920s in the United States.  The justification for securities regulations have always been to protect investors.  There have been a number of studies on point and not one of them has shown that investors have done better because of securities laws and some have shown they do worse.

Bitcoin’s technology has the potential to create stocks, bonds and other securities.  However, it is not as clear that these can escape the regulatory rules in the way that Bitcoin can.  Already we have seen crypto-assets created that bypass both Venture Capitalists, Wall Street, and securities regulations.  Before the creation of the SEC in the United States in the 1930s this was quite common.

If Bitcoin’s technology can escape securities regulations, we will see if securities regulations help investors or if they just entrench large Wall Street banks.

7) Is a Financial Sector that Takes Up 20% of the GDP Good for the Economy?

Cash is almost dead in most modern economies, which means we pay for goods and services with credit or debit cards.  This “convenience” costs at least 3% of the transaction price assuming the bill is paid immediately.  It also puts the banks and government in between almost every transaction.  Securities regulations and banking regulations are so complicated that people are forced to use financial intermediararies for almost any financial transaction.  In 1947 the financial sector was only 10% of the United States GDP.  Finance does not create wealth, it just greases the wheels of transactions.  For instance, money is just a way for one person to sell their “time” and buy goods.

Bitcoin and Bitcoin’s underlying technology if they succeed may significantly shrink the financial sector.  For instance, by allowing everyone to be their own bank or credit card company or loan originator the fees to the financial sector will be severely undercut.  If Bitcoin succeeds we will see if the large financial sector was creating wealth or consuming it.

8) Do We Need Income Taxes?

Bitcoin has the potential to severely undermine income taxes and capital controls.  Do people think they get value for their income taxes?  Are income taxes a method of raising revenue or a system for punishing the politically un-connected or unpopular?

9) Can Bitcoin Decentralize the Internet?

The Internet was built on a series of decentralized technologies.  Because of the inefficiencies of our financial sector, the only way to monetize the Internet was with centralized systems like Google, eBay, Youtube, Amazon, etc.  Efficient micropayments that can be implemented using Bitcoin technology have been postulated as a way to decentralize the Internet and return it to its origins.  Only time will tell.

10) Do We Need the NSA to Protect Us?

The technology behind Bitcoin has the potential to store and transfer information that is not trackable and cannot be hacked.  These systems are just being developed.  If they are successful, we will find out if the NSA was just a boondoggle or if it was truly protecting us, not the government.

 

 

[1] Unless you are an Austrian Economist and then you do not think experiments and therefore observation are relevant to economics, which means you are not doing science.

Advertisements

October 31, 2017 Posted by | -Economics, -History | , , , , | 1 Comment

Ayn Rand Was Wrong

Rand in The Virtue of Selfishness states that a breach of contract is the use of force, like fraud is an indirect use of force.

A unilateral breach of contract involves an indirect use of physical force: it consists, in essence, of one man receiving the material values, goods or services of another, then refusing to pay for them and thus keeping them by force (by mere physical possession), not by right—i.e., keeping them without the consent of the owner.  Fraud involves a similarly indirect use of force: it consists of obtaining material values without their owner’s consent, under false pretenses or false promises.

“The Nature of Government,” The Virtue of Selfishness, 111

This is incorrect and to the extent Objectivists accept this they hurt themselves and their psyche.  A simple example will illustrate the flaw in the above statement.  Assume a musician contracts to play at a venue a month from now.  Then the day before the concert he is killed in a car accident.  The musician certainly cannot fulfill the contract, so he is in breach of the contract and it was unilateral.  The venue and promoter will certainly lose money because of this.  Should the promoter be able to sue for breach of contract and recover damages?

A contract is a legally enforceable promise.  In any immediate contract, such as buying food, contract law is boils down to fraud protection.  It ensures that the purchaser does not take the goods and not pay for them or that the merchant does not take the money and not hand over the goods.  For immediate contracts Rand’s statement above is true.

Long term contracts that are carried out over several days to several years can easily have extenuating circumstances that mean a breach is not an indirect use of force.  Remember a contract is a legally enforceable promise.  This promise cannot take every circumstance into account.  One way lawyers try to account for unforeseeable circumstances in a contract is by inserting an “act of god clause”, also known as a force majeure clause.  When these clauses are used in insurance contracts they lead to a contradiction.  The whole purpose of insurance is to protect against unforeseen events.  They are bad clauses in any contract because they are inherently vague and subject to widely varying interpretations.

When a contract is in dispute the role of the court is to discern what the parties intended.  If the parties did not take something into account, such as the musician dying in a car accident, then the court has to decide what the parties would have done if they had thought about the issue.  In the case of the musician, the “breach” was not intentional.  I doubt that the intention of the parties was to hold the musician financially responsible if he dies in a car accident the day before the concert.  Lawyers can try to anticipate every circumstance but this leads to long unread contracts, where the parties really did not agree to obscure clauses.  It also leads to what is called the battle of the forms, where each party tries to get the other party to agree to their form just as the deal is closed.  Clauses that are not discussed or agreed to explicitly defeat the real intention of contracts and should be viewed with skepticism by courts.

Government imposed clauses, such as the Uniform Commercial Codes’ (UCC) implied warranty of merchantability should never be allowed.  The implied warrant of merchantability “is a warranty implied by law that if a seller knows or has reason to know of a particular purpose for which some item is being purchased by the buyer, the seller is guaranteeing that the item is fit for that particular purpose.”[1]  There is no need for the implied warrant of merchantability if that was intended by the parties and if it was not the intention then it should not be enforceable.  This “implied warranty of merchantability is why software was licensed and not sold.  Software could not meet the implied warrant to merchantability in its early days.  This lead to a number of other problems that still afflict us in the software space and is an example of the unintended problems that occur when the law is stretch outside of its logical framework.[2]  Note that a contract to commit a tort (crime) is not and should not be enforceable.

Long term contracts, such as thirty of even forty year mortgages, are fraught with unforeseeable circumstances.  We cannot know the future that well.  In cases like these even intentional breaches are not necessarily the use of indirect force.  Many long term contracts have termination clauses to account for this and to an extent invoking the termination clause is not a breach.  However, most termination clauses have a part that covers a breach and how it is handled.  For instance, a long term contract to supply say gas to a business on the first of the month, might be breached if the supplier’s truck(s) is broken down on the first of the month.  Technically the supplier is in breach of the contract.  Most termination clauses will allow the breaching party to cure the breach within a period of time.

What if the supplier’s wife is murder and he becomes depressed and chooses not to deliver gas anymore.  The supplier is intentionally breaching the contract, but has he used indirect force against the customer?  Most likely the customer has not paid for the gas yet or has only paid for one month in advance.  A contract cannot be used to turn someone into a slave.  Because of this, all long term contracts have an implied termination clause.  It is also why we have bankruptcy laws.  It is also important to note that you do not have right to a risk free life and law cannot and should not be used to remedy every small harm that happens to people.

Mortgages are an interesting long term contract and of course in the news after the financial crisis in the U.S. in 2008.  People have the mistaken impression that a mortgage is like a personal loan between friends.  The bank does not give the house buyer money out of its coffers, it creates the money.  The bank collateralizes the house, much like a bond issuer creates the bonds “out of thin air”.  The bank takes legal title to the house either directly or indirectly as security that the loan will be paid back.  If the “home owner” cannot or does not pay the mortgage the bank asserts its legal ownership of the house and sells the house to extinguish the money created in the mortgage contract.  Note I did not say pay back the mortgage.  The money is literally destroyed, just like a bond that has been paid off no longer exists.  If the home owner purposely breaches the mortgage, did they use indirect force?  One answer is no because the mortgage contract implicitly includes a termination clause that the bank takes legal control of the house if the mortgage is not paid.  In other words the bank made a deal that if you payoff the mortgage you get legal control of the house and if not the bank gets or keeps legal control of the house.

So how should we think about long term contracts?  First of all we should understand that all long term contracts have an implied termination clause.  Second, we need to remember that contracts cannot be used to turn people into slaves.  Third, we should remember that contracts are an agreement between two parties.  As long as the parties are getting along there is no reason for the government to be involved even if the parties are not following the contract.  The main reason for most long term contracts is to provide a roadmap of how the two parties are going to do business together.  As a result, courts should be skeptical of clauses in contracts that were not discussed.  Not doing so turns contracts into a lawyers game of gotcha and does not fulfill the purpose of contracts.  Most long term contracts are used by the parties to show their intention at the time the deal was made.  This usually comes up when one of the parties is unhappy.  A good contract should help resolve these issues.  In fact, that is the most important purpose of a long term contract.   However, sometimes the issues between the two parties are too great to be resolved.  In that case the termination clause, whether implicit or explicit, should kick in.  If the termination is too burdensome then bankruptcy laws should kick in.  Both parties should be aware of this possibility.

Except for immediate contracts Rand’s statement that unilateral breach of a contract is an indirect use of force is incorrect.  This just proves that Rand was human and not an expert in law.

Libertarians make the mistake of trying to base property law on contracts, when it is the other way around.  Contract law presumes that both parties own themselves (have legal control over their actions) and often presumes that one or both of the parties have property rights in something.  But libertarians like Rothbard try to turn things around and create property rights out of contracts.[3]  Reversing cause and effect leads to all sorts of problems.  However this mistake by libertarians is based in the fact that they do not understand property rights.  In fact, libertarians do not “believe” in property RIGHTS they believe in property privileges that solve the economic problem of scarcity.

A proper understanding of property rights and contracts is essential for a free society to exist.  Contracts presume property rights and ownership of one’s self.  Long term contracts cannot be used to turn people into slaves or to commit a tort.  Objectivists hurt themselves when they treat contracts like Christians treat the Ten Commandments.

[1] https://en.wikipedia.org/wiki/Implied_warranty, accessed 10/1/17.

[2] This is related to the legal saying that “hard cases make bad law”.  https://en.wikipedia.org/wiki/Hard_cases_make_bad_law

[3] https://www.libertarianism.org/columns/libertarian-views-intellectual-property-rothbard-tucker-spooner-rand, accessed 10/8/17.

October 8, 2017 Posted by | -Legal, Legal Philosophy | , , , | 2 Comments

“Bitcoin is Evil”

This is the title of a Paul Krugman New York Times blog article from 2013.  Krugman writes for the New York Times and is a Nobel prize winner in economics.  He soft pedals his complaints about Bitcoin, but high on his list are that Bitcoin could undermine the ability of the Federal Reserve (and U.S. Treasury) to manipulate the money supply to “manage” the economy.  Not surprisingly, many Libertarians like Bitcoin for exactly the same reasons Krugman hates it.  However, not all libertarians and Austrian Economists like Bitcoin.  For instance, Peter Schiff is no fan of Bitcoin, he thinks “Bitcoin Is A Speculative Frenzy.”

Bitcoin is commonly described as a digital currency.  But what does that mean?  The US dollar and the currencies of all major economies are also digital currencies, at least in the sense that most US dollars are just digital entries.  As I showed in the article “What is Money”, money is just an accounting entry (computer entry) and a generalized I Owe You.  Bitcoin however is not a government created or backed currency and the total number of Bitcoins that can ever exist is mathematically limited to around 21 million.  On the other hand nothing stops the United States (or other governments) from creating an unlimited number of dollars.

There have been other attempts to create private digital money, however most of them suffered from being centralized.  When digital currencies have a central location, such as a central server, they become targets for hackers and governments.

Satoshi Nakamoto published a paper laying out the Bitcoin technology in 2008 and released open source software to implement Bitcoin in 2009.  Nakamoto’s paper lays out a peer-to-peer or decentralized digital ledger, meaning there is no central point of failure or place to attack.  The technology is not really about coins so much as it is about a public accounting ledger that keeps track of all these Bitcoin IOUs.  In Bitcoin the transactions are encrypted, but more importantly new transactions are linked to the earlier transaction and the ledger is encrypted. This is called block chain technology.  Bitcoin has never been hacked.  Some exchanges that trade Bitcoin have been hacked, but not Bitcoin.  If you want to understand the underlying technology better see “How Bitcoin Works.”  One of the interesting facts about Bitcoin is that no one knows who Satoshi Nakamoto is to this day, despite efforts to find him.

A number of complaints have been raised against Bitcoin.  Perhaps the most prevalent is that Bitcoin has no inherent value.  In my article “What is Money”, I show that no currency has inherent value.  However what people mean by this statement is that Bitcoin is not backed by some physical asset.  Of course this is true of almost all government currencies today.  Many gold bugs have been critical of Bitcoin, arguing that is speculative and that gold has real value.  However, almost no one has a real use for gold and you cannot eat or drink gold.  The gold is just a way to have a claim on future goods and services that many people recognize.

Many Bitcoin advocates call Bitcoin “digital gold”.  Gold advocates will point out that Bitcoin has been around less than a decade and people have been using gold as currency for at least three millennia.  It is interesting to compare and contrast Bitcoin with gold.  Bitcoin’s total quantity is limited mathematically.  Gold is limited and very hard and expensive to mine.  Gold is durable.  Bitcoin’s peer to peer network is likely to be as durable as the Internet.  Gold is easily divisible.  Bitcoin can be divided down to eight decimals.  Bitcoin transactions can be fairly anonymous and this is true of gold transactions in person, but not of international transactions.  There are advantages and disadvantages to both.

Gold bugs have been telling us at least since 2009 that gold and silver are going to appreciate because of the inflation created by central banks.  However gold prices are essentially the same today as they were in 2009.  This is not because there has been no inflation in the United States for instance.  Some people claim there has been central bank manipulation of the gold market or other conspiracy theories.  I believe a close look at gold production explains why this is occurring.

Chart from https://www.goldbroker.com/news/above-ground-gold-stock-how-much-is-there-why-does-matter-546

From this chart we can see that the total amount of gold mined is increasing over time.  This is most likely because new mining technology has made it less expensive and faster to mine gold.  The result is that gold prices have been held in check by this ready supply of new gold.

As opposed to gold’s increasing production over time, Bitcoin’s production of coins is declining over time as the chart below shows.

Chart from https://bitcoin.stackexchange.com/questions/161/how-many-bitcoins-will-there-eventually-be

 

From these charts I think it is clear why Bitcoin is going up in price and gold is holding steady.  Of course competitive crypto-currencies can and are being created.  Not all of these other so-called crypto-currencies have the same goals as Bitcoin.  Many use the same basic technology, called “block chain” technology, to issue coins that act like a stock or a bond.  Other coins are designed to store and record information securely, such as property deeds, votes, medical records, or other ledgers.  Still other coins are designed to create digital contracts.  Perhaps the easiest way to understand this is to think of them as a digital escrow.

Recently there have been a number of companies that are using this block chain technology to secure computer files.  If you store your files using this technology, your files are inherently backed up all over the internet, can be reached all over the internet, and your information is stored more securely than previous encryption techniques.

Many block chain enthusiasts think that this technology is in its infancy and that it will have a huge impact on the economy.  They make an analogy to the Internet in say 1993.  Libertarians argue that Bitcoin has the potential to undermine all fiat currencies and end central banks.  Some people fear that if this happens that the valuable function that banks perform in aggregating loans and freeing up capital will be lost.  These people are mistaken.  There are many ways that Bitcoin or related coins can fulfill this function.  One of the easiest is to have a debt coin (often alternate coins like this are called colored coins) that represents a portion of a mortgage (group of mortgages) or a car loan(s).  The debt coin is issued in exchange for Bitcoins to buy a house and the market decides whether people want to fund this loan.  When the loan is paid back the debt coin ceases to exist, just like a bond that has been paid off.  If the debt holder(s) are paying on time, these debt coins can circulate as a currency.  A real life example of this was the Bitfinex BFX token which was used to make customers’ accounts whole when Bitfinex was hacked and some of the Bitcoin they were holding was stolen.  This allows the supply of digital currencies to expand and contract with the assets in the economy.  Bitcoin however is like gold was, it does not expand and contract with the economy.

A number of countries have declared Bitcoin as a legal currency, including Japan and South Korea.  Australia seems likely to follow.  None of these countries have declared Bitcoin legal tender, but their laws will treat Bitcoin as a currency instead of an asset.  This is important because if a country treats Bitcoin as an asset, then you have to calculate a profit or loss on your Bitcoin for every transaction.  This makes it pretty painful to use Bitcoin to buy a cup of coffee or even to pay the rent.

Will Bitcoin live up to the libertarian utopia of killing off fiat currencies and central banks?  Is block chain technology the next disruptive technology wave?  We will have to wait and see

 

 

 

August 22, 2017 Posted by | Uncategorized | , , , | Leave a comment

Procedural Versus Substantive Law: The Constitution

Substantive law can be derived from first principles, while most procedural law cannot.  Procedural law exists to support and protect substantive law.  This means that substantive law is primary and procedural law is secondary.  This is important to understand in debates on laws and the Constitution.  An example of substantive law is the law against murder or property rights.  An example of procedural law is that you are tried in criminal court by a jury of twelve peers or requiring a warrant for police to undertake a search.

Procedural laws are somewhat arbitrary and under common law are often based on historical incidents.  For instance the idea of a trial by a jury of your peers comes from the Magna Carta.  The Magna Carta (1215 CE) was created in reaction to King John’s tyrannical rule.  The idea of being tried by your peers was in reaction to the King or his administration issuing arbitrary rulings.  The ultimate goal was to obtain fair trials where substantive law is correctly applied.  However, we are all aware of jury trials with unjust outcomes. 

Not surprisingly modern statists (both socialists and conservatives) have purposely confused the difference between substantive and procedural law.  One example of this is the idea of “procedural justice”, which in its broadest form is the idea that whether a legal proceeding is “just” is defined by whether the correct procedures were followed.  Under procedural justice, if King John followed the correct procedures then his actions were just.  “Criminal trials at the time took the form of ‘ordeals’ by fire or by water; supervised by the local priest. God was the judge, and he would ensure that the innocent survived — thus, suspects dunked in ponds were declared guilty if they drowned.”[1]  This is the sort of nonsense that procedural justice leads to.

Libertarians have a specific strain of procedural justice, which boils down to the non-aggression principle (NAP).  This concept is associated with Robert Nozick, Murray Rothbard, and Stefan Molyneux.[2]  The non-aggression principle is an attempt to short cut the hard philosophical work of defining rights and laws to protect them.  Here are a couple of examples of the nonsense the NAP leads to.

1) A nomad picks an apple from a tree.  The orchard owner points a gun at the nomad and demands he return the apple.  Who is the aggressor?  I can assure you that the nomad thinks the farmer is the aggressor.  The nomad does not recognize or understand the idea that you have a property right in something you grow.  To him property rights are defined by the first person to acquire something.  Of course, the farmer believes that the nomad is the aggressor.  It is impossible to determine who is the aggressor in the case without a proper definition of property rights, something libertarians have failed to do.  In fact, libertarians and Austrian Economics do not think property Rights exist, just a utilitarian legal clam to things, which they call property.

  1. An environmentalist blows up a libertarian’s SUV. Who is the aggressor?  The environmentalist argues the libertarian is the aggressor because he is putting greenhouse gases into the atmosphere and killing the planet and the environmentalist with it.  The libertarian points to his car and says the environmentalist is the aggressor.  Without reason and science it is impossible to decide who is the aggressor here.  A proper understanding of property rights is also necessary.

The non-aggression principle at best is derived from reason that also properly defines property rights and a rational ethics.  However, the NAP pushers think they can side step this hard work.  Without this foundation the NAP leads to nonsense.

Substantive laws protect people’s natural rights, which are the rights that can be derived from the fact you own yourself using reason (evidence and logic).  Procedural laws are rules that are designed to ensure your natural rights are protected by the government by requiring certain processes.  People often confuse procedural guarantees for rights.  Unfortunately, even the founders’ in the Bill of Rights made this mistake.  The sixth amendment is an example of this, but not the only example.

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the assistance of counsel for his defense.

You do not have a natural right to a trial, that the trial be public or speedy or by a jury.  You cannot create a formal logical argument that requires a speedy, public, jury, trial because you are the owner of your life and yourself.  We all know that speedy trials are not necessarily more accurate or just than slow trails.  The USSR held public trials.  This did not mean that they were not show trials.  In the United States today people are convicted of all sorts of crimes that meet the sixth amendment standards, but are not just because they are based on unjust laws.  For instance, people are convicted of unconstitutional securities laws, or drug laws, or environmental laws.  These trials are not just.

Confusing procedural guarantees with Natural Rights confuses the discussion and undermines our rights.  A procedural guarantee in almost all cases is a government created rule that is not based in strict logic.  If we call these procedural guarantees rights, then we logically open the door to the argument that “Rights” are created by governments.  One procedural (and evidentiary) rule that might be based in reason and Natural Rights is the maxim “innocent until proven guilty”.  However, this maxim is still not a right.  A right defines a moral (and legal) claim to take action without anyone’s consent.  The innocent until proven guilty maxim is not a right to take action.

The United States Constitution is mainly a document about procedural rules, not about protecting our rights.  As a result, we often put too much importance on the Constitution.  I have shown in my post, Property Rights: The Foundation of Freedom, that property rights/laws are much more important in protecting our rights than the Constitution.

When we examine the original Constitution (the Bill of Rights were added three years after the Constitution was ratified) we find it is composed of a preamble and seven Articles.  The first three Articles are directed to setting up the legislative, executive, and judicial branches of the federal government.  Article 4 is about the relationship between the States and the federal government.  It is important to remember that the Constitution did not and was not intended to setup the only or even the supreme government in the United States.  The Constitution setup a federal government to deal with problems that the states could not solve individually or that would cause chaos if each State government took their own different positions, for example foreign relations and war.

Article 5 is about the procedure of adding amendments to the Constitution.  Article 6 is about Prior Debts, National Supremacy, and Oaths of Office.  It is basically a hodgepodge of items that did not fit in the other articles.  Article 7 defines the procedure for ratifying the Constitution.

The high level structure of the Constitution is about procedures not rights.  The first three Articles define the structure of the federal government.  This structure is modeled after the government of the Roman Republic and the English monarchy.  Sorry Christians the United States Constitution is not a Christian document any more than geometry is Greek math.  The Constitution is devoid of any reference to God or the creator or any other reference to religion.  Article 6 does state this however “but no religious Test shall ever be required as a Qualification to any Office or public Trust under the United States.”

Article 1 of the Constitution sets up the legislature and divides it between a Senate and a House.  The Senate is made up of two people from each state picked by the state legislature.  The terms of office are set out for Senators and Representatives, minimum ages, and other procedural rules.  You cannot logically prove that the best government is made of three branches.  Or that the legislature should be divided into two houses, or that requiring a certain age to serve is necessary.  All of these are procedural rules and cannot be derived from our natural rights.  Despite this, it is important to point out when government officials do not follow the Constitution, because those are the rules they are supposed to be bound by.  However, not following many of the rules in the Constitution does not result in a violation of anyone’s Natural Rights.  The goal of government is to protect our individual rights and all this procedural stuff is just to help ensure that.  As the Declaration of Independence states:

All men are created equal, [that] they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men

There is only one right (Natural Right) mentioned in the United States Constitution and it is in Article 1, Section 8, Clause 8:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries

There is a lot of nonsense about the Patent and Copyright clause, including that the preamble (To promote the Progress of Science and useful Arts) is limiting on this RIGHT.  This is the same nonsense used against the 2nd amendment.  Preambles in law are not limiting, they are merely descriptive.  It makes no sense to say you have a right that is limited by some utilitarian criteria.  Article 1, Section 8 also starts with the phrase “The Congress shall have Power to”, which some people have interpreted as making patents and copyrights optional.  Protecting Rights cannot be optional.  The purpose of government is to secure peoples’ right.  The reason the patent and copyright clause is placed in this part of the Constitution is to direct the Congress to pass laws to implement them and to eliminate the States’ patent and copyright laws.  This is clear from the structure of the Constitution and its History and the fact that President Washington was upset with Congress for not passing a patent law sooner.[3]

People claim that other rights are mentioned in the original Constitution, however they are always confusing procedural guarantees with rights.  For instance, some people suggest that the Writ of Habeas Corpus is a right.  Even in the Constitution it is clearly stated that it is a privilege, which is also not quite right it is a procedural guarantee.  The Writ of Habeas Corpus is recourse under the law to determine if a person is being unlawfully detained.

The United States Constitution is mainly concerned with the structure of a federal government and the procedures it operates under.  It is not a guarantor of our individual rights, with the exception of the rights of inventors and authors.

 

Conclusion

Substantive law is based on our Natural Rights, which are derived using reason from the idea that we own ourselves and our life (which clearly includes the right to our own life).  Procedural law is designed to ensure the government protects our Natural Rights.  Procedural law generally cannot be derived from pure logical deduction and is often based in historical experiences.  When procedural law is treated as primary (procedural justice) it leads to all sorts of nonsense.  The United States Constitution is primarily about the structure and procedure of the federal government and is not the main legal protection of our rights.

 

 

[1] Geoffrey Robertson, Magna Carta and jury trial,  https://www.bl.uk/magna-carta/articles/magna-carta-and-jury-trial, accessed July 31, 2017.

[2] Matt Bruenig, The three big conservative philosophical frameworks, http://mattbruenig.com/2011/12/20/the-three-big-conservative-philosophical-frameworks/, accessed July 31, 2017

[3] Randolph J. May  and Seth L. Cooper, Constitutional Foundations of Copyright and Patent in the First Congress,  http://www.freestatefoundation.org/images/Constitutional_Foundations_of_Copyright_and_Patent_in_the_First_Congress_050714.pdf

July 30, 2017 Posted by | Legal Philosophy | , , , | Leave a comment

The Source of Economic Growth: Review

This is an excellent book that cuts through the morass of theories about …

 

This is an excellent book that cuts through the morass of theories about the source of wealth to make an identification that gave me a thrilling “Eureka!” moment, followed by an “Of course! Why didn’t I see that?” which comes with every brilliantly made, clearly expressed discovery. Thank you for clearing the cobwebs on the vital issue on the source of ongoing wealth — the dissemination of your well-supported identifications can make the difference in the quality of life in all nations for all lifetimes to come.

Terry Jean Taylor

 

 

July 3, 2017 Posted by | -Economics, Uncategorized | | Leave a comment

What is Regulation?

This is part of a series of articles exploring what the law would look like under an Objectivist government, one in which natural or individual rights were protected as the Declaration of Independence promised.  Remember the only right that the people give up to the government is delayed retaliatory self-defense.

Generally under Natural Rights we would consider all regulations as inconsistent with a proper government.  But what is regulation?  It seems like a dumb question, we all know what regulations are.  However, when you dig deeper the question becomes more complex.  Are contracts regulation?  What about tort laws?  What about laws on recording deeds for land?  Are these different than laws requiring registration of cars?  Some people have even argued that patents and copyrights are regulations.[1]  Unfortunately, the dictionary definition of regulation is not very helpful in resolving what a regulation is and what a law is.  Here is a standard dictionary definition of a regulation:

“a law, rule, or other order prescribed by authority, especially to regulate conduct.”  Dictionary.com

According to this definition, laws and regulations are the same thing.  However, I do not think that is what people mean by regulations at least in a legal/political sense.  In the United States the regulatory state is usually dated from the passage of the Interstate Commerce Act of 1887.  Most of us associate regulations with some sort of alphabet agency that employs large numbers of bureaucrats.  The Interstate Commerce Act of 1887 created the ICC (Interstate Commerce Commission), whose initial job was to set railroad rates and later to completely oversee all operations of all common carriers in the United States.  These rules that the ICC imposed on all common carriers are commonly considered regulations. 

 

Procedural Definition of Regulation

One definition of a regulation is a governmental rule that is not passed by the normal procedures required for laws.  In the United States this means it is a rule that was not passed by the House and Senate and then signed by the President (at the federal level).  This is the standard legal definition.  It is a useful definition as it points out that these rules are inconsistent with the Constitution and Parliamentary Governments also.

Regulatory agencies act as the rule maker (legislature), the enforcer of their rules (executive), and the judge (Judiciary).  This makes them extremely dangerous and unconstitutional.  The first sentence of the United States Constitution is:

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

Regulatory agencies also pull a slight of hand and characterize their rules as civil law (as opposed to criminal law), which means that the Bill of Rights does not apply.  The EPA (Environment Protection Agency) has even argued that the Bill of Rights, including the 4th and 5th amendment does not apply to the EPA ever (criminal or civil) and won in court.  This was in a case in which the EPA had applied a $32,500 fine per day on a middle class family, the Sacketts.[2]  The Supreme Court reviewed this case and did not throw out the EPA’s contention that the Bill of Rights does not apply to the EPA.  Instead the Supreme Court ruled that the EPA’s action was a final action and therefore subject to review by Article 3 courts (the only federal judicial branch allowed by the US Constitution).

The combining of all three branches of government into a single entity was the very definition of tyranny according to James Madison.[3]  It was also part of what the United States Revolutionary War was about.  For instance, the Declaration of Independence states “He (King George III) has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance.”

Congress has proposed some very weak measures to rein in regulatory agencies, specifically the RIENs Act.  This Act allows for congressional oversight of regulations that would cost $100 million to the economy (see Regulatory Reform: REINS Legislation).  This does not solve the Constitutional problems with regulatory agencies and provides no direct relief to people attacked by regulatory agencies, such as the Sacketts.

I have proposed a more broad reaching legislation that would provide direct relief to people like the Sacketts, entitled Regulatory Bill of Rights.  It requires agencies prove that the regulation achieves its purpose and that it is the least expensive way of doing so, as defense to any regulatory action.  There are numerous stories of regulatory rules that do not even achieve their goals.  Here is an EPA ruling so absurd that its only purpose is to prove that environmentalists value everything above human life.

One of the most amazing rulings to come out of Browner’s EPA was a letter sent to the city of San Diego, ordering them to stop treating the sewage pouring into the Tijuana River Valley on the grounds that human actions were disturbing the “sewage-based ecology” of the affected estuary—ignoring the fact that the sewage posed a health threat to human beings (whose “ecology” obviously wasn’t considered as important by the EPA).[4]

It is also a defense to any regulatory rule that it is inconsistent with any other regulatory rule, in my proposed Regulatory Bill of Rights.  For instance, OSHA required backup alarms in commercial vehicles that conflicted with the EPA’s noise pollution requirements.

The proposed Regulatory Bill of Rights provides economic incentives for people (average citizens) to find less expensive regulations that achieve the same goal as the regulations proposed by Agencies.

 

Objective Definition of Regulation

I do not think this procedural definition of regulation is what most people mean by regulation.  If Congress and the President pass a law that every car owner has to report the tire pressure on all their cars by 8AM in the morning every day, I think most people would think this is a regulation.  The essence of what is a regulation is whether it requires preemptive action to prevent some potential harm.

Under standard common law a person was not required to take action to prevent a potential future harm.  A company could be charged with negligence if their poor design resulted in the injury, but only after the injury (or other harm) had occurred.  A car manufacturer, for example, could not be required to put in certain types of brakes or required to undertake certain types of testing under the position that it might prevent future accidents.  Probably the best example of this idea under common law is the Good Samaritan rule, which states that you do not have a duty to offer assistance to people in distress.  For instance, you do not have a duty to help pull people out of a burning vehicle and you cannot be charged with a crime for not helping them.

This is related to the common law principle that you are innocent until proven guilty.  All regulatory laws assume that you are guilty until proven innocent.  They assume a builder will commit negligent fraud endangering the buildings occupants, unless there are building codes and building inspectors.  They assume the bicycle manufacturer will endanger lives by not putting retro-reflectors on the pedals.  A regulation that makes no sense as the first thing any serious bicyclist does is replaced the pedals with clip in pedals that do not and cannot have retro-reflectors.

This idea that the law can require people to take action who have not committed a crime[5] is antithetical to freedom and the very basis of the regulatory state.  Based on this, I propose that the proper definition of a regulation is a government rule that requires people to take action who have not committed a crime (or as the end result of a civil suit).  Using this definition we can look at the questions posed in the second paragraph.

Are contracts regulation?  No.  Contracts are an agreement between two private parties, so they cannot be regulations.

Are tort laws regulation?  In general no, tort laws do not require private parties to take preemptive action.

Are laws on recording deeds for land regulation?  No (generally).  At least under common law you are not required to record your deed for your land.  However, failure to do so will undermine your evidentiary standing if you are involved in a fraudulent sale lawsuit.  Note if the fees are higher than necessary to perform the recording function or if the process is more complex than necessary to perform its function, then this might be considered a regulation.

Are laws requiring registration of cars regulation?  Yes.  Unlike recording of deeds for land, you are required to register your car.  The original excuse for these laws was the same as recording deeds; to more securely establish ownership in case of theft or a fraudulent sale.  Second the purpose has shifted.  Registration is about increasing government revenue, not ownership issues.  It is also about aiding the police in crimes having nothing to do with the ownership (transfer) of the car.  In other words it is big brother or part of the bad Nazi movies where they ask the person “show me your papers?”

It would make sense then that you would never hear Objectivists or Libertarians making these sorts of arguments.  However, many Objectivists and Libertarians do use this reasoning to support their positions on gun control, immigration/travel, and drunk driving laws.

Gun Control:  It is embarrassing when Objectivists support gun control laws.  One of their standard arguments is that guns are instruments of violence and this is a guns only purpose so they can be regulated as part of the state’s proper purpose to stop violence or because the government has a monopoly on the use of force.  This regulation can include registration of guns, limitations on what weapons can be owned, and restrictions on who can own guns.  Note that this argument assumes that gun owners have to take an action when they have not been convicted or even charged with a crime.  All of these are clearly regulations because they require preemptive actions by people who have not committed a crime and the purpose of these government rules is to prevent some potential harm.  This is not consistent with Objectivism.

A more sophisticated argument is that the right to own a gun is part of your right to self-defense (not your right to property).  Therefore the government can limit what weapons you can own and perhaps also require registration, because this does not interfer with your right to self-defense.  The argument is that no one needs a Howitzer or nuclear bomb or a machine gun for self-protection.

There are numerous problems with this line of reasoning.  One is that a proper government cannot have rights that the people do not have themselves, except the right to delayed retaliatory self-defense.  This means that if people cannot own Howitzers or nuclear bombs or machine guns for self-defense then the government cannot have that right either.  Certainly a proper government could and should have these weapons and they should only be used in self-defense.

Second, people do have the right to revolution if the government fails to protect their rights.  This was established by John Locke and was the very basis of the American Revolution.  It is also the justification for the actions of Ragnar Danneskjold in Atlas Shrugged.

 

“Whenever the legislators endeavor to take away and destroy the property of the people, or to reduce them to slavery under arbitrary power, they put themselves into a state of war with the people.”

—John Locke

 

The goal of a revolution is to overthrow tyranny.

The overthrow of a political system by force is justified only when it is directed against tyranny: it is an act of self-defense against those who rule by force. For example, the American Revolution.

Ayn Rand, “From a Symposium,”Return of the Primitive: The Anti-Industrial Revolution, 173

http://aynrandlexicon.com/lexicon/revolution_vs_putsch.html

 

Arguing that guns are only justified under self-defense is a slight of hand.  It is an attempt to impose regulations that are justified on the worry about some potential harm.  This is inconsistent with Objectivism and common law (classical).

There is no justification why your right to property is limited by your right to self-defense.  Your right to self-defense is a derivative of your right to yourself and your life, meaning your right to property not the other way around.

Gun Control is not Consistent with Objectivism

 

Immigration/Travel Controls: In peace time your right to travel is part of your right to your own life.  If a person is not a criminal, stopping that person or demanding they show papers or asking them questions is the government initiating force against private people.  When you scratch the justifications for immigration controls most people suggest that immigrants will corrupt our cultural, political, or legal system.  These are inherently collectivist arguments.  The people who make this argument believe that an individual can be judged by where they grew up or their religion or their genetic heritage.  These are all collectivist.  They are antithetical to natural rights (individual rights) and Objectivism.  Note the justification is based on some potential future harm which makes immigration/travel restrictions necessary, which makes them regulations.

Another nonsensical justification is that we have some sort of collective property right and therefore we can band together to stop people from crossing a border.  There is no such thing as collective property rights and property rights cannot be used to significantly interfere with the right to travel.  I have written on this extensively in my post Property Rights: The Foundation of Freedom.  Ultimately, this is another rationalization to prevent some potential harm.

An absurd argument used by some so-called Objectivists to impose immigration/travel restrictions is the right of association.  The right to association, like all rights is personal and you are not forced to associate with immigrants and the immigrants/travelers also have the right of association.  In addition, the people who make this argument are using the right of association to limit everyone else’s right to association.  I cannot associate with a foreigner, because you do not want to associate with a foreigner.  This is just embarrassing when people make this argument.

Immigration/travel controls can be justified in times of war if the war is properly declared and there is a military purpose and that these controls are narrowly tailored and that it is the most efficient way to achieve an objective related to the war.  These circumstances are almost never meet except in the case of narrow corridors near the actual war zone.  For instance, there would have been no justification for such rules in the Spanish American War, the Revolutionary War, the Civil War, the Korean War, the Vietnam War and certainly not in the “War on Drugs” or the “War on Terrorism”.

The other justification for immigration/travel restrictions is to prevent the spread of disease.  Quarantines have a long history, even in common law countries.  The idea is that a person who knowingly has a disease or knows they are likely to have a disease is essential violating other peoples’ right to self-defense much like assault.  Quarantines are very problematic.  For instance, can you quarantine a person with a cold?  If not how do you decide when a disease is serious enough that a quarantine is justified?

In modern times, we do not impose quarantines internally in advanced nations.  Unless a country imposes quarantines internally, then there is no justification for quarantines for immigration/travel.  In addition, immigration/travel restrictions are very unlikely to have meaningful impact on the spread of diseases.  Ultimately, this justification for immigration/travel restrictions is an attempt to prevent future harm, which makes them regulations.

Your natural rights do not include the right to safety.  Life includes risk and that includes the risk of getting sick.  Everyone get sick.  If you do not want to get sick then stay at home.  There is no justification for immigration/travel restrictions based on the risk of spreading diseases.

In Peace Time there is no Justification for immigration/Travel Restrictions

 

Drunk Driving Laws: We have all been convinced that you are a Neanderthal if you do not think that there should be laws against drunk driving.  Unfortunately, this is all based on a very clever public relations campaign by MADD (Mother’ Against Drunk Driving).  MADD has substituted the nonsense of “alcohol related” for “alcohol caused” accidents.  MADD and the NHTSA (National Highway Transportation Safety Administration) have used this gross dishonesty to claim 16,000 people in the United States are killed in “alcohol related” accidents each year, when an honest definition is used only about 500 innocent people in the United States are killed.[6]  There were 35,000 traffic fatalities in the United States in 2015 up slightly from earlier years.  This means about 1.4% of traffic fatalities in the United States are caused by alcohol “impaired” drivers.

Scientifically a 0.08 blood alcohol level (BAC) does not statistically increase that persons’ chance of being in a car accident.  Many things, including a lack of sleep, increase the statistically likelihood of accident much more than a 0.08 BAC.  We can therefore dispense with the moral outrage, which is used to avoid logic.

The purpose of drunk driver laws is to prevent some future harm, which means it is a regulation.  Drunk driving laws are not consistent with Objectivism and Natural Rights.

 

Conclusion

A logical definition of a regulation is a government rule that requires people to take action who have not committed a crime (or as the end result of a civil suit).  All regulations are inconsistent with Objectivism, Natural Rights and Common Law (classical).  Regulations are always justified on the goal of preventing some future harm and violate the common law principle that people are innocent until proven guilty.

 

[1] KAROL ŚLEDZIK, PATENT TROLLS AND SCHUMPETER’S CREATIVE DESTRUCTION, file:///C:/Users/Dale/Downloads/Patent_Trolls_and_Schumpeters_creative_d.pdf accessed 5/27/17;

NEW BILL TARGETS PATENT TROLLS STUNTING ECONOMIC GROWTH, http://www.engine.is/news/issues/new-bill-targets-patent-trolls-stunting-economic-growth/2471 accessed 5/27/17.

[2] Damien Schiff, Sackett v. Environmental Protection Agency: Compliance Orders and the Right of Judicial Review, http://www.fed-soc.org/publications/detail/sackett-v-environmental-protection-agency-compliance-orders-and-the-right-of-judicial-review accessed June 17, 2017.

[3] Joseph Postell, http://www.heritage.org/political-process/report/administrative-state-constitutional-government#Part1 , From Administrative State to Constitutional Government, accessed June 17, 2017.

[4] Mark Hendrickson, The EPA: The Worst Of Many Rogue Federal Agencies, https://www.forbes.com/sites/markhendrickson/2013/03/14/the-epa-the-worst-of-many-rogue-federal-agencies/#6adc67221adb, accessed June 25, 2017.

[5] Rational criminal laws, where you have to have mens rea and caused harm or at least made substantial plans to do so.

[6] MADD (Mothers Against Drunk Driving) has had one hell of a run, http://www.drunkard.com/08_02_fighting_madd/ , accessed June 25, 2017.

June 28, 2017 Posted by | Legal Philosophy | , , , | Leave a comment

The Greatest Mistake in Economics: We Are Wealthier Because Profit Margins Are Small

Economists often argue that the West is wealthier because profit margins are driven down by competition.  For instance, here is a quote from an article in Forbes by a researcher at the Adam Smith Institute

What this means is that prices to us, the consumers, keep coming down as a result of that competition. And yes, if the prices we have to pay for things decline then we are becoming richer. Our real incomes are rising as a result.[1]

Economists have two scientific sounding theories for this idea, perfect and pure competition or the zero profit tendency.

Pure and Perfect Competition

According to Investopedia under perfect “Companies earn just enough profit to stay in business and no more, because if they were to earn excess profits, other companies would enter the market and drive profits back down to the bare minimum.”[2]  Economist hold up perfect completion up as the ideal market situation and any other situation result is “excess profits”.  In fact, perfect competition is the theoretical underpinning of anti-trust law.

There are a number of problems with this theory of perfect competition and I discuss them in depth in my book Source of Economic Growth, so this will just be a brief overview.  First of all we do not create wealth by consuming, we create wealth by producing and we can only produce more efficiently by inventing.  Our standard of living is defined by our technology.  Second the wealthiest countries are those that have producers (companies and workers) whose profit margins have not been squeezed to the bare minimum.  How wealthy are the owners of a company making the bare minimum of profits?  How much can they pay their employees, when their margins are at the bare minimum?

We get wealthier by inventing new technologies that provide large profit margins.  Railroads had (have) much larger profit margins than human mules (Sherpa’s), or canal owners, or wagon drivers.  They still deliver goods for much less cost despite their higher profit margins.  In the future railroads may be obsolete as UAVs take over the job of transporting goods as Amazon is experimenting with.

 

Zero Total Profit Tendency

                Austrian Economics supposedly rejects the perfect competition theory, however they replace it with their own version, the tendency that total profits will be zero when an economy is in equilibrium.[3]  Like perfect competition they assume that competition will drive profits down or toward zero.

 

Conclusion

Competition is not the source of wealth.  In fact in a perfect world economically, we would all produce unique items of extremely high value.  This is not to say that government inhibition of competition is good or makes us wealthier either.  However, every property right (that is enforced) results in less competition and we would not be wealthier without property rights.  Competition is a result of capitalism, it is not the definition of capitalism or what makes us wealthy.  It is this sort of confusion about cause and effect that has so-called free market economists either arguing for anti-trust laws or arguing for anarchy (the absence of property rights).

The source of all real per capita increases in wealth is due to increasing levels of technology, not competition.  The only way we increase our level of technology is by inventing.  Property rights for inventors are the most important property right economically and the fundamental basis of all property rights.

[1] Tim Worstall, Amazon Vs Walmart On Free Shipping – It’s Not Capitalism That Makes Us Rich But Market Competition, https://www.forbes.com/sites/timworstall/2017/05/09/amazon-vs-walmart-on-free-shipping-its-not-capitalism-that-makes-us-rich-but-market-competition/#6dc7b5593c8e accessed June 7, 2017.

[2] Perfect Competition http://www.investopedia.com/terms/p/perfectcompetition.asp#ixzz4jLsXzRQ accessed June 7, 2017.

 

[3]Driving the Market Process: “Alertness” Versus Innovation and “Creative Destruction” https://mises.org/library/driving-market-process-alertness-versus-innovation-and-creative-destruction accessed June 7, 2017

June 8, 2017 Posted by | -Economics, Innovation, Patents, philosophy, Regulation | , , , | 2 Comments

Walter Williams and Overpopulation

In an article entitled, Overpopulation Hoax, on Lew Rockwell.com, Walter Williams argues that Thomas Malthus was incorrect in his prediction about food and population.  Williams misstates what Malthus said in suggesting that populations will have catastrophic collapses.  What Malthus predicts is that all species’ population will expand to fill the available food sources.  This means that individuals within the species will be on the edge of starvation.  If the population declines from starvation or because of some other cause, then there will be surplus calories available and the population will increase until there are no surplus calories for the species’ population.

Williams Misrepresents Malthus

If there is a positive genetic change (or positive change in the environment), there will be excess calories and the population will increase until there are no surplus calories for the species’ population.  This is true for all living species on Earth for all of history, including humans until about 1800.  Malthus’ ideas underlie all of evolutionary biology.  Even when I was born in 1960 over half the world’s human population was living in the Malthusian Trap (on the edge of starvation).  Today less than 15% of the World’s human population is living in the Malthusian Trap.  Overpopulation is not a hoax, however the catastrophic collapse nonsense of the environmental left, such as Paul Ehrlich predictions are.

Julian Simon Humans are Assets

Williams quotes economist Julian Simon that humans are the ultimate asset.   This is almost true.  Extra human beings being born in North Korea are a liability to the North Koreans, not an asset.  Humans are an asset when they are free to create new technologies and their property rights in those new technologies are protected.  Under those circumstances every additional human has a chance to be an asset.  The only way humans escaped the Malthusian Trap and the only way humans increase their real per capita income is by increasing their level of technology, which means inventing.  For more information about the cause of real per capita increases in wealth see my book Source of Economic Growth.

 

 

PS: Walter Williams is an excellent economist.

May 31, 2017 Posted by | -Economics, bioeconomics, Blog, Innovation | , , , , | Leave a comment