democracy

Why The Founders Didn’t Give Us a Democracy

As the famous story goes, when Ben Franklin left Independence Hall after the Constitutional Convention in 1787, Mrs. Powel of Philadelphia had a question she wanted answered.

“Well Doctor, what have we got, a republic or a monarchy?”

Franklin replied, “A republic, if you can keep it.

No one today (well, seemingly other than the current president) wants a monarchy. However, too many call our once-Republic a “democracy”. They love the idea of the will of the people, directly determined by vote and imposed by force of law.

The primary argument against this form of government is that it’s tyranny. A majority has no right to take away the rights of any individual, no matter how unpopular he may be. However, that is precisely the consequence of giving the people the power to vote for anything, with no constitutional limits to the power of government.

Let’s explore another argument against democracy. I just published an article critical of a gold initiative in Switzerland. Of course, I favor the re-monetization of gold. That is not why I think the initiative will do more harm than good. I looked at the economics of the banking system, and concluded that the law could cause bank insolvencies. If the banks fail, there goes the people’s money.

No layman would see the problem, unless an expert explains it. Indeed, a hundred thousand laymen signed the petition to put this initiative on the ballot. They simply want to move towards the gold standard and stop their central bank’s endless currency debasement, and robbery of the saver.

Too often, scoundrels hide behind their proclaimed good intentions, which is typically an appeal to collectivism. Then they claim the bad outcome was unintended. It’s disingenuous. If you hike the minimum wage, for example, you will cause higher unemployment. Workers who produce less than the cutoff are always laid off.

In the case of the Swiss gold initiative, the promoters are appealing to honesty and justice. I do not doubt the good intentions of the people behind this initiative. I am sure they mean well. Whether their intentions are good or not, the law has bad consequences. It’s based on an economic mistake.

This exemplifies another fundamental and irreparable flaw in democracy. Even well intentioned people have limited knowledge. No one can be an expert in everything. Yet, that is precisely what democracy requires. It assumes that because the people have an interest in the outcome, they know what will lead to good outcomes.

If your car breaks down, do you sample the opinions of nearby motorists, in order to know how to fix it? If you are sick, do you ask for medical advice from other patients in the hospital ward? No, you call a mechanic or a doctor. What if your monetary system is broken down and sick? Everyone suffers from the monetary disease, but that doesn’t make them experts in monetary economics. In the same way, motorists or patients are not experts in engines or healthcare. In order to work, Democracy depends on everyone being an expert in everything.

This is one more reason why your life should not be ruled by the decisions of others. Even when those decisions truly are well intentioned, they can still hurt you. Democracy is not the right form of government.

This is why the Founding Fathers gave us a republic.

Debates That Ought Not to Be

Every so often (ok, at least once a day) I encounter seemingly intelligent, rational, and educated people debating a black-and-white point of contention. The topic under debate is no mere opinion, but a matter of fact. Yet despite this—or perhaps because of this—the contention is irresolvable, and the debate bitter.

For example, ever discuss the probability of a flipped coin coming up heads? Many adults still cling to the belief that if you got tails four times in a row that means heads is now due.

fool

 

I know an engineer who works at a large corporation. Many engineers and managers there don’t understand how to design experiments. He told me about an hour-long facepalm moment. A manager was trying to order some engineers to do the absurd. Based on his misunderstanding of statistics, he wanted them to achieve a higher confidence interval. This does not mean to become more confident. It basically means to increase the size of the data set—i.e. waste more time and money collecting unnecessary data.

There is only one thing worse than when someone doesn’t know something. It is when what he knows just isn’t so (with due respect to Will Rogers and Ronald Reagan). It’s much easier to teach than to persuade someone to unlearn that which is false.

I see the same kind of error all the time in entrepreneurial circles. Clayton Christiansen defined the term disruptive innovation very precisely. Yet despite this, many entrepreneurs and business managers use the word disruptive merely to mean big, or perhaps competitive. Existing customers of incumbent businesses don’t particularly want the disruptive product. However, it has the potential to slowly eat the market from the low-margin soft underbelly up to the high-margin top end.

The transistor radio is a textbook example. In 1954 when Sony released the first transistor radio, were the existing makers of tube hi-fi equipment thinking to replace their good-sounding sets with tinny transistors? Within a few short decades, transistors took over the market.

Another error, closer to home, is when people think they can raise the wage by raising the minimum wage. Marginal productivity, like confidence interval or disruptive innovation, sounds like something it is not. Who would object to raising productivity?

But that is not what marginal productivity means. If you raise marginal productivity—for example by raising the legally mandated wage—you increase the bar. This is the hurdle all workers must get over, or else be rendered submarginal. Submarginal means unemployable.

When you find yourself in such a debate, be aware of what you’re up against.

The above examples are fictional, and purely for entertainment purposes. Any resemblance to actual errors made in monetary economics is purely coincidental.

Nobel Prize Awarded to Regulatory Apologist

Only last week, I published an article about the madness of Fed regulation. I presented several key assumptions behind all regulation, and exposed them to be false.

  1. Regulators Are Smart and They Care
  2. Compliance Makes Things Safe
  3. Unregulated Businesses Will Harm Us
  4. Regulation Turns Crooks Into Producers
  5. The Financial Crisis Occurred Due to Private Crimes
  6. The Fed Can Create Stability
  7. Central Planning Works

And now the Nobel committee has chosen to honor Jean Tirole with the prestigious prize. He earned this award and recognition for his work on the best way to regulate large, powerful firms in industries including banking.

He helped show, “what sort of regulations do we want to put in place so large and mighty firms will act in society’s interest,” Tore Ellingsen, the chairman of the prize committee, said after the award announcement.

How many of the fallacies I debunked are implicit in this? I count at least 5…

The Wrong Idea About Inflation

Here is a post I made to Facebook yesterday.

FB post

I was making two points. One, virtually all commodities are in falling trends now (except certain foods affected by the government-create drought conditions in California). Two, it has nothing to do with the money supply.

Some comments on the thread reminded me most people accept the idea that changes in the money supply lead to changes in prices (though not necessarily evenly or instantaneously). This idea is tempting, convenient, and it seems only “common sense”. However, it is facile.

I decided to write this post to add some context. Since 2008, there has been a massive increase in the money supply. M0 has increased from about $875B to $4T. It is now 3.5X what it was. M1 went from $1.4T to $2.8T, or 2X. M2 went from $7.8T to $11.4, or about 1.5X.

Prices haven’t done any such thing. The Bloomberg Commodity Index fell from about 175 to 118 today. In other words, the commodity index is 0.67X what it was.

How do we explain this? I have offered my theory of interest and prices. To condense 12,000 words into a sentence: rising interest rates and rising prices go together.

Here is a graph of the Bloomberg Commodity Index overlaid with the 10-year US Treasury yield, going back to 1996. The correlation is imperfect, but quite visible.

int com

I would like to share a few additional thoughts about this correlation.

At least as far back as 1897, Knut Wicksell observed it. It is interesting to note that he was a believer in the quantity theory of money, but he was honest enough to recognize when the data did not fit the theory. Here is a quote from his address before the Economic Association of Stockholm on April 14, 1898:

“Logically speaking it does not seem possible to give any other answer to our question… than the following:… the level of commodity prices must depend… on the rate of interest. A low rate of interest must lead to rising prices, and a high rate of interest to falling prices. This is in full agreement with the basic principles of the quantity theory of money… Unfortunately, we are once more faced with the same regrettable circumstance: a lack of correspondence between theory and reality [emphasis added]. If we compare… the wholesale prices in Hamburg… on the one hand and the rate of interest in Berlin… on the other, it must be admitted (if it is possible to discover any connection between them at all) that a high rate of interest is associated with high commodity prices and a low rate of interest with low commodity prices, rather than the other way around…”

Irving Fisher, a monetarist, and promoter of the Quantity Theory of Money, realized that rising prices caused high interest rates and falling prices caused low interest rates. He thought the connection worked in the other direction as well, but didn’t know why.

Gilbert E. Jackson was the first to see the bidirectional linkage between prices and interest. He studied wholesale prices and interest rates in Britain from 1782 to 1947. But he could not give a full theoretical explanation.

Antal E. Fekete was the first to propose the theory that there is normally a positive spread between the marginal time preference of the saver and the marginal productivity of the entrepreneur (also integrating the two major theories of the formation of the interest rate). The market rate of interest can move freely between those two boundaries. However, when government interferes, it can either invert this spread or it can push the market rate of interest outside the boundaries (e.g. when the central bank buys bonds). Then, it sets off a self-perpetuating trend.

interest-spread

I think it’s important to acknowledge that the economy is not stateless. A change in one variable—e.g. money supply—may have a different effect depending on the states of individual actors in the economy. It may even have the opposite effect one time as compared to another.

I like to use the example of a pilot pulling back on the yoke. The layman expects that this will cause the plane to climb. However, if the plane is in a spiraling descent, then it will cause the spiral to tighten, and the plane will auger into the ground if the pilot does not correct.

When you’re saturated in debt, you don’t behave the same way as when you’re unencumbered.

Interest rates have been falling for three decades, with no sign of (nor reason to expect) a reversal. Therefore we should expect a trend of falling commodity prices (consumer prices are more sensitive to labor law, taxes, regulations, and other factors).

 

The Gold Standard Institute Presents The Gold Standard: Both Good and Necessary, in Manhattan on Nov 1. You are cordially invited to join us for a discussion of ideas you won’t get anywhere else. The gold standard is the monetary system of the free market—of capitalism. Dr. Andy Bernstein, a rock star of the liberty movement, shows why capitalism is good. In my talk, I explain why capitalism is impossible with fiat money, and why we have not recovered from 2008, and we won’t without gold.

Immigration For Republicans

This essay is not intended to address a crisis that may be occurring on the border at this time. I make no comment on that. Nor does it discuss the issues around war, such as how to deal with citizens of enemy nations. This essay is not a policy proposal, it does not set out, for example, when an immigrant can become a citizen and attain the vote or what to do to immigrants who commit crimes. It has but one purpose: to enumerate and respond to the common arguments used in favor of an impenetrable and guarded border fence to shut down immigration.

 

Suppose you were born in a country that outlawed normal life. North Korea comes to mind. Venezuela is a slightly less extreme example, and there are many other examples which are slightly less bad than that socialist worker’s paradise.

I phrase it in these terms, because this is the essence of the issue. People are rightfully fleeing places where they cannot live.

Anyway, suppose you are in a place where life is a living hell. Every day, you are forced to beg and steal scraps of food to somehow stay alive. The best you can hope for is to subsist, one day at a time. You must avoid the gangs and the secret police.

If you could somehow scrape together the money to escape to America, would you?

You would take a job paying minimum wage—or less—doing long days of unskilled manual labor, if necessary. At least in America, you can work and you can begin to build a better life for yourself and your family.

But you notice that people call you “illegal.” They don’t refer to any crime you commit, because you are no criminal. You never steal from anyone, hurt anyone, and or do anything else that could objectively be called a crime. You work hard for every penny you earn. But they call you “illegal” anyway.

You come to realize that when they say illegal, they refer to you, not your actions. Your very existence so utterly offends them that they think you are crime incarnate.

You notice that most of them drive faster than the posted speed limit. Many don’t register their old handguns or refuse to pay tax when they sell a gold coin. They traffic in old toilets, which flush more than 1.6 gallons. They break the law in numerous ways.

On Facebook, there is a common meme that laughs at the statistic that everyone commits three felonies per day. Their crimes don’t bother them in the slightest, because they aren’t hurting anyone. They do get the concept of victimless crime, at least when they themselves are made into criminals by nonobjective law.

However, for you, amigo, none of that matters. “The law is the law,” they assert. “The law must be obeyed,” and they don’t mean the speed limit law here. They mean the law that does not allow you to live.

Obviously, you are not going to oblige them by dying. This is the issue for you. Going back to hell may well be your death, or the death of your family.

This is the monstrous injustice of anti-immigration policy. Now let’s look at the arguments used to justify it.

The most intellectual argument is that immigrants bring bad ideas with them. Though I have not seen it phrased this way, this implies that we could build a Great Wall (or a Berlin Wall) to keep out socialism, fascism, cronyism, corruption, and the ideas of Kant and Marx. Surely, there would be no Che t-shirts if the wall were tall enough.

I find this argument unconvincing. In this era of radio, television, and the Internet, it’s the policy equivalent of locking the barn doors after the horses are not only out, but sold to the Saudis, and earning big purses racing in Abu Dhabi. Rotten ideas are not only here in America, but they have predominated for decades in our universities, media, and popular culture.

A lame duck president said, “I’ve abandoned free market principles to save the free market system.” When our current president was a candidate he said, “I think when you spread the wealth around, it’s good for everybody.” We have a pejorative term for the wealthiest percentile of people, and one for bankers. Hollywood celebrities pose for pictures with socialist thugs like Hugo Chavez. These ideas are mainstream. Even conservatives will defend half a dozen of Marx’ ten planks.

If rational ideas prevailed in our culture and most people held to a rational philosophy, then evil ideas would find no fertile ground here. Proud people of healthy self-esteem who understand liberty, find nothing attractive about socialist utopias, death cults, thieving parasites, or paralyzing bureaucracy.

If you are un-persuaded, and you still believe that we have to keep out people with bad ideas, then you have to answer the following question. Are bad ideas intrinsically compelling?

Suppose a Marxist chants slogans on a street corner, or finds a willing American newspaper to publish his letter. Is this a threat to Western Civilization? Are reality and reason and liberty so weak and so un-compelling, that they are blown away by mindless communist propaganda?

At best, I think this argument reduces to another one that’s much more common. This argument does not address ideas, but voters.

Immigrants vote socialist, opponents of immigration tell us. But do they? I rather doubt that it’s nearly so prevalent as we’re told, though I don’t have the statistic. It doesn’t make any sense to me. These are people who have scrimped and saved to go to a foreign country. Many have risked their lives, and most of them are not fluent in the language. What motivates them to do this? I doubt it’s typically a desire to bring to the US the same socialism that forced them to flee.

What if immigrants are not voting for Democrats for their socialist policies, but for their pro-immigration stance? That would be a tragic irony to this argument. If the Republican Party stakes out the anti-immigrant position, then no one should be surprised when immigrants vote Democrat, along with their extended families, friends, and supporters.

The presumption that immigrants vote Democrat leads Republicans to oppose immigration, which leads immigrants to vote Democrat. Mr. Foot, meet Mr. Gun. Blam!

Incidentally, while I am criticizing the Republican Party, this very same issue is hurting them elsewhere too. Do gays all want socialism? Or do they want legalized marriage? Do women all want socialism? Or do they want legalized control over their own reproduction? Do biologists and other scientists want socialism? Or do they want legalized stem cell research and other scientific inquiry? Many members of these groups turn to the party that promises what they want.

Moving on to the next argument, I hear often that an immigrant is like a trespasser or a burglar who breaks into your house. Think about what this argument says.

It says that the nation is owned collectively. If you are in the group, then you are part owner. If not, then you are a threat to the tribe. Today, it’s phrased in terms of criminal trespass, but it’s a primitive view of belongers vs. outsiders.

Of course the country as a whole is not owned, and certainly no collective has a right to violate anyone’s rights. Rights are neither a group benefit, nor a grant made by the government.

A related argument is that immigrants are taking our jobs. This argument is thoroughly Marxist. Thus, it’s ironic that it so often comes from conservatives, Republicans, and even some libertarians.

Our jobs? A job is a contract with an employer, not a birthright for an individual or a group privilege. If someone else is hired, but you are not, there is no injustice. If members of one group get hired and members of another group do not, then there is no cause for the government to interfere.

Jobs are not zero-sum. Under certain conditions, jobs are created and wages are rising. Under other conditions, jobs are stagnant or even destroyed. What conditions? Left free from coercion, people find ever more ways of coordinating their productive activities. Increasing production means hiring more people and paying them better wages.

However, when the government intrudes it reduces coordination, which means it reduces productivity, employment, wages, and quality of life. I proved this in my dissertation. One form of government intrusion is to block people, goods, or capital from crossing the border.

It may have taken a genius like Adam Smith or Frederic Bastiat to provide the original arguments to debunk state control, central planning, and government favoritism for cronies. However, today, a smart 8th grader can understand and make a cogent argument against this nonsense.

I don’t think anyone believes in bad economics for the sake of bad economics. No, there are two reasons people support junk economics. One is they want to get something they couldn’t earn in a free market. They seek protectionist measures to keep out competition. The other is they can see that the economy isn’t working properly. It is a fact that employment is far below its prior level. Such jobs as do exist pay lower real wages. Most people feel it at some level, and they’re angry.

They should be angry, but we should place the blame where it belongs. Taxes, regulations, litigation, and especially the Fed are the cause.

Please don’t take out your anger on poor immigrants.

The idea that the economy is zero-sum is a Marxist idea. Lovers of America, the Constitution, and liberty should have nothing to do with it.

The next argument is that immigrants come here to collect. We should not allow immigrants because they will only end up on welfare.

Compensation is when you deliberately and knowingly do the wrong thing, supposedly to fix a problem elsewhere that you cannot or do not wish to fix. My example is to let the air out of three tires if you have a flat. Shutting down immigration is compensation for the welfare state. We who don’t want to see the taxpayer bankrupted will do better to fight welfare, than to fight immigration.

This leads to a question I have asked several times, and received no answer. Why does Immigration and Customs Enforcement go after employers?

We’re told that immigrants are here to sell drugs and commit crimes. However, it’s obvious that you won’t find drug dealers, welfare queens, pimps, and bank robbers working at or below minimum wage in the hot sun. So why go after employers? There is only one reason.

It is to protect us belongers from losing our scarce jobs to those outsiders.

Can any of these arguments be applied to block immigration between the states? On Facebook recently, I saw someone post (half) jokingly that Texas should pass a law to keep out anyone from California who voted for its welfare schemes or high-speed rail boondoggle.

Logically, there is no reason they couldn’t be applied to interstate immigration. North Dakota has low unemployment. If they continue to allow open immigration, then pretty soon their unemployment will rise to the unfortunate heights of the rest of the country (maybe they should thank their harsh weather for putting the brakes on this).

The next step is to apply it to immigration within a state, from city to city. We wouldn’t want all of those Tucson people coming here to take our Phoenix jobs, would we? The end game is the socialist dictatorship, which clamps down on the right of people to move as they wish.

The elephant in the room that must be named is some people of the anti-immigrant persuasion are motivated by racism. I don’t believe this is the majority, but it exists. They don’t dare openly declare their feelings, at least not in any forum I read. Instead, they couch it in another argument.

One reason I started this essay off with a story was to establish the context and put the reader into the shoes of a recent immigrant. I had another reason as well: to illustrate the problems in the anti-immigration position. No one who fled a living hell will go back willingly. So what will be accomplished by demonstrating one’s resentment by slinging the name “illegal” at a man? He will react. He will feel like he is in a no-win situation. He may himself become resentful, and in that state he may adopt bad ideas that he did not originally hold.

What will happen if the law attacks his employer and renders him unable to keep a job? What would you do if you were permanently rendered unemployable by law? He will take welfare if he can get it. The only alternatives are to starve, to go back to hell, steal cars, or sell drugs. Nothing good can come from forcing someone to make that kind of choice.

Though it’s not my purpose in writing this essay, if your concern is whether the GOP will win elections, it’s hard to think of a more effective way to repulse a large voting bloc. However, I think there’s something much more important at stake. It is the theme of most of my writing on the gold standard. We need to rediscover and return to the principle on which America was founded. It is the principle that everyone has the individual rights of life, liberty, and property. Let’s fight for those rights. Let’s fight to repeal welfare and to restore the Constitution and the Republic that was built on it.

It’s the right thing to do, and it also works.

In the Future, Will Everyone Be Unemployed?

Recently, I have seen a lot of discussion about the future of employment. Many people, from futurists to Leftists, are saying that machines will replace people and most people will be unemployed. This is hogwash, though it has been popular for at least 200 years, when the Luddites were smashing machinery.

Perhaps they didn’t know better, in the early days of Industrial Revolution. Maybe they really didn’t think of machines as providing an escape from drudgery. They might not have thought that people were freed from long days of backbreaking labor. They may not have considered that increasing productivity benefits the worker, the investor, and the customer—pretty much everyone.

Today, we don’t have their excuse. Economics teaches these points clearly, and this is not my point in writing this essay.

My point is that we have too many closet central planners, screaming to get out. Workers are afraid of losing their jobs. Social thinkers worry about unemployment. Economists refuse to understand rising productivity. Futurists fret that there is a dark side to progress. All of them are lending their support to central planning, whether they realize it or not.

Implicit in every one of these views is a simple confession. The worker, the social thinker, the economist, and the futurist do not know what the next big industry, the next big employer, will be. And, it’s not their job to know that!

This is the flaw in central planning. The central planner does not know.

Branson

It’s the entrepreneur’s job to figure out how best to put people to work.

Legal Tender Renders Planning Impossible

There is much confusion over what the legal tender law does. I have read articles, written by people who are otherwise knowledgeable about economics, claiming that legal tender forces merchants to accept dollars under threat of imprisonment. Recently, I wrote a short article for Forbes clarifying how legal tender law works in the US.

Legal tender law has nothing to do with merchants. If you want to sell steak dinners in your restaurant for silver, you may legally have at it. Unfortunately, the tax code discourages your would-be customers as I wrote in another article.

The legal tender law targets the lender. It grants to debtors a right to repay a debt in dollars. In practice, this means that if you lend gold, the debtor gets a free put option at your expense. If the gold price rises, he can repay in dollars. If it falls, of course he will be happy to repay in gold. It’s a rotten deal for the lender.

The relationship between lender and borrower is mutually beneficial, or else it would not exist. The parties are exchanging wealth and income, creating new wealth and new income in the process. The government is displeased by this happy marriage, and busts it up by sticking a gun in the lender’s face. His right to expect his partner to honor a signed agreement is violated.

Because no lender will lend gold under such circumstances, gold is relegated to hoarding and speculation only. This strikes a blow to savers, because the best way to save is to lend and earn interest. Savers are forced to choose between hoarding gold, getting no yield, or holding dollars and getting whatever yield crumbs are dropped by the Fed.

If there’s no lending in gold, what takes its place? The Fed force-feeds credit in ever-larger amounts, and at ever-falling interest rates.

The Fed is supposed to make its credit decisions in order to optimize two variables. First, employment shouldn’t be too high or too low. Second, consumer prices shouldn’t rise too quickly or too slowly. The Fed has little ability to predict employment and prices, and even less control over them.

Most Fed critics focus on the quantity of money. Is there too much, or too little? Is the rate of increase too fast or too slow? Is monetary policy too tight or too loose? Lost in this noise is any discussion of who the lender is.

If you buy Treasury bonds, then you know you are lending to the government. You are enabling welfare spending, and a few cases of lending to such worthy activities as housing speculation.

What if you don’t? Well if you deposit dollars in a bank, you are funding the bank’s purchase of Treasury and other bonds. You know, or reasonably ought to know, that this money is being lent.

But suppose you don’t even do that. Suppose you keep a wad of dollar bills under the mattress. You are still lending. The dollar is the Fed’s credit paper. You are financing the Fed’s activities, which consist of buying Treasury bonds and various other bonds.

You’re the patsy. You are the lender.

Anybody who wants to earn dollars is bringing demand for dollars to the market—in other words, making a bid on dollars. With what do they bid? They bid with their labor, with tangible goods, and with land. All assets today are bidding on the dollar, though most people look at it inside out. They think that all assets are offered for sale at the right price.

In any case, this universal bid on the dollar provides credit to the Fed. By placing wealth in the Fed’s hands, everyone gives it their savings to lend out.

Forget about what this does to consumer prices. There are much more serious implications. In place of the delicate, mutually beneficial relationships involved in lending, the Fed sucks the savings from the people, and pumps it out at high pressure. The Fed’s indiscriminate deluge of credit is not a substitute for individual thinking, planning, acting, and lending.

The consequence is incalculable destruction.

The legal tender law does not attack the ability to do a trade here and now, “cash on the barrel head.” It attacks something subtler but just as important. It destroys your ability to plan long range, to prepare for the passage of time. Time is a universal in the human experience. We all work during our adulthood with urgency, because some day we will grow old and be unable to work. To plan for that day, we save while we work and lend our savings to earn interest.

The motivation to borrow also comes from planning for the passage of time. The entrepreneur wants to start or grow a business now, while he has the opportunity, and energy. That’s why he is willing to pay interest out of part of his profits.

In a loan, the borrower gets money immediately, but the lender gets paid later. Time is an integral part of the deal, as one party prefers to be paid later.

In the free market, nothing comes between the saver and the entrepreneur. In central banking, by contrast, the legal tender law attacks the very heart of the free market, like an insidious poison. It disenfranchises the saver, enabling the Fed to plunder his nest egg and undermine his retirement plans.

At the same time, the Fed abuses the hapless entrepreneur too. It lures him to borrow with the promise of low rates, and then like Lucy pulling the football out from under Charlie Brown, cuts the interest rate again. This drives down his profit margin and plunders his capital.

Legal tender law takes away your ability to plan for the future. It replaces a hundred million individual decisions whether or not to have tea, with a giant high-pressure fire hose that blasts hot wastewater indiscriminately. No matter whether they open the spigot further, or close it slightly, the scalding deluge of Fed credit is not in any way equivalent to the individual planning, saving, and borrowing that would go on if we had a free market.