In my review of Norbert J. Michel’s Crushing Capitalism, which I quoted from yesterday, I didn’t have room to highlight 2 other striking parts. First, in a section on why technological improvements in productivity have not caused net job loss, he has a discussion of ATMs. He writes: ATMs automated some of the basic tasks that bank tellers performed and lowered the cost of running a bank branch, which allowed banks to open more branches. Thus, ATMs displaced some bank tellers and other bank employees. From 1990 to 2010, the number of ATMs installed in the United States went from 100,000 to more than 400,000, and the number of bank tellers employed rose from about 500,000 to almost 600,000. Michel also argues, as do Phil Gramm, Robert Ekelund, and John Early in their excellent book, The Myth of American Inequality: How Government Biases Policy Debate, that the welfare state has sapped the incentives of many people to make more income. He writes: An example from a Pennsylvania Department of Welfare study puts these disincentives in very stark terms: “The single mom is better off earning gross income of $29,000 with $57,327 in net income and benefits than to earn gross income of $69,000 with net income and benefits of $57,045.”   (0 COMMENTS)

You can be a realist or an idealist, but you cannot have it both ways. A few weeks back, I heard Kevin Hassett being interviewed on NPR.  At one point, he claimed that economics textbooks explain that tariffs do not raise prices.  I’m pretty sure that Hassett knows that this is not the case, that tariffs do in fact raise prices. So how should we think about this interview?  Some might argue that an economic advisor cannot be blamed for spouting nonsense, as it is a requirement for the job.  Even economically illiterate leaders need smart advisors to implement policy, and it’s no big deal if the NEC director makes a few highly dubious claims to back administration policy. This argument might or might not be correct, but you cannot have it both ways.  If an economist feels it necessary to shade the truth for consequentialist reasons, they must also accept that there will be a hit to their reputation.  If I know that someone will make misleading claims to advance a policy agenda—even an agenda that I happen to agree with—I’ll tend to discount their arguments.  And Hassett’s claim was unusually far-fetched, even by government spokesman standards. Tyler Cowen recently discussed some new research on corporate taxes, coauthored by Kevin Hassett:  You might think Hassett is a biased source here, but there are several other recent results — covered in the past on MR — that point in broadly similar directions. I tend to agree with the claim that higher corporate taxes reduce investment.  Unfortunately, I now view Kevin Hassett as an unreliable policy pundit, and put no weight on his claims without independent confirmation from more reliable sources. Our society has an unfortunate tendency to believe that as long as one can “understand” why someone behaved in a particular way, there should be no price to pay.  I don’t agree—to understand is not to excuse.  If I were to rush my wife to the hospital and parked illegally right out in front, I deserve to get a parking ticket, even if she were about to give birth.  I should be willing to pay that price if I thought the circumstances warranted breaking a rule.  A parking ticket is not a moral condemnation; it is a fee that allows resources to be allocated more effectively.  If administration spokesmen who shade the truth don’t pay a reputational price, then we will get even more disinformation. The New York Times has a very good article on Supreme Court Justice Amy Coney Barrett, who occasionally breaks with conservative orthodoxy on an issue before the court: Though Justice Scalia, her mentor, is remembered as a leader of the legal right, he also surprised the public at times. He famously signed onto an opinion that said burning the American flag was protected by the Constitution. “Justice Scalia used to say, and I wholeheartedly agree, that if you find yourself liking the results of every decision that you make, you’re in the wrong job,” Justice Barrett said in 2024. “You should sometimes be reaching results that you really dislike because it’s not your job to just be deciding cases in the way that you’d like them to be seen.” Unfortunately, not everyone favors integrity: Some on the right are turning her scholarly background against her, complaining that she is too fussy about the fine points of the law and sounding a rallying cry of “no more academics” for future appointments. Some attacks are more personal: Some of Mr. Trump’s allies have turned on her, accusing the justice of being a turncoat and calling her — a mother of seven, with two Black children adopted from Haiti — a “D.E.I. hire.” Her young son asked why she had a bulletproof vest, she said in a speech last year, and her extended family has been threatened, including with pizza deliveries that convey a warning: We know where you live. “We had too much hope for her,” Mike Davis, a right-wing legal activist with close ties to the Trump administration, said in a recent interview. “She doesn’t have enough courage.” This spring, on Stephen K. Bannon’s podcast, he tore into her in such crude terms, even mocking the size of her family, that Justice Neil M. Gorsuch, for whom Mr. Davis had once clerked, phoned him to express disapproval of his comments, according to people aware of the exchange. I’ve always found it to be slightly depressing that people obsess over whether a potential justice was “liberal” or “conservative”.  What do those terms actually mean in the context of law?  Is a conservative justice someone who believes that President Biden had too much power and President Trump doesn’t have too much power?  Or is it someone with a principled view of presidential power? It is relatively easy for a Supreme Court justice to avoid political pressure, as they have a lifetime appointment.  So I’m not trying to make a moral distinction between people in different positions.  Nonetheless, people will be judged based on their behavior.  As President Truman once suggested, “If you can’t stand the heat, get out of the kitchen.”  If you don’t like suffering a hit to your reputation, then don’t work for a boss that places personal loyalty above integrity. PS.  During Trump’s first term, many conservative legal scholars assumed that they were on the same team as right wing populist politicians.  Over time, they will discover that they are on entirely different teams. (0 COMMENTS)

  We often hear that the American dream is no longer achievable for a large fraction of Americans. Some of the people who make that claim go on to advocate more government regulation and spending to help restore the dream. But what if the American dream is alive and well, and what if current government intervention is making it less well than it could be? In his new book, Crushing Capitalism: How Populist Policies Are Threatening the American Dream, Cato Institute economist Norbert J. Michel raises those questions. To answer them, he lays out massive amounts of data that show things are getting better for most Americans, many government interventions slow that improvement, and further government intervention would slow it further. Michel makes his case by thoroughly examining data on wages, household incomes, and poverty, and along the way notes the problems with welfare benefits, minimum wages, and tariffs. This is from my latest Hoover article, “The Resilient American Dream,” Defining Ideas, June 19, 2025. Another excerpt: Have real wages stagnated? We often hear that there has been almost no growth in real wages in the past few decades. For example, in a 2018 book, Oren Cass, a lawyer who is chief economist at American Compass, stated that between 1975 and 2015, “the median worker’s wages have barely budged.” Michel notes several problems with Cass’s claim. I’ll highlight two. First, to adjust wages for inflation so that he can compare real wages over time, Cass uses the Consumer Price Index (CPI), which notoriously overstates inflation. A better index, which also overstates inflation but less so, is the Personal Consumption Expenditure (PCE) index. Using this index, Michel shows that between 1975 and 2015, real wages grew by 22 percent, compared to the 1 percent that Cass computed using the CPI. Second, an important component of wages is employer-provided benefits. Between 1973 and 2019, which was the approximate time period that Cass discussed, these nonwage benefits grew from 13 percent of total compensation to 30 percent. In short, real wages, properly measured, have grown by a large percent since 1973. And: Household incomes Another claim we often hear is that household incomes have stagnated. For instance, Brookings Institution economists Isabel Sawhill and Eleanor Krause stated in 2018 that “American households in the middle of the distribution have experienced very little income growth in recent decades.” But Michel points out that between 1967 and 2015, median real household income rose from $44,895 to $57,230. That 27 percent increase is not huge, but it’s better than “very little.” Moreover, Michel points out two “not-little” problems with the Sawhill/Krause data. First, they didn’t adjust for household size, which has declined substantially. Per person, household income rose over that time by 64 percent. And, as with Cass’s comparison of wages, Sawhill and Krause adjusted for inflation by using the CPI. Using the PCE, Michel concludes that between 1967 and 2015, real household income per person rose by 140 percent. That’s a lot. Read the whole thing.   (0 COMMENTS)

In The Theory of Moral Sentiments, Adam Smith used rules about writing as a metaphor for rules of conduct. He examines conduct by two different measures. In one measure, he considers what rules one would need to follow to, in my inelegant paraphrase, avoid being an actively scummy person. On the other hand, he also considers what rules of conduct one would need to observe to be a positively virtuous and praiseworthy person. In the first case, the rules are fairly simple and straightforward. The rules needed to avoid being an actively awful person, in Smith’s view, “are accurate in the highest degree, and admit of no exceptions or modifications, but such as may be ascertained as accurately as the rules themselves, and which generally, indeed, flow from the very same principles with them.” To Smith, these rules are clear and straightforward, and when there are exceptions to these rules, the exceptions themselves will be equally clear and straightforward, and will embody the same ideas and principles as the rule itself. Fulfilling these rules is a very low bar, Smith says. A person who does little more than minding their own business and keeping their hands to themselves may not inspire admiration, but their conduct “fulfils, however, all the rules of what is peculiarly called justice, and does every thing which his equals can with propriety force him to do, or which they can punish him for not doing. We may often fulfil all the rules of justice by sitting still and doing nothing.” On the other hand, what about the rules one should follow if they want to do more than merely avoid being an actively vicious person? What rules of conduct should you follow if you want to be a virtuous person of good character, the kind of person who is deservedly praiseworthy? Smith says the “general rules of almost all the virtues, the general rules which determine what are the offices of prudence, of charity, of generosity, of gratitude, of friendship, are in many respects loose and inaccurate, admit of many exceptions, and require so many modifications, that it is scarce possible to regulate our conduct entirely by a regard to them.” Citing a rule about how one ought to express gratitude as a seemingly straightforward case, Smith says we find that with “the most superficial examination, however, this rule will appear to be in the highest degree loose and inaccurate, and to admit of ten thousand exceptions.” And this leads to Smith’s analogy with the rules of writing. Smith says the rules of justice, the ones one must follow to avoid being a positive menace, “may be compared to the rules of grammar” and “are precise, accurate, and indispensable.” You either used the correct tense, or you didn’t. You matched your subject with your verb, or you didn’t. But merely producing grammatically correct writing doesn’t make one a great writer, just as “sitting still and doing nothing” does not make someone a praiseworthy and virtuous person. But in the domain of writing, when “critics lay down [rules] for the attainment of what is sublime and elegant in composition” we find these rules “are loose, vague, and indeterminate, and present us rather with a general idea of the perfection we ought to aim at, than afford us any certain and infallible directions for acquiring it.” This is also true of virtuous conduct – any rules or guidelines we might try to explicitly formulate will be loose, vague, and indeterminate. This doesn’t mean nothing useful can be said. But the rules of virtuous behavior are flexible and organic, rather than precise and algorithmic. One of the most respected writers of the 20th century was George Orwell. In one of his more famous essays, Politics and the English Language, Orwell attempted to put out clear and straightforward rules for how to improve the quality of one’s writing. He lays out six rules. Here are the first five: i. Never use a metaphor, simile or other figure of speech which you are used to seeing in print. ii. Never use a long word where a short one will do. iii. If it is possible to cut a word out, always cut it out. iv. Never use the passive where you can use the active. v. Never use a foreign phrase, a scientific word or a jargon word if you can think of an everyday English equivalent. These seem to be rules that are like rules of grammar – precise and accurate. So did Orwell manage to crack the code, and create clear rules for sublime and elegant composition? No. His final rule is as follows: vi. Break any of these rules sooner than say anything outright barbarous. The best Orwell could do was say “Follow these rules to improve the quality of your writing, but in cases where following them produces poor writing just break the rules.” Even his rule about breaking the rules isn’t very specific – what exactly would make a bit of writing “barbarous” is certainly a loose, vague, and indeterminate guideline. To be clear, I think this is to Orwell’s credit – he recognized his inability to create rules that would always work and therefore his rules should not be treated as sacred or unbreakable. What’s also interesting is that Orwell, like Smith, expected people to be able to recognize what is good or bad writing (or virtuous behavior) independently of the rules. Orwell’s final injunction is to break the rules when they produce bad writing. But how are we to know what constitutes bad writing? The answer can’t be whether or not the writing matches the rules – if that were the case, Orwell’s final rule would make no sense. Orwell, like Smith, understood that rules are but an imperfect attempt to describe an independently existing phenomenon – and that the reality of that phenomenon determines the rules rather than the other way around. (0 COMMENTS)

Back in February, Donald Trump claimed that the European Union was formed to “screw the US” on trade.  With the reimposition and then the repausing of tariffs on the European Union, the Trump Administration has repeated that claim, sometimes including that a value-added tax (VAT) also exists to screw Americans.  Of course, these are silly claims (see here for an interesting history of the European Union and here for Scott Sumner’s discussion of a VAT.  Brian Albrecht also has a great discussion), but they are par for the course of Trump’s victimhood rhetoric.  For the sake of argument, let us take the claims as true: the European Union was formed to screw over the US on trade and that VATs do exactly that.  How successful has said screwing been? Answer: not very. In the New York Times, David Brooks has a data-laden piece that explores the US and European economies.  What he finds, citing data from the OECD, The Economist, and political scientist Yascha Mounk, is that the US is extraordinarily wealthier than Europe and that those gains have expanded, not contracted, over time: “The so-called era of neoliberal globalism has not produced the American carnage that Trump imagines. According to the political scientist Yascha Mounk, in the 1990s and early 2000s, America and Europe were similarly affluent. Today the American economy has left the other rich economies in the dust. American G.D.P. per capita is around $83,000, while Germany’s is around $54,000, France’s is around $45,000, and Italy’s is around $39,000.” Average wages in Mississippi (the US state with the lowest average wages) are higher than most EU countries as well. The US smokes Europe in other ways as well.  The United States has 1,873 firms valued at over a billion dollars.  That’s over 600 more than all of Europe.  The United States currently has 96 unicorn startups, roughly five times the number in the European Union.  According to the World Bank, the United States is, by far, the highest destination for foreign (and domestic) investment.  In 2023, the US had a net investment flow (dollars invested in the country minus dollars invested outside of the country) of $348.8 billion.  In other words, investors wanted to invest more in the US than Americans wanted to invest overseas.  By contrast, the EU had a net investment flow of -$379.5 billion, meaning Europeans wanted to invest more outside of the EU than foreigners wanted to invest in the EU.  When people want to form companies, they come to America, not Europe.   We can go on and on. Some might argue that there are certain intangible things that make Europe better than the US.  Perhaps, but irrelevant here.  The claim I am responding to is that Europe is screwing America on trade.  If the European Union was formed to screw over America, they are making an absolute hash of it. (0 COMMENTS)

  Celebrate the liberty trifecta on a site funded by, appropriately enough, the Liberty Fund. Five years ago, I didn’t even know why Apple put Juneteenth on my Mac calendar. I just assumed that it was a play on words. And then I checked. Juneteenth really is rightly celebrated as the end of slavery in America. Two other dates in June stand out for those who, like me, are into freedom: June 12 and June 30. Interestingly two of the three (June 19 and June 30) were historic days on which slavery in America ended. And two of the three (June 12 and June 19) were historic days on which black Americans made major strides. June 12 On June 12, 1967, the U.S. Supreme Court found, in Loving v. Virginia, that anti-miscegenation laws were illegal. Richard Loving, a white man, and Mildred Loving, a black woman, had gotten married in Washington, D.C. in 1958, where interracial marriages were legal, and then returned home to Virginia. Five weeks later, they were arrested by the local sheriff. Think about that. They were married in 1958 and they didn’t win their case until 9 years later. The wheels of justice move slowly. By the way, what a great name for a Supreme Court decision about two people in love. Those laws affected my white friend Fred Jealous, who married a black woman, Ann Jealous. They and their son Ben Jealous tell the story here. They got married in Washington, D.C. because they couldn’t legally marry in Maryland, where Ann grew up. June 19 The Emancipation Proclamation of January 1, 1863 did not come close to ending U.S. slavery. If you carefully read the actual proclamation, you will see why. It was actually on June 19, 1865 that slavery was ended. That was the day that Major General Gordon Granger ordered the enforcement of the proclamation in Texas. It makes a lot of sense to celebrate the 160th anniversary of the abolition of slavery June 30 On June 30, 1973, the federal government’s authority to draft American men expired. It was not renewed. 52 years later, it still has not been renewed. That’s 2 generations of American men.   HT2 Taylor Davidson. (0 COMMENTS)

Political violence is violence for political reasons. More precisely and to avoid circularity, the difference between political violence and ordinary violence is that the former is motivated by resistance to, or promotion of, the imposition of some collective choices on others. For example, “the left” wants to impose redistribution (of money and other advantages of life) in favor of the poor; or “the right” wants to impose police-state surveillance and militarized police. This characterization is overly blunt, but the actual content of the left’s or the right’s policies does not matter as much as the imposition of some preferences and choices on others. Political violence results from conflicts about collective choices. Imagine a very different system: a society with no collective choices. To make the model watertight, also assume that there is no demand for political choices: everybody is tolerant of what others do within some traditional and very general rules, such as “thou shall not kill nor steal.” All individuals want laissez-faire and accept its consequences. Even if you don’t think that such a state of the world can exist or remain stable, the thought experiment helps distinguish political violence from other sorts of violence. In this society, there would be violence, either common-law crimes or, at worst, the Hobbesian “war of all against all.” Some self-interested individuals steal and murder because they have a comparative advantage at using “the dark side of the force” (see my post “The Economics of Violence: A Short Introduction”). But there would be no political violence (except perhaps from those who fight for or against imposing a state). Political violence cannot exist without the “political.” Butler Shaffer, a University of Miami law professor, used psychological theories to argue that one cause of violence in society is the political-legal system that imposes arbitrary restrictions on individuals’ non-coercive actions (see his “Violence as a Product of Imposed Order,” University of Miami Law Review 29 [1975]). Auberon Herbert, a British individualist anarchist, argued at the end of the 19th century that the terrorist revolutionaries of his time were the monstrous offspring of the state. Terrorism, he believed, was “the essence of government,” and the revolutionaries simply wanted to impose a different menu of collective choices (see my post “Terrorism as ‘the Essence of Government’”). From these viewpoints, politics, which is violence or threats thereof, naturally fuels violence. Note how astute is the attempt by James Buchanan and his school of thought to avoid the dilemma between no collective choice at all (the anarchist’s ideal) and the violence of collective choices. He asks us to imagine a unanimous social contract to which all individuals agree because it represents a minimal set of rules that are in the interest of each and every individual (see his seminal The Limits of Liberty and my review of the book). At this unanimity level, but at this level only, politics is not coercion: it is free political exchange for the future production of “public goods.” One cannot speak of authoritarian intervention and government violence if the intervention is unanimously consented to. Buchanan is deeply democratic in the sense that “each man counts for one.” Democracy is only desirable to the extent that it is an approximation of unanimity. The free society thus characterized is very different from the notion of self-government as an unlimited government by the majority, which we may call naïve democratism. The more the individuals’ lives are structured by collective choices or the more intense is the demand for them, the more potential exists for political violence. The individuals who have not voted for, or do not agree with, the constraints imposed on them have reasons to resist and, under certain conditions, to resist violently. The fact that those who actually take action are often not the most intelligent ones does not change the general argument. Today’s “philosophical” or “reluctant” anarchists like Michael Huemer or Anthony de Jasay argue that there is no moral obligation to obey the state but do not preach violent revolt, at least in the context of a more free than unfree society. Note that the absence of overt political violence does not imply the absence of political violence. The state can be so powerful that its threats of actual violence discourage most resistance, including violent resistance. A large portion of individuals may feel their preferences coercively negated without having any hope of successful resistance. The assassination of Minnesota Democratic politicians on June 14 is only more tragic for the fact that they probably, like most people, did not understand how naïve democratism fuels violence. In Buchanan’s constitutional perspective, only when a government decision respects rules that are virtually unanimous can we expect it to be considered legitimate, that is, accepted by everybody. A collective choice by a small, temporary, and fragile minority that seriously negates some individuals’ preferences can be expected to fuel political violence. Despite its tiny majority in the state legislature, the Democratic-Farmer-Labor Party (the name of the Democratic Party in Minnesota) tried to legislate a program opposed by a large number of voters. About Melissa Hortman, one of the assassinated politicians, the Wall Street Journal notes (“Minnesota Lawmaker Killed in ‘Act of Targeted Political Violence,’” June 14, 2015): In an interview with The Wall Street Journal last year, Hortman said it was important for members of the Democratic-Farmer-Labor Party to use the majority they enjoyed in the legislature to push progressive legislation. “The [Democratic] governor’s point of view, and our point of view, was you win elections for a reason,” she said at the time. “All these things that we talked about that we were going to do in the 2023-24 session were things we had run on.” Naïve democratism not only fuels political conflicts and violence, but it also explains why both the left and the right can claim to be the savior of democracy. What needs to be saved, against both sides of the conventional political spectrum, is individual liberty. We observe the same problem at the federal level, with the positions of the two major parties currently inverted compared to Minnesota. The problem also exists in most if not all democratic countries, even if it is currently more acute or visible in the United States. ****************************** St. Bartholomew’s Day massacre (1572), by François Dubois. Wikipedia Commons   (0 COMMENTS)

Public choice theory and its methodological-individualist foundations can be illustrated with a currently hot question: Will President Trump order an attack on Iranian military assets? It is, of course, not “the American people” who will decide; nobody has had lunch with him or her. (On this point, see my Independent Review article “The Impossibility of Populism.”) Although Mr. Trump wields extraordinary power, he will be influenced by his entourage, that is, mainly courtiers, minions, and cronies around him, and some individuals in his party’s remaining centers of influence. He will, if only intuitively, take into account the deep divisions on war issues within his voters’ base, as well as his pacifist or isolationist electoral promises. But his choice will still depend on how he analyzes or “feels” the situation. He may try or claim to protect the “US interest,” but such a thing does not exist given that the 320 million American adults (counting only American citizens) have diverse preferences and interests that cannot be arithmetically added up. Mr. Trump would not know how to think in terms of some rule-based common interest as conceptualized by constitutional political economy (an offshoot of public choice theory). The “US interest” is what he defines or conceives or imagines as such. Like on other topics—the results of the 2020 election, TikTok, presidential pardons, Haitians eating American pets, the compromission of the Department of Justice, the further militarization of the police, the decentralization of American federalism, the effect of tariffs, the growth of the public debt, the well-being and opportunities of ordinary people, and so on and so forth—Mr. Trump’s decision will be influenced by his own interests as he sees them. This does not imply that another strongman—perhaps a saint or wise man cognizant of the considerations above—could not be guided by other motivations. For example, he (or she, of course) could incorporate in his decisions a true concern for his fellow humans and for the future of liberty and a free society, but it would still be his conception of such concerns. This being said, prudence and analytical rigor strongly suggest to assume that rulers typically follow their personal interests. Note also that the considerations above apply whether one believes or not that, in the present case, destroying the Iranian state’s capacity to acquire nuclear weapons is justified. All these considerations confirm how dangerous it is to leave important state decisions largely in the hands of one individual, even if he is a genius anointed by 49.8% of American voters. The classical liberal and libertarian doctrine, developed over the last three or four centuries, defends the necessity of constraining and dividing state power. ****************************** One scenario for the Fordow enrichment site in Iran (0 COMMENTS)

Introduction: This teaching note provides college instructors with guidance on teaching students about money, including what it is, what it is not, and distinctions between different forms like fiat money and cryptocurrency. Teaching college students about money is one of the easiest tasks. They arrive in class with a strong interest in money, motivated by their immediate needs, and naturally curious about how their future aspirations will be fulfilled by earning, holding, and investing it. This makes teaching about the role of money straightforward. To launch your discussion of money, ask your students to define money and explain its relationship to trade, prices, labor markets, capital accumulation, economic growth, and institutions? Accept a variety of answers, pushing students to try and connect most things they call “money” to a prospering society. Conclude by saying that money is what greases the wheels of exchange. That is, money in its various forms (like fiat money or bimetallic currency) is anything that serves three functions in a society – medium of exchange, store of value, and unit of account.  Through a show of hands, ask students to choose one. On graduation, they land their first job. Which do you choose- get paid in dollars or accept Bitcoin? Record the votes.   The Three Functions of Money in a Modern Economy As an economics instructor, it is crucial to help students understand the vital role that money plays in a modern economy. By breaking down the three primary functions of money—medium of exchange, unit of account, and store of value—students can better grasp how money contributes to a stable and prosperous society. Stable money plays critical roles in modern societies by supporting market transactions, lowering transaction costs, measuring economic activity, and preserving wealth. Begin your discussion of what money is by displaying the three functions as listed below. Define the functions with highlights to show how it helps people in their economic lives. Medium of Exchange Money, such as the U.S. dollar or the Euro, is widely accepted as payment for goods, services, and resources. This acceptance makes trading significantly more efficient than bartering, which requires a direct exchange of goods for other goods. By eliminating the need for a “double coincidence of wants” between buyers and sellers, money facilitates voluntary trade and wealth creation in a complex system comprising local, national, and international economies. Money substantially reduces transaction costs, facilitating trade between partners and helping them come to agreement on the value of goods, services, and resources. Unit of Account Money serves as a common measure of value, allowing us to compare the worth of different goods, services, and resources. For example, we can easily determine how many hours of work are equal in value to one car or how my apples are equal in value to one computer. This function also enables us to measure economic activity, such as our take-home pay, a small business’s total revenue, a firm’s total cost, or a country’s Gross Domestic Product. The unit of account function is implicit in discussions of prices, wages, interest income, and rents, which are expressed in monetary units.   Store of Value When inflation is stable, money can be held and exchanged later without losing purchasing power. When money functions reliably as a store of value, savers and lenders are more likely to participate in financial capital markets. This participation boosts investment and promotes capital accumulation, supports innovation, and helps spur technological advancements in ways that are not possible in a barter economy or a modern economy plagued by inflation. It is important to note that periods of surging inflation can erode money’s ability to function as a store of value.    What Money Is NOT Knowing what money is not is equally important as knowing what it is. Money is not wealth or income. Wealth refers to the total value of assets owned by an individual, household, or nation, minus any outstanding liabilities. Money is a financial asset that contributes to wealth, but it is not the only component of wealth.  Focusing solely on money can lead to an incomplete understanding of an individual’s, business,’ or a nation’s economic well-being. Income is the flow of money received over a period of time, typically through wages, salaries, investment, or business profits. It is distinct from money itself, which is a stock concept. Income represents the money coming in, while money represents the amount held at a given point in time. Money vs. Cryptocurrency Everyone has heard about cryptocurrency. It’s a digital currency that uses cryptography for security, making it hard to counterfeit. Cryptocurrencies like Bitcoin operate independently of central banks and governments, relying on a decentralized system called blockchain to record transactions and manage the issuance of new units. It’s very popular, especially among young people, but it’s important to understand how it differs from the traditional money we use daily to transact. The money used daily is fiat currency – money that the governments say is money and is widely accepted by individuals living in households and operating businesses.  In modern society, it is not backed by precious metals or other commodities. While cryptocurrency shares some characteristics with traditional money, it’s not widely accepted as payment for goods, services, or resources. Plus, its price can be really volatile, making it difficult to function as a unit of account or store of value. Finally, it lacks the backing of central authorities, putting into question its long-term viability and potential for misuse.  U.S. Dollars or Cryptocurrency?  To return to the question posed to students above, cryptocurrency is a fascinating development in the world of finance and technology, but it’s essential to understand its limitations when compared to traditional money. While cryptocurrencies like Bitcoin operate on a decentralized system and offer a unique approach to transactions, they lack the widespread acceptance, stability, and backing of central banking authorities that traditional currencies possess. Consider the case of Odell Beckham Jr., a Cleveland Browns’ football basketball star who chose to receive his salary in Bitcoin. In November 2021, his contracted salary of $750,000 was converted into 11 Bitcoin. However, by January 2022, the value of Bitcoin had dropped by approximately 55%, reducing the value of his salary to around $413,000. Additionally, Beckham faced significant taxes based on the original U.S. dollar amount, with a combined federal and state tax rate of 50.3%. As a result, his net pay amounted to only $35,000, compared to the $373,000 he would have received if he had been paid in U.S. dollars. This example highlights the challenges of using cryptocurrency as a stable store of value, a unit of account, or a reliable medium of exchange.  Finally, the fact that the federal government does not accept cryptocurrency for tax payments further underscores its limitations as a replacement for traditional money. At the same time, the number of businesses accepting cryptocurrencies for payments and issuing gift cards is growing along with the increased popularity across wider groups of individuals.  As students, it’s crucial to stay informed about the developments in the world of cryptocurrency while also recognizing the fundamental differences between it and the money discussed in college classrooms. 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The Economist has an interesting review of a new book entitled Peak Human, by Johan Norberg.  This caught my eye: Song emperors were much keener on the rule of law than their predecessors, who tended to rule by whim. To enforce predictable rules, they hired lots of officials via meritocratic exams. The first Song emperor enacted the “unconventional policy reform” of “[not] killing officials who disagreed with him”.Peasants were granted property rights and allowed to move around, rather than being tied to a lord’s land. Farm output more than doubled, and the extra food supported much larger cities. In the 1100s Kaifeng, the capital, had 65 times the population of London. Canals made domestic trade easier. International trade followed. . . .  Artisans devised new industrial processes, such as burning coal to smelt iron. The invention of movable type in the 1040s allowed the printing of books so cheap that one philosopher griped that people would stop learning the classics by heart. By 1200 Song China had the world’s richest economy, a merchant navy with “the potential to discover the world” and a habit of tinkering that could have brought on an industrial revolution centuries before Europe’s. Unfortunately, the Chinese golden age did not last, as the Ming dynasty switched from classical liberalism to statist nationalism: Free movement within the country was ended. Free exchange gave way to forced labour. Foreign trade was made punishable by death, and even the construction of ocean-worthy ships was banned. Pining for the good old days, a Ming emperor brought back the fashions of 500 years before. Men caught with the wrong hairstyle were castrated, along with their barbers. Largely thanks to reactionary Ming policies, Chinese incomes fell by half between 1080 and 1400. The country did not recover its mojo until it opened up again in the late 20th century. By modern standards, all ancient civilizations were highly flawed.  Nonetheless, Norberg shows that at least in a relative sense, the golden ages of civilizations in many different eras tended to occur when political and economic policies were marginally less restrictive. (0 COMMENTS)