Woody Holton, Professor of History at the University of South Carolina, has written a nearly 800-page tome entitled Liberty is Sweet and sub-titled The Hidden History of the American Revolution. His previous books include a definitive biography of Abigail Adams and Unruly Americans and the Origins of the Constitution, a work I much admire. Even before this recent Holton book was released, it ignited controversy. Nikole Hannah-Jones, creator of the New York Times’ 1619 Project has touted it as evidence for the project’s claim that the Revolution was provoked by a British threat to slavery. After Holton argued in the Washington Post on July 4th, 2021, that “Whites’ fury at the British for casting their lot with enslaved people drove many to the fateful step of endorsing independence,” six leading Revolutionary historians responded in a critical open letter. Tom Mackaman was more scathing at the Trotskyist “World Socialist Web Site,” which previously had published attacks on the 1619 Project by several scholars. The resulting debate even spilled over into Twitter. But the book itself is more guarded and restrained than either its early champions or detractors have presumed. Liberty is Sweet is certainly interesting, densely packed with detail, and exhaustively researched, with nearly every paragraph documented with an ample endnote. It does have a unique focus and gives greater attention to certain aspects of the Revolution than do other general histories of the period. Some will have quibbles and minor disagreements with Holton’s interpretations. Yet, despite Holton’s casting occasional aspersions on an alleged standard “myth” about the Revolution, his account doesn’t really stray very far, at least with respect to its overall interpretation of the Revolution’s causes and consequences, from other scholarly volumes on the topic. Even Gordon Wood, one of the most prominent historians who signed the critical open letter, gives the book a terse but apt jacket blurb: “A spirited account of the Revolution that brings everybody and everything into the story.” Holton’s account is almost relentlessly chronological and occasionally disjointed. Thus his description of the internal revolt of the Regulators in North Carolina that took place well before armed conflict with Britain (and is portrayed, not entirely accurately, in later seasons of the TV series “Outlander”) is broken up across three separate chapters interspersed with the treatment of other events. In covering the major contemporaneous military campaigns that resulted in the British occupation of Philadelphia and the battles near Saratoga in New York, the book jumps back and forth between the two theaters, rather than separately treating each in full. Although this approach should pose few problems for those familiar with the period, it may compromise the appeal of Holton’s book for a more general audience. In the first of the book’s three distinct sections, covering the events leading up to the break with Britain, Holton addresses the question of slavery’s role in motivating the Revolution. The more extreme proponents of this charge invoke the 1772 Somerset court decision in Britain that freed a slave brought from the colonies. But Holton only goes so far as to state: “For many slaveholders, it strengthened the case against the king.” And he concedes that other measures “proved equally decisive.” Indeed by this point his narrative has covered almost a decade of colonial grievances and protests against such measures as the Proclamation of 1763 and Stamp Act of 1765. Moreover, in an endnote, Holton even backtracks slightly, admitting that while “Somerset angered slaveholders (especially in the Caribbean), there is much less evidence for the corollary contention that one reason white southerners favored secession from Britain in July 1776 was that they feared Britain’s growing anti-slavery movement.” Specifically citing and contradicting Hannah-Jones’s “Introduction” to the 1619 Project, he adds that “This claim vastly exaggerates the strength and size of the of the British abolition movement in 1772.” Only in the book’s second section, covering the war itself, does Holton engage in a bit of a stretch. Half a year after conflict had erupted in Massachusetts, and after royal authority had evaporated in Virginia, the Virginia assembly effectively governed independently of the Royal Governor, the Earl of Dunmore. Dunmore had fled to a British warship, and in November 1775 he issued a proclamation offering freedom to any slaves or indentured servants who would fight for the British. The offer applied only to Virginia slaves and servants owned by rebels and not to those owned by Loyalists. Holton boldly asserts that “no other document—not even Thomas Paine’s Common Sense or the Declaration of Independence—did more than Dunmore’s proclamation to convert white residents of Britain’s most populous American colony to the cause of independence.” On the one hand, historians have long recognized that Dunmore’s Proclamation stiffened resistance in Virginia, especially because it raised the specter of slave revolts. Robert Middlekauff, in his history of the American Revolution, published in 1982 as part of the Oxford History of the United States series, wrote “Whatever loyalty there was in Virginia pretty much flickered out with Dunmore’s call.” Even Murray Rothbard in the fourth volume of Conceived in Liberty acknowledges this effect. Notice also that Holton is not claiming that the proclamation sparked the rebellion itself but only that it promoted the desire for full independence in Virginia alone. Still, on the other hand, Holton’s implication that Virginians would have otherwise hesitated about declaring independence seems far too speculative a counterfactual. Moreover, he himself in subsequent pages brings up several other factors that propelled the rebels toward a complete separation from the mother country. British General George Clinton subsequently issued a broader proclamation offering freedom to rebel-owned slaves in all colonies, regardless of whether they fought for the British, again excluding those owned by Loyalists. Although Holton several times refers to an “Anglo-African alliance,” it is unclear how far he can push this term. He does scrupulously record nearly every military engagement in which Blacks participated, no matter how minor their role. But he does so on both sides of the conflict, concluding: “By war’s end, some nine thousand African Americans had served in the Whig army and navy—roughly the same number who enlisted with the British.” It is true that additional fleeing slaves who did not serve as British combatants tip the scale toward some kind of alliance. Yet while more than three thousand emancipated slaves joined the British evacuation from New York at the end of the war, Holton finds that many of the African-Americans who shipped out of British-held Savannah and Charleston “were likely to remain a slave,” either handed over to white Loyalists “or snapped up by a British officer,” often landing in the British Caribbean slave colonies. In a subsequent post, I will look at Holton’s attentive treatment of African-Americans prior to, during, and immediately after the Revolution.   [Editor’s note: An earlier shorter version of this review appeared in Reason (March 2022).] Jeffrey Rogers Hummel is an historian and professor of economics at San Jose State University. (1 COMMENTS)

Speaking of prime minister Boris Johnson and chancellor Rishi Sunak (among other British politicians), the Financial Times notes (“Police Issue 50 More Fines over Westminster ‘Partygate’ Breaches,” May 12): Johnson, his wife Carrie and Sunak were last month fined £50 each for attending an illegal birthday party held at Downing Street in June 2020. That politicians or other rulers fall under the laws they have imposed on ordinary citizens should be a cause for celebration as one realizes the size of the spider web these rulers have spun against individual liberty. Even if one grants that the recent pandemic was a special emergency, the very concept of “illegal birthday party,” also enforced on one’s own property or with the permission of the property owner, dramatically illustrates how government power has grown and how monstrous Leviathan has become. This must be due to “neoliberalism,” the recent decades of deregulation and wild-West liberty that authoritarians (and some mistaken analysts) imagine as a scapegoat for everything wrong in today’s world! (0 COMMENTS)

The government recently announced that the 12-month rise in the CPI slowed from 8.5% in March to 8.3% in April.  But this is not good news, as inflation is actually getting worse. People have become used to thinking of inflation in a “let bygones be bygones” fashion.  Don’t cry over spilled milk; let’s focus on the inflation rate going forward.  That might be appropriate under the Fed’s old inflation targeting regime, but is not appropriate under average inflation targeting.  Consider the following graph of 5-year TIPS spreads: With the recent decline, 5-year TIPS spreads are about the same as 6 months ago, albeit still higher than a year ago.  But the situation is much worse than it looks.  To see why, consider the following example: Suppose that in 2021, 5-Year TIPS spreads were 3%, and they remained 3% in 2022.  Also assume that inflation was 8% during 2021-22.  Then investors in 2021 would have been forecasting a total of roughly 15% inflation over 2021-26.  In 2022, investors would be forecasting a total of roughly 20% inflation over 2021-26 (8% + 4*3%).  In that case, the forecast inflation rate for 2021-26 would have risen from 3% to 4%  [(8% + 4*3%)/5] between 2021 and 2022.  That’s not a big problem under inflation targeting, but it is a big problem under average inflation targeting where past inflation rates matter.  This is why the inflation problem is getting steadily worse, even as inflation forecasts stay around 3%. Today’s report showed a 0.6% jump in the core CPI, perhaps the single most discouraging data point in the past year, so it’s not just food and oil.  The Fed remains behind the curve.  This reminds me a lot of the 1970s; where during the early stages of the Great Inflation there was lots of excuse making, lots of people denying the reality of excess demand.  There was also a (false) perception that Fed policy had tightened because interest rates had increased, even though interest rates do not measure the stance of monetary policy. Christopher Waller recently suggested that it wasn’t just the Fed that failed to predict the surge in inflation.  That’s true.  But the problem with Fed policy is not that they failed to anticipate the rise in inflation, it’s that they’ve (de facto) abandoned FAIT.  Under a credible FAIT regime, the market will do the forecasting.  Even if the Fed is behind the curve, the markets will tighten policy by pushing up rates in anticipation of the future Fed tightening required to produce an average inflation rate of 2%.  Without that commitment, the markets will not engage in stabilizing speculation and the Fed’s job will become much harder.  Without FAIT, the Fed actually does have to become a sort of Nostradamus. It does have to accurately predict inflation and know exactly when to raise rates. PS.  Yes, FAIT is not the same as simple average inflation targeting of 2%.  But using any reasonable interpretation of FAIT the Fed has abandoned its new policy regime.  For instance, James Bullard once suggested that FAIT was sort of like NGDP level targeting, but NGDP growth is also far too high relative to trend.  And given the recent decline in the labor force, one could argue that NGDP should be below trend.   (0 COMMENTS)

The benefit of every government report on inflation is to remind us how even intelligent people are often confused—even if they may have once been acquainted with the economic way of thinking. I read in today’s Wall Street Journal (“Inflation Slipped in April, but Upward Pressures Remain,” May 11, 2022): Those dynamics are pushing up wage gains—adding multiple pressures on inflation. Some employers are raising prices to offset higher labor costs. Strong wage growth and hiring are also simply putting more income in Americans’ pockets. How can the reader untie this Gordian knot? Here is the obvious interpretation: Past inflation has led to higher wages, which lead to more price increases (more inflation) which, combined with higher consumer incomes due to higher wages, will generate more inflation. Why wouldn’t the cycle repeat? How can inflation, once begun, ever be stopped? We are not told. But it is suggested that only the mysterious and powerful hand of government can stop it. But then, why didn’t the government’s powerful hand stop inflation before or prevent it from starting in the first place? The idea that inflation or at least its persistence can only be caused by government creating money seems to have been forgotten if it ever was learned. The figures below from John C. Frain, reproduced from a previous post of mine, may serve to illustrate; the second figure eliminates the two top outliers of the first one. The correlation between the money stock (although an admittedly imperfect measure of the money supply) is striking. Growth of Money Stock and Price Inflation in 87 Countries, Second Half of the 20th Century (Source: John C. Frain, “Inflation and Money Growth: Evidence from a Multi- Country Data-Set,” Economic and Social Review 35:3, [2004], 251–266) Growth of Money Stock and Price Inflation in 85 Countries, Second Half of the 20th Century (Source: John C. Frain) (0 COMMENTS)

Alan Reynolds beat me to it, with an excellent analysis of the latest inflation numbers. Alan notes that “CNBC, like others, reported that ‘The consumer price index accelerated 8.3% in April.'” No it didn’t. It rose by 8.3 percent from the same time last year. But the CPI rose by 0.33 percent in April. Compare that to its 1.2 percent rise in March. Inflation came down. Do I expect it to come down further? Not necessarily. But I expect the month-to-month inflation rate to stay well below 1 percent and probably below 0.7 percent. For my earlier discussion of this, see my “Badly Misleading Inflation Headlines,” EconLog, April 14, 2022. (0 COMMENTS)

Different individuals not only have different preferences or values but also, whatever the degree of equality in their society, face different circumstances. Not surprisingly, these two sets of conditions will typically imply different evaluations of specific social (including economic and political) phenomena. A banal example is given by a title in yesterday’s Wall Street Journal: “Miami Locals Are Steamed Over Relocating New Yorkers Driving Up Apartment Rents.” The subtitle reads: Apartment rents have soared 58% in the Miami area over the past two years, and in some cases doubled over last year Some of the apartments, condos, or houses for rent may belong to “bad” out-of-Miami landlords, but certainly not all. The increase in housing rents brings corresponding benefits to Miami residents who may decide to rent their houses or parts of them. Thus, the increase in rents represents a cost to some Miami residents but a benefit to others. (The fact that it is an opportunity cost for all—housing properties that are not rented out deprive their owners of higher rental incomes—does not change the fact that higher rents represent an increase in the value of any Miami resident’s property; it increases their opportunities.) Why would the Wall Street Journal take side for one group or the other? To play politician? Bad economics justifies bad politics. Tribalism, “us” against “them,” lurks not far below the surface. A Miami renter complains: We’re getting pushed out by these people who aren’t native Miamians,” she said. “It’s happening with everyone I know that’s renting. Miami locals don’t have the same interests regarding the prices of housing, maid services, groceries, or hula hoops.  However—and this is the second idea to understand—they do have, like the rest of mankind, a general common interest in prices being determined on free markets so that they transmit the correct signals regarding the relative scarcity of resources and the relative intensity of the demand for different goods and services. General prosperity depends of correct price signals. People have a common interest in being able to make voluntary exchanges that determine these prices. It is true, though, that understanding such a common interest in a free society does require some knowledge of economics, a tricky problem  that James Buchanan has pointed out. (0 COMMENTS)

I frequently meet conservatives who defend nationalist regimes as being good for business. Next time I meet one, I’ll be sure to ask how business in Russia is doing these days.Bloomberg has a good article on how Hindu nationalists are turning on India’s highly successful tech companies: For a growing number of Hindu nationalists, home-grown tech companies are not national champions but enemies within: the agents of a global culture bent on dissolving traditional values by allowing women to work instead of staying home to have children (Infosys boasts that 39% of its employees are female); where people are promoted on merit rather than confined to their caste identity; and in which cities expand at the expense of villages. . . .The original founders of Infosys are now not only billionaires in their own right but godfathers of the next generation of Indian tech, taking young entrepreneurs under their wings and investing in dynamic new companies. But for all that, both they and their families are no longer exempt from the anti-globalization forces that are raging across the world. And the general business atmosphere in India is getting colder, with private investment falling and the economy slowing even before Covid struck. I suspect that Hindu nationalists are correct that companies like Infosys are “agents of a global culture bent on dissolving traditional values”.  Where I differ from them is that I believe that abolishing caste and patriarchy is a good thing. PS.  Here’s another perspective: All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind. The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. Let’s hope this is correct. (0 COMMENTS)

A $100 bill, if you can keep it. In the May 9, 2022 Wall Street Journal, Markos Kounolakis, a visiting fellow at the Hoover Institution, a former Moscow correspondent for NBC Radio, and the “second gentleman” of California, writes that he wants to hurt Russians by rapidly phasing out the U.S. $100 bills that many of them have. His article is titled “For Russia, It’s All About the Benjamins.” Kounolakis writes: So while sanctions have failed to dissuade Mr. Putin’s military aims, in part because they do little to affect the well-being of most Russians, rapidly phasing out the $100 could cause real domestic backlash against the war in Ukraine. In the current Russian banking environment, there wouldn’t be an easy way to convert these discontinued bills to other currency. Russians’ savings would be reduced to paper. He explains: It would be impossible then to hide the effect of Mr. Putin’s war from his base. President Biden should say that the $100 bill is terminated because of the Russian leader’s war in Ukraine and the violence he has inflicted on civilians. Mr. Putin can obscure and spin this all he wants, but Russians will still know that his actions led to their savings being wiped out. Kounolakis has fallen victim to the idea that when country A’s government hurts people in country B because of actions of country B’s government, people in country B will go after their own government. The more likely effect is that they will unite with their own government against the nasty government of country A that did them harm. Putin’s actions may well have led the U.S. government to do the nasty thing to them. But they will know that the U.S. government’s actions “led to their savings being wiped out.” I discuss that in more detail here. Kounolakis goes further. He writes: It could even be a good idea to sunset the $100 world-wide. Almost 80% of U.S. $100 bills reside overseas and a lot of that fuels bad actors. Easy-to-transport cash is a key to global corruption and crime, as former Treasury Secretary Larry Summers has argued. Large Western bills like the $100 are what terrorists and drug traffickers use to conduct much of their trade. This is how the still-circulating €500 bills got their moniker “bin Ladens.” A lot of it fuels bad actors. But what percent? 50%? 20%? 10%? And although he talks about terrorists and drug traffickers in the same sentence, there’s a big difference. Terrorists generally kill innocent people. Drug traffickers sell drugs to willing buyers. Moreover, a lot of innocent people find $100 bills incredibly useful. Kounolakis might find it hard to believe, but about 5.4% of American households don’t have bank accounts. If he got his way, he would be inconvenienced very little. But his policy would inconvenience a lot of innocent people a lot. And notice his last sentence, about €500 bills. One way the U.S. government gets revenue is with seigniorage on its currency. The U.S. dollar competes with the Euro and the Yen. While the U.S. dollar is still dominant, one disadvantage it has vis-à-vis the Euro is that the U.S. doesn’t have a $500 note. Kounolakis’s proposal would increase that disadvantage. I rarely find the comments of readers on the Wall Street Journal’s site worthwhile. Today, however, was a rare exception. A number of readers had good criticisms of Kounalakis’s proposal. Here was my favorite, from John Guerin: I just don’t like the idea of wiping out some innocent person’s retirement to hurt a dictator that feels no pain. A bridge too far. Amen, John. Trivial Note: The person whom Ben Franklin’s expression reminds me of is Jack Benny. (0 COMMENTS)

When two great readers get together to talk abut books and the practice of reading, it’s a roller-coaster ride of recommendations. And that’s just the beginning of what you’ll get from listening to this episode. EconTalk host Russ Roberts welcomes Tyler Cowen back to the show for this rollicking celebration of readers and reading. How do Roberts and Cowen choose what to read, and how do they actually read once they’ve chosen? Roberts says late in the conversation that he misses his youth when he would curl up with a good book for a whole day. When’s the last time you did that? (We hope it was recently!) How do you choose, and what books have been added to your stack since listening to this episode? As always, we’d love to hear from you.     1- What are some of the “rules for reading” Roberts and Cowen recommend? What about rules for acquiring books? (We hesitate to even ask this, but in light of Roberts’s admission about his recent move, how do you decide what books to get rid of?)   2- Why does Cowen suggest people should re-read (2-5 times!!!) the classics? (He mentions Plato, Tocqueville, and Adam Smith as examples.) How might books become different upon subsequent readings? Are there any books you have read more than once cover-to-cover? What are they, and why did you reread? Why do longer books (from Tolstoy to Rand to Rowling) seem to have more influence through history?   3- Cowen asks Roberts, “What is the thing you would wish to tell your listeners that you feel you know about books or how to read that maybe they don’t.” How does Roberts answer? How does Cowen? Which piece of advice seems most useful to you, and why?   4- Roberts wonders aloud whether we are living today during the golden age or witnessing the death of books. How would you respond?   5- Is there a book that has changed your life? What was it (or are they) and how?   (0 COMMENTS)

There are rare instances in one’s life where one can reflect back and say that they were in the presence of greatness and were aware of it. As I reflect back on my experience as a student of Professor Richard Wagner in his Ph.D. courses at George Mason University, this was certainly one of those rare instances for me. His ability to communicate simple yet profound points in economics (for example, “prices are a set of traffic signals, not a set of marching orders” or “the magic number in markets is 2, and the magic number in politics is 3”) is unmatched by any living economist from whom I have had the privilege of learning. Moreover, if I have learned anything from Professor Wagner, it is imperative to take our existing body of knowledge and be creative as a teacher to communicate such knowledge in new and effective ways. Therefore, in this reflection, in honor of Professor Wagner on the occasion of his retirement, I wish to highlight from his prolific scholarship one of the most important contributions to transitional political economy made by him, and one that has had a profound impact on my teaching and research. One way in which I have tried to honor Professor Wagner is by carrying his message forward in a manner that will impact students for generations to come, namely by illustrating crucial lessons he provides in his scholarship through various examples in the classroom and pairing them with some of my favorite movies. On this occasion, I will do so by pairing his article “Romance, Realism, and Economic Reform” (co-authored with Robert Tollison)[1] through the lens of the 1997 science fiction film, The Fifth Element. The basic lesson here is to recognize, first, that the process of economic development is fundamentally one of institutional transition, particularly one of eliminating political and legal privileges that redirect entrepreneurship from unproductive to productive activities. However, such a transition implies a concentrated cost imposed upon the current beneficiaries of the existing system, the benefits of which are dispersed across the population. The counterintuitive policy implication for transitional political economy, which may be particularly frustrating for a pro-market policy reformer, is that attempts to change the rules of the game, and eliminate monopoly privileges through political discretion, will only incite rent seeking, generating greater dissipation of wealth than if the transfer had not been initiated. The key point here is that, since political discretion is the very source of monopoly privileges created by the state, political discretion cannot also be the source of its abolition. Political discretion used as an instrument to abolish legal privilege cannot occur without simultaneously creating another legal privilege, since political discretion, by its very nature, intends to benefit one party at the expense of another. How is this lesson illustrated in The Fifth Element? The plot of the film recounts a story of the discovery of a divine figure, referred to as “The Fifth Element” (hence the name of the film), which appears every 5,000 years to combat the return of evil, which is depicted as a sphere, much like a great fireball, at the beginning of the film. However, knowledge of this great evil, and the return of The Fifth Element, is a secret handed down from generation to generation by a secret order of priests, among whom is the character, Father Vito Cornelius, in the film. The parallel to Wagner’s article is that The Fifth Element is the entrepreneurial market process, the great evil is rent seeking, and Vito Cornelius is analogous “the economist” who attempts to warn the President of the Federated Territories in the film not to take military action against the great evil (i.e. not to exercise political discretion). The key quote from Father Cornelius is the warning: “evil only begets evil, Mr. President.” Rather than heed Father Cornelius’s advice, the President instead orders that evil be attacked, resulting in only expanding the size of the diabolical sphere, and expanding the scope of evil, to the utter surprise of the President and his military advisors. The lesson here, “evil only begets evil,” is the same as the lesson illustrated by Professor Wagner: political discretion is itself a form of rent-seeking, since it is the use of political resources attempting to transfer existing wealth, in this case at the expense of a special interest group. Therefore, it will only incite further rent-seeking by a special interest group to protect itself from the removal of the monopoly privilege upon which its existence depends. The unintended result is only to expand the size and scope of the government. Does this imply that the classical-liberal minded reformer should be left to “do nothing”? Quite the opposite. At the very end of the article, Wagner argues that “the most efficient instrument for ‘reforming’ existing monopolies is the competitive market process itself” (Tollison and Wagner 1991, p. 69, fn. 10). The counterintuitive implication here is that monopoly privileges are the very source of their own erosion, since barriers to entry intended to shield a special interest group create the very profit opportunities to evade and innovate around the good or service shielded from market competition. Countless examples to illustrate this point are the rise of Uber and Lyft over monopoly privileges created by taxi-cab medallions, the adoption of the ATM to evade regulation preventing banks to branch outside the state in which they are chartered, or the pioneering of containerization to innovate around trucking regulation imposed by the Interstate Commerce Commission. The list of examples is infinite, but the general lesson here is that if there the market-oriented reformer wants “to do something,” then Wagner’s “analysis suggests that reformist activity should be directed toward the prevention of future deformities and not toward the eradication of past ones,” (Tollison and Wagner 1991, p. 68). The great lesson from Professor Wagner is that “The Fifth Element,” in this case productive entrepreneurship, will triumph over the great evil of rent-seeking, if we allow it not to be thwarted by political discretion, however much the intent of such discretion might seem benevolent.     References Tollison, Robert D., and Richard E. Wagner. (1991). “Romance, Realism, and Economic Reform.” Kyklos 44(1), 57–70.   [1] Hereafter, for the sake of expediency, reference to Wagner alone will be made to the article.   Rosolino Candela is a Senior Fellow in the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, and Program Director of Academic and Student Programs at the Mercatus Center at George Mason University (0 COMMENTS)