Most students of political philosophy have had some contact with Robert Nozick’s Anarchy, State and Utopia (ASU)1—specifically Part II. And for good reasons. Part II is essential, not only because it sets out devastating critiques of competing moral-political doctrines but also because it awakens our deepest intuitions about the coercion required to make those doctrines a reality. Nevertheless, Part III: A Framework for Utopia (henceforth Framework)I believe is Nozick’s most important contribution. The Framework is certainly under-appreciated compared with familiar thought experiments about people giving their money to watch Wilt Chamberlain. However, my objective in persuading readers of Part III’s importance is not an effort to rearrange the philosophical canon for students. Instead, my goal is strategic: Nozick’s Framework recommends a mindset that can inspire more subversive innovators. Nozick’s Framework, properly applied, offers those who share his ideological priors a sketch of how to liberate more human beings from power and poverty. Such a project is more valuable than arguing endlessly about ideal justice, as to realize ideal justice is practically impossible. Debates about minarchism or anarchism can distract us from more salient questions about how we create more markets in governance despite the imposed Westphalian order. I suggest we reshuffle Nozick’s thesis to transform his theoretical framework into a practical mindset. Finally, we can use the Framework as a strategic lens for spawning subversive innovations that promise each of us a society that comes closest to our ideals. Minarchy vs. Anarchy: The Debate is Largely a Distraction Before getting into a theoretical inquiry about minarchism or anarchism, permit me to offer a brief overview of Nozick’s rationale in Part III. It goes like this: to the extent there is a justifiable state monopoly on violence (Nozick’s minarchist Framework), the Framework’s job is to facilitate the free formation of new communities, which we’ll follow Nozick in calling Utopias. Finding (or founding) a Utopia is a discovery process. So the Framework’s function is more or less to protect the rights of individuals exiting and entering new Utopias. Competition for members among Utopias accelerates the discovery process and means that the Utopias must serve their members sustainably to survive. We can get lost in a series of questions about such a Framework’s details, including whether or to what extent the Framework needs to be a monopoly, a coalition, or a confederation, or whether it could run on a set of governance protocols that we might consider anarchist by degree. Such arguments, I contend, like the wider debate between minarchists and anarchists, are highly speculative and largely a distraction. Nozick built almost the entirety of ASU on post hoc rationalization of the following statement: “Individuals have rights, and there are things no person or group may do to them (without violating their rights).” Without detouring into metaethics debates, we can interpret this statement as aspirational and normative. Beyond moral suasion, I seriously doubt Nozick thinks of rights as somehow inhering in people like a protective forcefield. Certainly, he would acknowledge that—whether or not rights exist objectively—powerful people will continue to violate others’ rights despite moral suasion. They do, and they will. My argument here is not designed to settle debates among academics in Abstractionland, much less to go toe-to-toe with someone as formidable as Nozick on matters of moral theory. Instead, I simply assume that Nozick and I share similar values, whatever their metaphysical status. Indeed, as he opens ASU, Nozick starts with the Kantian presumption about rights, which we can safely interpret as something like the ‘sacredness of persons.’ I share this value. I hope you do, too. But Nozick doesn’t try to justify that presumption in ASU and uses Part II instead to prime readers’ intuition pumps about situations in which other theorists throw rights out the window. I will do something similar but perhaps more attenuated: Seek solidarity with others who share Nozick’s values. In other words, if you don’t value human freedom or don’t think of individuals as sacred this article might not be of interest to you. Nozick constructs ASU in a manner that he believes will limn an ideal institutional substrate that will protect sacred persons. I am doing the same, only acknowledging more explicitly that we (those of us who practice a sacred-persons doctrine) are operating in a world filled with those hostile to our values, including the values of autonomy, property rights, and—indeed—the liberal sacredness of persons. So, we are not really, as perhaps Nozick was, attempting to persuade those hostile to our values to consider a different political philosophy, even a pluralistic one like that in ASU. Instead, we are presuming the value of human freedom and the sacredness of persons. We seek to instantiate those values in a hostile world by offering people choices. And we employ practical means–especially entrepreneurial means. Some of those means will involve traditional arguments about ideal justice, but that’s marketing (or what economic historian Dierdre McCloskey refers to as “sweet talk.”) Still, we know that most of these arguments smash into the sturdy barricades that protect real political authority and its supplicants. By this point, I hope you can see why debates about minarchism and anarchism are mostly a distraction—unless, that is, one’s strategic focus employs means that are ostensibly minarchist or anarchist. Governance institutions, including any given person’s Utopia, exist in a world of Hobbesian states with rabid supporters who have authoritarian bees in their bonnets. Arguments about ideal justice resemble those about how many angels can fit on the head of the proverbial pin. Our ideals are our North Star but may never be our destination. In that sense, we must sit more squarely in the reality that arguments about ideal justice do little to create Utopias, much less a Framework for Utopia. Instead, we must begin to turn to strategic means to move toward our ideals, which are niches or zones—systems—for sacred persons that must be created in a hostile fitness landscape crawling with predators and parasites. A Framework for Utopia-Building: Reshuffling Part III’s Thesis The basic idea of Nozick’s Framework is that some people have utopian aspirations, but they have inadequate knowledge for realizing or predicting their idea of Utopia in a complex world. The only way to discover any given Utopia is for people to try their hands at fashioning it and inviting others to join. According to Nozick, accomplishing this requires some general set of procedures—institutions—that make governance pluralism possible at all. To reiterate then, it looks like this: • Some people want to live in their idea of Utopia, even though those self-same people have inadequate knowledge for realizing Utopia. • People should be permitted to attempt to build their best approximation of Utopia so long as such attempts do not injure others in their parallel (peaceful) attempts. • The Framework for Utopia is a theoretical construct that can and should be turned into a set of political institutions with pluralistic Utopia-building as its mission. From this, one might start to imagine institutional or constitutional designers busily setting out to instantiate the Framework in a body of law. “Nozick must surely be aware of the problem we suggested above, namely that there are authoritarians among us. They eat at the same restaurants. They vote. And they hold forth on social media every day.” At this point, Nozick must surely be aware of the problem we suggested above, namely that there are authoritarians among us. They eat at the same restaurants. They vote. And they hold forth on social media every day. Nozick calls them “imperialistic utopians” who seek “the forcing of everyone into one pattern of community.”2 These utopians have no time for pluralism. Apart from a small minority who might read this, I’d speculate that once you factor out the politically apathetic, most people can be referred to as “imperialistic utopians,” even in the United States, which the Founders built on the ideas of freedom and pluralism. The media landscape provides ample evidence, however anecdotal, for such speculations. At the very least, we know that powerful authorities are likely to attack any Framework like the one Nozick imagines. In the United States, the 9th and 10th Amendments are our closest purported legal means of guaranteeing some measure of pluralism. But political operatives and lawyers armed with notions about a “living constitution” rendered these Amendments inert long ago. So what’s to be done? That’s not a terribly philosophical question. Indeed, it’s just the sort of questions philosophers routinely avoid. Nevertheless, I have asked it, and I will now try to answer it. I will do so by appealing to Nozick’s genius while reorienting it to strategic ends. • Nozick wants people to pursue building their idea of Utopia though a framework hospitable to pluralism, even though most people hold views that militate against the Framework for Utopia. • Instead, the Framework for Utopia can serve as a strategic construct—niche carving—through which dissidents can pursue various Utopia-building projects, despite obstacles. • People who share our values should vigorously pursue the construction of their best approximation of Utopia, so long as such attempts do not injure others in their parallel (peaceful) attempts, and they are aware of the risks that authoritarian power presents. There is no doubt Nozick was doing his job by offering a philosophical case—not just about the facts of pluralism but also about the need for a pluralism-enabling framework. In reshuffling Nozick’s premises into a strategic Framework of niche creation I call subversive innovation, I am simply looking around at the world at the authoritarian powers in our midst. Then, I seek weak joints or leverage points to exploit, in which one might apply a liberatory strategy or recruit new constituencies through entrepreneurial means. Carving niches means experimenting with new matrices of governance, however modest, hoping that these matrices prevail in competition. Such is the delicate dance of dissidence. Asymptotic Anarchy: Innovation and Entrepreneurship are Subversive Acts Asymptotic anarchy is a process that, through innovation and experimentation, might move us closer to an ideal, even if we never fully realize it. In mathematics, an asymptote is a line that a curve approaches as it heads towards infinity. We might call that curve “degrees of frictionless freedom.” Metaphorically, we can represent the movement towards anarchy as a similar function towards an ideal state: We might move ever ‘closer’ but never get there. The ideal state would be one in which humanity has more or less eliminated the initiation of violence by one person against another and reduced the costs—to near zero—for any given person to exit a governance system that isn’t serving her. We refer to this ideal state as “anarchy” because it means no rulers. In this condition, one can join any existing community or association. In short, all governance under anarchy is rooted in “the consent of the governed.”3 Of course, one might consent to another’s rule in such a condition, but the consent provision—along with a right of exit—is basic to the ideal. Now let’s turn to the idea of transaction costs. The main issue with Nozick’s theoretical Framework is that it doesn’t offer a full accounting of such costs, which, to be fair, is not really the job of theory. So it’s up to us to figure out how to apply a revised Framework in our current circumstances. For example, the sort of dominance hierarchies that reign today, even in our vaunted democratic republics, not only come with incentives for self-preservation and expansion, they almost always come with legions of supplicants who depend on their influence or largesse. Public choice practitioners explore the dynamics of political authority interacting with special interests, among other phenomena. These aspects of Public Choice, a sub-discipline of political economy, linger in the background. In light of these real-world dynamics, if we move towards some ideal, we won’t do so simply by imagining the Framework as the ideal, although that can be helpful in knowing our why. We must also apply the reshuffled Framework as a strategic focus for a continuous process of asymptotic anarchy carried out by dissident innovators and entrepreneurs with diverse conceptions of the good. In these different conceptions lie customer value propositions associated with some system the entrepreneur proposes as an alternative. Notice the term customer. Despite connotations of bourgeois materialism, I submit that the Framework-as-Strategy mindset prompts subversive innovators to think of people as customers rather than citizens, because the latter resides in the magisterium of must (politics), rather than in the magisterium of ought, which includes both morality and markets. That is, you ought to do x because x is good is a moral claim and you ought to try y is a marketing claim. Both appeal to one’s ability to choose. In the magisterium of must, as in you must pay for z, or else, officials appeal to their ability to compel you. Thus, the transition from a citizen-centric mindset to a customer-centric mindset lies first in your willingness to remain in the domain of ought, and then to serve people better by offering them something they can choose that is better than the status quo. According to management consultant Matt Gilliland, “​​When the perceived (risk/time-discounted) benefits of switching to an alternative (system) exceed the perceived benefits of the status quo (system)—factoring in the perceived switching costs—people will switch to the alternative.”4 We can translate this heuristic into a series of steps: 1. Create overwhelming value in an alternative system. 2. Expose the diminishing benefits of the status-quo system. 3. Reduce switching costs. 4. Change people’s perceptions of the alternative relative to the status quo. 5. Serve customers well and continuously improve. Now, consider a few examples of the above, which can serve as object lessons: • Uber persuades billions to use their platforms instead of the taxi cartel. • Poor performance and bad policies send parents to myriad educational alternatives. • Satoshi Nakamoto offers the bitcoin network as an alternative to the fiat monetary system. • Legal innovators set up a special economic zone in Hondurus (Prospera), which has some of the least restrictive institutions on earth. This handful of examples demonstrates subversive innovation. Notice in each example that there is a lot of elbow room in what constitutes a ‘system.’ While none is perfect, each system iterates in its efforts to practice steps 1-5 in terms of customer focus. Each effort carves out a niche that offers one the option to exit a legacy system (a la Hirschman) and enter an alternative system. It might be that in today’s hostile environment, it will be quite difficult to do wholesale institution building from scratch. There will be no ‘constitutional moment.’ Instead, each effort might be far narrower, but slice into some aspect of a more comprehensive status quo institution. But note that system switching from the magisterium of must (politically-contrived system) to that of ought (market-derived system) is different from going from one market-derived system to another, for example, when people abandon MySpace for Facebook. In such cases, ceteris paribus, the more desirable system wins out as the absence of customers destroys the venture that creates less perceived value. By contrast, politically-contrived systems of tax and transfer have a competitive advantage in that they can use compulsion to trundle along, despite mass defections and relatively poor performance. And those dependent on the status quo will go to great lengths to protect their systems and to sow seeds of doubt about nascent competitors. That is why subversive innovators must be prepared for counter-strategy. Specifically, 1. Find ways to entrench the status quo system. 2. Sow uncertainty and doubt about the alternative system. 3. Attempt to raise your competitor’s switching costs. 4. Change people’s perceptions of the status quo relative to the alternative. 5. Maintain perceptions in lieu of system improvements. For more on these topics, see David Schmidtz on Rawls, Nozick, and Justice. EconTalk. Entrepreneurship, by Russell Sobel. Concise Encyclopedia of Economics. Public Choice, by William F. Shughart II. Concise Encyclopedia of Economics. “Transaction Costs are the Costs of Engaging in Economic Calculation,” by Rosolino Candela. Library of Economics and Liberty, Jun. 3, 2020. In response to such counter strategies, subversive innovators won’t be able to rely on the coercive apparatus of the tax and transfer state. But they can rely on a commitment to telling the truth. So, if the subversive innovator finds herself in narrative warfare with her enemies, the value she creates for customers is a truth that will be difficult (though not impossible) to overcome. The subversive innovator will simply have to create more value, and customers can shout it from the rooftops. Footnotes [1] Anarchy, State and Utopia, by Robert Nozick. [2] Anarchy, State and Utopia, p. 319-320. [3] See the Declaration of Independence. Available at the Online Library of Liberty: https://oll.libertyfund.org/page/1776-declaration-of-independence-various-drafts. [4] I use this quotation with Matt Gilliland’s permission, taken from correspondence. *Max Borders is executive editor at Free To Choose Network. As a 2011 Robert Novak fellow of the Phillips Foundation, Max will be writing a book on wealth creation. He lives in Austin, TX. For more articles by Max Borders, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Almost all the mainstream discussion of monetary policy in the United States today and for a number of decades is and has been about what kind of monetary policy the Federal Reserve should carry out. Should the Fed target interest rates and, if so, how? For example, should it follow the Taylor Rule, named after Stanford economist and Hoover senior fellow John Taylor? Should the Fed target nominal gross domestic product, as Mercatus Center economist Scott Sumner advocates? Should the Fed give up on inflation and make sure that unemployment doesn’t spike? Should the Fed give up on unemployment and make sure the inflation rate stays low or, given today’s data, decreases to a low rate? All these questions are worth asking. But notice that these questions are about how the Fed should engage in central planning of the money supply. Few Americans, and even a lower percent of economists, think it’s a good idea for the federal government to centrally plan the number of cars that should be produced in the United States. Economists don’t typically call for the federal government to decide how much steel should be produced. Why, then, do the vast majority of economists think that the Fed should centrally plan the money supply? It must be because monetary policy before the Federal Reserve existed led to much worse results than after the Fed started operating in 1914. Yet it turns out that we got better results on inflation and roughly equivalent results on business cycles prior to 1914. Moreover, our monetary institutions prior to the Fed had serious deficiencies due to damaging regulation. Without those regulations, monetary policy prior to the Fed would have been even better. These are the opening 3 paragraphs of David R. Henderson, “The Fed Is a Failed Central Planner,” Defining Ideas, April 1, 2022. My favorite paragraph: Many people now say that the Great Depression was an unfortunate learning experience for the Fed. Indeed, at a party at the University of Chicago to belatedly celebrate Milton Friedman’s ninetieth birthday, Ben Bernanke, then a member of the Federal Reserve Board, ’fessed up. He said, “Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” But saying that it was a learning experience reminds me of the famous scene in the 1964 movie Dr. Strangelove in which President Muffley, played by Peter Sellers, realizes that one of his generals, Jack D. Ripper (Sterling Hayden), has acted on his own to start a nuclear war with the Soviet Union. Muffley says to General Turgidson (George C. Scott), “General Turgidson, when you instituted the human reliability tests, you assured me there was no possibility of such a thing ever occurring.” Turgidson’s priceless reply: “Well I don’t think it’s quite fair to condemn a whole program because of a single slip up, sir.” The Great Depression was a pretty big slip up. But even examining the record of the Fed after WWII with the pre-Fed experience doesn’t make a clear case of the Fed on recessions and depressions, as I show. Read the whole thing.   (0 COMMENTS)

As college applications season draws to a close, one topic on many graduating high school seniors’ minds is whether to apply early. Many wonder whether there are advantages to moving quickly, and what early college admissions does. For those interested in understanding these policies further, the economic way of thinking may help explain how this phenomenon works, and the incentives faced by both colleges and students. Unlike regular admissions policies which involve (hopefully!) getting accepted to a variety of schools and being able to assess and negotiate financial aid packages, early decision, if accepted, creates a situation where universities can act like discriminating monopolists with a price cap. Through financial records, which you’re required to submit, universities can estimate what you’re likely willing to pay in order to attend college. Since early decision is often binding, there are few close substitutes, and colleges are able to charge higher prices than would have been able to occur in a competitive market. In a sense, this moves tuition prices to an asymmetric market where options become more limited. Why then do so many students and their families choose to participate in a market that’s tilted against them? The main benefit is that going to an elite college is desirable and is a way of distinguishing yourself from someone who went to a less prestigious college. For instance, the average early career salary of a Yale Alumni, $81,900 is much higher than that of a University of Connecticut alumni at $66,500. This also doesn’t account for the higher social status and access to education with more engaged students. All-in-all, going to an elite college is a valuable privilege. If sending a signal that one is willing to pay more is the price, many parents are willing to accept the tradeoff. Elite colleges benefit even more from the creation of early decision. By offering it, they are able to screen for more motivated, more committed students who are also more likely to be able to pay. Since early decision usually involves applying significantly before the regular deadline, it selects for those who are prepared early. Furthermore, those willing to sacrifice choice sends a message that these students are going to increase the school’s yield, which further increases a school’s ranking. This method also selects for reasonably affluent families. Families who are willing to enter a market tilted against them probably have more resources to spare than a family that can’t afford to make such a commitment. This combination of factors provides a major set of benefits to colleges, meaning that they’re likely going to keep this system in place. However, the use of early admissions is not good for everyone. Those concerned with socioeconomic diversity and meritocracy may see problems with this two-tiered system. Making processes more complicated tends to favor those with more resources. Adding more complexity to admissions can create situations that favor the wealthy, who can afford to hire experts who understand the system. This trend is mirrored in acceptance rates and test-scores. A study from the National Bureau of Economic Research by Christopher Avery and Jonathan D. Levin finds that early-decision policies increase the likelihood of acceptance by 20 to 30 percent, which is roughly equivalent to 100 points on the SAT. This finding suggests that such a process goes against meritocratic ideals and favors the wealthy, betraying concerns about fairness. The early admissions tradeoff is somewhat straightforward and understandable. Making sure bills are paid, and that a college’s ranking stays intact are important goals, and colleges have a vested interest in maintaining their rank. However, using these policies may betray some fundamental ideals of the education system, such as levelling the playing field, helping the poor, and being meritocratic. If college admissions become more widely understood, colleges will have to decide which values guide their actions more explicitly. This set of incentives being more widely understood by their consumers may influence the incentives of colleges. Voters concerned about a fair playing field may reign in processes seen as unfair through regulation if these policies are seen as objectionable. Isadore Johnson is a campus free speech advocate, an economics and philosophy student, and regional coordinator for Students for Liberty. (0 COMMENTS)

In a world where individuals were perfectly equal, they would be perfectly solitary. Individuals try to trade—exchange goods and services, including personal sentiments—because it is in each one’s interest to do so; and it is in their interests to do so because they are unequal, that is, different in their preferences (tastes) or in their production possibilities, or typically in both. If you have an orange and I have an apple while I prefer oranges and you apples, we will trade. But even if we have the same preferences—to take a simple example: we both prefer a diet of 1/3 apples and 2/3 oranges—it will be in the interest of each of us to specialize in the production of one or the other fruit as long as each has different production possibilities, whatever the source (nature, nurture, habit, or even third-party interference) of this difference. If I have to sacrifice the production of more oranges when I produce an apple than your own production cost of an orange in terms of apples forgone, I will produce only apples and you will produce only oranges. By trading my apple production against your orange production, I will obtain more oranges and you more apples. This is called the law of comparative advantage; more complex models can be entertained, but the result remains basically the same. (Don Boudreaux has an especially clear and short explanation at Café Hayek, March 31, 2022.) One implication is that bans on exchange by a third-party—for instance, the current American and international sanctions on exchanges involving certain Russian individuals—impose a cost on both sides. The only reason, if there is one, for such bans is that they are temporarily indispensable to maintaining a general context of free exchange in the future. (One caveat is that “temporary emergency” is not an expression that Leviathan recognizes.) Bans are coercive and are imposed and enforced by political authorities (or mafia- or mob-types of authority), which raises the whole problem of the justification of the state and state action. James Buchanan’s economic approach to this pollical-philosophical problem is especially interesting: it considers politics as another type of exchange, this one regarding the basic rules of life in society (see my review of his book Why I, Too, Am Not a Conservative in the current issue of Regulation, as well as my review of his joint book with Gordon Tullock, The Calculus of Consent, on Econlib). In Buchanan’s perspective, political authorities are justified to impose such rules only if a strong presumption exists that they are in the interest of all their subjects or citizens, which is the same as saying that they are indispensable to maintaining a general context of free exchange for the future. Note that given the moral values at the basis of the (classical) liberal society, the welfare of foreigners must also, in some way, be taken into account. Whether Buchanan is right or not on the details, understanding the issue in economic terms, which means in terms of exchange between parties supposed to be “natural equals” (even if their preferences and circumstances are different), does seem essential. In Why I, Too, Am Not a Conservative, Buchanan wrote (p. 17): Without either a generalized understanding of basic economics or a widespread willingness to defer to the warnings of those who do understand, maintenance of any liberal order becomes impossible. (0 COMMENTS)

[This weekend, I am attending a conference that examines the gold standard.  Here are my thoughts going into the conference.] People occasionally ask me whether it would make sense to go back to the gold standard. Most economists think that this would be a bad idea. I agree, but not necessarily for the reasons that most other economists would cite.It’s hard to debate this issue on purely theoretical basis, as much of the debate ends up being about whether the historical record of the gold standard is superior to that of fiat money. That turns out to be an extremely difficult question to answer, for all sorts of reasons. And even if we could answer this question, we’d face another question: Would a gold standard in the 21st century perform as well as the 19th century version?And before these questions can be answered, we face an even trickier question: What do we mean by a gold standard? What is fiat money? History provides examples of both good and bad gold standards, as well as good and bad fiat money. Which systems should we compare? My preferred definition of a gold standard is one where currency can be converted into gold at a fixed nominal price, in a wide range of leading developed economies.  By that definition, the world was on a gold standard from 1879-1914, 1926-33 and (perhaps) approximately 1950-68.  That last period is especially iffy, as Americans were not allowed to freely convert dollars into gold.  I include Bretton Woods here, however, because some proponents of the gold standard cite is an example of how fixing the price of gold can prevent extreme inflation.  We all know what happened after 1968, when the gold price peg ended. Note that my preferred definition of a gold standard is not my preferred gold standard.  In my preferred gold standard, the government would merely define the unit of account as a fixed quantity of gold, and then do nothing.  For example, “The US dollar is one gram of gold”.  That’s all.  No central bank, no government currency issue, no regulation of banking, etc.  That sort of international gold standard never existed.  If that sort of system is viewed as the theoretical ideal, one might say that 1879-1914 was an 80% gold standard, 1926-33 was a 60% gold standard, and 1950-68 was a 20% gold standard. One problem I have with some gold proponents is that they cite how the $35/oz gold price peg prevented runaway inflation until it was abandoned in 1971, and then disavow any role of gold in the severe deflation of 1929-33.  Each argument has some merit considered in isolation, but when viewed together these two claims make little sense.  You can’t have it both ways, taking credit for a 20% gold standard and then saying a 60% gold standard isn’t really a gold standard.  Even worse, many gold proponents cite 1971 as the end of the fixed price of gold.  But a fixed free market price of gold is the sine qua non of a gold standard, and that ended in March 1968.  After the market price of gold started rising, the $35 official price was completely meaningless.  (I believe the official price today is $42.22/oz.)  After March 1968, central banks could “freely” convert dollars into gold in much the same sense that in the late 1980s the Japanese could “freely” sell cars in America under Reagan’s “voluntary” export restraint program.   BTW, gold proponents should prefer to use 1968 rather than 1971 as the ending date for the gold standard, as it actually makes their argument stronger.  Inflation was getting much worse during that 3 1/2 year period. So what’s the strongest argument in favor of a gold standard?  The most persuasive arguments that I have seen do roughly the following: 1. They concede that the system only works well if most important countries adopt it.  In recent decades, the purchasing power of gold has been extremely unstable.  Any single country returning to gold would only be able to modestly reduce that instability.  Thus we would have to hope for a truly international system.   2.  They do not compare the gold standard to fiat money.  They do not compare the best version of the gold standard to the best version of fiat money (which is inflation/NGDP targeting).  Rather they often compare the best version of the gold standard (1879-1914) to all of fiat money.  That includes the poorly performing unanchored system of 1968-90, and also the period of implicit or explicit 2% inflation targeting (1990-2022.)  In my view, it would be more logical to either include the poorly performing interwar gold standard, or exclude the fiat money system before inflation targeting was adopted.  I can’t speak for other economists, but when I say that I prefer that we stay on fiat money, I am not suggesting that the fiat system of 1968-1990 was better than the so-called “classical” gold standard.  I’m saying the best of fiat is better than the best of gold, and that the entire fiat system in the US is better than the entire gold standard. 3. Gold proponents tend to highlight the metrics by which gold looks good, and ignore those by which fiat money does better.  Under the international gold standard, the long run rate of inflation was roughly zero.  In addition, the price level a few decades out could be predicted with some degree of accuracy.  However, there was a great deal of year-to-year inflation volatility.  In addition, the price level followed roughly a random walk.  That means the near zero average inflation of 1879-1914 was partly (not entirely) coincidence.  Prices trended lower during 1879-1896 and trended higher from 1896-1914.  And even within those sub-periods, there was substantial year-to-year fluctuation in the rate of inflation. Now I’ll make some empirical claims that gold proponents may reject.  I believe the post-1990 regime of 2% inflation targeting produced a better outcome than even the best version of the international gold standard.  We do have more inflation (2% on average, vs. zero), but that’s because policymakers decided that 2% trend inflation was preferable.  There are good arguments both ways on that point, but to me it’s roughly a wash.  The welfare difference from 0% and 2% trend inflation are trivial (if anything, I slightly prefer 2%).  I also believe that year-to-year volatility of inflation was less under 2% inflation targeting, although the poor quality of older price indices makes that a bit debatable.  And I believe that with 2% inflation targeting people are better able to forecast where the price level will be 20 years in the future, as compared to the international gold standard.  Once again, that claim is debatable, but I think I’m right.  So in terms of the sort of nominal stability that is important for social welfare, I believe inflation targeting does a bit better.  (All my views are provisional, based on 1991-2020.  If the Fed doesn’t get this current inflation under control then I may change my mind.)  You can also compare the two systems using other criteria, such as the business cycle, but we don’t have very reliable data on real output stability from the 19th century, and in any case the economic system was so different that we have no way of knowing if any differences are due to money and not some other factor like the shift from farms to factories to services, or changes in wage flexibility, unemployment comp., etc.  It would be like saying, “Fiat money has produced better telephones than did the gold standard.” It’s better to stick to nominal stability, the one thing monetary policy can clearly affect. 4.  Gold proponents say that some of our problems under the gold standard were due to bad banking regulations.  I think that’s true, and it’s an underrated point that is overlooked by gold’s critics.  On the other hand, if we adopt an international gold standard then we’d like it to be robust enough to survive bad banking regulation. 5.  Gold proponents often point to the gold standard’s ability to constraint governments, to prevent them from engaging in policies that make the value of money unstable.  But when asked to account for the extreme instability in the value of money during 1926-33, they (correctly) point to government meddling in the monetary system.  I don’t know how you can have it both ways.  If you assume the sort of good government that would allow a theoretically pure gold standard to run without interference, wouldn’t that sort of government also be able to do effective inflation targeting, perhaps at zero percent inflation (if that’s your preference?)  Historically speaking, gold standards don’t seem to constrain bad governments.   6.  On a related point, it’s not clear how we should think about wartime.  Proponents of the gold standard cite price stability data from peacetime, excluding periods such as 1861-79 and 1914-26.  In one sense that seems fair, as key countries were not on gold during those periods.  But that raises the question of what do gold proponents favor during wartime?  If they believe the gold standard system cannot be blamed for the extreme price level instability during and after war, then presumably they favor some alternative policy.  But what is that alternative policy?  Staying on gold?  What if that causes a country to be unable to raise enough revenue to win the war?  Return to gold at a high price, in order to prevent postwar deflation?  Maybe, but that sort of policy is actually far more difficult than it looks. One big problem with the “look at history” argument for a gold standard is that we don’t have many good examples of gold standard regimes doing well during major  wars.  It’s fair to say that the gold standard shouldn’t be blamed for 1861-79 and 1914-26, but it’s also true that we have no evidence that things would have been better (in an overall welfare sense, admittedly prices would have been more stable) if countries had remained on gold and refrained from selling central bank gold reserves during wartime.  Gold proponents are excluding periods where running a successful gold standard would have been especially challenging. 7.  Gold proponents deny that a gold standard would lead to more mining of gold (which might be socially wasteful), correctly pointing to the rise in the real price of gold after 1970.  They attribute this increase to the fact that private gold demand increased as a hedge against rising inflation. 8.  The purchasing power of gold has been extremely unstable in recent decades.  Gold proponents respond by pointing to the relative stability of the purchasing power of gold during 1879-1914, and suggest that the recent instability is due to the fact that the world is not on a gold standard.  As far as the 1970s is concerned, I agree.  See point #7.  But I don’t believe that is true of more recent gold value fluctuations. During the 2000s, the relative price of gold skyrocketed (see above).  If this had occurred when the gold standard was in place, then there would have been a massive fall in the global price level, and perhaps another Great Depression.  Gold proponents sometimes suggest that the increase in gold prices reflected people buying gold as a hedge against inflation.  I do buy that argument for the 1970s, but not for the 2000s.  There was very little inflation during the 2000s, and the modest long-term nominal interest rates suggest very little fear of high future inflation.  Instead, I’d point to the rapid rise in gold demand in important developing countries such as China and India, each of which has a population comparable to the entire western world. Do I have evidence for this claim?  Yes, it wasn’t just gold.  The enormous economic boom in Asia drove up the relative prices of a wide range of commodities during the 2000s, not just gold.  In some respects, the 2000s were like the 1870s and 1920-33, when rising demand for gold caused gold’s value (purchasing power) to rise sharply.  In the 1870s and 1920s it was many countries joining the gold standard and building or rebuilding their gold stocks.  In the 2000s, the same would have occurred as China and India effectively joined the world economy.  Unlike in the 1870s and 1920s, we didn’t see a big deflation because the increase in the value of gold was accommodated by a higher nominal price.  But under a gold standard the nominal price is fixed and changes in the value of gold require a change in the overall price of goods and services. 9.  Research by Barksy and Summers suggests that the Gibson Paradox (the tendency for the price level to be positively correlated with nominal interest rates under the gold standard) was due to gold demand rising when nominal interest rates fell.  Recall that under the gold standard, the nominal interest rate is the opportunity cost of owning gold.  People demanded more gold when nominal rates fell, the value of gold rose, and the price level fell.  Given that interest rates now fall to zero during recessions, there is a greater danger of massive gold hoarding during the 21st century than during the 19th century. Can a gold standard work well in the 21st century?  Perhaps if at least most of these occur: 1. Almost all major countries agree to join. 2. There are no more China shocks (which is plausible). 3.  There are no more world wars (which is plausible). 4.  We avoid banking crises by adopting a completely laissez-faire banking system. 5.  Wage flexibility returns to 19th century levels as minimum wage laws, labor union laws, etc., are abolished. 6.  Central banks are abolished and governments don’t meddle in the system by varying their demand for gold reserves. 7.  Governments run responsible fiscal policy, as deficits could not longer be monetized. 8.  Governments credibly promise never to leave the gold standard during a recession, as fear of devaluation can trigger massive gold hoarding, turning a recession into a depression. 9.  Interest rates return to more “normal” levels, well above zero. I understand the argument against my proposal for NGDP level targeting; there’s only a 1% chance the US government would adopt the system and stick to it.  My response is that there’s less than a 1% chance that the world’s major governments would agree on an international gold standard and somehow do the various things above needed to make it work.   (0 COMMENTS)

Value is nothing inherent in goods, no property of them, nor an independent thing existing by itself. It is a judgment economizing men make about the importance of goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men. So wrote Carl Menger, one of the three economists who created the marginal revolution in the early 1870s. This is a very nice, succinct statement. I’m discussion leader of a colloquium on Menger in Las Vegas that starts Thursday evening. It’s in 6 sessions. I loved the Menger readings for the first three. The readings for the last 3, on methodology, were challenging, but I think I get it. Here is my short bio of Carl Menger for The Concise Encyclopedia of Economics.       (0 COMMENTS)

In a recent interview, SF Fed President Mary Daly listed 4 factors that caused inflation to exceed her expectations. The first three are supply issues, while the fourth relates to demand: 4. Unexpectedly high consumer demand The final factor that Daly says she underestimated was consumer demand. “The American consumer has been incredibly resilient and incredibly interested in purchasing things when they couldn’t purchase services,” she said. At some point, she believed that Americans had “purchased as many Pelotons as we can possibly use.” And yet, the demand seems insatiable.In February, overall retail sales increased 0.3% from January and were up 17.6% year-over-year, according to U.S. Census Bureau. And that’s set to continue. The National Retail Federation predicts that sales will grow between 6% and 8% this year. I have several problems with this claim.  First, it’s pretty obvious that most people have effectively “insatiable” preferences for a higher living standard.  Even if at some point people have all the Pelotons they want (and I for one do not), they would simply begin to desire other goods.  I find it a bit worrisome that a top Fed official would view consumer satiation as a reason not to worry too much about inflation. Second, it makes more sense to focus on total aggregate demand rather than just consumer demand.  In some cases, excessive aggregate demand shows up in rapid growth in investment spending, which can be just as inflationary as rapid growth in consumption. Third, there is no mention of the role of monetary policy in creating the inflation.  Fed policy was clearly too expansionary last year, and as a result aggregate demand (M*V) rose at an excessive rate.  Fast growth in nominal spending will lead to high inflation regardless of whether consumers have enough Pelotons or not.  If the consumer saving rate rises because their garages are packed with expensive toys, then fast growth in nominal spending would lead to higher investment spending.  Or perhaps government spending increases.  One way or another, a monetary policy that leads to excessive growth in nominal spending is almost certain to lead to excessive inflation.  When I hear Fed officials talk about inflation, it often seems as if they regard it as some sort of mysterious problem that befell our economy.  Excessive inflation is a product of excessively expansionary monetary policy.  Demand is a nominal concept; don’t talk about it like it’s a real concept.  Aggregate demand rose by more than 100 billion-fold in Germany during the early 1920s, and it wasn’t because Germans suddenly had an insatiable demand for exercise equipment. That does not mean that all inflation above 2% is excessive.  The Fed has a flexible average inflation target, and when there are supply shocks it is appropriate to allow above 2% inflation for a brief period in order to better achieve the Fed’s dual mandate.  But when inflation is excessive even from a dual mandate perspective (as it clearly is today), that’s a failure of monetary policy.  It’s that simple.  Fed officials are perfectly justified in talking about supply problems, which do provide justification for temporarily allowing above 2% inflation.  But instead of talking about mysterious increases in “demand”, I wish they’d simply say that monetary policy in 2021 was too expansionary.   Why is that so hard to do? Arsonists don’t need to fix the house burning problems; they need to stop burning down houses.  The Fed doesn’t need to “fix” the inflation problem; it needs to stop creating inflation. (0 COMMENTS)

People are often tempted to see social (including economic and political) phenomena in terms of a “swing of the pendulum.” In this perspective, problems such as wokism (just to give an example) will be corrected when the pendulum swings back. I suggest that this approach is easily misleading and seldom useful. The first question to ask relates to the period of the hypothesized fluctuations, that is, how much time it takes for the pendulum to come back; a short period or a long period correspond respectively to a short cycle and a long cycle. Consider regular or random fluctuations around a long-term trend. If these short-run fluctuations show some regularity—like, perhaps, the consumers’ preferred car colors—the pendulum analogy may be good, provided we keep in mind that it is just an analogy. But if the short-run fluctuations are random or irregular, that is, impossible to reliably predict, the analogy is faulty. Short-run fluctuations of stock prices, for example, cannot be likened to a pendulum swing. In social matters, many, perhaps most, short-run fluctuations seem to be random or at least irregular. If they were regular, they would be arbitraged away, which means that individual responses would dampen them: if I know that wokism is just a short-run phenomenon, I will feel less obliged to follow; if many individuals think that the price of a stock will increase tomorrow, it will not because it will have increased before. The model of short pendulum swings is thus not very useful for understanding society. Can we can identify longer pendulum swings (around which short-run fluctuations may happen)? Most likely not. For an extreme illustration, no long cycle to be found in the evolution of world GDP per capita (see the chart below from my post “Individualism and Western civilization”). Similarly, liberty and tyranny have not swung back and forth like a pendulum during the history of mankind: tyranny has been nearly universal while individual liberty has been a rare, limited, and mostly recent event. Even more modest long cycles are difficult to find: for example, the 50- or 60-year Kondratieff economic cycles have no micro-economic foundation and are not supported by empirical existence (see S.N. Solomou’s “Kondratieff Cycles” in the New Palgrave Dictionary of Economics). The beaver hat fashion of the 17th and 18th centuries may never come back. Of course, history is not finished and our descendants in thousands or millions of years may discover long cycles of commodity prices, wealth and poverty, liberty and tyranny, peace and war; but then they may not. The hypothesis of pendulum-like cycles is suspect for another reason. It goes back to the archaic myth of the eternal return: in many primitive religions and beliefs, everything moves in cycles, from the ordinary year to the renewed creation and destruction of the universe. This myth influenced some doctrines of the ancient world such as Stoicism and Neo-Pythagoricism. (See The Myth of the Eternal Return by the historian of religions Mircea Eliade—1949 for the original French version; 1965 for the second printing of the English translation.) Note that there is no eternal return in Christianity: the end of the world happens only once. A rational theory of pendulum swings in social affairs exists even less for long cycles than for short ones. Any attempt to build such a theory would get us bogged down in methodological problems. One is the unsupported hypothesis that history follows immutable laws of development that would allow predictions (see Karl Popper, “The Poverty of Historicism,” Economica 11:2-3 and 12:2 [1944-1945]). Another problem is scientism, the naïve application to social sciences of the concepts and methods of the natural sciences, as denounced by F.A. Hayek (see his The Counter-Revolution of Science [1952]). It is safe to conclude that the pendulum intuition does not help explain social phenomena. A social pendulum is a bad analogy. (0 COMMENTS)

  One issue that has come up in the confirmation hearings of Supreme Court nominee Ketanji Brown Jackson is her apparently light treatment of Wesley Hawkins, a 19-year-old who, at age 18, had uploaded to YouTube “five videos of prepubescent boys engaged in sex acts.” The record showed that Hawkins had not produced any of the videos. Instead, he himself had found them on line. Even though federal guidelines suggested a sentence of 8 to 10 years, the prosecutors themselves asked for only 2 years in light of Hawkins’ age and lack of a previous criminal record. Judge Brown took into account both Hawkins’ age and the fact that he had not produced any of the videos. She sentenced Hawkins to 3 months in prison, followed by 3 months in home detention and 6 years of supervision. Some of the Republican Senators objected that Judge Brown was too lenient. I think she was too tough because what Hawkins did shouldn’t even be a crime. Here’s my reasoning. I think that it’s worse to murder prepubescent boys than to take videos of them having sex. It’s also worse to murder adults than to take videos of prepubescent boys having sex. But as far as I know, there are no laws saying that news channels can’t show people, whether boys or adults, being murdered. Think back to that horrible day, September 11, 2001. How often did news stations show the sickening collision of the second major airplane crashing into one of the World Trade Center buildings? I probably saw that crash more than 20 times. I found it horrible but it was hard to turn away. I watched multiple murders. Also, on that day, a friend and I saw a picture in a newspaper of a man upside down falling from one of the World Trade Center buildings. Yes, it was technically suicide but really it was murder. So I viewed that murder. What if I had shared the video of the plane crash (multiple murders) or the picture of the man who had jumped out the window to his certain death (a single murder)? Should I have been charged with a crime for sharing a video or a picture? And if I shouldn’t, then why should what Hawkins did be a crime? You might argue that it has to do with incentives. If people aren’t penalized for watching child pornography, there will be more demand for child porn. And if there’s more demand, it’s likely that more will be supplied. That’s a good argument. But let’s apply it to the murder case. We have reason to think that some murderers who do very visible murders do it for the publicity, even if they won’t be around. I remember reading after the fact that a man in Sacramento murdered 5 people on September 10, 2001 and left a videotape in which he stated that he would go out in a bigger way than Tim McVeigh, the OKC bomber. Of course, it was forgotten, except by the families of the victims, for obvious reasons. But the point is that he did it in part for the publicity. So when news stations broadcast murder scenes they are adding to the incentive for potential murderers to become actual murderers. Yet the news stations do so completely legally and many of us watch completely legally. So the incentive argument isn’t enough of an argument. What is? So far I can’t find a good argument that says that there should be no law against watching and sharing videos and pictures of murder but there should be a law against watching and sharing videos and pictures of child pornography. But I’m open to being persuaded. (0 COMMENTS)

How much thought do you put into how you acquired the food you eat? I don’t mean where did you  buy it, but who grew it, found it, caught it, killed it? I admit that the answer for me is, “not much.” I have a small garden patch in the summer and forage a bit in the spring and fall, but otherwise… I buy it. Washington Post columnist Tamar Haspel, on the other hand, knows lots more about the origins of her food. A little over a decade ago, she and her husband embarked on a “first-hand food” odyssey; at one point almost 30% of their caloric intake was from food they’d grown, caught, or killed themselves! So why did she do it? That’s how this episode starts, as EconTalk host Russ Roberts welcomes Haspel back to the show. Haspel recounts that the most vociferous reactions she’s received about the project are from those outraged that she finds eggs from her backyard chickens taste no different from store-bought ones. But Haspel also tells us that her new book, To Boldly Grow, is indeed about food, but it’s also about trying new things, acquiring new skills, and testing our boundaries. So let’s hear what you took from this episode.     1- How did Haspel’s experiment with first-hand food begin, and why? Why wasn’t she interested in self-sufficiency? How did the experience change her ideas about food? Have any of your ideas about food changed since listening to this episode?   2- What were the biggest problems she encountered in her quest for first-hand food? Roberts is quick to point out that her practice was not lucrative, and may even be perceived as a “luxury.” What first-hand food practices might actually be lucrative, and why? Do you have any experience either saving or making money first-hand? Tell us about it.   3- Haspel says her book is as much about the acquisition of skills as it is about food. Which of Haspel’s new skills most struck you, and why? How did her new skills better enable her to talk with people very politically and philosophically different than her? Are there any similar skills you’ve been inspired to try? Is the idea of mastery as underrated as Roberts suggests?   4- Haspel’s experiment started by trying to eat one thing every day that they acquired first-hand. Could you do it? Where would you start? What would be off-limits for you? Explain.   5- How does our predominantly urban lifestyle affect our diets, according to Haspel? Besides focusing on first-hand foods, what other means can you suggest by which we might achieve the same ends? (0 COMMENTS)