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Wednesday, June 27, 2012

The Globalist Propositions of Free Trade

If the free-traders cannot understand how one nation can grow rich at the expense of another, we need not wonder, since these same gentlemen also refuse to understand how within one country one class can enrich itself at the expense of another.... But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.
- On the Question of Free Trade, Karl Marx, 1848

Mises may have never wavered from the view that free trade is a crucial economic policy in the program to restrict the growth of socialism. This does not alter the easily demonstrated fact that Mises was completely wrong on this particular issue, as can be seen by taking the position of Karl Marx into account, or examining the following chart, which shows the very strong statistical correlation, 0.95, between the increasing volume of international trade and the increase in the debt owed by the U.S. federal government.

It doesn't matter if one prefers to utilize different measures of the expansion of the power of the central state, as they will show much the same result.  What this chart shows is a five-decade refutation of the Misean assertion that an increase in trade intrinsically inhibits the expansion of the scale and scope of state power, and particularly after 1994, it shows that a reduction of protectionism does not reduce the continued growth of the state in the slightest. To the extent that any claim of causation can be made, (and I am not making one here), we must conclude that it is arguments and policies in favor of free trade that "help to expand the power of the state" and "move in the direction of central economic planning."

This should also not be mistaken for a claim that an increase in international trade, or even an increase in the trade deficit, is responsible for all, or even for most, of the growing amount of public and private debt. That would be impossible, since the $738 million in new debt required to pay for the 2011 balance of payments deficit in goods would barely cover two quarters worth of new federal debt alone, and obviously the federal government is neither purchasing nor financing the purchase of all foreign imports.

Mr. North claims that the central economic issue dividing the right wing movement is the issue of protectionism. This may well be true, I have no opinion on the matter except to say that I believe there is a much stronger right wing case against free trade than can be made for it. After all, the political right generally considers concepts such as national identity, culture, and tradition to be matters of serious and even vital import whereas the political left disdains them, and in some cases even denies their existence. So when Mr. North refers to "invisible lines known as borders", it should be clear that although he is a man of the right, he is addressing this issue from a distinctly leftward position.

Where Mr. North appears to go fundamentally awry on this issue is his inability to distinguish between the state and the nation. He claims, correctly enough, that the statist equates the state and society and sees the state as the one true agent of the nation. He notes that some statists actually believe that the state is the same as the nation, and this is true. However, although North appears to understand that the state is not the nation, he clearly fails to appreciate that his arguments against the state do not necessarily apply to the nation. Indeed, the use of the term nation-state in a non-ironic manner is to reveal an outdated mindset that fails to recognize the way the laws and goverments of most Western states are openly anti-nationalistic.

North asserts the collectivist begins with the concept of the state as the final authority, while libertarian theory begins with the concept of the individual as the final authority. But as a Christian who claims that his view of economics begins with God as the final authority, North not only shows that he is no libertarian, but should recognize that nations do exist, that they are more than mere invisible lines, and that they are neither states nor individuals. A nation can be a state, but in most cases, nations are spread across two or more states, and many states encompass multiple nations. This adds a complicating factor to North's case that he simply ignores in his attempt to create a false dichotomy between the libertarian free trader and the protectionist collectivist.

North clearly recognizes he has a problem here, as he acknowledges that conservatives say they don't equate the state with the nation, but then promptly conflates the two into "the nation-state" before attempting to distract the reader by waving the red herring of mercantilism, which was a coherent historical system that has very little to do with modern protectionism except for also favoring the use of tariffs. He offers nothing but misleading  rhetoric combined with inept logic here, and promptly goes back to complaining about the state again without ever dealing with the legitimate problems raised concerning the material difference between the state and the nation. And in the end, he finally gives up and throws in the towel by attempting to deny the existence of nations.

"There is a true bait-and-switch operation going on here. Defenders of tariffs present themselves as defenders of the nation, when in fact the nation, from the point of view of economics, is not a collective entity. The nation, from an economic standpoint, is simply a convenient name that we give to people inside invisible judicial lines known as national borders."

But the only bait-and-switch taking place here is by North, who is substituting "nation" for "state" and attempting to hide this by claiming that this substitution is justified "from an economic standpoint". But the bulk of North's case and most his complaints about protectionism, such as the oft-repeated "badges and guns" argument, have nothing to do with economics at all. This substitution leads North into a totally false claim about how the "entire concept of protectionism" depends upon a series of propositions that no protectionist needs to hold. North's simplistic approach simply cannot account for the possibility that anyone might be aware of the potential divergence between the interest of the nation and the interests of the state, and favor the former without promoting the latter. And it is truly ironic that he accuses protectionists of "welfare statism" when his free trade argument amounts to nothing more than international welfare and the distribution of wealth from societies with high living standards to those with lower ones.

Of course, it should not be surprising that in what increasingly appears to be his dotage, North is incapable of grasping complex issues.  He even seems to have completely forgotten that 12 years ago he himself advocated the use of tariffs, with all those terrible badges and guns, in the interests of liberty. He complains that those who start their analysis with the nation and still seek to defend the free market suffer from intellectual schizophrenia and do not know how to think straight, but in doing so, only demonstrates his failure to understand that the nationalist argument includes economic elements but is not limited to them.

I strongly suspect that North's refusal to recognize the link between free trade and revolutionary globalism identified by Marx is because, as a post-millenialist, he himself is a utopian globalist who favors the destruction of nations. This also explains his callous indifference towards not only the wealth of nations, but even their existence, as like Marx, he anticipates the Worker's Paradiseliteral Heaven on Earth.

The Globalist Propositions of Free Trade are as follows:
  • The nation does not exist.
  • The state is defined by invisible lines.
  • The individual has no responsibility to anyone beside himself.
  • Everyone has the right to work and live anywhere in the world they want.
  • Free Trade organizations and agreements have nothing to do with free trade, even if they lower tariffs and result in increased international trade.
  • The state does not require funding.
  • All government is unnecessary and illegitimate.

Labels:

129 Comments:

Anonymous CrisisEraDynamo June 27, 2012 8:29 AM  

All right then, what is the difference between the state and the nation?

Blogger Dan Hewitt June 27, 2012 8:32 AM  

Could you please clarify by giving your definition of a nation?

Blogger Vox June 27, 2012 8:33 AM  

A state is a political entity. A nation is a homogenous group of people sharing genetics, culture, traditions, language, religion, and values. Most states were once based on nations, but this is increasingly not the case.

Blogger Vox June 27, 2012 8:37 AM  

Could you please clarify by giving your definition of a nation?

Note the etymology: 1250–1300; Middle English < Latin nātiōn- (stem of nātiō) birth, tribe, equivalent to nāt(us) (past participle of nāscī to be born) + -iōn- -ion.

These two dictionary definitions are all right:

1. "an aggregation of persons of the same ethnic family, often speaking the same language or cognate languages."

2. "a community of persons not constituting a state but bound by common descent, language, history, etc"

Blogger Nate June 27, 2012 8:41 AM  

I would just like to point out that THIS:

"If the free-traders cannot understand how one nation can grow rich at the expense of another, we need not wonder, since these same gentlemen also refuse to understand how within one country one class can enrich itself at the expense of another.... But, in general, the protective system of our day is conservative, while the free trade system is destructive. "

is apparently one sentence.

Karl Marx... Advancing the cutting edge science of the run on sentence.

Anonymous Salt June 27, 2012 8:43 AM  

Even legally, suit encompasses The State Of or ~The United States, not The Nation Of. Yet no one would deny the existence of the Nation.

Blogger Nate June 27, 2012 8:46 AM  

" This does not alter the easily demonstrated fact that Mises was completely wrong on this particular issue, as can be seen by taking the position of Karl Marx into account, or examining the following chart, which shows the very strong statistical correlation, 0.95, between the increasing volume of international trade and the increase in the debt owed by the U.S. federal government."

Oh FFS...

So if you shout correlation enough it will sudden up and become causation?

Tell me... how would the all of that trade expansion happen in the first place if the US had actually had to pay for the stuff?

Beating this sound money drum is getting really old.

Blogger Vox June 27, 2012 8:49 AM  

So if you shout correlation enough it will sudden up and become causation?

Learn to read more carefully, Nate. I very carefully did NOT claim any causation despite the very strong degree of correlation. What I showed was a complete absence of the correlation necessary to support Mises's claim of causation. You are mistaking a mere refutation for a contrary positive case.

Blogger Vox June 27, 2012 8:51 AM  

What I showed was a complete absence of the correlation necessary to support Mises's claim of causation.

Or to be more precise, the complete opposite of the correlation necessary to support the Misean claim.

Anonymous pdimov June 27, 2012 8:51 AM  

He even seems to have completely forgotten that 12 years ago he himself advocated the use of tariffs, with all those terrible badges and guns, in the interests of liberty.

He hasn't forgotten.

But when you press them to defend the free market, and ask them to oppose all tariffs except as revenue-generating devices, they refuse to do this.

Note the explicit "except as" qualifier.

Anonymous Salt June 27, 2012 8:55 AM  

So if you shout correlation enough it will sudden up and become causation?

Tell me... how would the all of that trade expansion happen in the first place if the US had actually had to pay for the stuff?


Nate, you're arguing from the game that is not in play. Now, has Vox shown any causation as to reality being the simple fact that trade expansion has occurred?

Blogger W.LindsayWheeler June 27, 2012 8:59 AM  

I would agree with Vox on the difference between "state" and "nation", but he doesn't really go far enough or really grasp the essence of the "state".

The "state" is the organizing, leadership structure of the tribe, clan, nation.

All things have structure and all high organisms have a leadership structure in place. For instance, the human body has a leadership structure, i.e. a state, called the Brain, spinal cord, nerves. This system directs the body. In the family, the Father is the State. He controls and provides the leadership for the family.

Any society is an "organism"; it is a living breathing organism. Moffit, an ant biologist, describes ant colonies as "super-organisms". Humans are organisms. A family is a group of organisms, hence it is an organism. A society is an organism. As every organism has a leadership structure, so does a society have a leadership structure called the State.

For instance in Classical Greece, the Hellenes were a "nation". But that "nation" was composed of several Greek tribes, the Acheans, the Ionians, the Dorians, the Myceneans, and the Macedonians. Each of these groups had their own 'state' to govern their polis.

There is a German nation, but Bavarian Germans are different from Austrian Germans as Austrians are different from Schwiezer (Swiss) Germans as the so-called "English" are Anglo-Saxons, where are also Germans. The French, the Franks, are also Germans. The "state" is their governing body. Each state is different according to their racial or ideological perspectives.

The 'state' is only the organizing, leadership institution.

Anonymous pdimov June 27, 2012 8:59 AM  

... or examining the following chart, which shows the very strong statistical correlation, 0.95, between the increasing volume of international trade and the increase in the debt owed by the U.S. federal government.

I always find it fascinating to view such charts with a vertical axis measured in gold. Does your 0.95 hold up?

Anonymous Feh June 27, 2012 9:00 AM  

So when Mr. North refers to "invisible lines known as borders", it should be clear that although he is a man of the right, he is addressing this issue from a distinctly leftward position....

I strongly suspect that North's refusal to recognize the link between free trade and revolutionary globalism identified by Marx is because, as a post-millenialist, he himself is a utopian globalist who favors the destruction of nations. This also explains his callous indifference towards not only the wealth of nations, but even their existence, as like Marx, he anticipates the Worker's Paradiseliteral Heaven on Earth.


Libertarians are just a fringe group of useful idiots for the Left, and they don't even know it!

Anonymous pdimov June 27, 2012 9:05 AM  

Libertarians are just a fringe group of useful idiots for the Left, and they don't even know it!

Everyone is a useful idiot for the Left. :-)

Blogger Markku June 27, 2012 9:13 AM  

Libertarians are just a fringe group of useful idiots for the Left, and they don't even know it!

Are you talking about minarchist libertarians also, or only about anarchist libertarians (anarcho-capitalists)?

Anonymous Feh June 27, 2012 9:17 AM  

All of them.

Blogger Nate June 27, 2012 9:19 AM  

"Nate, you're arguing from the game that is not in play. Now, has Vox shown any causation as to reality being the simple fact that trade expansion has occurred?"

if you have to apples in the cellar... and two in the fridge... and you move the apples from the cellar to the fridge... how many apples do you have total?

You have 4. There is no increase. You've just moved the apples.

This trade expansion is exactly the same thing, except rather than moving the apples from the cellar to the fridge... the apples were moved through time.

That's what debt is. its taking future apples and getting them now. As such... there is no expansion. Thus one can make the argument that there is no expansion of trade, since the transactions that brought the goods to the US have not been completed.

Blogger Nate June 27, 2012 9:23 AM  

While I risk sounding like a Calvinist I am forced to note that this trade is not actually increased by debt any more than wealth is created by inflation.

Gold is not more valuable today... dollars are just worth less.

Trade has not really increased. Future purchases have simply been moved to the present... thus creating the illusion of trade increase.

Not only is it not a positive case... its not a refutation.

Anonymous Difster June 27, 2012 9:26 AM  

Thus one can make the argument that there is no expansion of trade, since the transactions that brought the goods to the US have not been completed.

Nate, if actual trade is happening at an increasing rate, it's expansion regardless of the payment vehicle. Your're dealing with mutually exclusive terms here. You can have trade without debt and debt without trade so trade expansion can take place with or without debt expansion.

Blogger Nate June 27, 2012 9:26 AM  

"What this chart shows is a five-decade refutation of the Misean assertion that an increase in trade intrinsically inhibits the expansion of the scale and scope of state power."

What is infuriating here is that I agree with you that Mises is wrong... I just loathe the way you're going about demonstrating it.

Anonymous pdimov June 27, 2012 9:26 AM  

What is the harm of libertarianism?

Blogger Nate June 27, 2012 9:27 AM  

" You can have trade without debt and debt without trade so trade expansion can take place with or without debt expansion."

This is totally illogical.

If the transaction has not been completed... it is not trade. EOD.

Anonymous Yorzhik June 27, 2012 9:31 AM  

The Globalist Propositions of Free Trade are as follows:
Why would you attack the globalist position on Free Trade? They are a fringe group and don't have a correct understanding of economics apparently. Free Trade is a good idea for any nation's economy.

But let's go over the list:

* The nation does not exist.

Who says this? It doesn't matter; free trade is good for a nation, and national borders are a good idea.

* The state is defined by invisible lines.

If you put up fences and gates it is a reasonable representation of a line. Free Trade can be one sided. If a country has free trade, it doesn't need another country to reciprocate.

* The individual has no responsibility to anyone beside himself.

Only primarily. The list, in order, is responsibility to self, family, neighbors, and a nation.

* Everyone has the right to work and live anywhere in the world they want.

A right? Who says it is a right? It is smart for a nation to have wide gates to let in as many workers that will come in and have a better life, but they aren't obligated to let anyone in.

* Free Trade organizations and agreements have nothing to do with free trade, even if they lower tariffs and result in increased international trade.

This one is true. As a small businessman that ships to Canada from the US, NAFTA became a nightmare for me. Free trade indeed. No free trade agreement needs to be more than a couple pages and the removal of piles of laws already on the books. In fact, just removing the piles of existing laws would do it with no agreement at all.

* The state does not require funding.

Don't attack this silly idea to get at Free Trade. Free Trade is good for the economy of any nation that decides to implement it.

* All government is unnecessary and illegitimate.

Don't attack Free Trade on the basis of this silly idea.

Anonymous Difster June 27, 2012 9:34 AM  

Nate, per your argument, there is NO trade in the United States at all then since everyone uses FRN's which are debt instruments. Are you prepared to argue there is no trade (aside from barter and gold)?

Anonymous Salt June 27, 2012 9:35 AM  

Looking at the chart Vox shows, it seems to be a horse-cart sort of thing. It all appears to begin from when Nixon went off the gold standard (floating fiat Dollar), yet much more happened trade wise in the subsequent years following. So which was it? The Dollar or enhanced international trade?

the increasing volume of international trade and the increase in the debt owed by the U.S. federal government

I believe the key is that there is nothing intrinsically wrong with a pure fiat system provided it remain absolutely honest. For various reasons we should be on the gold standard but that does not negate that a pure fiat system can work.

Something other than the current fiat Dollar must have been the impetus as the Dollar cannot trash itself. It's not an absolute causation, but cannot one intuit an increasing volume of international trade?

Anonymous Yorzhik June 27, 2012 9:42 AM  

Salt - I believe the key is that there is nothing intrinsically wrong with a pure fiat system provided it remain absolutely honest. For various reasons we should be on the gold standard but that does not negate that a pure fiat system can work.

Good point. Money is nothing but debt markers. If the people transacting trust them, any marker will do.

Blogger Nate June 27, 2012 9:49 AM  

"Nate, per your argument, there is NO trade in the United States at all then since everyone uses FRN's which are debt instruments. Are you prepared to argue there is no trade (aside from barter and gold)?"

Look its not hard. The US has bought all of this on debt... which will have to be paid for... which reduces future purchasing power.

Thus... in the future there will be a dip in imports corresponding in size with this spike... leaving a net of 0 or near 0.

Thus there is no trade increase.. there is only trade moved through time.

Anonymous Stilicho June 27, 2012 9:50 AM  

Tell me... how would the all of that trade expansion happen in the first place if the US had actually had to pay for the stuff?

Beating this sound money drum is getting really old.


Sound money does not prevent debt or FRB. What it may do is limit the willingness of debtors to borrow and creditors to lend when they know the debt must ultimately be settled in sound money. Or, in Austrian terms, the cost of indulging time preferences increases. Combine sound money with elimination of FRB and you may have something, but you have to make it stick. As it is, the response to the French demanding gold for their trade surplus dollars eventually caused the U.S. not to stop importing goods, but to renege on the gold exchange under Bretton Woods.

Blogger Nate June 27, 2012 9:52 AM  

" Or, in Austrian terms, the cost of indulging time preferences increases. "

Exactly.

And that is why trade expansion financed through debt is not trade expansion at all... but mere time shifting.

Blogger Nate June 27, 2012 9:53 AM  

Jeez... I thought you people knew more about austrian economics than this...

I know Vox understands this.. but he's to busy arguing with his brain tied behind his back just to prove he can.

Blogger Nate June 27, 2012 9:56 AM  

I'm going to try one last time to explain this...

If I borrow a billion dollars... has my net worth increased by one billion dollars?

No.

I get a 1 billion dollar credit... but I have a 1 billion dollar debit as well.

Thus my net worth has not changed at all.

This is exactly how debt funded trade works. You're buying goods today by reducing purchasing power tomorrow.

Blogger sconzey June 27, 2012 9:56 AM  

The key point which Vox has missed (but supports the protectionist position) is that in a world where each nation has it's own national fiat currency, and a central bank with a monopoly on seigniorage, running a trade deficit in the long term necessarily requires expansion of the money supply.

As the US buys Chinese goods for USD, the US accumulates cheap consumer goods and China accumulates USD. If Fed's printing press were broken, then the accumulation of USD in China would make US exports more affordable to Chinese consumers, and Chinese consumer goods increasingly unaffordable to US citizens, and the trade balance would be restored. The only way to maintain this trade imbalance long term would be to devalue the USD held by Chinese whilst maintaining the value of the USD held by US citizens.

This is done by allowing US banks to print 'implicit dollars' by guaranteeing maturity transformed loans with the Fed's printing press. Credit, which is substitutable for money, expands for customers of US banks, giving them more cash to send to China in exchange for consumer goods.

TL;DR statistical correlations aside, there is a causative link between US private debt and the continued US trade deficit.

Anonymous Difster June 27, 2012 9:58 AM  

Nate said: Thus one can make the argument that there is no expansion of trade, since the transactions that brought the goods to the US have not been completed.

Expanding on my other comment....

How are the transactions NOT complete? Regardless of what it's paid with, when both parties are satisfied it's complete, it's complete. Just because I pay for a trade with a debt instrument doesn't mean anything because it's still a negotiable instrument.

If the total number of trades increases, it's an expansion. More goods are produced, more services are rendered. By any metric, that is expansion.

Just because you go to in to debt to complete the transaction doesn't make the transaction incomplete.

If I borrow $10 to buy a widget and I obtain the widget I am $10 in debt but I have a widget. The previous owner of the widget doesn't care how I obtained the money to pay for it. Once the goods are exchanged the transaction is complete.

There is ANOTHER incomplete transaction though which is my debt. But that is not the same transaction; they are wholly divorced from each other unless it was the widget maker that loaned me the money to buy his widget.

You are defining "transaction" in a way that no economist, lawyer, public policy or rational person would to claim the underlying debt has to be paid in order for a previous transaction to be complete.

But let's go down that road anyway. If I get $10 in debt to buy that widget from you, but I sell it for $20 but have not yet paid the debt on the original $10, the transaction is definitely complete.

So I'm not sure what you're arguing here Nate unless you just want to make up definitions of your own.

Blogger Markku June 27, 2012 9:58 AM  

I get a 1 billion dollar credit... but I have a 1 billion dollar debit as well.

If the debt is long enough that the next generation has to pay it, my wealth has indeed increased. It means I have sold my children, and that is as real a trade as any other.

Anonymous cherub's revenge June 27, 2012 10:11 AM  

Good point. Money is nothing but debt markers.

I believe one of the arguments for using gold as money is that it is NOT a debt marker. Whereas a "note" or "bill" comes right out in its name and explicitly states it is a debt marker.

In the US, as notes are negotiable instruments, they even have to carry signatures (Treasurer and Sec. of Treas.)which I guess entitles you to exchange them for US debt, as opposed to US gold or silver as in the past.

Anonymous Stilicho June 27, 2012 10:11 AM  

I get a 1 billion dollar credit... but I have a 1 billion dollar debit as well.

If the debt is long enough that the next generation has to pay it, my wealth has indeed increased. It means I have sold my children, and that is as real a trade as any other.


And when you throw in fiat money, FRB, and massive transfers of private debt to the public, you've just sold my children as well you dirty bastard! If more people understood this, there would be a bloody revolution.

Blogger Vox June 27, 2012 10:17 AM  

Who says this? It doesn't matter; free trade is good for a nation, and national borders are a good idea.

The man whose article I am criticizing says that. Free trade is not necessarily good for a nation and free trade is logically and definitionally opposed to the national borders.

You are repeatedly begging the question.

Nate, per your argument, there is NO trade in the United States at all then since everyone uses FRN's which are debt instruments.

It's actually more connected to the point that Denninger and I have often made,which is that there has been no economic growth in the USA since 1980. But it would be too much to say there is no trade simply because the goods haven't been paid for. It would be more accurate to say there has been theft... and that theft is not necessarily good for the nation harboring the thieves.

There are multiple levels of argument against free trade; given that we're dealing with people who can't figure out that nations do actually exist, I think it is a bit much to bring the money issue into the discussion. Money is conceptually difficult enough when people are actually sane, honest, and have a clue.

Blogger Markku June 27, 2012 10:19 AM  

It's actually more connected to the point that Denninger and I have often made,which is that there has been no economic growth in the USA since 1980.

But, extending my previous argument, there has been a transfer of money as the older generation has sold the younger to slavery. Only the sum total is zero.

Anonymous Boetain June 27, 2012 10:22 AM  

"This is exactly how debt funded trade works. You're buying goods today by reducing purchasing power tomorrow."

So what happens if you default on the debt? Going forward, you might need to actually balance trade, but the goods you have already bought with debt are essentially "free"?

Anonymous Boetain June 27, 2012 10:26 AM  

Maybe the correct word is "stolen" instead of "free". And if you spend enough on military no one can come claim their stolen goods or demand payment in real money.

Blogger Nate June 27, 2012 10:28 AM  

"But it would be too much to say there is no trade simply because the goods haven't been paid for."

Its not that there is no trade... its that the debt funded trade cannot be counted as an increase, any more than the priciple of a loan can be counted as an increase.

Blogger Markku June 27, 2012 10:29 AM  

Unless there is a strong competitor that has

a) Borrowed lots of money from you, giving them the apparent moral high ground in the conflict

b) Has their manufacturing base in order, so that the rest of the world cannot survive without them, putting them in a position to demand that the rest of the world assists them in collecting said debt, or no manufacturing nor resources for you

Anonymous Fred June 27, 2012 10:30 AM  

Until Free trade equals fair trade, that is products compete on functionality and utility alone and not price, Free trade is not a good thing. The problems with Free trade are many as nations will exploit both their citizens (forcing down cost of labor by slavery) and/or their currency (by debasement) in a race to the bottom of the cost structure sea.
Take the Chinese for example:their 'advantage' is solely in cost due to use of slave labor. No innovation takes place in China...they steal and use IK. At this point they are now also debasing their currency, as other nations have for decades to keep their export costs to the Great Satan low. Countries now export their labor to the US because the US Govt does not protect its citizens at all.
I agree with you Vox...North misses the entire point about free vs fair trade. The concept sounds good but in the end its always about exploitation of the most available production or export component that gives the advantage.

Blogger Markku June 27, 2012 10:31 AM  

Oops, I meant LENT lots of money TO you.

Anonymous unger June 27, 2012 10:34 AM  

The nation does not exist.
As you define it, distinct from the state, 'nations' exist, but are not more than the sum of their constituents, do not act, and cannot have property.

The state is defined by invisible lines.
It isn't? What is the state, but a territorial monopoly on force?

The individual has no responsibility to anyone beside himself.
Wrong - but not all responsibilities are interpersonally enforceable. You have a responsibility to spend your money wisely; it does not follow, and nobody accepts it as following in any general sense, that other people have a right to take the spendthrift's property, even to give it to people who will use it more wisely.

Everyone has the right to work and live anywhere in the world they want.
I don't know of any libertarian who's ever said this; the only people I know of who do are leftist radical anarchists. Insofar as there exists individual property rights, one has the right to work and live anywhere in the world where they can get a place to live - which, in the civilized world, means where someone will sell you a home and employ you. Nobody has an obligation to do either, and people having the stones to discriminate - on their own, not foisting the responsibility off on bureaucrats who can handle all the unpleasantness of it out of sight and out of mind - is what preserves the culture you care about.

Free Trade organizations and agreements have nothing to do with free trade, even if they lower tariffs and result in increased international trade.
Indisputably correct.

The state does not require funding.
No, the state's need for funding does not legitimize theft, any more than your need for food justifies theft.

All government is unnecessary and illegitimate.
No, all theft is unnecessary and illegitimate.

Anonymous The Gray Man June 27, 2012 10:34 AM  

It saddens me that the first two comments here are by what I suspect are libertarians who have never grasped the concept of the nation vs the state. This is something that you should know at a young age, good grief.

Blogger IM2L844 June 27, 2012 10:35 AM  

...but he's to busy arguing with his brain tied behind his back just to prove he can.

I think he just enjoys taking the scenic route sometimes.

Anonymous Anonymous June 27, 2012 10:37 AM  

What happens when the goals of the state and the supporting nation are at opposition one against the other?

Anonymous III June 27, 2012 10:41 AM  

Funny how a physical one dollar FRN has not moved. Just a computer stroke that magically puts a Yuan in a Chinese bank account. There IS NOT enough FRN's circulating in the uSA to pay for its worldwide trading. The only thing being transferred is debt... a stroke of a computer key transferring what... a binary? Electrical impulse?. If the AmeriKan consumer was called upon to pay its debts tomorrow, from what would it pay its debts? It is also curious how a one dollar FRN debt created one Yuan.

Blogger vandelay June 27, 2012 10:49 AM  

Please Vox, no more...

Blogger Markku June 27, 2012 10:49 AM  

If the AmeriKan consumer was called upon to pay its debts tomorrow, from what would it pay its debts?

They could sell a couple of states to China (like Russia sold Alaska to USA), and perpetual rights to some oil wells, and so forth.

Anonymous The Gray Man June 27, 2012 10:50 AM  

From reading Yorzhik's first comment it is obvious that he has not been paying attention to the blog before today.

Anonymous Shild June 27, 2012 10:52 AM  

Sheesh, I get more confused with every post on this topic.

What this chart shows is a five-decade refutation of the Misean assertion that an increase in trade intrinsically inhibits the expansion of the scale and scope of state power

When did Mises ever argue this? I know that Mises wrote that government interventionism inhibits trade, but I thought he also argued that the state is parasitic on the profits of private business. This suggests that government would grow as trade increases, not shrink.

And it is truly ironic that he accuses protectionists of "welfare statism" when his free trade argument amounts to nothing more than international welfare and the distribution of wealth from societies with high living standards to those with lower ones.

And how does this make sense? Does laissez-faire within a country redistribute wealth from the rich to the poor?

Anonymous Shild June 27, 2012 10:55 AM  

Re: vandelayPlease Vox, no more...

We could discuss the possibility of a WWII Japanese invasion of the east coast for while, if you want...

Anonymous cherub's revenge June 27, 2012 10:56 AM  

Hmmm, so you have a debt marker that fluctuates relatively to other debt markers, that you can exchange for other debt markers that fluctuate in coupon rate and are paid off with the fluctuating debt marker you exchanged for it. Seems straightforward and sound.

Oh, and for a few hundred debt markers you can get a Chicom made ipod (which will enable them to buy more debt markers) or you can probably get a harem of Greek women, shaved even, if you work the bread lines in Athens.

"Barbarous" could some day be used as an antonym for "convoluted".

Blogger Nate June 27, 2012 10:59 AM  

"But, extending my previous argument, there has been a transfer of money as the older generation has sold the younger to slavery. Only the sum total is zero."

Except the the lender has no means to collect that debt other than war... and generally it requires conventional war to make it work.

Taking on the US, on US soil, in conventional warefare... is a real... real.. bad idea.

Blogger Markku June 27, 2012 11:00 AM  

Except the the lender has no means to collect that debt other than war...

Or bribing the country's leaders, promising them safety and prosperity in exchange of doing the dirty work for them.

Blogger Nate June 27, 2012 11:01 AM  

"If the AmeriKan consumer was called upon to pay its debts tomorrow, from what would it pay its debts?"

Why would it be paid? They will simply default like so many nations before them... and then the recovery will start.

Anonymous Azimus June 27, 2012 11:04 AM  

Nate June 27, 2012 9:23 AM While I risk sounding like a Calvinist I am forced to note that this trade is not actually increased by debt any more than wealth is created by inflation.

Gold is not more valuable today... dollars are just worth less.

Trade has not really increased. Future purchases have simply been moved to the present... thus creating the illusion of trade increase


These two nuggets seem contradictory. Inflation subverts the negative effects of a trade deficit, does it not? I have goods of constant value (denominated in, say, gold) and I have exchanged it for a shrinking pile of gold. I myself did not earn the gold to purchase the goods, but borrowed it from the exporter's shrinking pile (or simply created it fiat) - hence I have received the goods, which have a real, constant value, for free with a promise to pay a pile of fool's gold for it. If you therefore count the good as part of the trade "deficit", does it not work in the favor of the borrowing/deficit nation?

I'm not saying it's ethical, or even intelligent in the long run, but in the aspect of international trade at least, it appears to work to the debtor nation's advantage. Would that not mean that trade increases, and doubly so?

Blogger Markku June 27, 2012 11:04 AM  

Said leaders would have done enough bad already that they wouldn't find a safe haven among the people. They'd have torches and pitchforks up their asses anyway. And were they to seek it abroad, China could make life very difficult for them, as it is in an excellent position to blackmail that country.

So, what are they gonna do?

Anonymous rienzi June 27, 2012 11:06 AM  

What happens when the goals of the state and the supporting nation are at opposition one against the other? @Anon..

See the movie "Cromwell".

Blogger Nate June 27, 2012 11:06 AM  

" If you therefore count the good as part of the trade "deficit", does it not work in the favor of the borrowing/deficit nation?"

Theft has no place in a discussion of economics. One cannot argue that we're better of simply by stealing... unless you're a viking.

Anonymous The Gray Man June 27, 2012 11:16 AM  

Vox Day: There are multiple levels of argument against free trade; given that we're dealing with people who can't figure out that nations do actually exist, I think it is a bit much to bring the money issue into the discussion. Money is conceptually difficult enough when people are actually sane, honest, and have a clue.

This is comedy gold. The libertarians on this site (and other places) are midwits at best, yet like to believe they are on a different intellectual plane from everyone else. They repeatedly bring up the monetary issue when they themselves do not understand it--only what they've seen repeated.

Blogger Nate June 27, 2012 11:29 AM  

"This is comedy gold. The libertarians on this site (and other places) are midwits at best, yet like to believe they are on a different intellectual plane from everyone else. "

Moron...

VOX is a libertarian.

Anonymous Daniel June 27, 2012 11:29 AM  

von Mises also demonstrates a disconnect between his objection (for example, in a '43 lecture collected in Money, Method and the Market Process) to the pacifist argument for free trade under a league of nations due to the obvious and entrenched national interests.

a) He points out that a world league is not a sufficient (though is implicitly necessary) world government to oversee and enforce global free trade. In other words, the ideal pacifist league of nations would be a compulsory superstate.

b) His view on free trade was an incredibly long-term one - needful of a generations-long transitional state to successfully move protectionist interests and the government growth they inspired to something "freer," if not definably free trade.

It seems very clear in hindsight that von Mises either simply didn't have enough of the free trade experiment to demonstrate the weakness of his assertion that free trade is beneficial to all nations or, in his justified critique of the link between protectionist policies and government growth, that he mistook an exacerbation of the problem for a solution.

Von Mises does not make a successful case (or even an attempt) to demonstrate that free trade can exist without an overseeing superstate government in some fashion. He only makes the case that it can't be a weak one.

Anonymous Salt June 27, 2012 11:34 AM  

Thus there is no trade increase.. there is only trade moved through time.

Your substituting where for how. The simple fact is that trade increased in the present due to how it was paid for. Where the money came from is irrelevant.

Anonymous The Gray Man June 27, 2012 11:38 AM  

Nate Moron... VOX is a libertarian.

Only because he wants to hold on to a word that is politically useless and not entirely description of his positions anymore.

It's just like when libertarians gave up the word liberal, Vox should consider giving up libertarian. It is no longer suitable to those who believe in tradition, national borders, and being respectable human beings who don't live in their parent's basement.

Blogger Nate June 27, 2012 11:42 AM  

"It's just like when libertarians gave up the word liberal, Vox should consider giving up libertarian. It is no longer suitable to those who believe in tradition, national borders, and being respectable human beings who don't live in their parent's basement."

This is utter non-sense. There is already a word for the people you're describing. Its "anarchist".

Anonymous The One June 27, 2012 11:42 AM  

Probably a mistake, but goign to disagree with Vox and Nate here

If I borrow a billion dollars and then default on the loan, I am indeed a billion dollars richer.

If I borrow a billion dollars and pay back the billion after 50% inflation, I am 500 millions dollars richer.

Economic growth financed by debt IS growth because the loan is never payed back in a 1:1 ratio because of inflation.

Blogger Markku June 27, 2012 11:43 AM  

Only because he wants to hold on to a word that is politically useless and not entirely description of his positions anymore.

Wikipedia:

Minarchism (also known as minimal statism) is a libertarian capitalist political philosophy.
(...)
Some minarchists justify the state on the grounds that it is the logical consequence of adhering to the non-aggression principle.[citation needed] Some argue that a state is inevitable.
(...)
Some minarchists support taxation on principle or see it as a necessary evil to address the free rider problem, while others believe it is morally wrong.

-----

Vox's position falls within libertarianism.

Blogger Nate June 27, 2012 11:43 AM  

"Your substituting where for how. The simple fact is that trade increased in the present due to how it was paid for. Where the money came from is irrelevant."

No. It didn't. Just as the economy has not actually grown in 30 years... neither has trade increased.

Since future purchase power has been reduced, and I would to see someone argue that it hasn't, then the increase is offset by the future loss.

Note that Vox doesn't refute this... he simply points out that its to much to expect morons like Gary North to grasp to be useful in the discussion.

Anonymous unger June 27, 2012 11:50 AM  

Better to live honestly in a basement than to live 'respectably' in the same sense (apart from your tastes in music and car wheel decoration) that any other gangbanger in any other 'hood' or 'turf' does.

Justice being taken away, then, what are kingdoms but great robberies? For what are robberies themselves, but little kingdoms? The band itself is made up of men; it is ruled by the authority of a prince, it is knit together by the pact of the confederacy; the booty is divided by the law agreed on. If, by the admittance of abandoned men, this evil increases to such a degree that it holds places, fixes abodes, takes possession of cities, and subdues peoples, it assumes the more plainly the name of a kingdom, because the reality is now manifestly conferred on it, not by the removal of covetousness, but by the addition of impunity. Indeed, that was an apt and true reply which was given to Alexander the Great by a pirate who had been seized. For when that king had asked the man what he meant by keeping hostile possession of the sea, he answered with bold pride, “What thou meanest by seizing the whole earth; but because I do it with a petty ship, I am called a robber, whilst thou who dost it with a great fleet art styled emperor.”

Anonymous Salt June 27, 2012 11:52 AM  

Since future purchase power has been reduced, and I would to see someone argue that it hasn't, then the increase is offset by the future loss.

Then you have found the solution to the economic problem of today. Apply the future offset (loss) today and zero the books. The children have been saved.

Blogger Nate June 27, 2012 11:58 AM  

"Then you have found the solution to the economic problem of today. Apply the future offset (loss) today and zero the books. The children have been saved."

Barbarian economics. Blatant theft.

Brilliant plan.

Blogger vandelay June 27, 2012 11:59 AM  

Re Shild: "We could discuss the possibility of a WWII Japanese invasion of the east coast for while, if you want..."

That would be more agreeable to me, an economic illiterate. But it's Vox's blog, which I love, and ultimately I'll endure anything as long as he eventually circles back to his more universal themes.

Anonymous Roundtine June 27, 2012 12:05 PM  

At the extreme, even gold is debt because it represents delayed purchasing power. If you hold a gold coin, you hold a claim on the goods and services of your fellow man. It is not like a financial debt because it has no time limit, but it nevertheless represents future demand.

The issuer of reserve currency must print and what is under appreciated is the the U.S. dollar functions as a substitute for gold in the financial system. Whereas a nation would previously use gold to settle international imbalances and use it as reserves in the banking system, today foreign central banks need U.S. dollars. Thus, there is a demand for U.S. dollars that in theory, never need to be repatriated. This is what allows the insanely large trade deficit to develop: there is a demand for U.S. dollars and U.S. Treasuries (if they want to generate interest) that precedes the trade. Imagine there was only one gold producing nation in the world and gold was the reserve asset. If you want gold, you figure out what the people with gold are willing to trade for it.

Anonymous Salt June 27, 2012 12:06 PM  

Just as the economy has not actually grown in 30 years... neither has trade increased.

Trade can exist without growth. It's not that trade did not increase, it's that the increase is offset by the (theft) debt.

Barbarian economics. Blatant theft.

Right!

Anonymous The One June 27, 2012 12:09 PM  

Just don't see it, this zero economic growth for the last 30yrs is b.s unless interest payments actually cover the rate of inflation.

1 million dollar loan for 1 yr at 5% interest and 10% inflation.

Have to pay back 1,050,000, but that is only worth 945,000 thanks to inflation. So I am actually $55,000 richer the following year.

Anonymous Shild June 27, 2012 12:14 PM  

At the extreme, even gold is debt because it represents delayed purchasing power. If you hold a gold coin, you hold a claim on the goods and services of your fellow man. It is not like a financial debt because it has no time limit, but it nevertheless represents future demand.

Gold isn't debt, nor is it a claim on the goods and services of fellow men. It's a commodity.

Anonymous The Gray Man June 27, 2012 12:22 PM  

Markku Vox's position falls within libertarianism.

My own positions fall into that as well, but I'm not fond of using the word anymore as its definition used in society is most often about people who only care about a single issue like marijuana being legal, or in 'true libertarian' circles (North, Rockwell, and the Mises Institute in general) referring to anarchists.

Murray Rothbard himself started all this by declaring that the only logical conclusion for a minarchist is to become an anarchist.

http://www.lewrockwell.com/rothbard/rothbard167.html
Murray Rothbard We are left to conclude that the pure libertarian must advocate a society where an individual may voluntarily support none or any police or judicial agency that he deems to be efficient and worthy of his custom.

Anonymous Daniel June 27, 2012 12:43 PM  

The One
If I borrow a billion dollars and then default on the loan, I am indeed a billion dollars richer.

No, you are not. You don't get to keep the Antarctic Fortress, the Porsche rocket-submarine and the service replicants when you default. Your lender and executor gets them. Defaulting on even a ten dollar loan means you don't have neither the debt nor the stuff.

After all, default isn't a crafty way of not having to pay for stuff you'd like to keep. If you spend a million dollars on a rare stamp and then use it to mail your electric bill, you are not one million dollars richer.

Blogger Joshua_D June 27, 2012 12:50 PM  

Roundtine June 27, 2012 12:05 PM
At the extreme, even gold is debt because it represents delayed purchasing power. If you hold a gold coin, you hold a claim on the goods and services of your fellow man. It is not like a financial debt because it has no time limit, but it nevertheless represents future demand.


No. This is wrong.

Anonymous The One June 27, 2012 1:05 PM  

Daniel I am talking Nation-States, not individuals. See Iceland. Also see my other post which is the most likely scenario of default via inflation which no one can say anythign about.

China isn't getting any U.S land. I long ago said the most likely scenario is we give up Taiwan to China which actually saves us money in the long run. So yes, we do get to keep the Porsche rocket-submarine.

Anonymous Roundtine June 27, 2012 1:13 PM  

No. This is wrong.

If gold didn't represent a demand on the economy, it wouldn't function as money.

Blogger Markku June 27, 2012 1:18 PM  

Roundtine: If you own gold, to whom, or what group, are you in debt? Debt without a creditor is as senseless as victimless crime.

Anonymous Shild June 27, 2012 1:19 PM  

If gold didn't represent a demand on the economy, it wouldn't function as money

Gold functions as money because it's long-lasting, fungible, transportable, and continuously in high demand. It's not debt.

Anonymous Formerly Anonymous June 27, 2012 1:32 PM  

"The individual has no responsibility to anyone beside himself."

What globalist espouses this? Theyre all claiming "human rights", which grant themselves food, housing, health care, education, etc. all paid for by others. Besides the existence of property itself, nothing despises collectivists more than the concept of individual responsibility. Is this how desperate you are to defend your flawed viewpoint?

"Everyone has the right to work and live anywhere in the world they want."

If all public property is privatized - schools, hospitals, even the roads and highways, then how can immigration be a crime? As long as they dont trespass, they havent done anyone wrong. Its the state that forces citizens to pay for the expenses of illegal immigrants.

And f someone in Minnesota wants to retire, and someone in Russia is willing to pay higher than any American for his home, what right does government have to intervene in the transaction? And if said individual wants to take the proceeds and move to Argentina, what right does the government have to stop him? The US has gotten so pathetic that it demands years of taxation even after an American has renounced his citizenship. The welfare-warfare state is now evolving into a police-prison state.

"Free Trade organizations and agreements have nothing to do with free trade, even if they lower tariffs and result in increased international trade."

If free trade was the goal, why the need for agreements? A country can unilaterally eliminate all tariffs. When foreigners see the cost savings in lowering tariffs, they too will demand their consumer sovereignty, as they will finally understand that tariffs are nothing more than taxes on themselves. The agreements are not free trade, but managed trade. Besides, tariffs in of itself is ultimately pointless. All it serves to do is create a black market for untaxed imports. We already see this in Western nations with alcohol and tobacco.


"All government is unnecessary and illegitimate."

Government beyond local level is unnecessary. It goes without saying. Unless youre saying the masses are too stupid to think for themselves and need to pay tribute to the ruling class who live in the "capital" city for the privilege of being slaves. But Im curious, at what point does a government become illegitimate? Is there no line they cant cross, no act too heinous? What is your take on self-determination and political secession? Im beginning to suspect youre just the conservative equivalent of "intellectual Marxists" in that you think people need to be ruled by "philosopher-kings" in order to fully enjoy life.

Anonymous Roundtine June 27, 2012 1:59 PM  

It's a debt in the sense that it represents a claim on the economy. Unlike paper debt, there is no counterparty, and unlike currency, it is a claim on the global economy, not a national economy, but it is still delayed consumption.

Anonymous Daniel June 27, 2012 1:59 PM  

The One
China isn't getting any U.S land.

Yeah. Because no creditor nation has ever sought measures of reparation before, sovereign default is just a measure for crafty countries to play by different rules?

That makes no sense: "Oh, no problem about that money we are never getting back! Do you have any liabilities you'd like us to take off your hands?"

Iceland, you'll note, lost plenty in default. Enraging their neighbors, lawsuits (big ones), import prices have soared, 20% drops in disposable income, you name it. They didn't get to keep the submarine either (the solvent banks, the low foreign mortgages, disposable income, access to credit: all gone).

Was it the best thing to do? You bet. But they aren't $85 billion richer as a result of their default!

Blogger Markku June 27, 2012 2:03 PM  

Unlike paper debt, there is no counterparty, and unlike currency, it is a claim on the global economy, not a national economy, but it is still delayed consumption.

There is already a word for such things: Fungibles. There is no reason to change the meaning of the word "debt", which has a counterparty in ALL other usages.

Anonymous Roundtine June 27, 2012 2:07 PM  

If you own gold, to whom, or what group, are you in debt? Debt without a creditor is as senseless as victimless crime.

The whole of human society is in your debt because you delayed consumption. Your holding of gold is a claim, on demand, for goods and services.

Blogger Markku June 27, 2012 2:14 PM  

The whole of human society is in your debt because you delayed consumption. Your holding of gold is a claim, on demand, for goods and services.

A more accurate description of the situation is that the entire human society WANTS that gold from me, and they are offering different commodities and/or services in exchange.

Blogger Joshua_D June 27, 2012 2:16 PM  

Roundtine June 27, 2012 2:07 PM
The whole of human society is in your debt because you delayed consumption. Your holding of gold is a claim, on demand, for goods and services.


Seriously. Stop.

Gold is a money. A money as in one type of money. Money is a medium of exchange. There is no reason to bring debt into the picture.

I have a whole bunch of stuff at my house that I could use as money.

Delayed consumption = debt? Owning gold is a claim? Are you drunk right now?

Anonymous Roundtine June 27, 2012 2:36 PM  

There is no reason to bring debt into the picture.

Exactly. If Hu Jintao shows up with fistfuls of gold or fistfuls of $100 bills, he is making a demand on U.S. producers.

Anonymous Shild June 27, 2012 2:36 PM  

Roundtine, here's how it works.

We're in a barter economy. I grow turnips. I keep the turnips I eat and trade the surplus for other things. I give the milk man some turnips for milk. I give the apple farmer some turnips for apples, et cetera.

Problem is that the hunter doesn't need turnips. So how can I get meat? Well, I happen to know that the rancher wants apples, so I trade some of my turnips for apples like before, except that now I turn around and trade the apples for meat. See, the apples work as a medium of exchange between the hunter and me because I know that the hunter has a demand for apples.

So instead of trading my turnips for everything, I find out what everyone wants, trade all my surplus turnips for that, and then trade that for the things I really want. Over time it becomes clear that some products are in consistently high demand by pretty much everybody, so I can count on trading them for everything I need. The product that is long-lasting, transportable, fungible, and in high demand emerges as a medium of exchange.

You get it? Turnips aren't debt, and niether is gold.

Anonymous Shild June 27, 2012 2:38 PM  

^"rancher" should be "hunter" in the second paragraph.^

Blogger Markku June 27, 2012 2:39 PM  

If Hu Jintao shows up with fistfuls of gold or fistfuls of $100 bills, he is making a demand on U.S. producers.

You are equivocating on the word "demand", which in the expression "supply and demand" doesn't mean the same as "making a demand". It means expressing willingness to trade, which may or may not be met with willingness to trade in others.

Blogger Markku June 27, 2012 2:45 PM  

The Chinese dude doesn't have a direct claim on American industries. He is holding a note that says he owns an amount of treasury debt, and he is willing to transfer that ownership to the particular industry in exchange for goods. His claim before that was on the treasury, which in turn would do its collections from the industry in order to fulfill its obligations.

Anonymous Salt June 27, 2012 2:46 PM  

Your holding of gold is a claim, on demand, for goods and services.

There is a difference between potential and work, same for money. Gold is but potential till it is made to work, i.e. as in an exchange.

Anonymous 11B June 27, 2012 3:09 PM  

Being on the right, I am prepared to be continually attacked if any of my views or ideas are within six degrees of separation from Hitler or the Nazis. You'd think that quote from Marx on free trade would be a showstopper. I guess you'd be wrong.

OpenID ZT June 27, 2012 3:24 PM  

I agree with Nate for the most part in that I agree to Vox's point, at least as it functions regarding nation to nation trade. However I don't think the "I borrow a billion dollars" works correctly. It's more along the lines of I borrow a billion dollars at 20% interest and then I have to figure out how to pay the 20% back before it cripples me.

This is where I disagree with Vox in that I do not think the debt issue has anything to do with free trade problem. Even if we protected trade people right now would still be "borrowing" money in order to get those items.

Austrian Free trade as described by North fails because it doesn't account for the people issue. In theory it would work out well just like state trade in the use works but what it requires is essentially a globalists wet dream. North doesn't see it that way because he would want to drop "nations" from the picture. Reality is Nations will never fall from the picture. They will always exist and there can never be truly free trade. Thus free trade in it's current vain is not a net good unless your goal is to destroy nations and cultures.

Anonymous III June 27, 2012 3:43 PM  

Go to the bank and get a 57 trillion dollar (U.S. total debt) loan. Now, ask for cash. It is all an illusion.

Anonymous Azimus June 27, 2012 5:05 PM  

Nate June 27, 2012 11:06 AM Theft has no place in a discussion of economics. One cannot argue that we're better of simply by stealing... unless you're a viking.


Fair enough, but at the very least the value of the goods minimizes damage done by a trade deficit. You are getting something for the money you've spent, afterall?

Not a viking, but I married a Norweigan... is that better or worse for me?

Anonymous Yorzhik June 27, 2012 5:18 PM  

Vox writes:The man whose article I am criticizing says that.

OK. So the man says it. I guess we agree he's wrong.

Free trade is not necessarily good for a nation and free trade is logically and definitionally opposed to the national borders.

Not at all. A nation does not need another nation to reciprocate if it implements free trade policies.

Will they have free trade with each other if the second nation does not implement the same policies? No.

Will the nation that implements free trade policies have a better economy? Yes, even if any other nation it trades with does not implement free trade policies.

Anonymous Yorzhik June 27, 2012 5:23 PM  

cherub's revenge writes: I believe one of the arguments for using gold as money is that it is NOT a debt marker. Whereas a "note" or "bill" comes right out in its name and explicitly states it is a debt marker.

In the US, as notes are negotiable instruments, they even have to carry signatures (Treasurer and Sec. of Treas.)which I guess entitles you to exchange them for US debt, as opposed to US gold or silver as in the past.


Actually gold and silver or anything else is a debt marker when used as a medium of exchange. It is just that gold and silver are easier to trust because there is a limited supply of it, as opposed to a piece of paper that some government official says you can trust.

Anonymous Yorzhik June 27, 2012 5:26 PM  

The Gray Man writes:From reading Yorzhik's first comment it is obvious that he has not been paying attention to the blog before today.

I have been paying attention, but I'm more interested in explaining what is right rather than arguing about who believes what on the subject.

Anonymous Yorzhik June 27, 2012 5:32 PM  

cherub's revenge writes: Hmmm, so you have a debt marker that fluctuates relatively to other debt markers, that you can exchange for other debt markers that fluctuate in coupon rate and are paid off with the fluctuating debt marker you exchanged for it. Seems straightforward and sound.

Straightforward, yes. Sound? That depends on the policies of a nation's leaders.

Oh, and for a few hundred debt markers you can get a Chicom made ipod

Yes. They take your debt markers because they trust the debt will be repaid in wealth.

Anonymous The Gray Man June 27, 2012 5:41 PM  

The problem, Yorzhik, is that you flat out stated that Vox was incorrect in his attacks on free trade without even starting to reply to his critique of it.

Free trade is not good, and national borders do and must exist lest humanity be reduced to a point where discussions like this cannot take place.

Anonymous Azimus June 27, 2012 5:51 PM  

Yorzhik June 27, 2012 5:23 PM
Actually gold and silver or anything else is a debt marker when used as a medium of exchange. It is just that gold and silver are easier to trust because there is a limited supply of it, as opposed to a piece of paper that some government official says you can trust.


FRN's are debt by virtue of how they are created (i.e., the Federal Reserve "creates" money and then buys Treasury Bills with it). This is not necessarily true of other fiat currencies; fiat and money itself is simply a commodity by another name that all other commodities are denominated in and float against. Posession of a commodity (ie the turnip of a prior example, or gold and silver in yours) is posession of wealth, not debt.

What am I missing? I ask sincerely.

Anonymous The One June 27, 2012 5:53 PM  

Daniel

"Yeah. Because no creditor nation has ever sought measures of reparation before, sovereign default is just a measure for crafty countries to play by different rules?

That makes no sense: "Oh, no problem about that money we are never getting back! Do you have any liabilities you'd like us to take off your hands?"

Iceland, you'll note, lost plenty in default. Enraging their neighbors, lawsuits (big ones), import prices have soared, 20% drops in disposable income, you name it. They didn't get to keep the submarine either (the solvent banks, the low foreign mortgages, disposable income, access to credit: all gone).

Was it the best thing to do? You bet. But they aren't $85 billion richer as a result of their default!"

Daniel, if Iceland kept even $1 then they are $1 richer. It isn't keep it all or keep none of it. If the U.S borrowed 10 trillion and kept 1 trillion, they are still 1 trillion richer.

Not sure what you mean by liability. Taiwan GDP would pay back the money we owe them in a few years not to mention bragging rights. Everything after that is gravy

Anonymous cherub's revenge June 27, 2012 6:44 PM  

Actually gold and silver or anything else is a debt marker when used as a medium of exchange.

No, no they're not. Unless you're making up your own definitions of "debt" and "marker".

Anonymous Boetain June 27, 2012 8:04 PM  

"Gold is debt" = drunk or crazy or yanking our chains.

Blogger Nate June 27, 2012 8:35 PM  

"Not a viking, but I married a Norweigan... is that better or worse for me?"

hey... I'm not saying stealing doesn't work. I'm just saying its not economics.

and yes.. marrying a norweigan is always good for you. Marrying two or three is better though.

Blogger Nate June 27, 2012 8:38 PM  

"Gold isn't debt, nor is it a claim on the goods and services of fellow men. It's a commodity."

No Nancy.

Gold is money. Gold is in fact proof that there is a Creator God... as without Gold, or some universally valued item, there would be no way to have a stable economy country to country.

Gold... literally... is magic.

Blogger rcocean June 27, 2012 10:01 PM  

If you can't refute Vox - threadjack!

Blogger rcocean June 27, 2012 10:01 PM  

If you can't refute Vox - threadjack!

Anonymous Yorzhik June 27, 2012 10:26 PM  

The Gray Man writes: The problem, Yorzhik, is that you flat out stated that Vox was incorrect in his attacks on free trade without even starting to reply to his critique of it.
I started a reply. But these are blog comments so one has to be short and to the point. Explanation gets explained as the conversation goes.

Free trade is not good, and national borders do and must exist lest humanity be reduced to a point where discussions like this cannot take place.

Free trade is good because it is just an extension of the very capitalism within a country.

Of course national borders must exist. The problem with the conversation I'm finding is some idea that free trade has to be reciprocated on both sides for it to be free trade. In reality, a country only needs to implement free trade policies on their side to receive the benefits of free trade (which are identical to implementing capitalist policies).

Anonymous Yorzhik June 27, 2012 10:39 PM  

Azimus June 27, 2012 5:51 PMFRN's are debt by virtue of how they are created (i.e., the Federal Reserve "creates" money and then buys Treasury Bills with it). This is not necessarily true of other fiat currencies; fiat and money itself is simply a commodity by another name that all other commodities are denominated in and float against. Posession of a commodity (ie the turnip of a prior example, or gold and silver in yours) is posession of wealth, not debt.

Paper money can also be wealth if you have enough to keep your house warm, or maybe make wallpaper with. It's more purely a marker when it's electronic. This is only to say that gold, silver, and turnips are wealth and debt markers to the extent they can be best used as one or the other.

In any case if it is best used as a debt marker, it will be regardless if it was created by buying T-bills or not. It is simply a matter of trust. If the people in the transaction will take the markers for the wealth, then they are markers regardless how they were created. If how they are created destroys the trust in them (which I think the Fed does with vigor), then it's only a matter of time before people won't use them as debt markers, and anyone holding them when that time comes will be the losers of the money/wealth game.

Blogger rcocean June 27, 2012 11:09 PM  

The Gold standard, Blah blah. Paper money blah blah, unsupported assertions blah blah, free trade is GOOD!!! blah blah.

Turn a commie inside out and you'll find a "Free Trader" and "Libertarian". Two sides of the same coin.

Anonymous FUBAR Nation (Ben) June 28, 2012 2:30 AM  

The gold standard worked well to constrain trade deficits. For example, if a country runs a trade deficit gold leaves the country to pay for the imports. Consequently, prices would fall domestically making domestic goods cheaper and stimulating exports which would cause gold to flow into the country and achieve some sort of floating equilibrium.

Has Vox gotten around to discrediting this theory too?

Anonymous Roundtine June 28, 2012 4:59 AM  

In a two man economy, if you give me a chicken I write "I owe you a chicken" on a piece of paper, and you can ask me for a chicken in the future. If we trade a gold coin, it's functionally the same, maybe you won't ask for a chicken, but it clearly represents that you can ask me for something in the future.

If there are three people, you can take my "I owe you a chicken" paper and give it to the third guy to have in payment for some grain. And eventually that guy will come back and ask me for the chicken. So I'm still in debt until I deliver a chicken, only the counterparty changes.

If instead I give a gold coin, my debt is extinguished. I do not owe that man a chicken. Yet, the other half of the transaction is still valid. Who is his claim made against? Many people refer to U.S. dollars overseas as debt and it is functionally the same as gold in this example. The fact that the U.S. dollar is a debt instrument now, and that foreign central banks exchange their dollars for Treasuries to hold as reserve assets (where they would have held gold before) doesn't change the currency function.

Blogger Markku June 28, 2012 11:14 AM  

In a two man economy, if you give me a chicken I write "I owe you a chicken" on a piece of paper, and you can ask me for a chicken in the future. If we trade a gold coin, it's functionally the same, maybe you won't ask for a chicken, but it clearly represents that you can ask me for something in the future.

I most assuredly CANNOT ask you for something simply by virtue of having a gold coin. I can propose that you trade it for something, but you have no moral obligation to do so. Whereas you do have a moral obligation to give the chicken back. This is the difference between debt and fungible goods.

Anonymous Roundtine June 28, 2012 11:21 AM  

Right. Just as no one can ask an American for something by virtue of having U.S. dollars.

Blogger Markku June 28, 2012 12:32 PM  

Right. Just as no one can ask an American for something by virtue of having U.S. dollars.

A particular american, no. Department of treasury, yes. Because you own treasury debt by virtue of owning a dollar. It is simply a note of that debt.

The treasury, in turn, will turn to the American.

Anonymous Roundtine June 28, 2012 12:36 PM  

Yes, but the trade deficit and the fact that the U.S. issues a lot of Treasuries are two separate issues.

Anonymous Shild June 28, 2012 2:36 PM  

Nate-"Gold isn't debt, nor is it a claim on the goods and services of fellow men. It's a commodity."

No Nancy.

Gold is money. Gold is in fact proof that there is a Creator God... as without Gold, or some universally valued item, there would be no way to have a stable economy country to country.

Gold... literally... is magic.


There you have it, Roundtine. Gold isn't debt.

It's magic.

Blogger Markku June 28, 2012 11:49 PM  

Yes, but the trade deficit and the fact that the U.S. issues a lot of Treasuries are two separate issues.

You are talking nonsense. The issue is that a Federal Reserve note (for example, ten dollar bill) is a note of ownership of debt. It is not just symbolically debt, it is a genuine debt note. It is not the fiat nature of the currency that makes it debt, but that it is an actual debt note.

Blogger Markku June 28, 2012 11:57 PM  

Wikipedia:

Federal Reserve Notes are backed by the assets of the Federal Reserve Banks, which serve as collateral under Federal Reserve Act Section 16. These assets are generally Treasuries which have been purchased by the Federal Reserve through its Federal Open Market Committee in a process called debt monetizing.

By possessing a federal reserve note you have a claim on a portion of debt owed by the Treasury department.

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