What is Laissez-Faire?

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The Daily Reckoning | Wednesday, December 14, 2011 Witnessing governments doing what they were designed to do... An explanation of the concept of “laissez-faire”... Plus, Bill Bonner with more on clouds with no silver lining and his ongoing “new theory of government”... ------------------------------------------------------- $1.82 Stock About To Make History! This little-known stock is set to shock the world and win the global race to rare earth production outside China. This could be the market story of the century and your shot at life- altering profits. Click here for the full details.   By Government Design How the “Borrow and Spend” Philosophy of the Eurozone Has Sealed Its Fate   Joel Bowman Reporting from Managua, Nicaragua... Yesterday was not pretty. Dow down 150. Gold whacked for $40. Oil off 3%. And would you look at that, Fellow Reckoner. Optimism in the euro- zone is disappearing faster than a snow bunny in an avalanche. Even the newspapers say it’s so... “Doubts over euro-zone deal weigh on euro,” says The Financial Times. The Wall Street Journal complains of “anxiety” over on the woebegone continent. And The Washington Post cites “further signs of weakness” in Europe as the key factor motivating today’s slump in US markets. The Esperanto currency fell below $1.30 this morning to register its lowest level against the greenback since January. Hopes of a fix are fading. Slowly but surely, folks are coming to realize that there is no meeting, no summit, no treaty or handshake that can rescue the world’s largest economy from its own hard-won fate. And what fate is that, you ask? Put simply, the European governments borrowed and spent more than they could afford. The Greeks borrowed like Germans...but they still spent like Greeks. Worse still, they produced like Greeks too. Ditto for half a dozen or so other Club Med economies. Not that we necessarily blame the Greeks. No. That would be like getting angry with a shark for eating a fish...or an avalanche for covering a snow bunny. It’s in the nature of things to do what they do. The government of Athens was simply doing what all governments do. In many ways, it was doing what it was designed to do. And what is that? “Government,” explains Bill (below), “is just a way for the insiders to take advantage of the outsiders.” Don’t be fooled, Fellow Reckoner. Don’t be taken in by the fanciful treatises and bombastic declarations. Don’t fall for the pomp and ceremony, the debates on television, the speeches from bully pulpits and rally cries in the halls of Congress. Government, as it is witnessed today, is little more than a codified process of rape and pillage. It’s a means, as Bill observes, by which the insiders may loot the outsiders. Nothing more. Nothing less. Sound cynical? Don’t believe us? Take a look for yourself. The Merkels and Sarkozys of the world would have us believe that waste and profligacy are PIIGS-specific ailments. They propagate the mistruth that, while the peripheral states were lounging in the sun, their own, superior federal institutions were diligently toiling for the good of their respective citizens...pinching pennies and deftly allocating resources only and exactly where needed. The spendthrift PIIGS have threatened the integrity of the union, they claim, thereby undermining France and Germany’s efforts at prudent governance and faultless political stewardship. But lo! It wasn’t only the Greeks running amok on the continent. The Maastricht Treaty, to which both nations are signatories, was supposed to bind countries to manageable debt levels. Buried right there at the very top of the treaty reads a stipulation that the ratio of gross government debt to GDP must not exceed 60%. It’s a prerequisite for joining the European Monetary and Economic Union (EMU) and for using the beleaguered euro as currency. As of the close of business for the year 2010, only two countries satisfied that requirement. (Bravo Poland and Czech Republic!) Today, Germany’s debt to GDP ratio is closer to 90%. France’s sits just shy of 100%. And these are the two nations leading the hard- nosed summit talks. Also in the Maastricht criteria, a stipulation that annual government deficits not exceed 3% of GDP. Both Germany and France have, on numerous occasions, broken that “rule.” As of this writing, today, France’s budget deficit is almost double the tolerable amount. And still she points her finger toward the PIIGS. So what’s the verdict for Europe, Fellow Reckoner? Allow us to repeat an observation made in these pages by Eric Fry not three months ago. “Bankrupt entities tend to go bankrupt,” wrote Eric. “Greece will default...eventually.” “And with it,” your editor added at the time, “will follow a few other chain-linked lemmings. Maybe that list will ‘only’ include an assortment of other PIIGS’ rinds. Maybe it will include the euro itself. Time will tell.” And maybe, we add today, will follow all governments that insist on acting like...well, like governments.   Get 4 FREE Penny Stock Picks Today! I have scientifically selected FOUR picks using my CXS Money- Multiplier strategy, and I want to send them to you FREE! How high could they soar? Why am I giving them away? Simply click here now to learn more. The Daily Reckoning Presents What is Laissez-Faire?   Jeffrey Tucker The latest data show that book sales are way up this season. So much for the prediction that books will be killed by technology. On the contrary, technology has enabled the great literature of the ages and the present to be put in the hands of everyone. I can’t think of a better time to begin refurbishing Laissez-Faire Books (founded in 1972), because it is the market that laissez-faire celebrates that has made all the literature we love more accessible than ever. Addison Wiggin, president of Agora Financial, and I were discussing the various challenges ahead of us as we infuse new life into an old and venerable institution. He drew my attention to a point that I’ve overlooked. Most people don’t know the term “laissez-faire.” They don’t know how to say it (that very day, I was introduced for a speech, and the host mispronounced it) and they don’t know what it means. Once in common circulation, this term has not been in common use, even in libertarian circles. So we have some work to do, in helping people even understand the name of the bookstore at lfb.org. The pronunciation in English is lay-say-fair. Its French origins date back to the late Renaissance. As the story goes, it was first used about the year 1680, a time when the nation-state was on the rise throughout Europe. The French finance minister, Jean-Baptiste Colbert, asked a merchant named M. Le Gendre what the state could do to promote industry. According to legend, the reply came: “Laissez-nous faire,” or “let it be.” This incident was reported in 1751 in the Journal Oeconomique by the free-trade champion Rene de Voyer, Marquis d’Argenson. The slogan was codified finally in the words of Vincent de Gournay: “Laissez-faire et laissez-passer, le monde va de lui même!” The loose translation: “Let it be and let goods pass; the world goes by itself.” We’ve rendered this in the form you see on our masthead: Leave the world alone, it manages itself. You could shorten it: Let it be. All these renderings express not only the idea of free trade — a main subject of dispute in 18th-century European politics — but also a larger and more-beautiful vision of the way society can be permitted to work. This idea can be summed up in the phrase “laissez-faire,” or in the doctrine of what was once called simply liberalism, which today is clarified as classical liberalism. This idea is this: Society contains within itself the capacity for ordering and managing its own path of development. It follows that people should enjoy the liberty to manage their own lives, associate as they please, exchange with anyone and everyone, own and accumulate property and otherwise be unencumbered by state expansion into their lives. In the centuries that have followed, millions of great thinkers and writers have elaborated on this core idea within all disciplines of the social science. Then as now, there stand two broad schools of thought: those who believe in state control of one or many aspects of the social order and those who believe that such attempts at control are counterproductive to the cause of prosperity, justice, peace and the building of the civilized life. These two ways of thinking are different from what is called the right and the left today. The left is inclined to think that if we let the economic sphere be free, the world will collapse, which advances some theory of the disaster that would befall us all without government control. The right is similarly convinced that the state is necessary lest the world collapse into violent, warring, culture-destroying gangs. The laissez-faire view rejects both views in favor of what Claude Frédéric Bastiat called “the harmony of interests” that make up the social order. It is the view that the artists, merchants, philanthropists, entrepreneurs and property owners — and not the cartelizing thugs of the state — ought to be permitted to drive the course of history. This view is now held by millions of thinkers around the world. It is the most exciting intellectual movement today, and in places where we might least expect to find it. There are institutions in every country devoted to the idea. Blogs and forums are everywhere dedicated to the conviction. Books are pouring out by the week and the day. The revolt against the state is growing. The growth of the idea of laissez-faire in our times is infused by a digital energy. But the idea itself is not new in world history. Though it is mostly associated with 18th-century British thought, it is a view of society that has much-deeper roots in the Christian Middle Ages and early Jewish thought. Nor is laissez-faire somehow a Western idea alone. The deepest roots of laissez-faire actually trace to ancient China, and even today, the thoughts of the masters offer a fine summary. Here are some examples: Lao Tzu (6th century B.C.): “The more artificial taboos and restrictions there are in the world, the more the people are impoverished...The more that laws and regulations are given prominence, the more thieves and robbers there will be...” “The Sage says: ‘I take no action, yet the people transform themselves, I favor quiescence and the people right themselves, I take no action and the people enrich themselves...’” Chuang Tzu (369-286 B.C.): “I would rather roam and idle about in a muddy ditch, at my own amusement, than to be put under the restraints that the ruler would impose. I would never take any official service, and thereby I will [be free] to satisfy my own purposes.” “There has been such thing as letting mankind alone; there has never been such a thing as governing mankind [with success].” The world “does simply not need governing; in fact, it should not be governed.” Pao Ching-yen (4th century A.D.): “Where knights and hosts could not be assembled, there was no warfare afield...Ideas of using power for advantage had not yet burgeoned. Disaster and disorder did not occur...People munched their food and disported themselves; they were carefree and contented.” Ssu-ma Ch’ien (145-90 B.C.): “Each man has only to be left to utilize his own abilities and exert his strength to obtain what he wishes...When each person works away at his own occupation and delights in his own business, then like water flowing downward, goods will naturally flow ceaseless day and night without being summoned, and the people will produce commodities without having been asked.” These early beginnings of the idea began here but can be traced through thinkers of ancient Greece and Rome and through the Middle Ages, until the notion swept the world in the 18th and 19th centuries, giving rise to unheard-of prosperity, liberty and peace for all. In the 18th century and in large parts of the world (other than the English-speaking world), laissez-faire has been called liberalism or classical liberalism, a doctrine of social organization that can be summed up in the words of Lord Acton: Liberty is the highest political end of humankind. To be sure, the notion of liberalism was already corrupted early in the 20th century. As Ludwig von Mises wrote in his book Liberalism (1929), “The world today wants to hear no more of liberalism. Outside England, the term ‘liberalism’ is frankly proscribed. In England, there are, to be sure, still ‘liberals,’ but most of them are so in name only. In fact, they are rather moderate socialists. Everywhere today, political power is in the hands of the anti- liberal parties.” That remains true today. And the revolt against this is often termed “libertarian,” a word that has long been associated with a primary concern for human liberty. In current understanding, it refers to a tightening and radicalizing of the old liberal view. It asserts the inviolability of property rights, the primacy of peace in world affairs and the centrality of free association and trade in the conduct of human affairs. It differs from the old liberal view in dispensing the naive view that the state can be limited by law and constitutions; it imagines the possibility that society can manage itself without a state, defined as the one institution in society that is permitted the legal right of aggression against person and property. Libertarians are consistently against war, protectionism, taxation, inflation and any laws that interfere with the right of free association. Libertarianism came of age in the early 1970s with the writings of Murray Rothbard and, later, with the founding of Laissez-Faire Books and the work of Robert Nozick and Tibor Machan. Libertarians are not necessarily anarchists or anarcho-capitalists, but the main strain of thinking in the libertarian world today revolves around the idea of statelessness as an intellectual benchmark. This view is not utopian or far-flung; it is only the hope for an ideal in which theft, murder, kidnapping and counterfeiting are not legally sanctioned by the state. Nor is such a society historically unprecedented. Rothbard wrote about Colonial America as an example of a wildly successful experiment of society without a central state. Medieval Europe made the first great economic revolution without recourse to the power of the nation-state. David Friedman has documented anarchism and competitive legal orders in medieval Iceland. Other writers go so far as to say that given how we conduct our lives day to day, relying on the productivity of private institutions and associations, we never really leave anarchy. As Mises says, liberalism/libertarianism/laissez-faire is not a completed doctrine. There are so many areas remaining to be explored and so many applications to make both in history and in our time. The most-exciting books of our time are being written from the vantage point of human liberty. The state is on the march, but the resistance is growing. It is my great honor to be involved in the Agora effort to revive Laissez-Faire Books as the international distribution and publishing house for the greatest ideas of our time. It is a debilitating thing to watch the state on the march, but it is a source of joy to know that ideas are more powerful than all the armies of the world. Reason, literacy and relentless work for what is right and true will eventually lead the idea of laissez-faire to victory. Regards, Jeffrey Tucker for The Daily Reckoning Joel’s Note: In addition to being the publisher and executive editor of Laissez-Faire Books, not to mention the thousands of articles (seriously...thousands!) he’s written, Mr. Tucker is also the author of Bourbon for Breakfast: Living Outside the Statist Quo and It’s a Jetsons World: Private Miracles and Public Crimes.   Just How Rich Could You Get When the Innovation Curve Goes Vertical? Amazing breakthroughs. World-altering research. A select batch of important new ideas could make you very rich — very quickly. Getting ready for the innovation curve to go vertical is easier than ever. Click here to find out why.   Bill Bonner Unpopular Cures for Unemployment and Economic Depression   Bill Bonner Reckoning from Baltimore, Maryland... So far, so good. Things keep happening, more or less as they should. That is, the US and European economies keep falling apart. And the fixers keep failing to put them back together again. Just as we expected. Trying to fix a depression it is not only expensive.... The US government spends $1.60 for every $1 it receives in taxes. This is a recipe for a disaster, not for a recovery. Worse. It actually prevents a real recovery from happening, by blocking the market’s natural self-healing system Let us ask you this, dear reader: what’s the cure for a depression? Answer: a depression! A depression reduces asset prices, consumer prices, and interest rates. This makes it possible for investors and business people to redirect their efforts on projects that will work. A car wash, for example, may not be a good investment at $100,000. But at $50,000 it might produce good cash-flow. An investment may not make sense if you have to borrow money at 6% interest. But at 3%...the numbers work. In an ideal world the price of labor falls too. You may not be willing or able to hire extra workers at $10 an hour. But how about at $5? Trouble is, the feds interfere with these self-healing trends. Minimum wage laws prevent employers from taking advantage of low- quality labor at low prices. Unemployment compensation keeps workers from discounting their own labor. Zero interest rates and bailouts keep the zombies on their feet. Even in the best of circumstances — that is, in a free market — labor rates tend to be “sticky.” They don’t adjust quickly. With the feds applying so much glue, it’s amazing if they can move at all. But eventually, a depression works its magic. Prices fall. Investors are wiped out. Businesses go bust. The ‘destruction’ of the capital stock frees up both money and labor for new applications. The ‘creative’ part can begin. Not this time. The feds have created a darkness without a dawn. The glass is 100% empty. There are plenty of clouds. But no silver linings. There are now more than 6 Americans competing for every job. A normal recovery would see the US economy adding about 500,000 new jobs a month. Instead, last month it added 120,000 and economists hailed it as a major victory. Of course, it needs to create 150,000 jobs just to stay even with population growth. As it is there are 7 million fewer jobs today than there were in 2007...and the number of unemployed people is growing. In 2007, just 10% of the unemployed had been jobless for 6 months or more. Today, the total is 40%. And with so little growth in the job market, many of these unemployed people will never work again. What’s the problem? Truth is, no one really knows. The simple explanation is that there’s a Great Correction going on. But even before the Great Correction, decent jobs were disappearing. The recession of 2001 was followed by the first “jobless recovery.” But every recession since the 1970s has been succeeded by a weaker and weaker recovery. The feds don’t really have any idea why this is. Every politician and policy wonk suggests the usual remedies — more education, retraining and infrastructure investment. But there is no evidence that any of these things would really make the job picture much better. As we explained earlier this year, the education industry has been a money pit. Huge amounts of money have been “invested” both by parents and the feds. It doesn’t seem to have helped the economy very much. True, a college grad is more likely to have a job...but only because he’s taking it away from someone without one. The unemployment problem is a “tough nut to crack,” says The Financial Times. Of course, we could fix the jobless problem overnight. But people wouldn’t appreciate it. We would simply remove all subsidies for unemployed people...and all restraints on hiring. Labor prices would fall fast. Within days, we’d have full employment again. And more thoughts... More on our new theory of government. You’ll recall that this series began by pointing out how worthless most “theories of government” really are. They’re not theories at all. They don’t explain anything. Instead, they are just wishful thinking...flattery...and apologia for the elite who use government for their own ends. The “social contract,” for example, is a fraud. You can’t have a contract unless you have two willing and able parties. They must come together in a meeting of the minds — a real agreement about what they are going to do together. But what is the ‘social contract’ with government? There was never a meeting of the minds. The deal was forced on the public. And now, imagine that you want out. Can you simply “break the contract?” You refuse to pay your taxes and refuse to be bossed around by TSA agents and other government employees. How long would it be before you got put in jail? What kind of contract is it that you don’t agree to and can’t get out of? They can dress it up...print out a piece of paper...have a solemn ceremony in which everyone pretends it is a real contract. But it’s not worth the paper it’s not written on. Also, what kind of a contract allows for one party to unilaterally change the terms of the deal? Congress passes new laws almost every day. The bureaucracy issues new edicts. The tax system is changed. The pound of flesh they got already wasn’t enough; now they want a pound and a half! Every theory of government we’ve come across is a scam. So we offer a better theory: government is just a way for the insiders to take advantage of the outsiders. Until the Industrial Revolution, the apologists relied on God to justify government. If one man bossed around another, it was God’s doing they said. The Almighty got the blame. Which was neat and clean as long as you accepted the major and minor premises of it. But the system came apart for two reasons. First, it made God look like a fool. Monarchs governed in ways that must have been inexplicable to the “divine right of kings” theorists. Kings were frequently incompetent, murderous and venal. Finally, the theorists gave the theory and the kings the heave-ho at the same time. Second, the rising wealth and power of the productive classes required a new idea. Insiders always use government to transfer power and money from the outsiders to themselves. When wealth was easy to identify and easy to control — that is, when it was mostly land — a few insiders could do a fairly good job of keeping it for themselves. The feudal hierarchy gave everybody a place in the system, with the insiders at the top of the heap. But come the industrial revolution and suddenly wealth was accumulating outside the feudal structure. Populations were growing too...and growing restless. The old regime tried to tax this new money, but the new ‘bourgeoisie’ resisted. It wanted to be an insider too. “No taxation without representation,” was a popular slogan of the time. The outsiders wanted in. There never is one fixed group of people who are always insiders. Instead, the insider group has a porous membrane separating it from the rest of the population. Some people enter. Some are expelled. The group swells. And shrinks. Sometimes, a military defeat brings a whole new group of insiders sweeping into power. Elections change the make-up of the core group. But the genius of modern representative government is that it cons the masses into believing that they are insiders too. They are encouraged to vote...and to believe that their vote really matters. Of course, it matters not at all. Generally, the voters have no idea what or whom they are voting for. Often, they get the opposite of what they thought they had voted for anyway. But the common man likes the humbug that he is running things. And he pays dearly for it. After the insiders brought him into the voting booth, his taxes soared. In America, with taxation without representation, before the war of independence, the average tax rate was as little as 3% or so Now, with representation, government spends about a third of national income. And if you live in a high- tax jurisdiction, such as Baltimore or New York, you will find your state, local and federal tax bill will run to nearly 45% of your income. In short, the insiders pulled a fast one. They allowed the rubes to feel that they had a solemn responsibility to set the course of government. And while the fellow was dazzled by his own power...they picked his pocket! It didn’t stop there. Under the kings and emperors, a soldier was a paid fighter. If he was lucky, his side would win and he’d get to loot and rape in a captured town for three days. Relatively few people were soldiers, however, because societies were not rich enough to afford large, standing armies. The industrial revolution changed that too. By the 20th century, developed countries could afford the cost of maintaining expensive military preparedness, even when there was not really very much to be prepared for. But the common man was skinned again. Not only was he expected to pay for it, still under the delusion that he was in charge, he also believed he had a patriotic duty to defend the homeland insiders! That is the real reason that the modern democratic system has spread all over the world. It allows the insiders to mobilize more of the resources of the country on their behalf. Nothing can compete with it. But now the insiders are in trouble. The typical citizen is beginning to realize that he’s been had. As long as the insiders could plausibly promise him more and more benefits, he was willing to go along. But now, growth has stalled. They can’t deliver. The insiders keep borrowing — more than $10 trillion this year alone. Soon, they’ll be out of credit...out of time...and out of luck. Regards, Bill Bonner for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com On the Uses of Government When a Great Correction Doesn’t Stick to the Script Changing Views on Growth and Economic Recovery US Retail Sales Disappoint Spain Successfully Auctions Off €4.94 Billion Comparing the US and Eurozone Debts The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters: Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru Editor Rocky Vega Editor Additional articles and commentary from The Daily Reckoning on: Twitter Facebook DR iPhone APP To end your Daily Reckoning e-mail subscription and associated external offers sent from Daily Reckoning, cancel your free subscription. If you are you having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox by whitelisting the Daily Reckoning. © 2010-2011 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. 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