Hayek’s guidance for western politicians on MidEast

Freedom fighters

In his final book, The Fatal Conceit: The Errors of Socialism, Freidrich von Hayek wrote that: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design”.

Few people are more in need of one of Hayek’s lessons than western politicians.

Nearly two and half years ago civil unrest broke out in a number of Middle Eastern countries. An excitable western media, this generation of journalists eager for its own Fall of the Berlin Wall, soon christened it the ‘Arab Spring’.

How misguided this characterisation was quickly became apparent. Whereas the Prague Spring of 1968 had actually been about freedom the ‘Arab Spring’ saw unpleasant secular regimes elbowed aside only to be replaced with at least as unpleasant Islamist regimes.

Every use of the phrase ‘Arab Spring’ became an insult to those Czechs and Slovaks who had risked their lives for freedom. Eventually even the credulous journalists who had coined the phrase stopped using it.

While the regimes in Libya and Egypt quickly collapsed, the one in Syria put up a fight. A civil war broke out and settled into a bloody stalemate. On one side are the relatively secular, bloodthirsty Ba’athists led by Bashar Assad, on the other are the equally bloodthirsty Islamist; Al Qaeda inspired rebels.

There are deeper currents swirling in Syria. Assad and his Shia followers (as well as the non-Muslims who back him fearing the fate of their co-religionists in places like Morsi’s Islamised Egypt) are on opposite sides from the Sunni rebels of a schism that divides the Muslim world as the Thirty Years War did the Christian world.

Behind them, on either side, stand the Muslim world’s great Sunni power, Saudi Arabia; and its leading Shia power, Iran.

Of these two contending sides in the civil war in Islam, it is not immediately clear that we should be celebrating the victory of militant Sunnis. It is even less clear that we ought to be intervening to ensure it. Nevertheless, that is what we now appear to be drifting towards in Syria.

It is happening with a notable lack of enthusiasm in the west. When Britain went to war with Russia in 1854 a song became popular in music halls which went:

We don’t want to fight but by jingo if we do,

We’ve got the ships,

We’ve got the men,

We’ve got the money too

There is no such excitement now. Jaundiced western electorates seem to have a clearer appreciation than their leaders of the fact that in 2013 we have neither the ships, men, nor money for this adventure.

But politicians in the west have incredible faith in their own power. They are constructivist rationalists in the tradition of Descartes, possessed of the belief that with the judicious application of their power they can construct an optimal social order.

Armed with this belief David Cameron and Barack Obama appear to believe they can topple Assad, replace him with Syria’s version of Herman van Rompuy, and watch the country turn into West Germany.

This was the central fallacy of neo-conservatism. Contrary to Hayek, who believed that successful social orders emerge, neo-cons believed that order could be imposed or consciously constructed.

Despite the evidence of the last few years, our leaders’ Cartesian faith appears unshaken. There is a very real danger that in striving for an unattainable optimal solution they end up landing us with a situation which is worse than we have now.

This article originally appeared at The Commentator

Advertisements

Who’s the real traitor? Obama or Snowden

Sham

On Tuesday, January 20th 2009, in front of a crowd of over one million and assisted by Samuel L. Jackson, Oprah Winfrey, and Beyoncé Knowles, Barack Obama made the following pledge:

“I do solemnly swear that I will faithfully execute the Office of President of the United States, and will to the best of my Ability, preserve, protect and defend the Constitution of the United States.”

We do not know what sort of surroundings, how big an audience, or whether any celebrities were in attendance when Edward Snowden, on beginning his work for National Security Agency contractor Booz Allen Hamilton, swore two oaths: “The first oath,” said Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, “was to keep secret the classified materials to which he would be exposed in his work as a spy; the second oath was to uphold the Constitution”.

Two very different men in very different circumstances had sworn to uphold the Constitution of the United States of America. That document’s Fourth Amendment reads:

“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

One of these men totally disregarded this Amendment of the very Constitution he was sworn to uphold. Instead, he oversaw a ‘security’ apparatus which used a court order to demand that Verizon, a mobile phone company:

“shall produce to the National Security Agency (NSA) upon service of this Order, and continue production on an ongoing daily basis thereafter for the duration of this Order, unless otherwise ordered by the Court, an electronic copy of the following tangible things: all call detail records or “telephony metadata” created by Verizon for communications (i) between the United States and abroad; or (ii) wholly within the United States, including local telephone calls…Telephony metadata includes comprehensive communications routing information, including but not limited to session identifying information (e.g., originating and terminating telephone number, International Mobile Subscriber Identity (IMSI) number, International Mobile station Equipment Identity (IMEI) number, etc.), trunk identifier, telephone calling card numbers, and time and duration of call.”

IT IS FURTHER ORDERED that no person shall disclose to any other person that the FBI or NSA has sought or obtained tangible things under this Order…”

A program called PRISM gave “the US government access to a vast quantity of emails, chat logs and other data directly from the servers of nine internet companies. These include Google, Facebook, Microsoft, Yahoo, AOL and Apple”.

No “probable cause”, no “Oath or affirmation”, no description of “the place to be searched, and the persons or things to be seized”. Just the mass harvesting of data on the private communications of American citizens.

The other man, by contrast, when he found that one of his two oaths flatly contradicted the other, told people that this was going on, that the Constitution he had quietly sworn to uphold was being trampled on. And it is Edward Snowden, not Barack Obama, who is being branded a ‘traitor’ by all sides.

This article originally appeared at The Commentator

Gold vs Silver – The 1896 US Presidential election

A photographic negative of recent election results

To the south are the debtors. With their incomes slumping and debt burdens rising they demand that the monetary authorities act, wanting a little inflation to ease the load. To the north are the creditors. Anxious that the rising wages from their manufacturing output will buy tomorrow what it will buy today they, by contrast, demand monetary discipline.

This is an apt description of contemporary Europe. It is, in fact, a description of the United States in the late 19th century. For the PIIGS we have the indebted farmers of the south and Great Plains demanding the inflationary coinage of silver. For the Germans, protecting the principle of (relatively) sound money, we have the bankers and industrial workers of the north-eastern states urging sound money and adherence to the gold standard.

The United States Constitution gave Congress the power “To coin Money, regulate the Value thereof, and of foreign Coin” and a Coinage Act was passed in 1792. This provided for the free coinage of silver and gold, a bimetallic system, with silver being coined at the rate of $1 for 371.25 grains of pure silver and gold at 24.75 grains of pure gold, a ratio of 15:1. This held while this mint ratio matched the market price ratio. But when, as was likely, they diverged then the metal undervalued at the mint flooded out and the other became the de facto monometallic money. After 1792 gold was undervalued and a de facto silver standard came about; after an alteration of the mint ratio in 1834 silver was undervalued and a de facto gold standard came about.

Messy and protracted attempts to restore convertibility after the Civil War inflation culminated in the fateful Coinage Act of 1873. Considering the controversy it would subsequently generate this Act passed rather unremarked but it was a clear break in American monetary affairs. While it allowed for free coinage of gold to resume in 1879 it said nothing about silver. This de jure demonetising of silver was little noticed as it had been de facto demonetised since 1834.

Two things returned the monetary question to prominence. One was a rise in the gold/silver ratio from around 16:1 in the early 1870s to 30:1 by 1896 owing to an increased international demand for gold and supply of silver. Another was agricultural hardship. Between 1872 and 1895 on a US Farm Average wheat prices fell by 59%. The price of cotton fell by 55.5% between 1881 and 1890. This crippled heavily indebted farmers in the south and Midwest.

There were two explanations for this. One credited dramatic agricultural productivity increases which saw cotton production increase by 111% and wheat production by 446% between 1859 and 1919. The activist Edward Atkinson wrote “[T]here is not a single commodity which has been subject to a considerable fall in price since 1873 or 1865, of which that change or decline in price cannot be traced to specific applications of science or invention…either to the production or distribution of that specific article without any reference whatever to the change in the ratio of gold to silver”

The other, favoured in agricultural areas, blamed a deflationary shrinkage in the money supply following the 1873 demonetisation of silver, which ‘Silverites’ called ‘The crime of 1873’. Figures emerged showing that money per capita in circulation had fallen from a peak of $31.18 in 1865 to $20.00 between 1875 and 1896. “Money in the business world and blood in the body perform the same functions and seem to be governed by similar laws” commented Illinois governor John Peter Altgeld, “When the quantity of either is reduced the patient becomes weak and what blood or money is left rushes to the heart, or center, while the extremities grow cold”

A succession of organisations arose seeking the remonetisation of silver at 16:1, a de facto silver standard. The most successful was the Populist Party under whose pressure the Democrats adopted a free silver policy in 1896. Both parties nominated Nebraska’s William Jennings Bryan for president that year. Bryan, gifted orator to his supporters, demagogue to his opponents, thundered famously at the Democratic convention in Chicago “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold”. To Bryan his opponents were “creditors; they hold our bonds, and our mortgages, and as the dollars increase in purchasing power, our debts increase and the holders of our bonds and mortgages gather in an unearned increment”.

The Republicans raised the gold standard with little enthusiasm, their traditional economic panacea was protectionism. Their nominee, Ohio’s William McKinley, had made his reputation on the tariff issue. Unlike Bryan, he won the nomination thanks to diligent preparation. While Bryan stumped 18,000 miles round the country McKinley, reasoning “I might just as well put up a trapeze on my front lawn and compete with some professional athlete as go out speaking against Bryan”, stayed in Canton, Ohio. There he pushed the themes of the protectionism and sound money; “We know what partial free trade has done for the labor of the United States. It has diminished its employment and earnings. We do not propose now to inaugurate a currency system that will cheat labor in its pay”.

McKinley won. Just as silver had a popular constituency so did gold. It was found among industrial workers, many of them German immigrants, who saw their real wages increase by 18% between 1879 and 1889. When, in previously Democrat and heavily German Milwaukee, the Democratic candidate said that “gold, silver, copper, paper, sauerkraut or sausages” could serve as money Milwaukee went Republican.

And almost as soon as the election was over prices began to rise as new gold discoveries increased the money supply. Whether this was due to luck or equilibrating tendencies in the gold standard is still disputed.  And here, if not before, the historical analogy breaks down. There is no such light at the end of the Euro-tunnel.

This is an early draft of an article which appeared in The Salisbury Review