Economy

Why We Need to Bring Back the Gold-Backed Currency

By  Jacques Jonker

When people are confronted with the daunting question of “What is money?”, they usually stare at you like you’ve just asked them to explain the equation for special relativity.

Money is anything with inherent value that is used to measure the value people attach to products and services. It acts as a medium of exchange in order to facilitate trade. What started out as people trading physical goods for one another, developed into an immensely complicated modern economic system as more specialised products and services arose. People realised they needed a universal medium of exchange, and this led to the revolutionary invention of money.

There exists an interdependent relationship between money and goods & services: the value of money is measured in the number of goods and services it can purchase (purchasing power) and the value of goods and services is in turn measured in what amount of monies is needed to purchase it (prices). It is a very delicate balancing act which can only be achieved by the invisible hand of the market, which is why the market must be free.

As far as inherent worth goes, gold seemed a pretty solid option to use as money. Here’s why:

The amount of gold relative to the number of people is relatively miniscule; the demand outweighs the supply by far. Gold thus has a lot of value attached to it. Seeing as the global population keeps increasing, the demand for gold also keeps increasing. Hence the rise in the value of gold; it keeps getting relatively scarcer. It thus makes complete sense to use it as a medium of exchange seeing as it keeps its value.

As nations rose and fell and economies grew ever more complicated, governments the world over decided that the best way to maintain gold as the primary means of exchange, but also make it more “flexible” in order to adapt to modern specialised markets, was to have it represented by paper money and coins. Currency was thus invented.

Currency is different from money in that it has no inherent value. It merely represents the real money: gold. Currency is also easily divisible into much smaller units. Currency was essentially a middle man that nudged its way in between gold and domestic products and services. The balancing act became even more delicate. The gold standard was created.

The gold standard is a fool-proof system at worst. The value of the gold is measured in terms of the currency used. The gold backs up the currency and gives it value and consequently purchasing power; another fine balancing act that can only be achieved by the market’s invisible hand. This act determines the purchasing power of the specific currency.

As explained earlier, in the long run the value of gold keeps rising as the level of demand grows at a faster rate relative to the level of supply of gold. The paper currency representing the gold will thus not lose its purchasing power. When the US finally decided that the whole “live within your means” thing wasn’t working for them, Nixon abolished the gold standard in 1971 and replaced it with a fiat currency.

The word fiat’ is a Latin term meaning “let it be done”. A fiat currency is a system of currency that is backed not by anything of value but by a central government’s arbitrary authority. The US Federal Reserve, for example, is allowed to print US dollars non-stop as long as its financial overlords give it the green light. The only difference between a $1 bill and 1 Monopoly bill is that the government sanctions the former as a viable means of exchange. Yet, it has no inherent worth.

Currencies’ worth is now determined by market forces within the money market, the place where currencies compete for domination. The quantity of currency within an economy can now be adjusted by a central government in order to influence the exchange rate, internal interest rates, and thus the value the currency holds. Reserve banks can also influence exchange rates by actively competing in the money market, also known as ‘dirty floating’. It is no mystery why governments keep on printing worthless paper money: massive expansionary fiscal and monetary policies demand it.

Economists such as Michael Maloney keep warning governments and central banks that they’re creating an unsustainable global financial bubble that is going to implode. There is no foundation on which modern economies are based. Money exists no more.

What we now have is an artificial form of “money” with no inherent worth. It is simply not sustainable. The gold standard keeps the economy in a state of natural unison. It is a system that balances itself out. It is a system that works. It is a system that is endowed with foolproofness by its very nature.

Republished from RationalStandard.com

Read more

The Core of Liberty Is Economic Liberty

By Deirdre McCloskey

Since the rise during the late 1800s of socialism, New Liberalism, and Progressivism it has been conventional to scorn economic liberty as vulgar and optional—something only fat cats care about. But the original liberalism during the 1700s of Voltaire, Adam Smith, Tom Paine, and Mary Wollstonecraft recommended an economic liberty for rich and poor understood as not messing with other peoples’ stuff.

Indeed, economic liberty is the liberty about which most ordinary people care. 

Adam Smith spoke of “the liberal plan of [social] equality, [economic] liberty, and [legal] justice.” It was a good idea, new in 1776. And in the next two centuries, the liberal idea proved to be astonishingly productive of good and rich people, formerly desperate and poor. Let’s not lose it.Well into the 1800s most thinking people, such as Henry David Thoreau, were economic liberals. Thoreau around 1840 invented procedures for his father’s little factory making pencils, which elevated Thoreau and Son for a decade or so to the leading maker of pencils in America. He was a businessman as much as an environmentalist and civil disobeyer. When imports of high-quality pencils finally overtook the head start, Thoreau and Son graciously gave way, turning instead to making graphite for the printing of engravings.

That’s the economic liberal deal. You get to offer in the first act a betterment to customers, but you don’t get to arrange for protection later from competitors. After making your bundle in the first act, you suffer from competition in the second. Too bad.

In On Liberty (1859) the economist and philosopher John Stuart Mill declared that “society admits no right, either legal or moral, in the disappointed competitors to immunity from this kind of suffering; and feels called on to interfere only when means of success have been employed which it is contrary to the general interest to permit—namely, fraud or treachery, and force.” No protectionism. No economic nationalism. The customers, prominent among them the poor, are enabled in the first through third acts to buy better and cheaper pencils.

Economic liberty, that is, is part of liberty. Of course.

Mussolini and Hitler won elections and were popular, while vigorously abridging liberties.

Indeed, economic liberty is the liberty about which most ordinary people care. True, liberty of speech, the press, assembly, petitioning the government, and voting for a new government are in the long run essential protections for all liberty, including the economic right to buy and sell. But the lofty liberties are cherished mainly by an educated minority. Most people—in the long run foolishly, true—don’t give a fig about liberty of speech, so long as they can open a shop when they want and drive to a job paying decent wages. A majority of Turks voted in favor of the rapid slide of Turkey after 2013 into neo-fascism under Erdoğan. Mussolini and Hitler won elections and were popular, while vigorously abridging liberties. Even a few communist governments have been elected—witness Venezuela under Chavez.The protagonist of Forever Flowing by Vasily Grossman (1905–1964), the only example of a successful Stalinist writer who converted wholly to anti-communism, declares that “I used to think liberty was liberty of speech, liberty of the press, liberty of conscience. Here is what it amounts to: you have to have the right to sow what you wish to, to make shoes or coats, to bake into bread the flour ground from the grain you have sown, and to sell it or not sell it as you wish; . . . to work as you wish and not as they order you.”

The blessed Adam Smith was outraged by interferences in 1700s Britain in the right of workingmen to move freely to find profitable work. “The property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. To hinder him from employing this . . . in what manner he thinks proper without injury to his neighbor, is a plain violation of this most sacred property.” Not as they order you.

And economic liberty, surprisingly, has massively enriched the world in goods and services. How much? In 1800 the income per person of a country like Sweden or Japan, expressed in 2018 prices, was about $3 a day. Now it is over $100 day, a 3,200 percent increase. Not one hundred percent or even two hundred percent, but thirty-two hundred percent. The enrichment was not a factor of two, as had been routine from time to time in earlier spurts, such as the glory of Greece or the prosperity of Song China, to fall back to $3 a day. It was a factor of thirty-three. No starvation. Taller people. Doubled life expectancy. Bigger houses. Faster transport. Higher education. If you doubt it, see the late Hans Rosling’s startling videos at Gapminder.

We became rich by giving ordinary people their economic liberty.

The usual explanations of the Great Enrichment from economists and historians don’t compute. Accumulation of capital or the extractions of empire were not the causes. Ingenuity was, and the ingenuity was caused in turn by a new liberty after 1800. The liberal plan of equality, liberty, and justice made masses of people bold–first the free and wealthy men, then poor men, then former slaves, then women, then gays, then handicapped, then, then, then. Make everyone free, it turned out (the experiment had never been tried before on such a scale), and you get masses and masses of people inspired and enabled to have a go. “I contain multitudes,” sang the poet of the new liberty. And he did. He and his friends had a go at steam engines and research universities and railways and public schools and electric lights and corporations and open source engineering and containerization and the internet. We became rich by giving ordinary people their economic liberty.And now the “we” has extended far beyond its heartland in northwestern Europe. China after 1978 and India after 1991 began to abandon the illiberal European theory of socialism, devised in the middle of the 1800s and exported by the 1970s to a third of the globe. The result of turning towards economic liberalism was that the annual growth of goods and services per person available to the poorest in China and India rose from its socialist level of 1 percent a year, and sometimes negative, to 7 to 12 percent per year. At such rates, it will take only two or three generations for both countries to have European standards of living. Such a prospect for this four in ten of humans is no pipe dream. Similar enrichments were achieved over a similar span in Hong Kong, South Korea, Singapore, and Taiwan, with other startling success stories for new liberalism and a reasonably honest government in Ireland and Botswana.

An economically illiberal government can, of course, borrow from countries honoring liberty. The USSR did from 1917–1989, for example, and for a long time even many economists in the West believed its fairy tale that Central Planning Worked. When communism fell in 1989 we discovered decisively that planning did not work, not for the economy or the environment or for other liberties. Singapore is sometimes cited as an example of intelligent tyranny. And so is China, dominated still by an elite of communist party members. Both, however, practice substantial economic liberty, despite their lamentable practice of jailing political opponents.

And enrichment, in the end, leads to demands for all liberties, political as much as the economic liberties, as it did in Taiwan and South Korea. Enriched people will not long put up with serfdom. And anyway the average record of tyrannies is economically disastrous, such as in Zimbabwe, next door to prosperous Botswana, or for that matter in the long and dismal history of illiberalism worldwide from the invention of agriculture down to 1800.

The ethical habits of commerce are expressed daily in the way an American shopkeeper greets his customer: “How can I help you?”

The Christian gospel says properly, “For what shall it profit a man, if he shall gain the whole world, and lose his own soul?” The claim against economic liberty has always been that even if we gain the world in goods, we lose our souls. We are told from the radical left that free exchange is intrinsically evil. Any extension will merely extend the evil. From the radical right, we are told that free exchange is ignoble compared with the glories of rank and war. But the radical left and right, and also the middle complaining about “consumerism,” are mistaken. The evidence is that economic liberty does not corrupt us, but rather makes us rather virtuous as well as very rich. It enriches in both senses, material and spiritual.For one thing, mutually advantageous exchange is not the worst ethical school. It is better than the violent pride of aristocrats or the violent insolence of bureaucrats. And in economic liberalism, the human desire to excel is provided millions of honorable paths, from model railway building to show business, as against in illiberal societies the narrow path to eminence at the court or politburo or army. We do not lose our souls in commerce, but cultivate them. The military, admired nowadays even in liberal societies, is commended daily for its “service.” But every economic act among consenting adults is service. The ethical habits of commerce are expressed daily in the way an American shopkeeper greets his customer: “How can I help you?”

The upshot? The concert halls and museums of well-to-do countries are full, the universities are flourishing, and the seeking of the transcendent, if not in the established churches, is expanding. One cannot attend much to the transcendent of art or science or baseball or family or God when bent over in a paddy field from dawn to dusk.

Protection of existing jobs has created worldwide a massive and politically explosive unemployment of youths.

The best way to make people bad and poor is the illiberality of communism and fascism, and even the slow if sweet socialism of over-regulation. Women among the theocratic despots of Saudi Arabia are quartered at home, unable to flourish so much as driving an automobile. The economic nationalism of the new Alt-Right is impoverishing, and anyway closes us to ideas from the wide world. If betterment is slowing in the United States—a widely held if doubtful claim—we need the betterment coming from newly enriching countries such as China or India, not cutting ourselves off to “protect jobs” at home. Protectionist logic would have us make everything in Illinois or Chicago or our local street. Breakfast cereal. Accordions. Computers. It is childishly silly as economics, though stirring as nationalism.At the heart of communism and fascism, and the regulating impulse from the middle of the spectrum of governmental compulsion, is massively messing with other people’s stuff. In the United States, over one thousand occupations require licenses from the government. Opening a new hospital requires the existing hospitals to grant a certificate of need. In Tennessee, if you wish to open a new furniture moving company—two men and a truck—you are required by law to ask permission of the existing moving companies. Protection of existing jobs has created worldwide a massive and politically explosive unemployment of youths. One-quarter of French people under 25 and out of schooling are unemployed. It’s worse in South Africa.

Yet true and humane liberals are not anarchists (Greek an-archos, no ruler). One can admit that it can be good to abridge economic liberty a little to the extent of taxing the well-to-do to give a hand up to the poor, such as publicly financed education. No serious argument there—Smith and Mill and even Thoreau agreed. (True, big government routinely gives also a hand up to the rich and powerful, such as protections for farmers in the U.S. and the Common Market. Big governments follow the nasty version of the Golden Rule, namely, those who have the gold, rule.) And one can admit that if the Canadians invade the United States, economic liberty might usefully be abridged for the duration, if prudent for defense. No argument there, either. (Yet big governments routinely break the peace for glorious conquests. Fear those Canadians.)

Better keep the government leashed.

The solution, liberals believe, is to restrict the power of government, even when the government is popular. Fascism often and communism sometimes, unhappily, are popular. Moderate versions of both, in nationalism and socialism, are very popular, until they go wrong. People favor for the nonce the alleged glory of governmental aggressions against foreigners (see Europe in August 1914) and the alleged free lunches of governmental control of the economy (see Venezuela in August 2017).Better keep the government leashed. Of the 190 or so governments in the world ranked in honesty from New Zealand at the top to North Korea at the bottom one might generously take the top 30 as adequately honest for the task. Spain is the marginal case. Britain and the United States qualify. Italy, ranked 75th, just above Vietnam, does not. But the top 30 moderately honest governments serve merely 13 percent of the world’s population. That is to say, 87 percent of the world is governed corruptly and incompetently, by a relaxed standard of goodness. The calculation shows why the optimism among amiable people on the left and among not so amiable people on the right about extending the illiberal powers of government is naïve. Thoreau wrote, in true liberal style, “I heartily accept the motto,—‘That government is best which governs least,’ and I should like to see it acted up to more rapidly and systematically.”

Yes, with a few modest exceptions.

This essay will appear in a volume for the Renew Democracy Initiative. 

Read more

How Prices Promote Peace

By Matthew McCaffrey

Donald Trump’s plan to escalate the war in Afghanistan makes it necessary to once again stress the value of peace and the importance of rejecting US militarism and imperialism. Yet it also provides an opportunity to think about the foundations of a truly peaceful society, and to reaffirm a basic social truth: no institutions more effectively promote peace than the institutions of the market economy.

Cooperating not Expropriating

Peace begins at home, or rather, it begins wherever you and I decide it does: at any time and place we realize that the best way to improve our lives is to cooperate rather than to brutalize each other.

Trade allows us to benefit from our different values, while hurting no one.

As economists like Ludwig von Mises point out, this realization is actually the foundation of human social relations. It also explains why we establish social bonds through trade: we recognize, first, that we each possess resources and skills that are less valuable to us than others that we hope to acquire, and second, that other people value things in just the opposite way. Trade then allows us to benefit from our different values, while hurting no one. It is an act of peace, one reason why it’s no surprise that Mises refers to the moment after exchange as a “state of rest” – including an absence of conflict.

Voluntary exchange is thus a rebuke to violence and war-making: it reveals to each of us, in a personal way, that increasing our own welfare means cooperating, not expropriating.

Prices are a social recognition of this deeper fact. They tacitly acknowledge that many individuals have foregone violence and realized the benefits of cooperation and trade, so much so that they can establish between them an objective estimate of the social worth of the things we hold dear: a price.

Eventually, a vast network of individual exchanges creates the price system, a gigantic engine for improving the welfare of all members of society. This engine works 24 hours a day to overcome the greatest cause of conflict among human beings: scarcity.

The Struggle over Scarce Resources

Property, exchange, and the price system enable us to put aside our conflicts.

Scarcity presents seemingly intractable problems: how can we thrive in a world where human wants outstrip the resources available to satisfy them? How can we ensure that the goods and services we produce will get to the people who need them most?

Prices are the answer, and the price system works from moment to moment to appraise and allocate countless scarce resources over which we no longer have to fight.

Property, exchange, and the price system enable us to put aside our conflicts. In fact, when prices can’t be established because property rights are unclear – as in the tragedy of the commons – the result is a desperate conflict over scarce resources as each person tries to exploit a “free” good.

Similarly, price controls prohibit buyers and sellers from agreeing on a way to mutually benefit. Inevitably, someone leaves the market unsatisfied. In fact, price floors and ceilings cause conflict by eliminating exchange and replacing it with rationing. Without prices, producers and consumers arbitrarily discriminate, thereby creating special privileges for certain individuals and groups.

For example, landlords of rent-controlled apartments might choose tenants based on their racial characteristics rather than those who need housing the most. Similarly, faced with increasing minimum wage rates, fast food restaurants hire college students instead of workers from less wealthy or educated backgrounds who more urgently need a job. Inevitably, the non-privileged groups start to resent the beneficiaries of discrimination, and social conflict is the result.

Non-Market Goods

The lack of prices for such “goods” reveals that they’re nothing of the sort.

Importantly, this effect works across borders as well, as domestic producers and unions reap the benefits of trade barriers and immigration controls at the expense of foreign workers. This kind of exploitation sows the seeds of economic and, eventually, military conflict. Allowing prices to exist for foreign goods and labor is, therefore, a vital step toward achieving global peace.

For that reason, we should also be deeply skeptical about the production of any weapons or military technologies that have no market applications – and no prices – in a free economy. The reason is simple: the lack of prices for such “goods” reveals that they’re nothing of the sort. Their purpose is to destroy life, not improve it.

Seeing prices emerge and change in the marketplace should be a cause for celebration just as much as the sight of a soldier laying down his weapons. Both are victories for humanity, but prices especially reflect a deep commitment on the part of many people to choose cooperation over conflict. In that sense, it’s not much of an exaggeration to declare: Blessed are the price-makers.

Republished from FEE.org

Read more

Twelve Economic Concepts Everyone Should Know

By Richard N. Lorenc


When I tell people that I work at the Foundation for Economic Education, they sometimes ask: “What economic ideas should people understand?”

We at FEE have thought about this quite a lot for our articles, courses, seminars, and videos. We have distilled “economic thinking” into 12 key concepts. The following list has guided us internally for a few years, and I figure it’s now time to share it with the world.

1. Gains from trade: In any economic exchange, freely chosen, both parties benefit–at least in their own minds.

2. Subjective value: The value of any good or service is determined by the individual human mind.

3. Opportunity cost: Nothing is free, and the cost of anything is what you give up to get it.

4. Spontaneous order: Society emerges not from top-down intention or planning but from individuals’ actions that result in unplanned outcomes for the whole.

5. Incentives: Individuals act to maximize their own reward.

6. Comparative advantage: Cooperation between individuals creates value when a seller can produce a given item or service at a lower cost than the buyer would spend to produce it himself.

7. Knowledge problem: No one person or group knows enough to plan (and force) social outcomes, because information necessary for social order is distributed among its members and revealed only in human choice.

8. Seen and Unseen: In addition to the tangible and quantifiable effects, there are quite often invisible costs and unmet opportunities to any action or policy.

9. Rules matter: Institutions influence the decisions individuals make. For example, property rights extend from the reality of scarcity which demands that ownership must be vested in individuals and not a collective.

10. Action is purposeful: Each person makes choices with the intention of improving his or her condition.

11. Civil society: Voluntary association permits people of all backgrounds to interact peaceably, create value, cultivate personal character, and build mutual trust.

12. Entrepreneurship: Acting on an opportunity to gather underused, misused, or undiscovered resources and ideas to create value for others.

You might think about all the ways and places these principles appear–as you shop, socialize, and plan your future. As we like to say, economics is everywhere!

Republished from FEE.org

Richard N. Lorenc

Richard N. Lorenc is the Chief Operating Officer of FEE and serves as managing director of FEE’s Youth Education & Audience Research (“YEAR”) project to develop and promote new content and distribution techniques for free-market ideas.

Read more

New South African Airways bailout package shows government is not committed to transformation

By Martin Van Staden

With low economic growth prospects, ever-increasing unemployment and destitution, government appears to be more concerned with the useless prestige and status that comes with our national airline, than the wellbeing of the South African people.

In mid-July, EWN reported finance minister Malusi Gigaba saying that “too much money has been invested in cash-strapped South African Airways (SAA) in the form of guarantees and bailouts” and that government was going to seriously try to waste no more resources on “inefficient state-owned entities”. In an about-face, Gigaba now says that Treasury is considering a R13 billion bailout for the national carrier.

Proposing such a bailout in the midst of a tax shortfall is evidence of government’s deep-seated contempt for the people of South Africa and a preoccupation with satisfying its short-term and short-sighted ambitions. Its intention to introduce more and more taxes to finance programmes like the National Health Insurance (NHI) is mindboggling, let alone the proposal made earlier this year that, in addition to television licences, it would consider requiring licenses for other devices to boost revenue for the national broadcaster. The Davis Tax Committee too is considering increasing wealth taxes.

These desperate attempts to get its hands on more revenue are unnecessary in the face of the most obvious solution – significant tax transformation – and dangerous, in that it is unlikely that businesses, especially small ones, can survive for much longer in such an environment. Companies like General Motors and AngloAmerican already have either left our shores or are in the process of reducing their investments.

ANC MP Pinky Kekana proposes that, to help our national carrier, government intervene and give to SAA air routes currently operated by other, profitable airlines. For her, this would be radical economic transformation. By what logic could forcing the productive and efficient private sector, which creates unquantifiable wealth for millions of people every minute of every day, to yield to the ineffective and bloated dinosaurs of the public sector radically transform anything? South Africans already find more affordable and higher-quality travelling products with foreign airlines. Even domestically, it is estimated that SAA contributes less than a quarter of commercial air travel.

If government wants more money, it should look to decreasing taxes and repealing regulations across the board to allow significant economic growth to occur. In turn, more South Africans will become taxpayers and contribute to the national purse. But, even if this should happen, the national purse should not be an ATM for state companies that have proven time and time again that they are unable to stand on their own two feet in the market. Both SAA and Eskom have been given repeated opportunities to become profitable, but each ‘second chance’ ends with yet another ‘turnaround’ strategy. These companies are lost causes which South African taxpayers are propping up with no benefit to themselves, and certainly none to the poor.

Radical economic transformation would be to get rid of wealth sucking, economy strangling state-owned enterprises that are firmly rooted in the social engineering logic of the apartheid regime to fulfil, as the first apartheid labour minister Ben Schoeman explained, “State control on a large scale” that replaces personal responsibility with a “system of State responsibility.”

There will be no radical economic transformation while government and state-owned enterprises get first dibs on the hard-earned produce of the people. The people have a natural right to keep what they earn, and government is under an obligation to spend what it takes from the people wisely. What we are seeing now, however, is a commitment by government to itself, and not to the people.

 

Republished from AfricanLiberty.org

Martin van Staden is Legal Researcher at the Free Market Foundation and Academic Programs Director of Students For Liberty in Southern Africa.

Help FMF promote the rule of law, personal liberty, and economic freedom become an individual member / donor HERE … become a corporate member / donor HERE

Read more

Money Is the Real Social Contract

By Baudoin Collard

Despite major inconsistencies, the social contract theory remains one of the most prominent founding myths of our societies. Is it possible to revisit this dogma to correct its deficiencies?

The social contract theory finds its origins during the Enlightenment era in the 18th century. In the context of challenging royal institutions, philosophers like Rousseau and Hobbes sought to answer the following questions: How are societies born? Why do humans decide to live together? Where do governments derive their legitimacy?

According to Rousseau, an implicit contract binds men together to form a society. Through this contract, men relinquish some of their freedom to the state. In return, the state provides justice and security. This way, the general welfare is protected from special interests through the legislature, elected by the people.

The social contract theory has had a major influence on Western philosophy. As attractive as it is, the theory suffers from fundamental flaws.

First, no one has ever signed such a contract. One can argue that elections represent a tacit renewal of the contract. But in this case, abstention should be considered. And what about countries like Belgium where voting is compulsory?

Second, history teaches us that human societies emerged well before the institutions that govern them. It is the society that begets the institutions and not the reverse. Moreover,  these institutions have been set up in bloody wars and revolutions.

Lastly, according to Rousseau, since the parliament represents the people, the minority must accept any decisions taken by the majority in the name of a nebulous “general interest.” In the 19th century, Alexis de Tocqueville had already mentioned the risk associated with this belief. Such a system drifts into a tyranny of the majority.

If we looked closer, we would see an institution inseparable from the human society that could perfectly fulfill this role of the social contract: money.

Is Money a Social Contract?

Money is proper to man. Historically, no society could develop without the support of some form of money. Conversely, the concept of money is meaningless when taken out of its social context. It is from its acceptance by users that money derives its legitimacy and value. Men voluntarily adopt money because they benefit from it.

By facilitating exchanges, money allows specialization — the source of new technological developments. As a store of value, it allows users to save, which is the source of investment and protection against the hazards of life. Investment and technological progress both generate growth. This is the fundamental reason why men unite: in order to draw greater benefit from each other’s labor.

Currency Manipulation

If money is the cement that binds society together, what happens when this cement disintegrates? The German hyperinflationbetween 1921 and 1924 is certainly one of the most tragic examples of monetary collapse, but it is far from an isolated case.

Given its critical role, it may be tempting for a minority to manipulate the currency to its advantage. If the phenomenon is not new, it has also become more complex over time.

An early example occurred with the use of minted coins.

Originally, coins ensured the weight and quality of the currency. But gradually, the right to mint coins has become a state monopoly. This has allowed governments to control currency and extract a rent (seigniorage and sometimes debasement).

The invention of the banknote was a major technological evolution. Originally introduced to facilitate increased trade, banknotes have gradually become a monopoly of the power in place. As a striking example, Napoleon Bonaparte gave the monopoly of printing bank notes to the Bank of France, of which he was a major shareholder.

The creation of central banks is the logical continuation of the state’s growing influence over money. Under the pretext of stabilizing money issuance and protect depositors from banking crises, the creation of central banks actually greatly facilitated state indebtednesswar funding, and ultimately inflation.

Speaking of inflation, here is precisely what Keynes said about it:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.”

From Social Contract to Social Control

But inflation is not the only stab to the social contract of money. From the moment the money is imposed by the government rather than freely chosen by citizens, it loses its legitimacy. Initially acting as a social contract, money in state hands becomes a tool of social control. It allows a minority to exploit their privileged position for profit and power.

The states impose the use of their currency in more or less subtle ways. In the most authoritarian countries like China, the currency is subject to strict controls.

Exchange rates are set by the government and capital movements are tightly monitored. In the so-called democratic countries, the currency is imposed through legislation and numerous regulations. For example, the official currency is the only one allowed for the payment of fines and taxes. Banking and insurance regulations require individuals to invest a proportion of assets in state bonds, to inform the government of all transactions above a certain amount, etc.

In terms of social control by the currency, governments can be very creative. One example is the introduction of price and wage controls. Another example is the introduction (and increasingly pervasive use) of the food stamp program.

A more pernicious threat now hangs over the money with the disappearance of cash so desired by our governments. The abandonment of cash threatens to increase our dependence on the banking system. It also increases the stranglehold of states over their citizenry by facilitating the establishment of taxation on savings accounts or even an outright confiscation of bank accounts, as was the case in Cyprus.

Freeing the Money

All monies do not fulfill their social contract equally. Among fiat currencies, large differences exist, depending on the objectives of central banks and economic policies. So if we compare the consumer price index (a proxy for inflation), we observe that the US Dollar has lost about 54 percent of its purchasing power over the last 30 years.

The Swiss Franc saw a decline in purchasing power when it was limited to 31 percent and then 14 percent for the Japanese Yen. At the same time, the currency’s purchasing power fell by more than 99 percent in Mexico, Turkey, and in many countries of the former Soviet Union.

Gold and precious metals enjoy a lasting credibility because these commodities are difficult to manipulate. Precious metals have also provided an effective hedge against inflation and other monetary turpitudes throughout history. Gold is still a reserve currency of choice for central banks.

Finally, a new form of currency has recently emerged: the cryptographic currencies among which Bitcoin is undoubtedly the most famous. Bitcoin appeared in 2009, at the height of the subprime crisis and bank bailouts by the taxpayers. If they have often aroused disbelief in their infancy, these cryptocurrencies now enjoy a combined capitalization largely exceeding $100 billion.

More fundamentally, cryptocurrencies are the perfect illustration of the competitive bidding of private currencies. This is similar to what was proposed by Friedrich Hayek in his book “The Denationalization of Money.” 

Since the use of these currencies is free, their value fluctuates according to the interest they generate and the resulting demand. Their course is closely linked to the services they can provide, as a means of payment, and their credibility, as a store of value. The proliferation of these cryptographic currencies is a full-scale laboratory experiment for the future of money.

Money Guarantees a Free Society

Money, even more so than democracy, embodies the essence of the social contract. Its legitimacy comes from its acceptance, freely chosen by all users. 

The fundamental role of money in exchange explains its catalytic action in the seeding of the development of human societies, long before the emergence of democratic institutions. Finally, currency manipulation inevitably causes the decline of a society,as democratic as it may be.

Nothing better sums up money that Ayn Rand’s quote:

“Money is the barometer of a society’s virtue.”

Money is a tremendous source of emancipation for the society. It promotes cooperation and peaceful exchanges between humans, no matter their views, gender, origin or preferences. It is the conductor that imperceptibly regulates the human action.

Conversely, anyone who aims to suppress money should be prepared to substitute it by a planned economy with cohorts of bureaucrats who impose by force. Anyone who denounces the dictatorship of money should recall that the worst tyrannies are those where citizens were deprived of their currency. And if money is regularly accused of being the root of all evil, it is all too often the victim of those who control it. Rather than blaming the money, let’s blame those who corrupt it.

Perfect currencies do not exist. As the brainchild of fallible humans, monies are bound to constantly face primal temptations. Failing to find such an illusory ideal, the freedom to choose currencies is the best guarantee of having sound money in a free society.

 

Republished from FEE.org

Read more

IMANI: Update on Efficiency in Ghanaian Ports – A Discussion with Stakeholders & Vice President Bawumia’s Commendable Efforts

IMANI Centre for Policy and Education has been studying the challenges – both current and potential – that negatively impact trade in Ghana. These challenges have been analysed under two major areas: 1) trade competitiveness and diversification, and, 2) trade facilitation and port efficiency.


IMANI published its first major report in June 2017. The paper, titled ‘’IMANI’s ‘Efficiency’ Report on Operations at Ghana’s Tema Sea Port; More Needs Doing’’ can be assessed @ http://www.imaniafrica.org/2017/06/27/imanis-efficiency-report-operations-ghanas-tema-sea-port-needs/

This article provides a summary of the research that has been undertaken into port efficiency and performance in Ghana, which includes discussions with and the perspectives of various stakeholders such as the Ghana Ports and Harbours Authority (GPHA), Meridian Port Services (MPS) Ltd., the Ghana Institute of Freight Forwarders (GIFF), and a and a shipping line executive.

The importance of an efficient port for trade, development and economic growth cannot be understated. Efficient ports facilitate trade competitiveness and greatly increase revenue mobilisation. The appropriate question to pose now is what makes Ghanaian ports inefficient, and what are the salient challenges they face? One pertinent issue that was mentioned by nearly all stakeholders involved the inefficiencies within the cargo clearing process. These include 1) long cargo clearing and processing times, 2) the multiplicity of agents in the inspection and customs processes, 3) the absence of paperless processes throughout.

Long cargo clearing and processing times

During IMANI’s interview with a shipping line executive, the lengthy cargo clearing processes at the ports was highlighted as a serious issue. Most importers are unable to clear their containers within the 7-day demurrage-free time. This observation was also noted by GIFF. In addition, GIFF stated that in an ideal and efficient situation, it should take approximately 5 days for goods to be cleared at customs. However, this is not the case in reality. It can even take more than a fortnight for goods to clear. The unnecessary delays affect both the ability of importers to quickly distribute their goods, and tend to lock up much needed capital for other business operations. Importers are required to pay container detention fees and demurrage deposits to shipping lines prior to a container being cleared from the port. Container deposit fees serve as a guarantee that importers will return containers back to the shipping line in time, once their contents have been emptied. GPHA estimate that shippers pay over $100 million in container demurrage annually to the government, in ports throughout the country. The longer the cargo clearing and processing time, the longer the funds sit with the shipping lines, and the fewer funds are made available for the importer’s business. This challenge is compounded as the repayment of container detention fees often takes a while to come into effect.

Multiplicity of regulatory agents in the inspection and customs process

Multiplicity of regulatory agents and the duplication of roles during the physical examination is also a serious inhibitor of efficiency at the Port of Tema. Custom Examination Officers physically examine container, alongside about 18 agents from different Ministries, Departments and Agencies (MDAs) – sometimes more – which is highly unnecessary, allows room for corrupt activities, and lengthens the whole inspection and customs process. As GIFF so adequately described, ‘the more layers you have, the more corrupt the port is’. This issue was also brought up by MPS, who mentioned that the inspection and customs processes were duplicated. Other stakeholders including the Ghana National Chamber of Commerce and the GPHA have also decried the challenge of multiple regulatory agencies and their impact on efficiency at the port.

mandatory joint inspection has been announced by Vice President Dr Bawumia to address this challenge. This policy is expected to take effect from 1 September, 2017. Under this policy, not all containers will be inspected, only those with a certain risk level. A risk engine will be introduced, which will assign risk levels to importers depending on the level of their compliance. Further, if an inspection is necessary, only the agencies required for the inspection will be informed, and they will have to sign in electronically to confirm their participation.

The absence of paperless processes

The lack of paperless processes at the Ports is another significant inhibitor of efficiency. However, MPS Terminal is the only terminal operator at the ports that has implemented a paperless system, which has allowed it to become a leader in port efficiency.

As of Monday 7 August 2017, Ghana Community Network (GCNet) began to pilot paperless processes at the Tema Port. This is one part of the three highly commendable policy ideas put forward by the Vice President. The policy ensures that by 1 September 2017, all transactions at Ghanaian ports will be 100 per cent paperless, enabled by an electronic system, which will be powered by GCNet. It will also ensure that the processes and players along the value chain from exporters, cargo tracking, warehousing, freight forwarding, payment systems, free zones, regulatory bodies and shippers all operate on an electronic basis.[1] These will greatly improve trade facilitation, revenue mobilisation and port efficiency and has significant impacts for economic development across the nation. Moreover, the introduction of paperless systems will also make multiple inspections and the role of superfluous agents and MDAs redundant.

Additional measures to improve port efficiency

Additional measures taken by Vice President Bawumia, to be put into effect by 1 September, 2017, also include the removal of internal customs barriers. This means that duties will be paid on goods that are destined for re-export, and no vehicles will be able to leave the ports without paying their duties, as a new automated gate opening system will be linked to the risk engine for inspections. Consequently, these new measures will expedite the inspection process and ensure that duties are paid where they are due. Moreover, the resultant decline in the complexity of inspection and control procedures will lead to a decline in costs, delays and minimise corrupt and informal payments which would have been used to speed up processes, and even make government agents and importers compliant to such unlawful situations.

Commendable efforts

Vice President Dr Bawumia and the NPP Government must be commended on the practical measures that are currently being put into place to improve port efficiency in Ghana, and ensure that the nation becomes one of the most competitive ports within the sub-region, and in the long-term, even globally. These measures are necessary to stimulate national economic development, increase tax revenues and minimise the corrupt practices among importers, customs officers and clearing agents. With these measures in place, and the active participation of key stakeholders, the nation will see positive and sustainable improvements in the realm of trade and economic development.

 

Republished from IMANI Ghana

This update was compiled by Ms. Anita Nkrumah and  Ms. Nana Dei-Anang with IMANI’s Centre for Economic Governance and Political Affairs. For interviews please call 0554309966 or 0302972939.

Read more

World Youth Day: The Concept of Youth Investment, Peace and Security

By Ugbabe Adagboyi Damian

Every year since 1999, the United Nations has continued to celebrate the youths all over the world. Eighteen years after, the youths have continued to gain increasing recognition as agents of change in the society – since they have very important roles to play in deterring and resolving conflicts, and are key constituents in ensuring the success of both peacekeeping and peace building efforts. Hence, their inclusion in the peace and security agenda of the Sustainable Development Goals (SDGs) of the United Nations. The 2030 Agenda for Sustainable Development committed to fostering peaceful and inclusive societies and affirmed “Sustainable development cannot be realised without peace and security”. Goal 16 aims to ensure responsive, inclusive, participatory and representative decision-making at all levels. The World Programme of Action for Youth, which provides a policy framework and practical guidelines to improve the situation of young people, also encourages “promoting the active involvement of youth in maintaining peace and security”.

For the purpose of achieving the 2030 Sustainable Development agenda, it is considerable to adopt a conventional definition of youth; assess the concept of youth investment and how it can ensure the success of both peacekeeping and peace building; as well as suggest ways the incentives tailored towards youth investment can make meaningful impact on them.

According to Wikipedia, The terms youth, teenager, kid, and young person are interchanged, often meaning the same thing, but they are occasionally differentiated. Youth can be referred to as the time of life when one is young. This involves childhood, and the time of life which is neither childhood nor adulthood, but rather somewhere in between fourteen and twenty-one years of age.

The UN Convention on the Rights of the Child of 1989 defines a child as any human person who has not reached the age of eighteen years.

To bring home the definition, we shall adopt the definition of the African Youth Charter; that a youth is any human person who falls in the age bracket of fifteen and thirty-five. However, the task that lies before us should make us think in line with Robert Kennedy that, “the world demands the qualities of youth: not a time of life but a state of mind, a temper of the will, a quality of imagination, a predominance of courage over timidity, of the appetite for adventure over the life of ease”.

The concept of youth empowerment and youth investment are interchanged, often implying the same thing. On the contrary, youth empowerment is a form of political heart-buy of youths for continuity. Most African politicians and their governments have bastardized the concept and have used it to manoeuvre their immediate social environment. Many of them believe that empowerment mean to purchase and distribute either of, motorcycles, tricycles (popularly called “Keke” in Nigeria), wheelbarrows, hairdryers, Knapsack sprayers, and stipends in form of social transfer benefits, etc. In as much as this is a plus to the society, there are little or no evidence that the beneficiaries expressed any form of predominance of courage over timidity; developed a superior state of mind or have any quality imagination that can spur innovation to permanently lift them out of poverty. It is evident that many of the beneficiaries have no appetite for adventure as they are limited to what they know and do, and are hardly proud of their skills since they remain restless and agitated. They also develop high sense of entitlement and feel marginalized; believing that what they have received can only keep them surviving each moment and not living in each moment.

The concept of youth investment sees beyond tenure. It is a concept that seeks to improve young people’s outcomes through better funding opportunities, programmes and initiatives that build the capability and resilience of young people so they have the skills and confidence to engage positively in, and contribute to, their societies. These outcomes support increased educational achievement, greater employability, improved health and less state intervention. The economic and social landscape of the world is rapidly changing with the developments in technology affecting the way we think, live and work, the young people forming about 70% of the African population need to acquire the digital, entrepreneurial and enterprise skills to be participate and contribute to the social and economic growth of their societies.

 This concept has three key strategies: leadership development, volunteering and mentoring. These can be achieved little or no stress but with the political will power to grow the economy and sustain peace and security.

The following key components of the strategies includes; maximising scarce resources through collaborating with corporate, non-governmental, and other government organization, improving data collection and analysis to enable funding based on knowledge of what works and for which group of young people, a clear mission statement and continuous appraisal of outcomes, and targeting investment to where it will have the most impact.

Therefore, if we intentionally adopt these strategies, guided by its component; and ensuring accountability, integrity, and inclusiveness we can build and shape a peaceful and secured Africa.

 

This piece was originally published in AfricanLiberty.org

Ugbabe Adagboyi Damian

Twitter @ugbabeD

Read more

Corruption Rises as Economic Freedom Falls

By Richard M. Ebeling

The corruption of government officials seems to be as old as recorded history. For example, the ancient Roman senate passed laws against such political corruption in the first century, B.C. They defined a corrupt act as “whenever money is taken and a publicly-conferred duty is violated.”

Local magistrates in the Roman Empire were permitted to legally receive cash gifts of up to 100 gold pieces a year, but anything beyond this amount was considered “filth.” There was also a separate criminal category against what was called concussio, or the “shakedown” and “extortion.” A Roman official might claim to have a legal order against someone and demand a bribe not to enforce it against the individual’s person or property.

Emperor Constantine issued one of the strongest decrees against corruption during this time in A.D. 331. Those found guilty of such crimes might be exiled to an isolated island or a far-off rural area, while others might even be condemned to death. A judge, for example, might be executed if he had acquitted someone guilty of murder for the right price.

Ranking Corruption

Today, high levels of political corruption remain one of the major problems people confront around the world. While most of us think of such corruption as primarily impacting the hundreds of millions who live in the underdeveloped and developing parts of the globe, it touches those of us fortunate enough to live in the industrially developed Western democracies.

The Berlin-based non-profit organization, Transparency International (TI), annually surveys various forms of corruption around the world by various measures and types. A score of 100 in their 2016 Corruption Perception Index means the absence of any political corruption. A score approaching zero suggests a society in which little happens or gets done without layers of governmentally corrupt processes for people to get through in their daily lives. TI points out that “No country gets close to a perfect score” on the index.

However, according to Transparency International many of the least corrupt nations around the world are in the European Union and North America. In fact, Denmark ranks the least corrupt worldwide, followed by New Zealand. Among the remaining top ten of least corrupt countries are: Finland, Sweden, Switzerland, Norway, Singapore, the Netherlands, Canada and Germany. All of them have scores of 80 or better on TI’s scale of 100 having zero corruption.

The United States, however, is only ranked 18 with a score of 74. That placed America just below Belgium, Hong Kong and Austria. But the U.S. did rank above Ireland, Japan and Uruguay. And, happy to report, America is above France, which had a score of only 69.  

The most corrupt nations of the EU, perhaps not surprisingly, are in Eastern Europe, in those countries that had been part of the former Soviet bloc. Poland only scored 62, followed by Slovenia (61), Lithuania (59), Latvia (57), Czech Republic (55), Slovakia (51), and Hungary and Romania (58).  On the other hand, Greece, a longtime member of the EU, only earned a score of 44.

Former Soviet republics further to the east are even worse. The Russian Federation and Ukraine only scored 29, with the former Soviet republics in central Asia – Kazakhstan, Turkmenistan, Uzbekistan, for instance – barely making it above the low 20s range on the scale.

Africa, Asia, and Latin America

The lowest TI scores are generally earned in Africa and parts of the Middle East and Asia, with some other very corrupt countries in Latin America. The most corrupt countries on the planet, according to TI, are Somalia (10), South Sudan (11), North Korea (12), Syria (13), Yemen (14), Sudan (14), Libya (14), and Afghanistan (15). But in corruption depravity, Venezuela, Iraq, and Haiti are not far behind them.

In fact, on the Transparency International scale there are hardly any countries in Asia, the Middle East, Africa or Latin America that make it even to the 40s mark on their political corruption scale. The vast majority of the countries in these parts of the world are in the 30s and 20s, or less levels under TI’s scale.

As part of their annual survey on global corruption a few years ago, TI also asked people the frequency with which they had to pay bribes to government officials of one type or another in attempts to get by in their daily lives. In North America, one percent of Canadians surveyed said they bribed someone in government. In the United States that reply was given by two percent of the people asked.

But even in countries that have long been members of the EU bribery was reported. The worst occurred in Greece, where 27 percent of the people said they paid bribes during the preceding year. In most of Western Europe the bribery level was around 2-3 percent of the population, though the number was 6 percent in Luxembourg. (The bribery question was not asked in Germany and Italy.)

Bribery is far more endemic in the rest of the world. Africa suffers from political bribery the most, with 42 percent of all those in the countries surveyed saying they had paid bribes. The most extreme case was found by TI in Cameroon, where 79 percent – almost four out of every five people – admitted paying bribes, with the number being 40 percent of the people in neighboring Nigeria.

Bribing the Police

In Asia, the overall rate of bribe giving was reported to be 22 percent of the population. The highest rates were found in Cambodia (72 percent), Pakistan (44 percent), the Philippines (32 percent), Indonesia (31 percent), India (25 per- cent), and Vietnam (14 percent).

Finally, in Latin America, the average bribery rate was recorded at 13 percent of the people. But as in the rest of the world, it varies from country to country. Among the handful of Latin American countries surveyed, the highest rate was in the Dominican Republic with 28 percent. Bolivia followed with 27 percent.

Around the globe, the most bribes are paid to the police. In Africa, 47 percent of the respondents said they bribed the police; in Asia, 33 percent; in Latin America, 23 percent; and in Eastern Europe, almost 20 percent. Worldwide, about 17 percent of the people in the survey paid bribes to the members of law enforcement.

Bribing people in the judicial system came next, with the global response being about 8 percent of all those surveyed. About the same percentage around the world said they bribed government agents for business licenses and permits, though again the highest rates were in Africa (23 percent) and Asia (17 percent). But even in the United States and Canada, around 3 percent admitted paying such bribes.

Medical care is also a major area for such corruption. In Africa, 24 percent of the respondents said they paid bribes for access to medical services; in Asia, the response was 10 percent; in Russia and Ukraine, 13 percent; in Eastern Europe, 8 percent; in the EU, almost 5 percent; and in North America, 2 percent.

The Cause of Corruption

Political corruption, clearly, is found everywhere around the world and people, regardless of where they live, do not expect it to go away anytime soon. Yet, in spite of its global dimension, corruption pervades some parts of the world more than others and permeates certain corners of society to a greater degree. Why?

Part of the answer certainly relates to issues surrounding ethics and culture. The higher the degree of personal honesty and allegiance to ethical codes of conduct, the more we might expect people to resist the temptations of offering or taking bribes. However, economic and business analyst, Ian Senior, in his, Corruption – the World’s Big C: Cases, Causes, Consequences, Cures (2006), concluded that there were no significant correlations between high degrees of personal honesty and religious practice and less bribe-taking around the world.

A far stronger explanation can be found in the relationship between the level of corruption in society and the degree of government intervention in the marketplace. In a generally free market society, government is limited to the protection of the citizenry’s life, liberty, and honestly acquired property. The rule of law is transparent and assures impartial justice for all. Any other functions taken on by the government are few in number, such as a variety of public works projects.

Under these circumstances, government officials have few regulatory or redistributive responsibilities, and therefore they have few special favors, privileges, benefits, or dispensations to “sell” to some in the private sector at the expense of others in society.

The smaller the range of government activities, therefore, the less politicians or bureaucrats have to sell to voters and special interest groups. And the smaller the incentive or need for citizens to have to bribe government officials to allow them to peacefully go about their private business and personal affairs.

Influencing Market Outcomes

On the other hand, the very nature of the regulated economy in the interventionist state is to short-circuit the free market. The interventionist state goes beyond protecting people’s lives and property. Those in power in the interventionist state intervene by using government authority to influence the outcomes of the market through the application of political force.

The government taxes the public and has huge sums of money to disburse to various programs and projects. It imposes licensing and regulatory restrictions on free and open competition. It transfers great amounts of income and wealth to different groups through sundry “redistributive” schemes. It controls how and for what purpose people may use and dispose of their own property. It paternalistically imposes legal standards influencing the ways we may live, learn, associate, and interact with others around us.

Those in the government who wield these powers hold the fate of virtually everyone in their decision-making hands. It is inevitable that those drawn to employment in the political arena often will see the potential for personal gain in how and for whose benefit or harm they apply their vast life-determining decrees and decisions. Some will be attracted to such “public service” because they are motivated by ideological visions they dream of imposing for the “good of humanity.”

Some will see that bribing those holding this political power is the only means to attain their ends. This may be to restrict or prohibit competition in their own corner of the market or to acquire other people’s money through coercive redistribution. For others, however, bribing those who hold the regulatory reins may be the only way to get around restrictions that prevent them from competing on the market and earning a living.

The business of the interventionist state, therefore, is the buying and selling of favors and privileges. It must lead to corruption because by necessity it uses political power to harm some for the benefit of others, and those expecting to be either harmed or benefited will inevitably try to influence what those holding power do with it.

The Correlation between Freedom and Corruption

For 23 years the Heritage Foundation in Washington, D.C., has sponsored an annual Index of Economic Freedom (IEF). The IEF tracks a series of 10 measured indicators that include the following:

(1) business freedom; (2) trade freedom; (3) level of fiscal burden; (4) size of government; (5) degree of monetary stability; (6) investment freedom; (7) financial freedom; (8) protected private property rights and the general rule of law; (9) flexible labor markets; and (10) freedom from corruption.

The premise is that the greater the degree of individual freedom, the more secure property rights, the smaller the size and intrusiveness of government in the marketplace, and the greater the open competitive market environment at home and in foreign trade, then the more likely a society will experience rising prosperity and higher standards of living over time.

No country in the world is free from some degree of government intervention and regulation. Unfortunately, the nineteenth-century era of relative laissez-faire is long gone. But the extent to which governments intrude into the economic, social, and personal activities of their citizens does vary significantly around the globe. This includes the extent to which citizens are protected by an impartial enforcement of the rule of law, have the freedoms of association, the press, and religion, and the right to democratically participate in the selection of those who hold political office.

The Index of Economic Freedom, in its 2017 edition, estimates that based on composite scores of all ten indicators, the greatest amount of economic freedom can be found in the following parts of the world: Hong Kong, Singapore, New Zealand, Switzerland, Australia, Estonia, Canada, the United Arab Emirates, Ireland, and Chile. The United States ranks only 17 in the world by the Index of Economic Freedom benchmarks. Ten years ago, before the Barack Obama presidency, America ranked fourth in the world.

Regionally, North America, Western Europe, and Australia/New Zealand are estimated by Transparency International to be the areas of the world in which the lowest rates of corruption are to be found. The Index of Economic Freedom also ranks these parts of the globe as generally having the greatest amount of economic freedom or the least intrusion of government intervention (broadly defined) within the marketplace.

On the other hand, Africa, Asia, and Latin America are the parts of the globe with the highest reported amounts of bribery, and are also the areas that IEF estimates as far lower in the global rankings for degrees of economic freedom. Among the 180 countries included in the Index of Economic Freedom, many (though certainly not all) of the ones that Transparency International estimates as having particularly high levels of corruption are ranked at the bottom one-third in terms of economic freedom from government intrusion.

The correlation between a global low ranking in terms of economic freedom and a high reported rate of political corruption is certainly not one-to-one. There are many variables at work, including the extent to which different types of freedom used in the IEF surveys are restricted in the respective countries. Thus, domestic property rights might be legally more secure in one country compared to others, but that country may have a higher rate of price inflation and more restricted labor markets, resulting in it having a lower economic freedom ranking in the index compared to other nations.

But the assertion can be safely made that the wider and more intrusive the degree of government intervention, the greater the likelihood of a higher level of experienced and perceived corruption. The more the government interferes with marketplace transactions (e.g., through price and production controls, or import and export restrictions and quotas, or business licensing and permit rules, or high, complex, and arbitrary taxation), the more need and incentive for people to bribe those in political power to free or reduce the heavy hand of government over their lives.

Ending global political corruption in its various “petty” and “grand” forms, therefore, will only come with the removal of government from social and economic life. When government is limited to protecting our lives and property, there will be little left to buy and sell politically. Corruption then will be an infrequent annoyance and occasional scandal, rather than an inescapable aspect of today’s social and economic life around the world.

This piece was culled from FEE.org

Richard M. Ebeling

Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.

 

Read more

A Liberty Reading List to Finish Up Your Summer

Summer is the perfect time to settle into a slower pace of life and savor a great book, whether it’s an old favorite that you continue to enjoy or an unfamiliar one with new ideas to ponder. And so before the summer ends, I have a challenge for you: I’m going to share five of my favorite books and essays with you, and I’m hoping you’ll read at least one before the beginning of the semester.

Not only are these fun summer reads, they are classic works that were foundational to my intellectual journey as an economist. They will shape the way you think about society while helping you articulate your beliefs about how to effect human prosperity and liberty across the world.

  1. “I, Pencil” by Leonard Read. This essay changed not only my views about the economy but my classroom teaching as well. It is timeless and action-packed. This short essay is written from the perspective of a pencil about how it came into being. There is so much economic thinking in this little story. It turns out that the ordinary pencil, which we take for granted and is seemingly so simple, is actually quite sophisticated: so much so that no one person, not even the CEO of the pencil company, knows how to make it. It is a story of the coordination of millions of strangers who come together to serve each other. If you haven’t read this essay, put it at the top of your list, and if you have, it’s a great one to read again!
  2. We the Living by Ayn Rand. Can you imagine the atrocities of living under Communist rule? This book takes us there, and it’s a great introduction to Rand if you are new to her work. We the Living remains my favorite Rand novel. It’s not a book about economics per say, but about economic systems and how they are so critical to whether we thrive or perish — both personally and socially.
  3. Economics in One Lesson by Henry Hazlitt. I love this short, pithy book written in 1946 by American journalist Henry Hazlitt because of how easy it is to understand — it’s both accessible and timeless. Hazlitt begins by encouraging us to think like economists by seeing the unseen and forcing us to take the long-term perspective so that we fully account for the costs of our actions. I come back to this book every year and am reminded of the power of the economic way of thinking.
  4. Basic Economics by Thomas Sowell. This book does not disappoint and is loaded with stories and evidence to help elucidate the economic way of thinking. Economist and author Thomas Sowell takes us through the market system of prices, property rights, profits and losses, and the mechanisms for increasing human productivity and prosperity. Using stories and evidence throughout, he helps us see the follies of policies that don’t properly incorporate the fundamental economic realities of the world in which we live. I not only love reading this book time and again, but it makes a great holiday gift as well!
  5. “The Law” by Frederic Bastiat. What if the law becomes a method of theft and plunder instead of an instrument of protection? In this compelling essay, Bastiat helps us see the importance of the rule of law as the foundation of a productive society. He tears down the old notions of political theorists who thought that elected officials could disavow themselves of their self-interest and greed and put on the cloak of the people to serve the common good. Bastiat shows us that the law is a force for good only when political leaders must also submit to it. Otherwise, it is a source of plunder. Originally published in 1850, Bastiat foreshadows the rent-seeking culture and special interests who distort lawmaking today.

Summer is a great time to catch up on the classics – and to reread your favorites with a new perspective. These readings will help you get a jump on the school year and engage in articulate discussion about these issues with your professors and peers.

I hope you find this list to be a helpful starting place in understanding economics and liberty. Which books and essays would make your top 5 list? And if you’ve already read the ones I’ve listed here, why do you think others should read them?

Reprinted from Learn Liberty.

 

Anne Rathbone Bradley

Dr. Bradley is Vice President of Economic Initiatives at the Institute for Faith, Work and Economics.

Read more