Economic Stupidity Does Not Exist

Libertarians generally agree that some individuals close-mindedly reject Austrian economics due to their aversion to extreme ideologies. This motivates the libertarians to call these situations causing from "economically ignorance," or ecognorance, what Michael Wiebe calls it.

For many libertarians, some say that there exists some "economically stupid" individuals. Economic stupidity, however, does not exist. General stupidity, can exist, but the specific economic stupidity, does not. No one has economic stupidity, since, by definition, in order for one to seem stupid, he has to appear stupid at all scientific and logical realms, not only in economics. Therefore, an individual must either have economic ignorance or general stupidity, not economic stupidity, since it does not exist.

The modern leftists, in fact, have extreme economic ignorance that may sometimes display themselves as generally stupid. Yes, this may seem true at times, since they often resort to emotional fallacies. Most of the modern leftists, however, would actually understand Austrian economics if they feel more open-minded about libertarianism. This shows that the leftists can understand Austrian economics, and proves that most of them do not have "stupidity" as defined as incapability, not close-mindedness, to understand Austrian economics.

So most of the leftists can understand Austrian economics if they chose to. But why would they close-mindedly reject libertarian ideology, as a whole? This has many causes, but the primary causes include the vulgar libertarian movement, as we will explain below, and the empirical/historical fallacies that libertarians use to defend their position.

Most libertarians would likely fall into the trap to defend that the current distribution of wealth would continue to similarly exist in a free market. This defense often shows up when debating health care and welfare topics. Instead of realizing that almost everyone would possess many times more wealth and would afford health care in a free market, the libertarians, however, would often defend the current American health care system and propose a welfare system funded by private charity.

This type of argument, however, would resort to problems. The "quality of health care," for example, differs from individual to individual. While the American may arrogantly claim that socialized health care would result in "slow waiting times," the Canadian would attempt to refute his claim, revealing evidence that he, in fact, did not wait very long. When the American, again, arrogantly claim that Canadian health care has low quality, the Canadian would attempt to refute it, by defending specific scenarios when the Canadian health care performs better. This debate would go on and on, making specific claims about each others system, until the Canadian exhausted his patience, and he would never again, try to confront a libertarian anymore. No one can "objectively" appraise his own or another's health care system.

The above scenario, however, demonstrates an inherent fallacy, resting on a huge mistaken assumption. The American, in refuting Canadian "socialized health care," implied that the United States has a free market health care system. But in fact, as you all may know, that the U.S. has a corporatist system that does not, in any way, resemble the free market.

While the American may have knew that the U.S. does not have a free market, he somewhat unconsciously "defended" the U.S. health care system. By arguing that while the Canadian "socialized care" has the supposed long waiting times, he implied that the U.S. does not have socialized health care (i.e. free market health care) and has short waiting times.

The conflation of the free market with corporatism, as with the health care example, occurs too often among libertarians. In fact, this occurs in even many of the self-identified left-libertarians. For example, David Z., a left-libertarian, acted like a vulgar libertarian when he unconsciously defended the U.S. health care system by denying that U.S. already has socialized health care. Kevin Carson termed this behavior as vulgar libertarianism, which means the defense of the current economic inequality and conflation of corporatism with the free market.

The empirical/historical arguments exemplify another reason of why the health care debate fails. Because the American and the Canadian use empirical arguments to examine the quality of health care systems, and since empirical examples have a hard time to advocate or refute, it will result in a convoluted discussion. And, because no discussion of theory exists, the Canadian might "subjectively" value his system better, with no knowledge of how bureaucracies and subsidized contractors of health care services causes massive inefficiency.

But socialized health care proponents primarily defend their position from a fallacious assumption in economic inequality. They think that because a free market has an inherent tendency to have vast inequalities of wealth, the rich should subsidize health care for the poor—who would not exist in a truly free market. Not just health care, but almost all of their positions—schooling, "education" subsidies, subsidized housing, wealth redistribution, and many other "social" programs. If the libertarian refuted that a free market does not have vast inequalities of wealth, he might refute the need for all of the social programs.

Another common example bases on the supposed "privatization" and "deregulation" in the real world.

The Trend Towards Self-Employment

While I support the labor theory of value as an accurate explanation of prices in a static economy, find it contradictory to support both self-employment and the labor theory of value at the same time. Self-employment will only be profitable when the agency costs or risks exceed the economies of scale.  In more technological or creative industries, the agency costs of employing workers are very high, because it's hard for employers to determine the compensation for the workers. In creative jobs, such as software development, web design, composition, engineering, and the arts, managers would find it hard to set the salaries for the workers, due to too many variables, so the individuals working in these sectors would more likely to work be self-employed instead of working as an employee for others, due to agency costs. Also, in more creative areas, the worker's ability vary greatly. For instance, the top 10% of the best computer programmers are 100 times more productive than the average programmer. Therefore, all of the computer programmers would find self-employment better than working for an employer. A fortiori, the "labor theory of value" does not fit in more creative jobs.  However, in our current technological trend, the agency costs and risks becomes larger, due to the overhead costs of compensating workers. An employer does not have the ability to judge one's creative works or methods, thus does not have the ability to find good salary rates for the workers. In labor-intensive industries, however, the agency costs are smaller. Due to the low agency costs in these sectors, the economies of scale are more important. Therefore, sectors involving intensive labor would have larger and more hierarchical firms. The physical ability of the workers in labor-intensive industries do not vary much, so it's easy for managers to estimate an hourly wage. However, in more creative jobs, it's hard to estimate an hourly wage because it's possible, unlike physical strength, for workers to have huge mental differences. This is why in some of the "service sectors," employers would offer "salary compensation" instead of constant wage-rates. But in even more creative jobs, employers would not have the ability to estimate the salaries, since there are too many variables and greater risk. Sharing profits are less likely in more creative sectors, since individuals have different abilities. This is another reason of why the economies of scale will not influence the creative sector as much. Knowledge is abundant. So individuals would specialize in knowledge. It is therefore impossible for employers to know all of the knowledge including his employees, and this raises the principal-agency costs. In the knowledge economy, information, such as software, is available for re-use, so workers do not have to laboriously retype all of his code. This encourages creativity instead of labor. The availability to re-use information would make individuals focus on creating more specialized information. This increased specialization of knowledge will make it even more harder for employers to accurate compensate his workers, since he lacks knowledge which has similar effects of asymmetrical information. Also, because labor intensive industries are not creative, the workers would not find any reason to complain "I know how to do this better than my boss." (At least compared to the more creative sectors.) Contrarily, in the more creative jobs, the workers would always complain to their boss if they work for an employer. For example, since there are many different ways to how to write a computer program or design something, the workers would dispute against their employers, so they would rather work in self-employment to avoid these disputes. Additionally, creativity involves risk. Suppose I want to invest a portion of my wealth in labor intensive industries involving capital goods. The risk is very small, since labor intensive industries produce a constant rate of return. However, if I invest the same amount of wealth to develop an invention, this would be very risky, because the invention might not develop. Therefore, in more creative jobs, people would find it very risky for an entrepreneur to borrow money in order to invest in an invention (since the invention might not develop). Thus, the time-preference distinctions are less important. The distinction between the capital-holders (having long time-preferences) and workers in the creative sector will diminish. Thus, there is an increasing trend towards self-employment in more creative jobs, due to risk. Due to the inelastic demand for creative works compared to labor-intensive capital industries, this increases the risk of creative jobs, thus may cause a moral hazard if creative workers work for an employer. A third reason of why economies of scale are ineffective in creative sectors is because, unlike getting a constant and secure profit from the return on capital from labor-intensive industries; in more creative sectors, capital is very insignificant in determining the successfulness because creativity marginalizes it. In the increasing competitiveness of creativity, workers will be more motivated to innovate under self-employment rather than innovate under employment for others. This is because the agency and overhead costs of estimating compensation for creative inventions are very subjective; self-employed workers will have the opportunity to reap all of the profits of their invention instead of sharing his profit with his employer; and inventing under self-employment would make workers have a greater incentive to keep a trade secret, instead of disclosing it to his employer. In this way, in the creative sector, self-employment would outcompete employment. In the creative sector, workers are all entrepreneurs. Inventors, artists, graphic designers, software developers, and composers, are all taking high risks, since creativity does not depend on labor. Working a hundred times longer or even a thousand times longer in the creative sector, unlike working in non-creative laborious jobs, does not guarantee more profit than working for one hour. Thus, while I do not find supporting either the labor theory of value or self-employment as contradictory, I find that supporting both of these positions as contradictory. Only primitivists would advocate both self-employment and the labor theory of value at the same time. (That is, it is impossible to advocate both the labor theory of value (that is implicitly advocating labor-intensive employment) *and* self-employment at the same time, unless you want to go back to the stone age where there are no economies of scale or division of labor.) Mutualists do not appear to even understand the marginal utility theory.  I find the increasing trend of self-employment as a positive thing, as it signifies increasing technological development and more creative, less tedious, jobs. There is also a decreasing trend of the amount of labor that determines the value, as creativity does not depend on labor. So in the age of technological development and the emerging knowledge economy, the labor theory value as a sound explanation of the economy will be obsolete.

Innovation Without Patents

Libertarians see that in a free society, individuals would have more incentives to innovate, because of greater wealth and leizure time. From the absense of intellectual property in a free society, inventors would have more incentives to invent, due to decreased risk of inventing an already patented product. But supporters of intellectual property, however, see it as helpful to promote invention, even that it contradicts the non-aggression principle. Yes, because ``it's impossible to enforce morality," individuals will still advocate IP for pragmatic reasons. Even if some proponents of IP see it as immoral, they cannot help it so they still support it. We will, in response to them, thus argue that even in the absence of intellectual property, alternative systems that rewards the inventor exists in a free society.

The classical argument and criticisms

Let us start with the classical IP argument:

If the state does not reward the inventor for his inventions, then the inventor would not invent it in the first place.
Inventions always produce more good than non-invention, even at the cost of intellectual protectionism.
This is because the consumer wish to buy the invented good over others, even at a higher price from patent monopolies.

We will criticize some bad consequences of intellectual property. If two individuals made the same invention, then one will get sued. Therefore, individuals do not have much incentive to develop a new product, since the state may sue him for something already invented.

This happens often in software patents. The open source developers do not have much incentives to develop software anymore because they do not want to take the risk of getting sued, for developing software that someone else already patented.

Patent laws, also, result in firms having a monopoly over that idea. This would increase the mismanagement of many firms, and the monopoly firms tend to display bureaucratic tendencies.

Patents also forbid the improvement of many inventions over the entire patent term. Since statistics have shown that over 90% of all innovations improve an existing invention, eliminating patent laws might increase innovation.

Criticisms, however, do not entirely refute the proponents, since the proponents may think that the benefits overweigh the costs, advocating criticisms may not entirely make proponents deny their idea. Even if we have one thousand criticisms about the disadvantages of IP, the proponents may still think the benefits of IP outweigh the costs. We, therefore, will suggest better alternatives to intellectual property, instead of criticisms of IP, so the proponents of IP would have something better.

Utilizing creative destruction

Creative destruction means the destruction of some firms or sectors by innovation. As new firms with innovations enter the market, this destroys the old firms. As new firms with new innovations outcompete the old firms, the old firms will fail and the new firm would predominate. This process, even in the destruction of old firms, benefits the economy.

The classical entrepreneurial method

Entrepreneurs can utilize the creative destruction process to take rewards from their invention. As an inventor thoughts of an idea that may outcompete old firms, he forms a businesses to manufacture his invention, he could profit from it. But even temporary, some tiny inventions would profit a huge sum to the inventor, due to a high population demand for his invention.

But suppose, if an invention takes a long time to develop, and he cannot reap much profit even of high population demand, he has plenty of alternative methods to get even more profit.

Selling shorts

One example of how the inventor can profit from his invention comes from the stock market. Once an invention has released, we can imagine a large number of old businesses to fail, massive bankruptcies, and liquidation. But an inventor can exploit these business failures to profit from them. An inventor can utilize a strategy called short-selling.

The basic method goes something like this: An inventor first sell stocks that he does not own from the businesses that will fail from his invention. Then inventor establishes his own business but his idea spread quickly and other firms used his idea also. Eventually, the businesses will eventually outcompete the old businesses. Finally, after all of the old businesses failed, the inventor buys back these stocks from the failing businesses at a lower price. This would make the inventor profit at the difference of the price of the stock at the beginning and the lower price.

Though the bureaucratic corporations would not exist as much in a free society, the stock market will still exist. The inventor can leverage the stock market to profit from his invention, at almost any sector that has stocks.

Suppose an inventor, named Alice, invented a widget, called widget-A, and she keeps it secret. Alice eventually detects that widget-A would eventually outcompete widget-B, manufactured at some other firm, firm-B. As Alice reasonably believes that firm-B will go bankrupt as she releases his invention, she plans to profit from firm-B's bankruptcy.

Alice tries to profit from her invention, by selling shorts. She first borrows stock, and then sells the stock to firm-B. She starts her own firm, firm-A, to manufacture widget-A. But soon, other firms quickly used her invention and also manufactured her idea. She had only profited very little before other firms used her idea too. But she could also profit more until firm-B goes bankrupt.

Eventually, as almost every firm manufactured a widget-A from Alice's idea, firm-B that manufactures widget-B goes bankrupt. During this bankruptcy, the stocks from firm-B fell. She then buy the undervalued stocks from firm-B back, and she profit from this difference enormously.

Hacking the free price system

Every innovation, no matter how diminutive or how ineffectual, influences the free price system. If one invention enters the market, the amount of other products will probably diminish. This happens because in order to manufacture the new invention, it needs raw materials. Manufacturing the invention increases the demand of raw materials, which will reduce the demand of raw materials to make other products. Because manufacturing an innovation changes the supply and demand for other products composed of the same raw materials, one can profit by noticing this difference.

The method goes something like this. Whenever a firm manufactures a widget greater or less than it used to, it displays changes in the price system. The inventor can profit from these changes from buying and selling futures contracts, or contracts guaranteeing buying or selling a thing at some time in the future.

Suppose an inventor, named Bob, manufactures a widget that no other firm has invented. He can buy futures contracts of some other product that uses the same raw material before he releases his invention and then sell these later at a higher price.

Suppose Bob invented a new type of machine that processes milk faster and cheaper. Thus, Bob predicts that the demand for milk will increase in the future, since the cost of milk will decrease due to cheaper machinery. Conversely, the demand for yogurt and cheese, which made from the same raw material, milk, will decrease; since its prices will rise in response to increased raw milk demand.

Bob can buy yogurt and cheese first and store them at his storage tank, and promise futures contracts and sell them later at a slightly higher price. Bob will then start his own business, hoping that his invention will not spread to his competitors. Bob earns profit. However, his competitors eventually finds out his design of his machine, so he does not earn profits anymore. However, he still has yogurt and cheese stored at his storage tank, and plans to sell them at a higher price for profit.

This demonstrates that in addition to trade secrets, he can also use futures contracts to buy cheese and yogurt at low prices before high demand of milk and sell cheese and yogurt at a higher price when people highly demand milk.

This illustrates that inventors can perform a variety of things to benefit.

Contract monopoly

Bob can also agree with futures contracts to only sell from his own firm at a lower price, before he releases his invention. Then, when he releases his invention, he establishes his own firm but many others still buy from his firm because he agreed with futures contracts forcing others to buy from his firm. Therefore, Bob will profit similar to a state-granted patent monopoly, but enforced by futures contracts before he releases his invention.

Suppose that Bob has made a machine that publishes books at a cheaper cost. Before he releases his design of his machine to his competitors, he promises a futures contract with authors who agree to publish 10 books only from his version of the machine from now on. Bob can release his design of his machine to as many competitors as he wants to, but according to the promise of the futures contract, the authors still has to publish 10 books from his version of the machine, due to the futures contract promises.

We can also apply this kind of strategy to reward entrepreneurs by further exploiting the free price system. Suppose Alice invented a machine that manufactures chairs at a cheaper price. She should promise other firms to bulk-buy her cheaply manufactured price at the future, so she would earn a profit. However, she could also exploit others, such as the lumber industry, since her invention increased wood, to further profit from the free price system.

Trade secrets

Suppose an inventor discovers a new method for making software. He will sell programmers who want to use he method by selling them a trade secret. It agrees that all of his customers will not release his method. However, suppose the inventor has one hundred customers. He, however, cannot track which one released his trade secret, so he do not know which to sue.

He could, however, offer ``guards" to track that his customers, for sure, does not release his method for making software. Yes, the inventor sees it as expensive, but some inventions, he might see it as worth it. For instance, if he invented a method that will increase efficiency by one hundred times, he could license his trade secret to only a few large firms at a high price, and keeping guards to track that his licensees do not release his method.

Advanced innovation incentives

Using advanced technology, the inventor of the trade secret do not need to employ one guard to monitor every licensee. He could, alternatively, mount small wireless video cameras on each licensee's forehead, to see if one licensee released his trade secret. Thus, he does not need to employ any guards to keep track of them, since the video cameras record all of the licensee's actions 24/7. If the inventor finds out that a licensee released his trade secret, he could search the recorded video camera and seek evidence suggesting which licensee spread his trade secret, to sue him.

This seems intrusive to the privacy of the licensees, but the inventor can solve it by agreeing a privacy policy, which he promises to not let others look at the video camera's history unless the trade secret has spread.

Suppose that some innovations cannot possibly preserve as a trade secret, such as a method of combing hair, since consumers will notice that invention.

That would also enforce it by trade secrets, giving video cameras on all of the consumers to not spread.

Also, voluntary cities can set its own trade secret technologies, which can prevent communication to outsiders.

Conclusion

Utilizing short selling and futures contracts as an incentive to invent can gain huge profits. To use these methods, however, imply that the inventor must not release his invention to the market and let others reap the profits first. He must do some market transactions before he releases his idea to the market, in order to profit. Short selling and using future contracts appear similar to exploiting the market from ``inside knowledge," which means that the inventor has ``inside knowledge" of how the market would react to his invention, and then exploiting the stock market for profit.

Most importantly, an inventor can use a combination of stock market, futures contracts, trade secrets and the classical entrepreneurial method to profit big. In addition, some types of ``innovation insurance" deters some risks from the inventor. He can get help from innovation consulting firms which help him decide how to optimally exploit the stock market, futures contracts, trade secrets, and the classical entrepreneurial method.

Flaws of GDP, Factors of Inflation, and Velocity of Money

What the GDP measures

GDP (Gross Domestic Production) measures the total money used to purchase newly produced, finished goods during a year. The GDP, however, does not measure the money used to purchase used-goods.

A commonly cited refutation of GDP involves the breaking window fallacy. Breaking and repairing windows increase expenditure, which increase GDP, even it harms individual. Breaking windows forces an individual's money to spend repairing instead of using the opportunity costs things that the individual actually desire.

GDP, additionally, does not measure economic distribution. Some individuals may have a poor standard of living or also unemployed, even if the aggregate GDP compares greater than other nations. This seems true for highly corporate-capitalist economies, in which the CEOs of the corporations steals almost all of the income from others.

GDP, also does not measure the underground economy.

A more important refutation deals with the GDP measure on production without any consumption. However, production and consumption overlap, so the GDP has to judge whether production or consumption occured in its fuzzy circumstances. Volunteer work, increases both production and consumption, because the individual find it psychically pleasing to do this work. Some individuals may enjoy producing open source software, so they consider producing open source software as also consumption. For instance, individuals may use open source software as consumption since he learns how to code software better by programming open source software, but open source software has a side-effect of production. In order to measure production, the state has to arbitrarily define which products constitute production, and which products do not. But as some activities fits in between production and consumption and does not have a distinction, the state can have the power to manipulate measurement to artificially increase GDP by defining a wider variety of products as productive processes.

Taxation, may even increase GDP, since individuals must work harder to pay these taxes. If we subtract government spending from the GDPs of the Nordic states, these GDPs will literally halve.

The mainstream media commonly speaks propaganda that deals with ``growth rate" as fast or slow. We cannot judge whether an economy grows fast or slow only by its ``growth rate." Underdeveloped economies have a potentially much higher growth rate than more developed economies. As the amount of technology stays the same level in all economies, the underdeveloped economy grow faster by accumulating technology. The underdeveloped economy would grow fast not because its economy ``grows," but its economy catching-up from previous state inhibition of growth.

The growth rate of the underdeveloped economy would eventually decrease as its economy catches up with the developed economy, due to diminishing returns.

Cultural influences to GDP

Differences in culture, knowlege, and preferences of individuals may have a greater impact on GDP level. Individual ignorance, religion, and other cultural preferences like the birth rate may have a greater impact on GDP than economic.

On health care issues, the Western individual may eat much processed food, which may increase the prevelance of certain diseases. These, however, raises health care spending, which, in turn, increases overall GDP. Should individuals eat healthy, the overall GDP would decrease, as the level of health care expenditure decreases.

The pharmeceutical and psychiatry industries may increase the GDP by a lot. These industries defraud its consumers to take expensive medication, which have no beneficial use to them. As many individuals spend a great deal of money on medication, the GDP may increase by much.

Cultural traditions may also impact GDP. Holiday tranditions such as Christmas, may have a larger impact on individual spending, and may also increase GDP. Spending time in churches may increase GDP due to greater spending. If the population does not believe in religion, the GDP would decrease due to lesser consumption.

We should use birth rate as another factor. The greater the birth rate increase, the lower the per capital GDP, even if the aggregate GDP did not change. As the state records the children born to mothers in a census, the higher the birth rate, the greater the population, which would make the per capita GDP decrease.

Other factors of price increases

An increase in the price of oil, in fact, may increase the culminative prices of all goods, even in the case in which the total money supply stays constant.

The oil price increases the opportunity costs of oil consumption, which produces a net deficit of oil utilization, and also the the underutilization higher-order machinery, such as cars, that consumes oil. This underutilization of goods and services that uses oil, due to increased costs, would result in a net decrease in gross production. Since the proportion of gross production compared to money supply decreases (or the velocity of money), the overpricing of oil would result in apparent price increases through all goods and services in the economy.

We should take caution not to interpret the above paragraph as the Keynesian idea of ``cost push inflation." Their theory sets the false assumption that even if gross production stays constant, the culminative prices will increase. Our theory, however, depends on the decreases in the gross production relating to oil.

In order to demonstrate more fully why decreases in gross production would cause price increases, let us set a clearer example: If it suddenly costs several times more to produce all kinds of goods, such as food, clothing, and services, the gross production of the economy decreases. If the money supply stays constant, the ratio of goods over the supply of money would decrease, hence would result in culminative price increases.

Our former example sets an increase in the price of oil as the factor of raising the costs of production of several goods in the economy. An increase in oil would increase transportation costs, which would, in turn, raise the costs of food redistribution, and also many other goods transported throughout the economy.

This idea elaborated in the above paragraph does not contrast Austrian economics. In fact, Austrian economists well know that a decrease in GDP, while the supply of money stays constant, will raise the prices throughout the economy. We just modified this idea with the assumption that an increase in oil price results in a decrease in GDP.

But the reverse can happen too---an increase in oil prices can also increase GDP. If the demand of oil does not change much according to the prices of oil, also known as the idea of ``low elasticity of demand," then it may result in an increase in GDP, and hence decreases in prices throughout the economy.

The velocity of money

The strength of the currency, in addition to gross production, also depends on its velocity. We define the velocity of money as the total flow of money divided by its population size in a specified period of time. Different definitions exist for the velocity of money, and we should not use other statistics for the velocity of money. Other sources define the ``velocity of money" differently from us, such as the GDP divided by money supply.

We should not, however, equate the velocity of money as the gross production divided by money supply. These two unrelated units do not correlate with each other. The velocity of money may increase without any increase in GDP. For example, the velocity of money increases if individuals sell more used goods, which the GDP does not take account. An increase in the velocity of money would cause price decreases in the economy, since the demand of money increase relative to the demand of goods. A fortiori, selling more used goods, would result in a net decrease of prices in the economy, since it would increase the velocity of money while the GDP stays constant.

The velocity of money, may influence the general price level. Assume that all of the economic production halted. This causes the GDP to equal zero. But individuals would still use money to exchange used goods. This encourages the demand of money, which make the currency have a ``value" caused by a demand of used goods.

The velocity of money, however, may have no effect on the general price level. Suppose two people, Alice and Bob, prepare to deal with transactions. Alice possesses 10 ounces of gold. Bob possesses a tractor also worth 10 ounces of gold. Imagine that Alice wanted to purchase Bob's tractor for 10 ounces of gold. However, after Alice purchased it, Bob wants to reclaim his tractor by purchasing his tractor back from Alice. Now, as Alice has her 10 ounces of gold and Bob has his tractor back, this situation remains the same as the original case. However, the velocity of money has just increased by 20 ounces of gold, since Alice and Bob transferred gold twice. If Bob sold his tractor and repurchased it again, for the second time, the velocity of money would increase by 40 ounces of gold, even if both Alice and Bob now possess the same stuff as in the beginning. New imagine that Alice and Bob did the same transaction for the third, fourth, and up to an infinite number of times. They would both still, would have the same possessions, but the velocity of money has just increased tremendously. This shows that, even if the velocity of money increased multiple times, it may still have no influence other prices. Therefore, we should not consider that the velocity of money only influences the general price level.

So as we have shown above, in certain cases, the velocity do have an effect on the general price level, but in other cases, it does not have any effect at all. So, specifically, what influences the general price level besides inflation and GDP?

Answer: The proportion of money used for used-goods compared to the proportion of money used in new goods. We will show two examples of how the proportion of money used in used-goods would cause a change in the general price level (or the strength of the currency) without any change in GDP or money supply. We will show that ``recessions" and taxation can also cause an impact on the strength of the currency.

During a ``recession," the prices in the economy may decrease depite the fact that the money supply simutaneously increases. We explain this by citing the massive amounts of business liquidations during a ``recession." As liquidations involve selling business assets and thus increase the velocity of money, an increased amount of liquidation would make the currency appear stronger during a ``recession."

Many factors that influences GDP also influence the strength of the currency. High taxes, may also strenghten the currency since the GDP includes government spending as a component. An increase in savings may strengthen the currency since savings lowers the velocity of money.

The growing parasite

According to various Internet statistics, these suggest that the rate of monetary expansion in the United States exceed over 15% per year. Many observers, however, see the rate of monetary expansion as much lower.

Many countries measure its GDP according to the international dollar. International organizations set the current international dollar as equivalent to one Federal Reserve note. As the rate of monetary expansion exceeds over 15% per year, the international dollar, equivalently, loses its strength about 87% per year. Because many countries measure their GDP using the international dollar that expands 15% per year, their nominal GDPs should also increase by 15% per year, to retain a constant real GDP.

However, as we see it, the nominal GDPs in most countries do not, however, increase by 15% per year. This signifies that their GDP has decreased over the years.

To give a summary to which nations have a increasing or decreasing GDP, we test it by using this: every nation that has a nominal GDP ``growth" rate less than 15% has a decreasing GDP.

The parasite has gained tremendous momentum of leeching off an increasing 15% of income from working man annually, thus demonstrates the impossibility of reversing that trend by working within the system.

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A Primer on GDP

As Kevin Carson argued, GDP includes the cost of repairing the windows.

GDP is the measure of the output of a country. The equation for GDP is: C + I + G + (X-M)

The "C" in the equation also includes the costs of repairing a broken window. In order to have the money to pay, individuals have to work harder.

The "I" also includes malinvestment from expansion.

GDP includes the cost of government theft: taxation. GDP is the income of individuals before tax. To exclude the theft that increases the GDP, the "G" in the equation must be removed. The government spending should be substracted because individuals work harder to compensate the theft by government.

GDP increases if exports increase, and decrease if imports increase. This should be reversed. Individuals would have greater purchasing power to buy the imports if imports exceed exports. So (X-M) should be turned to (M-X).

FSK uses the median household income to estimate the GDP. He should have left out the government spending portion of the GDP and reverse the exports and imports. Besides his fallacy of using the inaccurate GDP to measure the economy, his use of "median annual income" is flawed because it is actually the median household income.

The "median household income" is inaccurate because the average number of individuals per household has became smaller.

For example, there were 108,209 households in 2006 and 94,312 households in 1900. This is an increase of 15%.

However, the population has increased from 248,709,873 to 281,421,906, which is 13.1%.

Labor Unions as Cartels

Libertarians, in general, accept the fact that the state privileges the capitalists at the expense of the workers. Even in the current state-capitalist system, we should not, however, advocate ``labor unions" to ``take the stolen wealth back." We should see labor unions as unethical.

An ethical method to compensate the ``workers" stolen wealth, involves building alternative institutions, not to work within the system. Working within the current system, would not make the workers to have any motivation to ``solve" the problem if ``labor unions" provided the stolen money back.

Working within the system, has another unethical context. As you may know, labor unions, though may raise wages for the majority of workers, causes unemployment amongst the less productive workers. Unions, therefore, constitutes as a form of aggression against the less productive. Using ``labor unions" to take the wealth ``back" equates forcing unemployment to other individuals.

Additionally, besides the fact that labor unions hurts some less productive workers, it also hurts some other innocent individuals. Suppose if some individuals work for a capitalist, who, coincidentally, does not privilege from the state. Using labor unions against all capitalists, therefore, may hurt the innocent capitalist who does not privilege from a state. We should consider labor unions as a form of collective punishment, and we should never use them as a form of ``defense" against the massive robbery. This matches with the libertarian ethical claim: ``As long as we hurt innocent individuals in the process, this constitutes aggression, and never constitutes as defense." We, thus, may consider labor unions as ``gangs" or ``cartels."

Some dispute ``aggressiveness" as an inherent attribute of labor unions. They defend the that voluntary types of labor unions may exist in a free society. Yes, we should not have any problem of them within a free society, but unions, in a free society, would probably not exist too much. Co-operatives and self-employment would replace labor unions, for example. Additionally, labor unions, even in a free society under the situation of corporations employing workers, might not even increase the wages of the workers, because of greater competition between employers. So why should we advocate labor unions in the current statist society, while, in contrast, in a free society, labor unions would probably not exist to a significant extent? We should never advocate them, as it would probably imply using the non-voluntary types of unions and as ``working within the system."

Environmentalism Leads to Starvation

The environmentalists, conservationists, and population controllers all have irrational policies of attempting to make society a better place. These three ideologies relate closely to one another, and those who believe in one of these three would probably also care about the other two. Many of them opposes technology and opposes change.

The environmentalists, conservationists, and population controllers all presume the existence of the state, heavily regulated against environmental ``exploitation" while advocating the same type of exploitation by itself. They set policies that appears to reduce pollution and poverty, while these only work as minor cookie-cutter fixes while ignoring the origin of these problems: the state.

The state works by exploiting the individuals by taxes, regulations, interventions, and slavery. The state steals from the individuals, while forcing individuals to work inefficiently, unproductively and wastefully. Without the massive waste that the state has caused, poverty will exist much less than it exists today.

In the following sections, we will discuss that we do not need a state to solve all the environmental and overpopulation problems. Though we deny that global warming and overpopulation present a problem to society, we will nevertheless present solutions of reducing of these in a free society. We will do these, just to convince those radical environmentalists to a libertarian-compatible position. (It is hard to enforce morality, unless you present consequentialist arguments defending the deontology.)

The primitivists

The philosophy of primitivism, also advocates these three policies---environmentalism, conservationism, and population control---as the three tenets of their philosophy. The primitivists advocate population reduction, to apparently reduce the supposedly ``high" demand for natural resources and food, and opposes technology as they see it as damaging to the environment. The primitivists lacks the obvious flaw that technology actually helps the environment, since it reduces waste and increases the efficiency of production.

An important policy advocate by most of the proponents of the environmentalists alike, resolves in the tariff policy. Although they have a moral stance of opposing the so-called ``free trade agreements," they also want to raise tariffs afterwards. They say that tariffs reduce pollution and the exploitation of natural resources, and almost all of the governments and organizations believe in just that. All of the organizations practicing environmentalism, including the Green Parties, actively wants to raise tariffs attempting to reduce pollution, but they just do the reverse. They say that raising tariffs would reduce the transportation of products, which would reduce gasoline and reduce carbon dioxide emissions.

However, their policy of raising tariffs does the reverse, and much greater harm to the environment than it minusculely fixes. Raising any tariff, would reduce the efficient allocation of production, which might mean that machines might even increase amount of gasoline consumption due to inefficiency.

The overpopulation solution

Raising tariffs also cause another important inefficiency: inefficiency in food production. Whenever states like China and India produces food, the state actively enforces the inefficient production of food. If one wants to see the inefficiency of food production in these states, one would see the primitive tools that they use. The high tariffs prohibit the importation of advanced farming equipment. The missing advanced farming machinery, which might even use less energy the primitive tools, has outweighed by far the presumed gasoline savings from tariffs. This sets another example of how the environmentalists harm, rather than help, the environment.

Farmers in China and India use ridiculously simple tools for farming, probably even hundreds of time as inefficient than the currently available technology would do. If the state does not exist, then tariffs forbidding the importation of machinery will ease, and the agricultural output would increase by multiple times. Food prices will lower, and much more individuals would feed themselves.

In the current world, farmers only use a small fraction of the total arable land. If farmers used all of the currently existing arable land, then food production would multiple. Non-arable land can also turn into arable land by irrigation, so increased production may form from more land for farming, in addition to the unused arable land and importation of advanced machinery.

Furthermore, the increase in technology would let farming productivity rise. Innovations in farming equipment, biotechnology and genetic engineering would increase food productivity at a rate higher than population growth.

These changes, available from current technology, would occur when the state collapses. Food productivity may increase by hundreds of times by these changes, so population a hundred times larger the current population seems not a problem.

According to the laws of economics, food prices will automatically rise when the demand of food increases. Accordingly, individuals will have less children if the population gets unsustainable, due to expensive resource costs from high demand. The population would adjust itself.

Even before the population has multiplied hundreds of times, we will probably colonize space by then.

The demographic paradox

We should even suggest that if the population grows in the first place. In fact, the population declines in the most developed nations. Birth rates falls below replacement level, meaning that the population would eventually shrink. Many economists called this phenomenon as the demographic paradox.

You may wonder the reason behind the population decline in the most developed nations. In developed nations, parents have more incentive to invest their children in education. The rate of return gained from investing additional education compares far greater than the rate of return gained from having more children. Thus, individuals see that having one highly educated child as a more economical investment than having many uneducated children.

In undeveloped nations, by contrast, parents like to have as many children as possible to help them with subsistence farming. As in the last section, the lack of farming equipment causes an inefficient proportion of human labor instead of machinery, parents in the undeveloped nations like to have as much labor as possible by having lots of children.

Unless the farmers in the undeveloped nations import advanced farming equipment, they will have many children instead of using machinery to help them farm. As productivity might increase by hundreds of times as described in the last section, individuals in the undeveloped nations would have less children when the state collapses.

As farming productivity increases in the undeveloped nations, less individuals would work as farmers. But currently, the individuals in the undeveloped nations do not have enough resources to educate their children, due to state taxes and regulations. When the state collapses, however, these individuals would instead invest their children in education instead of farming.

The reverse demographic paradox

In the last section, we have analyzed how education decreases birth rate. Parents find having less, but better educated children as a better investment than lots of children. But other factors might even increase the number of children when the state collapses. Examples includes the increased wealth when the state does not confiscate or regulate, the lack of child labor laws which motivates parents to have children work instead of consume, and the lack of compulsory education laws.

A good example of more children involves increasing wealth. Since the state taxes and regulates individuals, when the state collapses, the wealth of each individual may increase by five times. Richer individuals will have more children, as they can afford to buy resources for their children to consume.

Another side-effect of increased wealth includes less time that individuals work. Due to increased productivity in a free society, individuals do not have to work as long every day, and have more time to spend on their children. It becomes increasingly more common for only one parent in the family to work, in addition to the shorter time and longer weekends that he or she would work every day.

The lack of child labor laws would also increase wealth. The money earned by a child may outweigh the money spent on taking care of the child. Thus, some individuals might have children just to increase wealth.

Population growth benefits the economy

In a free society, the economic quality will depend solely on the current technology levels. The state will not meddle with the economy anymore and would not produce fake growth by manipulating growth statistics. In the absence of the state, the economy will only grow by increased innovation.

A larger population benefits the economy. A larger population implies that more individuals would spend their time to innovate, thus helping the economy to grow further. The increased leisure time from increased productivity will magnify the amount of time individuals would spend on innovation, instead of sustenance.

Ultimately, we should not see population growth as a vice, but a virtue.

The environmental solution

Many libertarians advocate a private rights approach for environmental pollution. The protection of property rights would give individuals an incentive to not dump waste on someone else's property. Individuals may also own portions of water, as it may reduce overfishing---a solution to conservation.

But the property rights approach to environmentalism has a fault. It suggests no solution to global warming, caused by carbon dioxide emissions. Since releasing a moderate amount of carbon dioxide does no apparent harm to neighbors, courts would not likely sue the the polluters. Under current technology, it seems difficult to measure the amount of carbon dioxide released. This also makes individuals difficult to estimate the amount of global warming, and thus impossible to reclaim monetary compensation proportional to the amount of carbon dioxide released.

The global warming solution

Proponents of a state suggest that it would solve global warming caused from carbon dioxide emissions. They suggest that without a state, individuals would still pollute since an individual derives no benefit by reducing emissions. Only in the case that most of the population in the world reduced pollution, everyone would benefit. But the some individuals would free ride, or ``cheat" by letting others reduce emissions while refraining from reducing this themselves. So they conclude that only a state can prevent the free rider problem by forcing every individual to reduce emissions.

However, solutions to this free rider problem does exist even without the state. A method to solve global warming involves the boycott. The individuals who reduced emissions can agree with each other to boycott those who not practice that themselves. To enforce the treaty, the members agreeing with the reduced emissions agreement, would also agree to refrain from trading with the non-members. This would encourage the non-members (the free riders) to agree reducing their emissions, to freely trade with everyone else.

Conclusion

We have shown that the society does not need the state to solve all three problems: global warming, conservation, overpopulation, and poverty. Most importantly, we have appeared to solve the problem that even most libertarians find it as impossible: global warming.

The primitivists has turned onto the wrong direction, hurting individuals from their policies that supposed to help.

Common Errors in Austrian Economics

National debt problem

Paying the national debt would cause deflation, since 40% of the debt goes to central banks as interest payments. Paying the national debt, per se, would not lower average income if each individual proportionally pays his or her income to pay back the debt, since the "value" of money goes up from deflation while paying the debt.

Also, "we" owe no money to pay the debt owed to foreigners. Paying this debt equals collective punishment.

"Adjustment" occurs during a recession

Malinvestment and underinvestment already exist, since the state enforces regulations and taxes that undermine the economy. More generally, if the state exists, then distortion and malinvestment must exist. During a bust, many Misesians view that as "adjustment." "Adjustment" just shifts some malinvestment in one sector to another sector, within the already distorted system. So, in a statist society, one should call the "boom" phase of the business cycle as increased malinvestment, not just malinvestment, since the state always causes malinvestment.

Businesses misled during the "boom" phase

Malinvestment, per se, does not originate from poor business decisions. During the "boom" phase, businesses make sound decisions to invest. Contrary to the Misesian understanding of the business cycle, businesses actually overinvest in long-term assets during the boom phase because it actually profits them.

Inflation causes malinvestment.

Inflation, per se, does not cause increased malinvestment. The lower real interest rates than the "equilibrium" rate causes malinvestment. The lower real interest rates encourage firms to invest in long-term assets at the expense of short-term assets, distorting the "optimal" ratio of long-term assets and short-term assets. Thus, this un-"optimal" equilibrium would result in more opportunity costs for individuals.

Only in the "boom" phase of the cycle, malinvestment occurs. In the "bust" phase, the "adjustment" occurs. The ratio of long-term assets to short-term assets approaches the "optimal" level during the bust. Therefore, the bust phase makes consumers wealthier! Then why do some consumers get poorer in the "bust" phase? The individuals who has a loan during a monetary contraction would not have enough money to pay back to the banks.

So-called: Boom, bust, growth, and recession

The Misesians misnamed the terms such as "boom" and "bust," and "growth" and "recession." Actually the only variables that define the boom and bust phases include violently lowering and increasing interest rates, respectively. Monetary expansion has nothing to do with "booms" and "busts." We should define "boom" and "growth" as lowering interest rates, and define "bust" and "recession" as raising interest rates.

Malinvestment causes loan crises

Note that during a bust phase, one should not view the two concepts: malinvestment and unpayable loans, as related or correlated with one another. In a "bust," malinvestment may occur without a loan crises, and vice versa.

Monetary contraction causes unpayable loans. Monetary expansion, per se, does not cause increased malinvestment. Lower than "optimal" interest rates actually causes malinvestment.

Without monetary expansion, malinvestment may still occur by lowering real interest rates. Conversely, without lower interest rates, loan defaults may still occur due to not enough money to pay the loan from monetary contraction.

Artificially low interest rates

One should also note that in a free society, interest rates will probably decrease, since a free society does not have lending restrictions and taxes that increases interest rates.

Central banks cause depressions

The common Misesian folk thinks that central banks caused the Great Depression. Labor union regulations actually caused the Great Depression. The "closed shop" regulation in labor unions violently forces each individual to join the labor union, even if he or she does not want to. Also, as labor union regulations guarantee a "minimum wage," it would cause unemployment. During a monetary contraction, the real "minimum wages" guaranteed by labor unions increase above the market rate. The forced real wage increases during a monetary contraction makes the employer to fire many, thus causing massive unemployment. Thus, central banks did not cause the Great Depression, labor union regulations did.

Only abolishing minimum wages would abolish unemployment

The common paleolibertarian, especially those at the Ludwig von Mises and the LewRockwell.com institutes, thinks that only minimum wages cause unemployment. Others would refute that by citing high unemployment rates in states that do not have an official minimum wage law, such as Hong Kong. Hong Kong's strong labor union regulations caused their high unemployment rates, even they do not have any official "minimum wage." For a more obvious example, labor unions caused massive unemployment during the Great Depression, even when the official minimum wage did not "exist" at that time.

The trade deficit

Various paleolibertarians in the Mises and LewRockwell institutes, such as Bob Murphy and Peter Schiff, view the trade deficit as a harm. First of all, an actual trade deficit might not "exist". Since the state estimates the imports and exports, we should not see it as accurate. Second, trade deficits do not cause offshoring and unemployment, and vice versa.

Increased taxation forces corporations to raise the nominal prices of their products to cover their costs

Wrong. If the money supply stays constant during a corporate income tax hike, prices will stay constant. It would only decrease the nominal wages to the employees, since the money supply stays constant. Constant money supply during almost any tax hike would not cause corporations to raise their prices since the supply of money does not increase.

Also, since most corporations have tax loopholes, it would have a very small effect on the wages of the employees.

The variations of interest rates have a larger influence on employee wages than corporate taxation. If the central bank lowers interest rates, corporations would borrow more to invest in more long-term assets. This would lower the real wages of the employees since the un-optimal long-term/short-term asset ratios caused from lower interest rates does not reflect consumer preferences.

Most of the self-identified left-libertarians view anarcho-communism as compatible

Even some so-called left-libertarians deny anarcho-communism as compatible with anarchism.

Left-libertarians hate corporations

Even though that some libertarians oppose corporations as they define corporations as charters from the state, some left-libertarians defend the existence of corporations.

Not all left-libertarians hate corporations. Lee McCracken defended the existence of corporations at anti-state.com, and Kevin Carson defended the existence of corporations.

Foreign nations as economically free

Various individuals who have read Peter Schiff's book, Crash Proof: How to Profit from the Coming Economic Collapse, have brainwashed his into incorrect China-bashing views.

Many individuals who read his book, especially those Ron Paul advocates, seem to hold a belief about Peter Schiff's cult that China has more economic freedom than the United States. Schiff, the neo-mercantilist, mentioned in his book that China possesses more economic freedom because, empirically, it appears to have a larger manufacturing sector than the United States. Schiff's neo-mercantilist beliefs include that if the U.S. falls into an economic depression, China will prosper because it would not export "useless" goods but instead produce goods for their own consumption. Peter Schiff holds an idea of self-sufficiency that nations which have a large manufacturing base would supposably increase wealth. I view that as protectionism.

Foreigners have more economic freedom

Specifically, many racists believe that non-whites possess less intelligence than white people. Why does "developing" economies apparantly grow "faster" than "us" when they have less intelligent than white people? They realize that this why does the "developing" nations grow "faster" than the United States when the foreigners possess less intelligence. Finally, they concluded that the supposed superior economic "freedom" of the developing nations made their economy grow faster.

Also, the racists often possess an inferiority complex that non-white nations have more economic and political freedoms than white nations. Even though the supposably "developing" nations have massive economic regulations, high tariffs, much more corrupt, and monetary expansion much higher than the United States, the racists still concluded that the "developing" nations have more economic freedom than the United States.

This inferiority complex additionally reinforces the confirmation bias that foreign nations have more economic freedom than the United States.

Additionally, the domestic bailouts in the U.S. reinforced their confirmation bias that foreign nations have greater economic freedom than we possess.

One should view economic "freedom" as subjective. At least the foreign nations have a large counter-economy.

Definitional...aggression, coercion and violence as interchangeable

One should not confuse nonviolence, non-aggression and non-coercion. Non-aggressive violence exists: retaliation from self-defense. Murray Rothbard even defined self-defense as a violent act, even though it does not contradict non-aggression. Non-aggressive coercion exists: Threatening a criminal.

Rent and Interest Will Shrink

Artificially high interest rates?

The current interest rates range from about 2%, the Fed funds rate, to 10%, the mortgage loan rate. The Austrian School economists that I encountered see this rate as artificially low. They think that the Federal Reserve, the central bank that counterfeits new money, artificially lowers interest rates which promotes malinvestment. They base their theory on the Austrian Business Cycle Theory, which suggests the artificial decrease of interest rates by the central banks. However, I see these rates as artificially high. Let me explain.

The burdensome lending regulations prohibits anyone to lend without a license. Less individuals would lend as a result, and interest rates raise in response due to low supply of loaned funds. Taxes also lower the supply of loaned funds and increases the demand of loans. The state directly confiscates about 50% of the workers' income through taxes. If one multiplies up both sides of the payroll taxes, tariffs, the federal, state and local income taxes, value added taxes, sales taxes, corporate income taxes, property taxes and the regressive excise and inflation taxes, one would get a taxation rate higher than 50%. Indirect "taxes" include the monopolized firms (we will explain this below), business regulations, and others mentioned in the index of fully parasitic industries, although workers see these "taxes" as loss of opportunity costs, not a decrease in production (as in gross domestic product, we will mention later). Including these indirect taxes would result in an 80% "tax" or, more accurately, 80% opportunity loss. Without these "taxes," individuals would lend more which lowers interest rates significantly.

The Austrian economists also avoided the uneven distribution of rates. In the current corporatist society, interest rates distribute unevenly throughout wealth and class levels. I see the privileged corporations borrow at the Federal funds rate, a nominal rate of 2% from the Federal Reserve.

Unprivileged individuals, such as the working class, borrow at a nominal interest rate higher than 6% for mortgages. I consider this unfair to the productive working class when the privileged corporations borrow at 2%.

Monetary expansion may also raise the real mortgage interest rates, to 10-30%. Monetary expansion discourages savings at the expense of increases in speculation and consumption. Suppose an individual wants to lend out money and earn interest. However, he or she cannot profitably invest by lending. The current monetary expansion rate looks closer to 10%-30% annually. The individual cannot profitably invest even if he lends out with an 8% interest rate. If the individual lends 8% when the rate of monetary expansion approximates 10%, he would lose 2%!

Besides the workers who unfairly borrow at a higher rate than the privileged corporations, the current system also treats Mom and Pop businesses unfairly. The Federal Reserve prohibits anyone other than the privileged corporations or banks to borrow at the Federal funds rate. Smaller businesses borrow at a higher rate. They could only borrow at a high interest rate of 20%, which allows the privileged corporations to crush them!

Many Austrian economists consider Hans-Hermann Hoppe as a respectable economist. He wrote an article theorizing the existence of the upper class, even in a free society, though many Austrians disgree with him. In his article, he mentioned that in the monarchical period in early modern period, the real interest rates averaged an amazingly 2.5%. Even in the feudal age, in which I consider as a highly corrupt period, interest rates averaged 5%. The state raised the interest rates since corruption begun in the 19th century.

If a free society exists today, individuals can borrow at a lower interest rate, such as 1%, much lower than the current Federal funds rate of 2%. Everybody will own a house!

Many Austrian economists assume that interest rates would rise in a "free" society. We proved that they made a mistake. They avoided about how corruption, such as regulation and taxes, raises interest rates more than the central banks would decrease. They failed to take note of the inequality of interest rates differing between the privileged corporations and the mortgage rates. We predict that interest rates will decrease.

The Hidden Costs of Corporate Protectionism

If you criticize ExxonMobil for generating $40 billion per year, then Austrians would respond to you and cite that its profit margin is only 9%. However, the 9% is higher than it should be. The profit margin should be less than 2%.

Many Austrian School economists do not actually understand the Austrian theory of the Business Cycle. They think that it is just a miscalculation error, but it is actually much deeper than that. Speculation during the cycle is purposefully increased. An example is the Chinese correction on February 27, 2007. It started out with rumors lowering the central bank interest rate and the speculators crashed.

Negative real interest rates do not have to be negative

In a purely free market, the profit margin of every capitalist equals the total equity times the market interest rate. For example, if a factory is valued at $10 million and the market interest rate is 5%, then each year the capitalist would earn $500,000.

However, due to the lower interest rates that can be borrowed at the Federal Reserve System, capitalists would invest more. For example, if the Federal funds rate is lowered to 2%, the capitalist would borrow $10 million to invest in a factory. He would then earn $500,000, as usual per year. However, because the Federal funds rate is only 2%, he has to only return $200,000 to the Federal Reserve System. Thus, he would earn $300,000 ($500,000 of factory profits minus $200,000 interest), by borrowing at lower interest rates. It is accurate to interpret that the interest rates are negative, because he had earned $300,000 out of nothing.

Thus, due to the lower Federal funds rate than the natural market rate, it would rise to negative real interest rates and overinvestment, even if inflation has never happened. This encourages malinvestment and speculation. Expansion of businesses would occur, and the expansion would stop until the real interest rates are not negative anymore when the net income divided by the equity of factory capital approaches the Federal funds rate.

If inflation has occurred, then it would get more speculation. The raising income inequaity is due to speculation.

The catallactics of inflation

Investment would increase in long-term capital goods such as factories, since only long-term capital would profit the capitalist. Short-term profit margin from sales would not increase since they do not profit the capitalist.

The prices of long-term goods increase more than short-term goods. If speculators predict that the money supply would double over the next year, then they would bid up the price of the long-term goods in order to sell it next year, to profit from negative real interest rates. However, because of the increased demand for long-term goods from speculators, the prices of long-term goods raise immediately, before any increases in money supply. This would bring down the profit from the negative interest rates. This demonstrates that prediction or speculation, besides money supply, would have a great impact in prices.

If the long-term goods require labor to build, then the wages of building long-term goods would temporary increase, and eventually decrease to equilibrium as more individuals switch to these jobs.

Short-term goods, conversely, are not affected by prediction or speculation. Short-term goods like wheat and corn would not last very long. Thus, the prices of short-term goods are dependent on the money supply, without any prediction or speculatory influences. The prices of short-term goods would double only if the money supply is actually doubled.

As long as the speculators profit from the market interest rate, plus the risk, the prices of long-term goods can raise arbitrarily. Speculators may bid up the prices of long-term goods multiple times if they predict that inflation would multiply over the next year. Thus, inflation hurts the non-capitalists, and may even benefit the capitalists because they can sell their capital and use the money to consume cheap short-term goods.

There are three kinds of individuals. The entrepreneur innovates for profit. The capitalist gets profit from interest payments. The speculator predicts the intertemporal patterns to profit. The entrepreneurs are the productive class. Capitalists, the owners of capital, profit from interest rates. Speculators may lobby politicians that would increase or decrease inflation. Resources are wasted to the speculators. The speculators do not do any contributions to society, but still profit. This redistributes the wealth from the productive individuals to the speculators.

The real profits

Many Austrian economists confuse profit margin with return on equity. The profit margin is the percentage of net income occurring from sales revenue. The return on equity is the net income divided by the total equity. The profit margin should be much less than the market interest rate, and the return on equity should equal the market interest rate.

If the Federal funds rate is lower than the market interest rate, the market interest rate would equal the Federal funds rate. If the market interest rates are higher, then borrowers would borrow from the Federal Reserve System. This decrease demand from the market interest loaners, which would cause the market interest rates to equal the Federal funds rate.

Total equity is the total capital invested. Assuming that there are no liabilities, then in a purely unhampered free market, the return on investment (ROI) should be the net income divided by total equity.

If you see Google finance, the return on equity for ExxonMobil is 35%, which is much higher than 2%. The return on equity for monopolized firms such as Microsoft is 50%, which is much higher for 2%.

So ExxonMobil's return on equity is much higher than the market interest rate.

But what if there are liabilities? The return on investment is the net income plus the total liabilities times the market interest rate, then divided by the total equity.

ROI = (Net_income + Total_liability * Market_interest_rate) / Total_equity

This equation is derived from this equation:

Total_equity * ROI - Total_liability * Market_interest_rate = Net_income

If you add everything after the ROI and divide Total_equity, then you should get the first equation.

But since there are artificially below market interest rates such as the Federal funds rate, the market interest rate is the Federal funds rate. The Federal funds rate is currently at 2%.

For example, if you take the ExxonMobil statistics. The net income is 40,610.00, total liability is 120,320.00 and total equity is 121,762.00.

If you calculate, then you would get (40,610.00 + 120,320.00 * 0.02) / 121,762.00 = 35.3%. You then found out that the ROI of ExxonMobil is 35.3%, which is much higher than 2%.

If the total liability is not much greater than the total equity, then return on equity is fairly a good measure for ROI, since the 2% Federal funds rate is insignificant to make any difference.

Defending the criticizers

If you heard arguments defending

ExxonMobil, you shouldn't trust them. First, ExxonMobil practices tax loopholes that understate their net income. Second, the profit margin shouldn't be confused with the return on investment. Third, the return on investment is much higher than it should be.

Why does ExxonMobil has such a high ROI? The only answer is regulatory capture.

In a purely free market, the interest rate would be much lower because of the lack of banking regulations. Everyone can loan their capital at interest, which increases the supply of capital that decreases demand and interest rate. If the natural interest is 1% in a purely free market, then the capitalist of the $10 million valued factory would only earn $100,000 per year. The money monopoly should be vanished.

Spontaneous Centralization

The market is a self-organizing system. Spontaneous order and voluntary centralization would appear.

State centralization is forced centralization. State centralization limits competition because it sets constraints on every entity within the state. It limits creative arrangements of patterns and limits innovation.

An example of a decentralized system is evolution. Organisms that innovate, or adapt creative traits, are the only ones that may survive.

Decentralization would result in spontaneous centralization. The evolution of the bottom-up processes encourage the most successful bottom-up process to spread on a top-down fashion.

For example, entrepreneurs are competing in a bottom-up process in parallel. If one entrepreneur innovates, the idea would spread on a top-down fashion, where all bottom-up entrepreneurs competing would get the knowledge, in a fast top-down way.

Contrary to the popular belief, decentralization is not anti-centralization. It is pro-centralization. It only opposes the coercive types of centralization. In fact, the more decentralized a system is, the more centralized the system is. This is because decentralization would let the bottom-up processes to compete evolve the best plan for centralization in parallel. Centralization is then voluntary. If the centrlization is ineffective, then the bottom-up agents would voluntarily opt-out. State-enforced monopoly centralization, however, would hinder competition of the optimal centralization standard.

Centralization cannot exist without decentralization. Without decentralization, there would be no innovation, since it hinders parallel bottom-up process to compete and innovate.

State-centralization not just inhibits innovation, but also prohibits the adaptation of already-known innovations. It inhibits efficiency increases that would be adapted by companies. For example, the barriers to entry and patents, products of state-monopoly centralization inhibits the efficiency increases which ultimately lowers the purchasing power of its citizens.

State-communist societies are highly coercively centralized. They inhibit certain kinds of knowledge to be applied. These decrease efficiency, which reduces productivity.

Coercive centralization inhibits the innovation and the application of technology. Agorism is more efficient because it decentralizes which would let entrepreneurs exploit the effieiencies and technologies that are prohibited by the state.

Many economists such as Thomas Malthus argued that humans would eventually be living in subsistence. His argument is flawed, because he avoid the consequences of how technology would improve living. In fact, the lack of efficient technological application is the main reason of how socialism failed. Technology and innovation are very important aspects of living in society, and decentralization makes entrepreneurs to have the incentive to exploit efficiency.

Refuting Protectionist Fallacies

The mainstream neoliberal version of globalization tries to establish a world government by setting agreements between countries. The neoliberal version may support violence to bring trade between nations. Globalization tries to establish state-subsidized transportation, which distorts the "free market" to over-utilize transportation and underutilize smaller businesses, as Kevin Carson argued.

Free trade is crucial for developing countries. Both export and import tariffs must be eliminated. Import tariffs make the imports cost above the cost of production, resulting in more local producers. However, the tarrif malallocates the resources in favor of less efficient local production. Even if the tariff profits the government, it inhibits the low-price "signal" of the imports, resulting a lower opportunity costs of the producers.

Export tariffs, or export duties, are often enacted in resource-rich countries to extract revenue. An example is a tariff on oil exports in a oil-rich country that can produce oil cheaper than the other resource-poor countries. The tariff, however, even if generating revenue for the government, has unintended consequences such as damping economic growth. A tariff, like this one, would lower the supply of oil producers because the tax would make oil production less profitable. The lesser profits from the tariff would motivate producers to invest in alternative less-profiting activaties, which would result in overall decreased efficiency in production.

A tariff on farmers would make the excess farmers to invest in alternative, less profiting activaties.

Eliminating both kinds of tariffs would make the most efficient allocation, as the maximum number of entrepreneurs can invest in the most profiting areas first, which is crucial for economic growth for developing nations.

Freeing trade is an advantage, even if only one partner freed and the other partner has a heavy tariff. The elimination of both kinds of tariffs without any agreements would result in a comparative advantage for the nation. There exists a dominant strategy for a partner. It is to eliminate tariffs. In the payoff matrix, even if one partner cooperates, the partner would gain. Countries can improve without any agreements, but just eliminating both kinds of tariffs on all of its resources. "Free trade" "agreements" are bad.

"Trade deficits" and "trade surpluses" are not a problem. If the imports exceed the exports, then it signifies that the country is more self-sufficient: it does not need to export to earn money. Developing countries export more than imports because they are less self-sufficient. Developing countries must export to make money because they do not have many efficient capital goods. When they get more efficient, they get more self-sufficient then export less and import more.

Protectionism would raise the wages of the workers at the expense of the middle and upper classes. If a good costs B in a foreign country and costs A if domestically produced, the buyer would save (A-B) if there is free trade. If protectionism is involved, however, the buyer must buy the good priced at A and the difference (A-B) nominally goes to the workers. Let's say the ratio of money saved by buying traded goods in free trade over protectionism is R. Let's also say that if free trade is enacted, the workers' current job C would gain an alternative job that pays D to the workers. If there is free trade, the workers would benefit D. If protectionism is enacted, the workers would earn (C * (1/R)).[2] Let's say that if free trade is not restricted, the workers' pay decreased by (A-B), which is equivalent to (C-D). So [2] is equivalent to (((A-B)+D)*(1/R)). The middle class buyer would earn (1/R). This is flawed. A-B and C-D is not equivalent because the marginal cost of labor does not equal the product costs because of the overhead of raw materials. Welfare is more efficient than protectionism.

For example, if a imported good costs $3, and would cost $5 if domestically produced, the buyer would save $2 in free trade. However, if protectionism is enacted, the buyer would have to pay $5 and the workers earn an extra $2. However, forced welfare redistribution is more efficient, such as taking $2 from the buyer and giving it to the worker.

If free trade is not restricted and an alternative wealth redistribution law is enacted, then the workers may only earn $2, wealth redistribution from the buyer giving $2 to the worker and an extra $2 because imports are less expensive, then the worker would earn $6, which is higher than the protectionist $5.

Free trade is better for the nation. Wealth redistribution to the working class is better than protectionism.

Immigration Restriction

Free trade of commodities would equalize one
price for the commodity.

Proof:

Example of highly tradable goods include commodities such as food and clothes. Non-tradable goods include goods and services such as education and healthcare. Because labor is relatively cheap in poorer countries, the cost of non-tradable goods would tend to cost less in poorer countries than in richer countries. This phonomenon is called the Penn effect.

Tradable goods, however, would tend to result in result in one price around the world. This occurs because products created by cheap labor in poorer countries would be exported to richer countries to sell. All countries would demand products from the same poor country that these cheap goods are produced, which would emerge in one price. Contrastingly, non-tradables cannot be exported and traded to richer countries, thus richer countries tend to use more expensive products from their own more expensive labor.

The emergence of one-price around the world for tradables is called the law of one price. The price of these tradable goods are proportional to the exchange rates of various currencies around the world.

Q.E.D.

So free trade would make things more competitive.

Some non-distributable goods such as education and barbars cannot be distributed to other countries.

So poorer countries would subjectively value education and barbars cheaper than richer countries. And richer countries would value these more expensive.

Purchasing power parity only measures redistributable goods, not non-redistributable such as rent expense barbars and education, etc. Non-redistributable goods cost differently in different
locations

But free immigration of teachers and barbars would
even the price of education and barbar fees throughout
the world. Therefore, free immigration would encourage these
non-distributable goods at one price,
and allocate them efficiently

So racial homogeneity by restricting immigration has a cost: encourage monopoly costs of non-redistributable goods.

(but the current trend of online education and machines
would minimize these disparities)

The Invalid Presuppositions Behind the Free Rider Problem

Free rider problem cannot be solved.

One example of an absurdness of the free rider problem is the utility. Politicans lie that we need to solve free rider problem for "defense." This is an example of subjective value, that foreigners are threats to us. This demonstrates that value is subjective so one person that thinks that we need funding but some people do not need military funding.

One example of the absurdness of the free rider problem is the emphasis on numeric.
If 99% of people agree that global warming needs to be funded but 1% does not agree, the 1% is a free rider. But if 1% agree that global warming needs to be funded and 99% does not agree 99% is a free rider. Neither group is corrupt. The free rider problem is dependent on majoritarianism. Even if 99% say it requires funding because of the free rider problem, it does not state that if global warming is actually true. Even if the 1% free riders does not fund, it does not mean that the other 99% is correct, similarily the reverse 99% 1%. Hence, free rider problem is a problem of it actually requires funding.

Therefore, free rider is based on the assumption that the funding is required. It is also egalitarian. it assumes that everyone needs it, including th 1% or 99%. And our current arguments for the free rider problem can be solved by market anarchism. And sometimes we do not actually need market funding. It is also utilitarian.

There are solutions. People can come up with a reasonable way for funding by giving contracts to see if they accept the methods of funding. If given a contract that
states that a rich person should fund more than a poor, they have to all agree to it.

Also, this suggests that the free rider problem is based on imperfect information of the number of people that agree to fund. If the individuals know who would fund or not, they can resolve in a efficient allocation. But because free riders frequently hide their actions if they would fund or not, they are hiding information. Because imperfect information, people would think that other people would fund.

Open source has perfect information so some people have an incentive to develop open source software.

Firms would work together for defense, they would come up with a solution similar to nuclear disarment between states they would reduce this to optimal. So automatically people would reduce their funding despite the free rider problem.

The Insurance Solution

Deregulate traffic controls, and let the market solve it. Every less state regulation gives an opportunity for the market to innovate a solution.

Suppose that the state discontinued its operations of traffic lights, while keeping all other traffic regulations intact. 

If the state completely deregualized roads, then removing traffic lights will not result in any problem. It will function as a club good, and private road owners will have the incentive to provide traffic lights.

But this example discusses the problem when the state has suddenly abolished traffic lights, while  the state still controls the roads.

At first, many individuals, even some anarchists, will predict that it will result in failures and slower transportation time. Since the state still publicly provide roads to anyone, discontinuing its provision of traffic lights will presumably cause behavior as in the tragedy of the commons.

However, this does not provide any problem for all drivers. Once eliminating traffic lights, the car insurance firms will have the incentive to rebuild traffic lights themselves. The elimination of traffic lights will result in a flawless, almost instantaneous transition for the firms to build new traffic lights. Once these efficient firms manage traffic lights, they will improve the design and implementation of traffic lights, with innovative and  safety features.

This traffic light example behaves similar to the lighthouse problem. While water exemplifies the lighthouse scenario, roads exemplify this scenario.

Defending state regulation, even regulations that supposedly fixes other regulations, resembles  an individual advocating theft by taxation. Every regulation enforced by the state hinders the opportunity for the market to provide an alternative.

Even in some rare cases when deregulation makes ``society" worse off, it will instigate pressure from the population to fix its things.