[00:00:00] Speaker A: Richard, thanks so much for doing this.
[00:00:03] Speaker B: You're welcome, Scott. Thank you.
[00:00:05] Speaker A: The Dow Jones industrial average touched 40,000 today. Can we just start with your take on the state of the economy?
[00:00:15] Speaker B: Sure. I think the economy is precarious and the markets as well, specifically the stock market.
Federal Reserve policy for more than a year now has kept short term interest rates well above long term interest rates. And technically that's called an inverted yield curve. It's a very odd, rare circumstance. In the last 50 years, it's only happened seven times that they've adopted that policy. Eight times, actually, that they've adopted that policy, and they've all been followed by recessions. So there's more to say than that. But in my professional forecasting service, I've been anticipating a recession to begin later this year and continuing into next year. So we can talk about the techniques of it, but the fact that employment, the stock market or consumer sentiment is high, these aren't really leading indicators, they're trailing indicators. So whether this will come to pass, I'll put it this way. If there were not a us recession in the, the aftermath now of an inverted yield curve that's been inverted since October 2022, it would be quite odd. It just isn't the case. There's been also no false signals since 1968. In other words, we've never had recessions that occurred without this interest rate structure. By the way, the interest rate structure itself, an inverted yield curve. Short term rates above long term rates. People might think, why would that even have any relationship to a recession? When you borrow money and lend it, which is what a bank does, it borrows short term and lends longer term. So it's an unprofitable financial intermediation. When the yield curve is inverted, you're borrowing at a rate that's higher than the late rate you're lending at. So the reason the norm is the other way around. The norm is longer term interest rates are higher than shorter term interest rates. That reflects less inflation expectations in the future. But also the idea that it's profitable to lend. There's actually a profit margin in lending. And it isn't just affecting the banks. All financial institutions base their profitability on the idea that the cost of getting their funds is below the price they charge for lending their funds. So we could talk more about that.
Last time it inverted was prior to the 2020 recession. Prior to that, it inverted prior to the 20 08, 20 09, 20 09 calamity. So, and for those of you wondering, does the Fed know this? The Fed actually does know this. What? Everything. I'm just saying, if you go to Fed websites, there are whole Fed websites about the yield curve, the inverted yield curve, as an indicator of future recession. So it's not as if this is, you know, my own theory. So then the question becomes, if the Fed knows this and does it anyway, why would it deliberately adopt an interest rate policy that puts the economy at risk? The main answer is they think inflation is caused by the economy growing too fast. It is a thoroughly keynesian. If you know from your econ 101 Phillips curve theory, the actual cause of inflation, of a rising cost of living, is excess money creation. Well, if you named that at any fed meeting, it would be like pointing the finger at the Fed. They're the monopoly issuer of money. They don't want to be held accountable for inflation, so they blame it on the private sector. And most bizarrely of all, in the idea of producing too many goods, you know, all else equal. Everybody knows that if you produce more goods, the price of stuff goes down, not up. But that's their theory. And think how twisted this could be. If your theory is that the rate of economic output being too fat causes inflation, what would be the cure for inflation? The cure for inflation would be to adopt a policy that slows the economy. They actually say this, but if necessary, they'll say, put it into recession. If slowing the economy is going to slow inflation, certainly putting it in reverse and contracting the economy, that'll even help even more. And when they look out at the world today and they see the inflation rate remaining above their so called target of 2%, and notice they aren't cutting interest rates, they aren't cutting that short term interest rate. They're keeping the yield curve inverted. Waiting, almost hoping, but not admitting publicly that they want a recession.
So that's a lot of Preston.
[00:04:53] Speaker A: Yeah, there's a lot we could unpack about that. But curious has been waiting. Go ahead, curious welcome.
[00:05:03] Speaker B: Oh yeah. Thank you for the warm welcome.
I actually have nothing to say right now. I was just listening to Richard Salzman. So I'm just happy to switch back to listener for a bit. And then when it's like question and answer time, I will, I will do so.
Okay. Scott. Scott, I just wanted to add, I didn't really directly answer the question about the DAO and the stock, stock market, but it's true that if you go back and look at recessions, the stock market does not do very well once recessions take hold. And even when the Fed starts turning around and cutting interest rates by then it's too late. This is the, this is the arsonist showing up at the fire after it's.
[00:05:44] Speaker A: But the market is kind of a leading indicator.
[00:05:47] Speaker B: Sometimes it is. There's a joke about how the stock market has forecasted, you know, 16 of the last eight recessions. The reason it's not really a joke, economists are never funny. But the reason it's a joke is it's a very unreliable indicator. So the inverted yield curve is a perfect indicator of coming recession. But the stock market itself sometimes will go up prior to recessions. Sometimes it'll go down, and there's no subsequent recession. The 87 crash is a famous case of the stock market going down 25% and there was no subsequent recession.
So the thing to keep in mind is the stock market itself is not a perfect indicator or predictor of the business cycle. But once a recession takes hold and profits get killed, the stock market definitely goes down and it goes down by an average of 25% to 30%. So it's no small thing. This is not necessarily an argument for divesting if you're a long term investor, because sometimes it's worth just putting up with that and staying in the market, because over the long term, meaning over 25, 30 years, that is a very long term, stocks usually outperform bonds and bills and commodities. So what I'm saying is something more like a professional investor or the institutional investors might want to avoid a 30% loss in one year. So they would be much more attuned to whether the inverted yield curve correctly forecast recession and therefore a stock market decline. But I think the stock market a year from now, if we were talking stock market will be down 25% or so, it would be my guess.
[00:07:27] Speaker A: All right, we'll come back to the.
[00:07:29] Speaker B: Recording of the year. Right? Yeah, there I am on record.
It's someone on Wall street once sense you should give a forecast and a time period, but never both.
[00:07:40] Speaker A: That's great.
[00:07:42] Speaker B: But I just, I just gave both.
[00:07:44] Speaker A: I know economists sometimes, you know, they do percentages of a recession, which also.
[00:07:50] Speaker B: Right. They'll do. Right. They'll tell you. Yeah, that's called scenario forecasting. I've never done that. But you could see why they might do it. There's not 100% certainty in their models. They're their probabilistic models. So they'll say, yeah, 60% chance of recession, 30% chance of boom.
What's the remaining 10%? I have no idea. I don't know what you do with that because they're, they're opposite scenarios. Right. But they assign probabilities to them.
[00:08:20] Speaker A: It's like betting the entire board and roulette.
[00:08:22] Speaker B: Yeah.
[00:08:23] Speaker A: Yeah, we've got panos here. Panos. Thanks for joining us.
You can unmute.
Go ahead.
[00:08:33] Speaker B: Hello, everybody. Hi.
I'm just here to listen. To be honest, I don't have any questions.
[00:08:39] Speaker A: Okay, well, Richard, I've got another one for you. You had a recent post. There were some detractors of capitalism claiming it leads to disinformation.
Does the profit motive lead to lying to customers all the time?
[00:08:57] Speaker B: First of all, um, thanks for that question. I. I. You're reminding me that, um. And you know this, Scott, but I just wanted to tell the listeners that I post a lot on Facebook. I know for the younger crowd, Facebook apparently is passe.
But, um, almost every day I will post something and. And some. And most of the time, if you've noticed, it will be something on capitalism. And, uh, just so you know, one of the origins of this, which I have found very helpful, is I get a Google alert for a bunch of things. But one of the ones I asked for is alerts on mentions of capitalism.
So every day I get this feed. It's either a headline or it's some kind of essay. Sometimes it's a scholarly piece, but it has capitalism in the title. And I can tell you that out of. I don't know, suppose I got ten such alert.
Nine out of ten, sometimes almost ten out of ten. There's something nefarious about capitalism going on. It is so lopsided.
There are very few feeds. I get where it says capitalism is great, and here's why. And so the range of absurdity of stuff said about capitalism by a range of sources is over the top. Yeah. So the one you're referencing, I think I did yesterday or today. The argument was, well, let's examine this idea, which I think it was John Stuart Mill's conception of the marketplace of ideas. And Mill was arguing for the idea of free speech. And, you know, as long as there's not censorship, that even if crazy stuff is said, there'll be a competition, so to speak, of ideas and the truth will out. We say, well, we've all heard that argument, and it's not a bad argument. It's actually an argument against having laws against hate speech and stuff like that. Right? Because even if speech is stupid or hateful, you want it exposed. You want the people who convey such things exposed so they could be refuted. Anyway, the article I was referring to is this guy said, well, the problem is we get massive disinformation and bad reporting and this and that. But he attributed it to capitalism and the profit motive, which is just bizarre. But your point about, well, is there self interest? This goes way beyond just media, say, media reporting. And this guy is not even a kind of right wing conservative who's complaining about mainstream media.
His view was that the prophet motive itself motivates people to issue salacious, titillating, false narratives that sell.
We all know about, you know, the sensationalist press or the tabloid press. This is often, it's often even mocked in, it's mocked in the fountainhead, actually.
Right. Gail Winans banner is the New York paper that, you know, feeds on the prejudices and biases of the lowest common denominator in the city, what she called the mob.
So even if Ayn Rand was answering this question, she might say, hmm, Gail, one, and did become rich with the banner. Now, the banner ultimately did fail, but back to the real world. No, it's not in an airline's interest, for example, to cut corners and risk passengers crashing into the ocean. It's not in the private interest of a bank to engage in predatory lending, as they call it, to lend to people who they know overtly cannot pay the loan back. It's not in the interests of a newspaper or a media outlet whose asset, major, major asset, is a reputation for getting things right and reputation for journalistic objectivity to be issuing crap and issuing stuff that they have to retract later. Those are just three examples. But it's a very common view, I think, based on ethical treatments of egoism, that the profit motive leads to nefarious business practices, whereas, in fact, the most profitable, long term profitable thing you can do is treat your customers well and minimize the risks associated with what they're buying and of course, giving them great products at great prices, but not without, you know, any concern for risk to them or defrauding them or anything like that. So, but it's a very common, it's a very, unfortunately, a very common view. And the egoism part of it is egoism itself is seen as a zero sum game, that self interest itself is seen as well. My self interest comes at the expense of other people's interests, and people forget. But it's true that the profit motive is just the egoistic ethic, commercially manifested. It's just the commercial manifestation of self interest. So just as you want to advance your interest and you want to pursue gain, not loss, so in a company setting, you want to pursue profits and gains, you know, not losses.
So I think it, I think the suspicion of the profit motive as profit itself, as theft or profit itself is gained at the expense of customers or employees or whoever, it just flows out of the philosophic view of egoism, which is false.
[00:14:15] Speaker A: Great.
We do have Lawrence with a question. If any of you have a question, you can request to speak, and we'll bring you up as well. Lawrence, go ahead.
[00:14:24] Speaker C: Thanks, Scott. Hi, Richard.
[00:14:26] Speaker B: Hi, Lawrence.
[00:14:26] Speaker C: So I was at a bastiat society meeting recently with Stefan Kinsonella, talking about austrian economics and a question that I had that I asked him, and I wasn't able to get an answer. So I wanted to ask you was in regards to the Fed, because, you know, in Ron Paul, he has his book about ending the Fed, and we've just talked about the Fed a little bit earlier tonight. But I guess my question would be like, if the Fed is abolished, and what can we then say would be maybe something more in line with capitalism or just the free market model to have currency? What would then happen? Would we be relying on individual banks to find some new way to back the currency, either gold or maybe a basket of currencies? Or do we have anything in history, or is there anything we can look at from just economics in the whole sort of predict what might we do to replace the Fed?
[00:15:31] Speaker B: Yeah. Well, the first thing to look at historically, which has a very long, incredible track record, is the gold standard. So just for historical context, people should realize that the Federal Reserve itself is only a little more than 100 years old, and the country is 250 years old. So the Fed was started in 1913, meaning prior to that. For 125 years prior to that.
I'm talking when the US began in 1790. From 1790 to World War one, the US went from an agricultural colony, Britain, to an industrial financial powerhouse.
By World War one, and to the point of by World War one, the British Empire was in decline and the US was preeminent. So that is quite amazing. You go from 1790, where you're just a colony of Britain and you're fighting them, and you barely win the war against them. And then by World War two, by World War 119 14, you're that preeminent. Without a central bank. That's incomprehensible to economists today. What was the system? I mean, there were elements of government intervention here and there, but for the most part, that 125 years would be a system I call free banking. On the gold standard. Free banking simply means not central banking, but private banks issuing their own currency and checks convertible into gold. Now, the convertible into gold part is simply reflecting the historical convergence of humanity on gold and other precious metals like silver. They converged on it voluntarily and rationally and self interestedly as a proper monetary medium. There's various reasons for this I won't go into right now. But just the history of the gold standard itself tells us that a perfectly legitimate and perfectly reliable and stable banking and monetary system based on objective values in gold are not only historically the case, but historically have supported tremendous economic growth. So it's a liberty oriented monetary system and it reflects actually in the US constitution, the section on weights and measures includes the gold standard in there. It's not the government mandating gold. It's the idea that if you hold out gold as money, you can't defraud people and give them something other than that. But that's true of all weights and measures. It's an anti fraud provision. The government doesn't want to be on the gold standard because although it was briefly, the Fed was briefly on the gold standard when it began in 1913, until 1933, because it handcuffs the government. It prevents the government from printing money without limit. That is the whole point of the gold standard, that it isn't based on any arbitrary moves or actions on the part of even private bankers. They have to elicit confidence from depositors, they have to treat depositors and borrowers fairly. And part of that includes making their deposits and currency convertible into gold. Now, everything I just said, Lawrence, will sound very old fashioned to young years, because we haven't been on the gold standard even among countries since 1971. So we're going on what now? 53 years of no gold standard? But notice people still own gold, they still mine gold, they still take it out of the ground, they still insure it, and it still outperforms government money. I mean, the gold price today, I think is what, $2,200? It was $35 when they went off the gold standard in 1971. So how would it, why would it go from $35 an ounce to $2,200 an ounce if you invert that price?
It's another way of saying, well, the dollar itself used to be worth 130 5th an ounce of gold, and now the dollar is worth 122 hundredths an ounce of gold. The dollar itself has massively lost value. It's lost about 98% of its value in terms of this real thing called gold. So that's one thing to keep in separation, that gold itself remains a viable, not only commodity, but you could call it a monetary commodity, but the government demonetized it. It does not want it's illegal to use gold as money, and the legal tender laws mandate that you use in convertible fiat paper money as money. The Austrian you mentioned, the Austrians. The Austrians are pretty good about this. And except for the part about they think fractional reserve banking is inherently fraudulent. So they get that from Rothbard. And even Rietzman, unfortunately, has that view. That's a false view. But on other things, meaning denationalize money, get government out of the money business. They're very good and they're very smart, but you have to realize the broader context. The reason the government got involved in money and then debases money, money. And now with modern monetary theory, claims it can issue money without limit, is because it wants to finance the welfare state. That's it. It's not like it's saying, well, the private market has failed to provide good and sound money and banking, so let us step in and do a better job. No, they co opted the monetary system precisely so they could finance burgeoning government. And it's not just the welfare state, it's also the warfare state. So there's only three ways to finance government. Taxes, borrowing and printing money. And if they had to tax people to the full extent of how big government is today, there'd be tax revolts, there'd be guillotines and cutting the heads off of people. There wouldn't just be insurrections, there'd be blood in the streets in Washington. And so they don't go there. But they don't restrain the government spending either. They spend and then they borrow. Then if they borrow too much, they turn to printing. So if you're off the gold standard, you can print without limit. If you abolish the Fed notice it's a symptom of a broader system.
So unless you change the underlying role and scope and power of government, just abolishing the Fed will not stop them from finding some other means of stealing wealth from the private sector. I believe, actually, this is one of the reasons modern monetary theory, which I've addressed in separate webinars, is becoming more predominant, because they know that there's this animus towards central banking, and they're trying to in some way justify it by saying, well, we won't borrow and tax you anymore, but we'll print money and we'll blame it on. We won't blame it on the money printers. We'll blame it on the ones who have to raise prices. In today's world, with bitcoin, with crypto, with alternatives to gold, it's perfectly possible that if you just free up the monetary and banking system, you'll get alternatives to the gold standard. So I don't want to be seen as someone who's pushing a particular monetary standard, but I'm unadashed about extolling it because its history is so great, and because even though in the last 50 years, the governments officially have been off the gold standard, I can still see, and anyone can still admit that gold remains a crucial, crucial, important asset for people, whether as an inflation hedging or.
Or other things. The last thing I'll say, it's too long an answer. I'm sorry about that. But the other thing is worth mentioning is that in my book, breaking the banks, I actually have a way of dismantling the Fed. And I'm not sure any austrian economists have done this before, actually spelled out the step by step method by which we can safely and quickly unravel central banking and go back to the system I'm talking about. About. It seems like it would be like a technical impossibility, but it's actually not that difficult. It amounts to privatizing the Fed. It amounts to redistributing all its assets. And its assets are much more enormous than they were when I wrote that book. But returning all those assets, bonds. Bonds and bills and other things. And gold, because it's in Fort Knox and elsewhere, back to the private banking system, and then changing the currency back to private and then dissolving the Fed so it's not involved with manipulating interest rates every week and testifying every week, and basically financing profligate government on an ongoing basis.
Too long an answer, but is that close to what you were looking for?
[00:23:39] Speaker C: No, I think that helps. So thank you for that. I did want to just ask one quick follow up, because you mentioned fractional reserve banking. I wanted to see how the. Why do you agree with it and why you differ from the Austrians on that point? Because I know that. I think Rand had in a letter, I think it was hunger and freedom. She said something like, money can't function as money unless it's backed by actual unconsumed goods. But fractional reserve seems to run counter to that.
[00:24:11] Speaker B: Yes, well, the phrase backing is the operative phraseology, and that's where it's gets. It can get loose.
But the gold. Here's the basic idea, again, somewhat technical for this audience. Maybe gold is money. People converged on it for objective reasons. There's nothing mystical about it, as the Keynesians say. Keynes called it a barbarous relic, meaning something we would get over once we were more modernized. No, it's the other way around. The paper money is barbaric, so gold is money. Now, banks take in your deposit, right? And then the question is, they're going to lend it out.
If they are just a warehouse, the Austrians will know this language. If it's just a warehouse, namely, here's my gold, take care of it and return it to me when I want. That's a safe deposit box. That's. You go into a bank and go into the basement and you rent a safe deposit box. They give you a key. And why do you rent it? Because they have to store it and they have to insure it and all that kind of thing. And that's it. That's not banking, though. That's just warehouse, what's called warehousing.
It's like a storage facility, but you have to pay them. Now, if they said to you, would you like to forego all these fees?
And you said, yeah, well, that'd be great. Well, we'd have to lend your money, we'd have to lend your gold out.
Oh, and then I will get interest from the borrower of gold and turn over some of the interest to you. So not only will you not have to pay us for the gold you just gave us, it's still your gold when you come back and demand it. Our promise is to make it. That's what convertibility is. But as a result of lending it, the gold is not going to be in the bank, some of it's going to be out. And that's the fraction. That's the fraction part. That's the part where the bank banking amounts to saying, we're going to take some fraction of the deposit you just gave us. But with your permission, you don't have to do this. So the Austrians mistake is they assume banks force this on private banks. They accused Rothbard used to call them banksters to rhyme with gangsters.
So, due to Rothbard and others, there's this animus toward banking that's in the austrian thing, mostly due to Rothbard. I don't blame all Austrians for this, because Austrians like Larry White and George Sussex, belgian, and others who I'm in the camp of are advocates of free banking and the gold standard. And by the way, I think mises himself was okay with fractional reserve banking. He did not see it as inherently fraudulent as Rothbard did. But anyway, that's the essence of banking. And then it becomes the science of making sure you're liquid enough that you can answer a call for redemption by depositors. But the depositors do know that this is not a warehouse, that if I don't trust banks and I just want to put my gold or jewels or diamonds or whatever in a vault and then pay them, I can do that. But if I want to forego that and on top of that, earn interest, I'm going to take the risk that the bank will loan this money out, this gold out, and it might not get some of it back. And there's still a contract there. The bank does still say, we will provide the gold for you when you come to the deposit window. That's what a demand deposit is. You come in and you say, okay, I want all my gold back.
But not everybody does that. So the bank is counting on. Not everyone will show up on the same day demanding all their gold. Why? Because they trust the bank. They trust the bank to be making good loans and not being. Not going insolvent.
So I don't consider that's what fractional reserve banking is. That whatever the amount of your deposit is, say it's 100 that the bank has lent out, say, 75% of your gold. So they only have 25% of your gold, quote, unquote, backing your 100. But you know that, and you know that the 75 being lent out is the source of you getting interest income.
I hope that makes sense.
[00:28:07] Speaker C: Yeah. Thank you.
[00:28:08] Speaker B: All right, great.
[00:28:11] Speaker A: And if anyone wants to ask a question themselves, you're welcome to. I still have a ton. Let me just throw this one out at you. Richard. Where would you say you depart from Rand the most when it comes to capitalism?
[00:28:30] Speaker B: That's a good question. The.
By the way, some part of this answer, for those who want to read more, appears in something I just published through the Atlas Society called Pocket Guide to capitalism.
So I think there's at least two. There's two or three things in answer to your question, there's two or three things that I do depart on, and at least two of them are mentioned in the pocket guide briefly. So, off the top of my head, I would name three things. But to be positive, for the first part of it, to just be positive, I have not seen in my lifetime, and I'm 65 now, I have never seen the case for capitalism better made than by Ayn Rand. And I would add, and her associates. So others wrote also in capitalism, the unknown ideal. And others have written, including me, since then. But the moral, political, economic, and I would even add, the psychology of capitalism, the spirit of it, so to speak, conveyed by Ayn Rand and the objectivists is a superlative case for capitalism. There's nothing better, even in the Chicago economists, even in the austrian economists. We could talk more about the differences there, but it's just spectacular. It's just a comprehensive, very integrated and not just theorized. It's also got history and anchored in facts.
But over the years, the more I read it and the closer I've read it, if I were to name three things that most come up in my mind where I differ, the first one would be the reference to laissez faire. Now, she wasn't the first one to use. It's a french phrase. It means let do or let be, sometimes vernacular hands off.
The phrase laissez faire is problematic, I think, but it predates her, obviously. I forget who first used it, but here's the idea. The idea of laissez faire is, and sometimes Ayn Rand and sometimes Leonard Peekoff and others will say, what do we mean is the complete separation of state and economics? And then they'll often add, just like there should be a complete separation of state and church. Now that's, to american ears, that's a wonderful statement. Because we want. We want the separation of church and state because churches and religion is irrational. That's just one reason. But it's a good reason. But see, that doesn't follow with economics. First of all, she shouldn't say economics. The idea of a separation of the state and economics, that's an unfortunate use of a phrase, because economics is the study. It's the science of studying the economy. What she really meant was separation of the state and the economy.
And unfortunately, people have taken her phrase separation of state and economics, and they just keep repeating the word economics. It's embarrassing to even use that word. It's not using. It's like saying, I want a separation of the state. And biology. It's like, what does it even mean? It's crazy. But here's the deeper problem. The state cannot be hands off from the economy.
It just can't. It doesn't mean it should. Its hands should be, you know, in the pockets of the economy, so to speak, or that the hands should be, you know, like a pedophile. It shouldn't be contaminating and ruining the economy. But the very fact that. The very fact that a legitimate state, not talking about an illage, that a legitimate state with a rule of law and contracts and, you know, police, courts and military, which are, you know, standard functions of a government that protects individual rights, it's going to interact with the economy. You know, for good. But it's not like it's completely hands off. There are definitely hands on, so to speak, the hands on the economy. And. But, so that distinction has to be made. Now, whether that's a fundamental, it's not really a fundamental, fundamental disagreement, but I have found in polemics, in arguing with others, that it's very easy to dismiss our view as platonic.
And I think there's some reason to see it that way, as unrealistic, that you're never going to have this laissez faire. That's ridiculous. And it makes us sound like anarchists.
It makes us sound like we have a government that freely floats above it all and doesn't touch anything in the economy. That's just not. It's just not true. So now, closely related to this, the second disagreement I would have is in her essay in, I think it's in the virtue of selfishness on financing in a free society. So there she promotes the idea of voluntary taxation. Now, I disagree with that. That's a contradiction in terms. Taxation is the way government gets revenues. That's the word. That's what the word is, that the concepts are important. So taxation is not what Microsoft gets when it gets revenues from selling you stuff. Taxation is the revenues retrieved by government, from citizens to pay for legitimate government services. And now, since Ayn Rand was right to say, we're not anarchists, we are minorchists in the sense that we believe in limited government, but it should be limited to protecting individual rights. And we're not platonic here, so we need actual functions called police, courts, and state. They have to be financed. They cost money. They shouldn't cost a lot of money like today, but they cost money, and you have to raise funds. So I've written that taxation is legitimate if government is legitimate, if the functions of government are legitimate. And I actually have the view that no one should go without paying taxes, that they're freeloaders, that they're moochers if they try to get government services without paying, that this doesn't mean that poor people pay as much as billionaires, but there shouldn't be a punitive tax system either. So much more can be said about that. But the whole concept of voluntary taxation, which is in her essays, is illegitimate. So I have begun to write more and more on taxation. In my view, how they differ. But that would be a second one. The third and last one is more philosophical in capitalism. In her essay, what is capitalism? Which is the opening essay of capitalism, the unknown ideal, she is very credibly trying to answer the question of how can weird stuff in a capitalist system obtain, have consumer purchasing? Like, suppose a consumer purchases abide.
That's not the example she uses, but I think she says something like, what if people value Elvis Presley over Beethoven or cosmetics over something more important? So she comes up with this dichotomy called philosophically objective value and socially objective value. And that alone should to an objective sound like, why is she introducing a dichotomy? Well, the reason she is is she's trying to say that it's socially objective, whatever the market price of something is. So even if it's a product she might disagree with as rational, like buying a Bible, she still has to have some value theory that explains why the value, why the Bible actually has some price. Well, it has to be that some consumer values it, and it has to be that some producer of the Bibles produces them. And so she. So this is a problem in that essay, I think, and a whole much more work has to be done on me conveying this. I haven't conveyed, made it publicly much I'm going to do, I think, a whole webinar on this. But philosophically objective value she introduces. The example she gives is, she'll say a plane is philosophically more valuable than a bicycle.
Now, why would that be? It makes no sense to me. It's. It's definitely more advanced.
A Boeing seven, whatever they are, seven are much more advanced than a bicycle. But in objectivist theory, the argument would be, you don't use a bicycle to fly from Boston to California. You use a plane, and you don't use a plane to take a stroll for a picnic in a park. You use a bicycle. So this idea of this is philosophically superior in value.
And I think the conclusion of it was something like, under capitalism, over time, the value of things, though they may seem irrational, they have socially objective value, but over time, they converge on the philosophically objective value. It's just, I don't. It's goofy. It's goofy and wrong and unnecessary and confusing and doesn't help the essay at all.
I don't think that's the reason we don't, this is not the reason we don't have capitalism today. So don't get me wrong, this is not like a fatal flaw in the objectivist case for capitalism, but it's Ayn Rand, you know, quite understandably, in a kind of.
I don't even know how to describe it, because I don't want to insult her.
She's like, she's in a field, it's called. It's value theory. In economics, an economist has spent years trying to figure this kind of stuff up. If you know the diamond water paradox going all the way back to Adam Smith, why are diamonds really valuable when they're not so important to life? But water, water is absolutely important to life. And it's, you know, it's got this low price, and this is the kind of thing, so Ayn Rand's like grappling with this kind of stuff, but it's like, it's great that's been figured out long ago. So part of it was she would sometimes opine in fields that she wasn't familiar with. And so, anyway, those are just, I don't want to belabor the point, but those are three cases where a true blue objectivist capitalist shouldn't be ashamed to say, you know, there's some weird stuff in either EinZ case for capitalism, but the overall case is so excellent that these are like minor flaws, but they're worth mentioning because we shouldn't all in lockstep just follow what Ayn Rand said on faith. She wouldn't like that. I don't like that. Nobody should like that. I think if she heard what I just said and then talk to me for 8 hours, which is probably what would happen, she would probably, I think, come to agree with me, at least, that what she said was weak, but I don't want to speak for her.
[00:38:56] Speaker A: Yeah, no, that's fascinating, especially that third one. I hope you do develop that more.
We have Jamil.
Welcome.
[00:39:11] Speaker D: Yeah. Can you guys hear me okay?
[00:39:13] Speaker B: Yeah, I can.
[00:39:14] Speaker D: Okay, great, great. Well, first, thanks for letting me speak here, really. I just hopped on. Everything seems to be going good. Nothing crazy said. All capitalist thoughts here. I do want, I do want Richard to just maybe, I know he said he didn't want to, but maybe elaborate a little bit more on exactly how we fund military and political lease, if not by voluntary tax.
I mean, are we going to slide into forcing them to pay it, or. I mean, I just want to see a little bit of your ideas on exactly how do we do that. Is it going to be philanthropy? How do we get money into the government to protect our human rights without the voluntary tax?
[00:39:54] Speaker B: Yeah, good question.
The way I would put it is that, first of all, the financing need is substantial. You would know this, too. This is substantially smaller than what we have now. So the first thing I find, the first thing, I mean, I find people troubled with is they take the current level of spending, which is whatever sell 7 trillion a year and not enough taxes, you know, so they're running up the debt to 35 trillion. The capitalist government spending for those three legitimate functions would be, I'm guessing, like a 10th, even maybe less than a 10th of what we currently spend. So a 10th of 7 trillion is 700 billion. That still sounds like a lot of money. But if you only had to raise money for 700 billion versus 7 trillion, that alone is an easier ask.
[00:40:41] Speaker D: Yeah, right.
[00:40:43] Speaker B: But you're absolutely right to detect that. What I'm saying is they don't ask, it is required. Now this is the more controversial position within objectivism because the argument is, isn't that initiating force? And yes, it's absolutely no. First of all, it's not initiating force. But yes, that is the question to ask whether taxation is the initiation of force. Now, my logic goes something like. My logic goes that if this is a legitimate government service, and it is if government itself is legitimate. See, there's a lot of argument behind this. So let me just do what a lawyer would do. They just stipulate, right? Meaning I set this aside, but it has to be defended separately. So here are the stipulations. If government itself is legitimate, check. But that takes a bunch of argument. And then, second, if the only legitimate government is the one that protects individual rights, check. That has to be argued like, what the hell is that? Third, some people dispute whether the three functions, not the purpose. The purpose is individual rights. Whether the three functions are the only three, or should there be two? Namely police, courts and state stipulate and military. Stipulate that that's true. See how many stipulations we have here. And then, and then the last one I mentioned stipulate this is easier. They do have to be funded. And now why not voluntary? Because it's an actual legitimate service that everyone's getting.
And those who can pay and refuse to pay I classify as theft of services. I actually consider that theft. And if you look in the, if you look in civil law, actually there is such a thing called theft of services.
It isn't like embezzling or shoplifting. Theft of services is you get a service. And in this case, we're talking about a government service, police, courts and military. And they're legitimate services. See, that's the key that you should not get away with not paying for legitimate services. Now, I think in a context where the government's only like spending 700 billion and on legitimate services, people would willingly pay, but I don't mean that they, this means they should voluntarily pay they would pay, and they would pay gladly. I'm talking about the 10% or 25% who would say, effort. I'm not going to pay for this, even though I consider it a legitimate government service. I think that's just wrong. I think it's improper. I think objectivism should move the argument toward those people are, in effect, indirectly, as in fraud, initiating force against the payers. Why should the actual payers have to pay, and they'd have to pay more. Why should they have to pay more for legitimate government services? Because other citizens are refusing to pay for this legitimate government service. So as to the actual mechanisms, suppose it was an income tax, which I'm reluctant to do. My view is it should be property taxes. But the key here now is, once you go there, a fixed rate for everyone. In other words, everyone's treated the same, whether. Whether it's 5%, 10%, whatever's necessary to get to the 700 billion or whatever the dollar amount is.
There should be no graduated income taxes, no punitive aspect to it, no envious. As you know, in the graduated income tax system, they punitively tax people more the richer they are, at higher rates and stuff like that. So I'd be against all that. Now, whether it's income based, which is the income part of the income tax, is very intrusive in the sense of it. It has to ask you how you made your money, and it makes you report on private things. I think more legitimately, as I've thought about this, the way they should do it is, and it relates to the government's function, since government's proper function is to protect individual rights, including property rights, I believe. I believe what government should tax is your property. I think every year. I think every year you should just report what you own, period.
You know what I mean? So if I only own the clothes on my back, and, you know, for like, $3,000, I pay. I pay 10% of that. Why? Why? Because the government is protecting my clothes or something, right? From now, if, bill, if, if, if Elon Musk reports I own $3 billion worth of stuff because there's plant and equipment and SpaceX, right? And those. And in other words, he's getting more value from the same government protection, so he should pay more. But notice I'm not basing it on. Elon has the ability to pay. There's a principle in taxation called the ability to pay principal, where they'll tax someone who's worth more because they can afford it. See, that's not what I'm saying that's improper, that. That it's more proper to say you're actually using the Cert is this is the service based argument. You're actually using legitimate services. So pay for the services.
Does any of that make sense?
[00:45:39] Speaker D: Yeah, yeah, I get it. So, yeah, you're feeling that the people who are just kind of living off of everyone are, in fact, forcing the others to pay.
[00:45:49] Speaker B: Yes.
[00:45:49] Speaker D: By default.
[00:45:51] Speaker B: Yeah.
[00:45:51] Speaker D: Okay. I can get that perspective. I don't necessarily agree with it, but.
[00:45:54] Speaker B: I. Yeah, I know that perspective. Just so you. Just so you know, I have the essay in Rand, and there's another essay by Biddle, who just mirrors Rand. Some of one of their arguments is it's not violating anybody's rights. And so. And let the volunteer voluntary taxation argument is, suppose that 700 billion could be paid by five wealthy people. Suppose Warren Buffett and Elon and Gates, you know, just take the Tom Bezos.
The argument there would literally be. That's okay. So they think it's okay if just, like, five guys step up voluntarily and pay for government. See, I think that's a real problem. I think that's a problem.
But they would see that as legitimate. Yeah, go ahead.
[00:46:43] Speaker D: Well, very true. And it shouldn't be all in one person. But I think that that comes into something outside of capitalism where we're getting into ethics and what's right and wrong. Even though, you know, I think from the capitalist perspective or objectivist perspective, you all don't pay. You all suffer equally for having a weak government. So this billionaire, this billionaire doesn't want to pay. I mean, his customers are going to actually suffer. It was like privatizing highways and trying to keep highway to yourself. Well, guess what? You're not going to make any money off of the highway you privatize.
[00:47:20] Speaker B: Right.
[00:47:21] Speaker D: Right. Ultimately, the self interest, I feel will make the voluntary tax work somehow.
[00:47:29] Speaker B: I see. Okay. Well, the other reason I think this is worth debating, because it might not seem that it is worth debating, because even Ayn Rand said in that essay, she said she deemphasized the thing by saying, well, this isn't the first reform I would recommend.
And there's a certain truth to this, because she's basically saying what I did, namely, unless you first shrink government down to its proper functions, you can't even begin to, like, voluntarily fund the gargantuan state we have today. Right. But the reason I think it shouldn't be de emphasized like this is back to the argument I made about the polemics of this. When we're polemics meaning we're arguing for capitalism. We're debating with other people. Right. And I think this hurts us. I think there's a philosophic argument for mandating taxation that's legitimate, don't get me wrong. But separately, I think the argument for voluntary taxation, which I consider contradictory, a basic contradiction in terms of oxymoron, hurts our argument. It makes us look goofy, and it is goofy. It makes us look like we're embracing a contradiction. So I don't want it for two reasons. One, it's not philosophically valid.
You know, fundamentally, the way I argue, but I think polemically in terms of going out into the public and making our case, it hurts us and makes us look like we're impractical.
I don't think they would put it as contradictory because they don't want to go with the philosophic route. But it makes our case. Like I said about laissez faire, when you come in and say, government will never touch the economy, and by the way, there should be voluntary taxation, it makes us look stupid and it hurts our argument. And it's easily dismissed by saying, you guys are in la la land. There's no such thing as voluntary taxation, but not for the reasons I'm mentioning. So I think. So that's like a secondary issue. It's not the primary issue for me, but it's not unimportant. And we're losing the debate. So at some point, we have to also consider why we're losing the debate. So the fundamentals of the argument are important to know.
I'm always interested in the secondary aspect of. Well, how do you convey this to people exactly, and have them take you seriously? You know, here's another way I've noticed this, Emil, that when an objectivist says there should be voluntary taxation, the very often the response will be, what are you, an anarchist? So in other words, it makes us sound more like libertarian anarchist.
[00:50:03] Speaker D: Exactly.
[00:50:03] Speaker B: And that alone is quite interesting because it's almost like they're saying. It's almost like they're saying. They're grouping us with anarchists, which we don't want to be grouped with.
[00:50:13] Speaker D: Exactly.
[00:50:14] Speaker B: So I interpret the objectivist's position on finance, which is largely driven by her, is she's right about the legitimacy of government, but she's wrong about the nature of financing that government, and that creates a. That creates a contradiction that makes us look like we're not for government at all.
[00:50:33] Speaker D: Yeah, I can see. Yeah, yeah, I can see how it brands us the wrong way. I do think what needs to be emphasized is what you said about when we. If we were to do the voluntary tax, when it should be installed, it should definitely be installed after government expenses get reduced.
If it were to even be tried to. Where we take it down to, like, billion, as opposed to. But suppose that would be the time to do it.
[00:51:01] Speaker B: But suppose. I mean, suppose that we're, like, not on the horizon. Another way of doing this without. Without seeming like we're platonic or putting it off into, you know, distant land is the very principal, the very principles. I named, for example, the flat tax that everyone should pay the same tax rate. You could start instituting that now, even though there's gargantuan spending. So the idea is you can't wait around to shrink the thing down to 10% of what it should be. Even if you only shrink it down to, like, 95% of what it should be, you can still make these arguments and tell them what your destination is. So, you know that the Marxists and socialists were very good at this. Even the environmentalists are very good at this. They'll name what their destination is. They'll say, we want workers of the world tonight to unite, throw off their chains, nationalize the means of production. Right? But in the manifesto, in the manifesto itself, it has, like, ten steps of reform of how to get there. So we should do the same thing. We should say what our goal is, right? But we shouldn't just say, well, that's our goal. You know, we'll tell you when we get there. We should. We should also be doing the kind of reform that, you know, that gets us in the direction of the destination, if that makes sense.
[00:52:13] Speaker D: Right? Yeah, yeah, that makes perfect sense.
[00:52:17] Speaker B: Great question. Thank you for the questions. A good one.
[00:52:20] Speaker A: Great.
You know, modern monetary theory you brought up earlier, you talked about how the Fed, you know, really has wrong beliefs. How much is that what's causing inflation?
[00:52:36] Speaker B: Yes. I mean, the fundamental cause of inflation is government living beyond its means, meaning spending more than it takes in, in taxes. And the only other way it can pay for this is borrowing or printing money. So who prints the money? They have given the Federal reserve the power, the monopoly power of printing money. And by the way, when you hear the word monopoly, I have to tell you that if you go into any econ 101 on campus, monopoly is a dirty word.
You know, trust bust apple, trust bust, standard oil, trust bust, Microsoft, because they're, quote, unquote, a monopoly. First of all, none of those are monopolies. Mono means one. It means the singular provider of something that has never been true of any of the trust busting cases. There's never been a mono out there. However, the Federal Reserve is a mono. Federal reserve is definitely a mono. It's a monopolist issuer of the dollar, and economists have no problem with it whatever. Now, how do you explain that contradiction? They hate every monopoly except the money monopoly.
It's amazing because it's not just like some small monopoly on sugar or oil, it's on the money, which is half of every transaction. So I'm going off the rails here, Scott. Sorry. So, inflation, inflation, inflation is a decline in the value of money caused by issuing too much of it. And too much of it is issued by the Fed because it's trying to finance a deficit spending government. So people have to get this in their mind. But even economists don't get this in their mind. The federal reserve is not there because the free market failed to provide good money and good banking. It's there because the welfare warfare state exists, and it needs a banker. It needs a corruption, unrestrained, lawless, ruleless issuer of money. And it is very interesting that when the Federal Reserve began, it was on the gold standard. Why? Because no one would have trusted that enterprise unless it leveraged off of the prior gold standard, which the free market capitalism gave us. And then they went off the gold standard. And then they went back on, and then they diluted the gold standard. Then they finally went off the gold standard in 71. And after 71, they did have various rules, like Milton Friedman said, increase the money supply 5% a year, and somebody else said, target interest rates and blah, blah, blah. So for about 25, 30 years, they were offering rules of conduct, if you will, for the central bank because there was no gold standard. Guess what? Since zero eight, there are no rules.
Since the financial crisis of zero eight, you cannot ask an economist today, what rule is the Fed operating by when it conducts monetary policy? They'll throw up their hands and they'll say, there aren't any. There's no gold standard. There's no Milton Friedman money supply rule. There's no this or that. There's literally a lawless agency. A complete counterfeiting, corrupt, maniacal enterprise is too word for it. It's a racket. And the fact that Bloomberg and Wall street and other journalists show up to these Fed press conferences and ask them polite questions about what they're doing is so laughable because it's a criminal operation. They are literally counterfeiting money for profligate politicians who are creating this gargantuan warfare, welfare state, and don't dare tax the citizens because they know there'd be a revolt. That is how revolting the government is at this stage. It's so revolting in terms of the stuff it's doing and the money it's spending. It doesn't dare want to induce a revolt in you as taxpayer. So it just bypasses the whole thing. It says, let's just print money.
And the beauty of this is the effects of it will be higher inflate, it'll be inflation, a higher cost of living, which nobody attributes to the fed because they can't trace the operation of it. They just look at local food prices and gas prices and they blame the grocer and they blame, they blame the gas station attendant. And it's brilliant because the politicians can get away with this and deflect the attention to the victims, really, not the perpetrator.
[00:56:59] Speaker A: Yeah, well, Biden's fed into that with shrinkflation.
[00:57:03] Speaker B: Yes, he, yes, he'll blame, yes. Yes. The idea that companies are trying to lower costs, you know, by, by cheaper packaging or something, whatever it is. And they'll blame, yes, they'll blame it on the packages or they'll say, you know, the size of the cookies are 90% of what they used to be. Well, yeah, we could keep the cookie the same size and charge you 10% more because the money's worth less. People have to realize that the reason the dollar price of something goes up is that the dollar is worth less. That should be obvious to people. So you have to put up more dollars to get the same thing. That is not due to the cookie maker, it's due to the dollar maker.
[00:57:46] Speaker A: Yeah.
That's a pretty good Milton FRiedman impression you do, by the way.
Well, I want to thank everyone for joining us who participated or just listened. Richard, thanks so much. If you've enjoyed this space or any of the other materials we do at the Atlas Society, please consider making a tax deductible
[email protected]. Thanks again to everyone. Richard, you were great.
[00:58:14] Speaker B: Thanks all. Thanks, Scott.
[00:58:16] Speaker A: Thanks.
[00:58:16] Speaker B: Take care.
