by: Paco Ahlgren
October 27, 2009
“Action is purposive conduct. It is not simply behavior, but behavior begot by judgments of value, aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means. . . . It is conscious behavior. It is choosing. It is volition; it is a display of the will.”
-- Ludwig von Mises
Reach in your wallet, and pull out a dollar bill. Look at it for a moment. Now ask yourself, “What is this worth?”
This isn’t a trick question. Don’t think about anything but that dollar in your hands. Don’t think about a soft drink. Don’t think about a bag of chips, or a handful of screws at the hardware store. Think about that dollar in your hands without thinking about what it can buy. Can you do that? It’s pretty difficult, isn’t it? That’s because a dollar, qua a dollar, isn’t worth anything more than the paper and ink on which it’s printed. And even the value of the paper and ink must be expressed in terms of some medium of exchange.
Thus, we dive deep into the dark epistemological implications of the human perception of value.
Think about it. Do you really believe a dollar is valuable on its own? In other words, do you believe that a dollar is valuable, just as it is – simply because the government says so? Or do you believe a dollar is valuable because of the goods and services for which it can be exchanged?
You would be amazed at the vast number of people in the world who have never considered this question. As tautological as it may seem, most people believe currencies are valuable simply because they are valuable. That is to say, most people believe – explicitly or otherwise – that currencies are intrinsically valuable, for no other reason than governments decreeing them as such. And pardon me for saying so, but that’s just absurd.
And yet, this is precisely what Ben Bernanke and Barack Obama want you to believe about the currency in your wallet. In fact, their jobs depend on it, because if the majority of people stopped believing the dollar was valuable “just because,” we’d have some really big problems. I mean really big problems.
Allow me to expound: The United States Government – under Ben Bernanke, George W. Bush, and Barack Obama -- has committed to spending $13 trillion of your money to battle this, the worst economic crisis in 80 years. I know I’ve said it all before, but it certainly bears repeating: the $13 trillion to which I’m referring has been allocated to this crisis, alone. It’s not going to be used for historical obligations, nor will it be used for future budgets. It’s for this crisis.
Period. That, my friends, is how the government has planned to solve this recession: by spending more money, in a shorter period, than ever in history.
According to the U.S. Census Bureau, about 308 million people are currently United States citizens. This means the United States would have to obtain just over $42,000 for every single man, woman, and child in the country (and abroad) just to cover the $13 trillion to which it has so recently committed. And I’m not talking merely about productive, working Americans; I’m talking about $42,000 from every single human being – comatose, bed-ridden, crawling, suckling, or paralyzed. Everyone.
Of course, you may be one of the multitudes of people who believe the crisis is over, and that we are currently experiencing an economic recovery – and that everything is magically going to fix itself. You may also believe in unicorns and leprechauns. If you are one of those people, please allow me to disabuse you of any notion that this crisis is anywhere near over.
Or, if you prefer, I’ll just get to the point: this entire, elaborate fiasco called quantitative easing that governments all over the world have foisted on the entire global human population is an illusion and a joke. It is based on nothing more than the common misperception that currencies have intrinsic value. And I hope you’re beginning to understand where I’m headed with this article: currencies do not have intrinsic value.
There are two theories of value:
1. The Bad Theory. This is The Labor Theory of Value – which is most closely associated with Marxism and socialism. The Labor Theory maintains that anything involving labor has an intrinsic value. And, in fact, most egalitarians believe that everything has intrinsic value. So, maybe you sit in your back yard all day slapping a mule with a garden hose. According to the proponents of the Labor Theory, not only do the mule and the hose have value, but so does your labor. Intrinsically. No matter what.
2. The Good Theory. This is The Subjective Theory of Value – most closely associated with The Austrian School of Economics. The Subjective Theory maintains that value can only exist because two or more interested parties involved in an exchange willingly participate. Thus, at that moment (and only at that moment) does true value exist. All other perspectives of the exchange are interpretative, and can only be used as general guides. So, to continue with our example: you can slap your mule as much as you want, but unless someone wants to pay you for your hard work, it’s not worth anything.
Nothing in this universe has intrinsic value; every single thing you possess, want to possess, use, can use, have used, can offer, have offered, or will offer is valuable only if someone else finds it valuable. I want you to try to imagine a universe in which no sentient creatures exist. How much would a “car” be worth? While you’re chewing on that, I’ll let you know that this is the general foundation of subjective value, and it is also the foundation of the most significant economic movement in history.
Welcome to Austria. I am an Austrian. I will be your guide.
I know what you’re thinking: Wow! For an Austrian, this guy speaks English really well! And his accent… my God! You can’t even detect it!
You’re reading this, by the way -- not listening to it. So you wouldn’t be able to detect an accent anyway. But just so you know, I do not have an Austrian accent. I’ve never even been to Austria. I wouldn’t know Vienna from Vietnam. I am, in actuality an American, but I am also a member of The Austrian School of Economics.
There are many varying schools-of-thought in the practical and academic economic communities around the world. For instance, there’s the Chicago School – perhaps made most famous by Milton Friedman. There are also the French Liberal School, the German Historical School, and the English Historical School. There are also other schools of economic thought -- like Keynesianism, socialism and communism. But those schools suck, so I guess they don’t get to put cities or countries in their titles (that’s just my theory -- I can’t say for sure).
But then there’s the Austrian School -- perhaps made most famous by Nobel Laureate, F.A. Hayek, as well as one of my heroes: Ludwig von Mises (they both had Austrian accents, by the way). The Austrian School is free-market. Really, really free-market.
I know. This is confusing. Just because one is a member of The Austrian School of Economics does not make one an Austrian. But, then again, it does. See? So, for the sake my own sanity, I’m just going to make this proclamation: from now on, when I use the word Austrian, I’m talking about The Austrian School of Economics. Okay? Can we just agree on that?
In an interview not long ago, Peter Schiff (Austrian. No accent.) was asked about Austrian Economics. His reply was as elegant as it was short: “…saying ‘Austrian economics’ makes as much sense as saying ‘Chinese physics.’ Austrian economics is economics, period!” And that’s the point of this article: some things are simply self-evident; there is no contemporary and obvious way to refute them. For instance, how does one go about replacing the theory of Natural Selection with something better? Wouldn’t replacement itself be Darwinian – at least in the Dawkins sense?
Sometimes epistemology just won’t give you a break.
The following statement is true.
The previous statement is false.
You’re starting to get it, aren’t you?
Austrian Economics is economics; it is the most elegant and simple explanation of how resources can and should be used. Unlike other schools, it eschews dogmatism and absolutes, adopting instead tendencies, and trends.
Austrians don’t actually get to the places we’re trying to reach – we merely approach them, places like equilibrium, and parity, and inflation aren’t fixed points in the universe, but rather, they are tendencies which we can only approach, and the closer we get, the more we affect the actual objective we are trying to achieve or observe – thereby changing not only the conditions, but also the outcome.
It sort of reminds you of another discipline, doesn’t it? One equally near and dear to my heart: subatomic physics. The similarities are so fascinating, in fact, they inspired me to write a book.
Unfortunately, the number of human beings within the District of Columbia and its surrounding areas (or anywhere else, for that matter) who have actually heard of The Austrian School is inversely proportionate to the number of times Michael Jackson’s image has appeared in the world since the day he died. Yes, it’s an asymptotic relationship, but it says a lot about our societal priorities.
By the way, Oprah cried when Michael Jackson died. I bet she didn’t cry when Murray Rothbard died. That’s just a little digression. Sorry.
Anyway, of the people who have heard of the Austrian School, still fewer truly understand its tenets. And that’s where I come in: now that the government has committed to spending $13 trillion – and probably a lot more than that – do you know what its biggest problem is? Again, this isn’t a trick question, and you already know the answer:
Where in the hell are they going to get $13,000,000,000,000?
They obviously can’t tax us for it; I don’t know too many people who are willing to write a check for $42,000 to the government “just because.” So I guess that leaves two choices: borrowing, and printing.
And therein lies the problem, because both borrowing and printing have mysterious ways of creating something called inflationary price-increases. And this is why Ben and Barack want you to believe the dollar is valuable -- just because they say so. You see, the more you believe the dollar is almighty, the longer they can put off the inevitable inflationary pressures that are marching on Washington like a pack of wild, angry activists.
With that thought, I’m going to end this week’s opus. Next week, for Part II of this subject, I will dive further into Austrian dogma – specifically the work of Ludwig von Mises and his Economic Calculation Argument, which should help you understand more clearly why all this quantitative easing garbage is going to be the dollar’s undoing – and maybe even that of the United States, as well.
Until then…
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