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  1. Hey Ray!! OCON is finally near... I can't wait to hang out again!

  2. I will throw in my two cents here. I originally posted this response here to Mr. Veksler's post: *** You conclude by saying, “The best that new competitors can hope for in this environment is to be acquired by the giants or to establish their own patent portfolios - rather than create products than people want to use.” I don’t accept the patents versus good products dichotomy you are stating. To what extent was Apple’s willingness to invest millions of dollars to develop the iPhone dependent on the comfort it took in that its intellectual property would be protected? Its willingness to sponsor the development of capacitive touch-screens and 3-axis accelerometers, which make the iPhone a great product, would have been compromised if it could not own those developments and profit fully from them. I think you might be making a better case for *shorter* patents rather than for their abolition. The proper length of a patent just like the proper length of a copyright is something that changes depending on technological and economic factors. Perhaps one can make the case for shorter patents in technology and longer ones in drug development. All of this should be coupled with a better patent office run on rational principles. That means issuing patents quickly and only for true innovations (which you made in your argument against software patents, which has legitimacy, in my opinion).
  3. Brian, Thank you for promoting the article. I will gladly email it to anyone who emails me through this forum. Here is what I said originally about the article on HB List (hblist.com). (I modified the language slightly for this forum.): *** I am excited to announce that an article I wrote has been published in CFA Magazine, a magazine with global circulation of 100,000 that is published by CFA Institute, a finance professional organization. It is part of an "Agree / Disagree" set on the proposition: "The global market crisis calls for an expansion of regulatory oversight." I have permission to distribute it. I will email it to anyone who wants a copy. It can also be re-distributed, as long as no one posts it in its entirety on the web. In the article, I call for gold money and the abolition of regulatory agencies. I identify the need for government to recognize the right to life, liberty, and property. The editor featured the article as the magazine's cover story under a scary image that says, "Big Government Is Watching." In the print version of the magazine, a yellow banner also asks, "Is more regulation the answer to market woes?" Here are the opening paragraphs. Later, I discuss the specific causes and solution to the crisis. "Regulation cannot be the solution to the financial crisis because it is the cause of the financial crisis. The only proper action for governments to take is to remove existing regulations, fully recognize property rights, and enforce already-existing laws against fraud and theft. Doing so will help our economy speedily recover and make future crises smaller and rarer. In fact, the premise itself is misleading. "Regulatory oversight" implies that regulation is some form of law enforcement mechanism that protects the rights to life and property, akin to laws against robbery, murder, and fraud. But that is not the case. Such laws already exist on the books and should be enforced when mortgage lenders, for example, commit fraud. No new regulation is necessary to protect rights. Instead of protecting rights, regulations violate them. A regulation is an action by a government body that intervenes in voluntary agreements between individuals. It prohibits--before the fact--entire classes of behavior, criminalizing that behavior even if it is voluntary and involves no compulsion or fraud. For example, a law such as the Community Reinvestment Act that forces lenders to give mortgage loans to borrowers that do not meet their credit standards violates the right of the lender to decide whether and to whom to lend its money." -GB
  4. Nice photos, Andrew. I bet the Chinese and Russians have an advantage in these industries because of looser pollution rules than we have. I am also curious how these plants compare to U.S., European or Japanese plants that make similar materials.
  5. Happy Birthday, Kendall! I look forward to seeing you in person at OCON in a few weeks! I feel like I've already met you online; seeing you in person will just be connecting corporeal form to disembodied soul.
  6. From the parts of his testimony I read, he builds up a "good" case for regulation, but then he says he doesn't want regulation. If he didn't want regulation, he would not have testified in front of Congress, which is the only body in the country that has the power to regulate the commodities markets. Certainly he would not have laid out his arguments to that body that irrational speculation by institutional investors is fueling the rise in the price of oil. I don't know what his real motive was in testifying, but it sure as hell wasn't to prevent regulation.
  7. In late 1998 or early 1999, oil dipped briefly below $10 per barrel. Where were those speculators then? Interestingly, at that time the U.S. dollar had been appreciating for about 4 years. It had appreciated roughly 25% by then from its bottom in 1995. The dollar is not the only factor (other factors cited in this thread are also important), but it is a significant one that explains the oil price. A good deal of today's gain in the price of oil, denominated in dollars, reflects the depreciation of the dollar. Speculators are agents that transmit fact-based expectations about future supply and consumption trends into present prices. As such, they facilitate economizing between present and future supply/consumption. If the expectation is that future consumption will be high and supplies will be constrained -- or that nominal demand expressed in dollars will be high due to dollar depreciation -- then speculators will bid up the price of oil today. That is happening now. The opposite happened in the late 1990s, at least with regard to the purchasing power of the dollar. Expectations were that its purchasing power would strengthen relative to the world's currencies. Therefore speculators bid down the price of oil. In regard to the general point of whether speculators can manipulate the market, they cannot alter the long-term or fundamental course of markets. Market prices incorporate such fundamental information. If a speculator positioned himself (incorrectly) against the long-term trend, he would be bankrupted very quickly. For example, if a speculator in 1995 incorrectly bet that oil would go up, he would have lost his shirt. Blaming the speculators is a lot like blaming the gas gauge for showing that your tank is empty, except that the "speculator gas gauge" is even smarter. It accounts not just for the amount of gas in your tank right now, but also for the nearness of a gas station down the road. The "speculator gas gauge" will adjust to reflect the ease with which you can fill up your tank in the future, thus encouraging you to either consume more gas or less right now, depending on those facts. The speculator's role is very valuable. If the government restricts it, it will make the markets work less efficiently. Ultimately, this will mean less oil availability because it will become more costly to finance oil production and refining. Capital will demand a higher premium to invest in that sector if financial liquidity and quality market information about future demand/supply are reduced because speculation has been diminished.
  8. The Church is trying to have Galileo and eat him, too. Little do they know that it will take far more than putting up a statue of Galileo to show that Church and reason can live in harmony. Galileo stands for reason, and reason is the opposite of faith. In fact, reason is the enemy of faith. The Church, by bringing that statue onto its holy ground, is bringing the enemy into its sanctuary. It can only end one way. Galileo's revenge for the crime the Church committed against him has been centuries in arriving, but arriving it is. As reason wins, the Church will be forced on the defensive more and more. Doing silly things such as erecting statues to the men the Church condemned (and forgave, but never exonerated in Galileo's case) will not change that. I am heartened that the Church is so afraid of Galileo -- no, they are so afraid of Reason -- that they have to erect a statue of Reason on their very grounds (in the form of Galileo) in an attempt to placate her.
  9. I basically concur with JMartins' opinion of the series, except that I had a more favorable impression of Adams. Because he is the Founding Father I know least about, I cannot vouch for the accuracy of his portrayal. I did like the portrayal of Benjamin Franklin, who appeared in the early episodes. His depiction as a worldly, intelligent, savvy man fits with the biographical accounts of him I have read. Washington is great, and the scene of his swearing in (with Adams at his side as Vice President) in front of the cheering patriotic crowd was very moving. As for Jefferson, I am really enjoying his portrayal now, although I detested the early scenes of Jefferson where he was portrayed improbably as some sort of smart aleck dandy. However, that portrayal ended and what emerged was a dignified, very serious, very moral man. Finally, I adore the opening credits of the series. There is rather simple martial music with close-ups of actual revolutionary flags or good copies of them. With the music stirring our patriotic feeling, flags billow with the words, "Unite or Die," and show a snake representing the colonies chopped into pieces. The sequencing of the flags is timed beautifully to the music and achieves a great dramatic climax, all within a couple minutes. Overall, the effect of the opening sequence and the series is to place me at the scene of our Revolution. It made it quite real, that these men and women were fighting for their lives and in so doing, fought for our lives. They fought a life and death struggle for freedom, and won. In sum, despite some serious flaws (such as the annoying early portrayal of Thomas Jefferson and an over-emphasis on "humanizing" the characters), I recommend the series. I will ask any John Adams experts out there, whether academic or armchair, if they care to comment on the veracity of his portrayal.
  10. They certainly do. That makes it all the more ironic that the FAA grounded a number of Southwest's planes for failing to perform required safety inspections. The FAA is on a warpath to enforce the letter of regulation. Meanwhile, the fatality rate of commercial airlines is (I believe) at an all time low. The last fatal accident of a U.S. carrier was at least several years ago. The lie is that regulation results in safety. It does not. Profit-seeking behavior in a capitalist society produces safety.
  11. Yes, that particular scene was annoying. I cannot imagine that any man, no matter how taciturn, after presenting his draft of such a forthright and well-crafted document as the Declaration of Independence, would react the way you describe. I almost stopped watching the series then, but I am glad I didn't. Overall, I am enjoying it. In terms of characters, Ben Franklin is my favorite so far. I do like John Adams, but he is the one Founding Father of whom I have read very little. So, it is hard for me to judge him.
  12. Yes, I saw it. I just watched the scene where George Washington is sworn in and found it quite moving. It transported me to that time, when everyone knew they had created the first republic founded on the principle of individual rights in human history. Very stirring. However, I don't understand Thomas Jefferson's characterization, as some sort of smart-alecky dandy. I have read a couple biographies of Jefferson and have visited Monticello several times. Nothing that I saw or read suggested he would have this type of personality. That is the oddest thing about the series. Overall, though, I am enjoying it. I especially enjoy the opening sequence. The music and the billowing patriotic flags rile me up with patriotic fervor. "Live free or die." "Don't tread on me." and "Unite or die." The struggle of these people, our forebears, was a struggle for life or death -- life as free people, or the death of subservience. I am ever so thankful they fought this fight... and won. This series transports me to that day and helps me see it from their perspective.
  13. If the Bush quote is an April Fool's joke, I didn't find it funny, simply because every time Bush speaks he sounds like an April Fool's joke. The humor has worn thin.
  14. This discussion seems pretty silly. I doubt President Bush has even heard of Objectivism. Lex, the burden of proof is on you to elevate this thread into something that is worth discussing by showing that Bush really said this and was referring to Objectivism. Right now, this thread stands in my mind as just arbitrary nonsense.
  15. Kendall, Join the club for a blog rant on this topic. Mine has been building ever since I heard about this. Time permitting, I will do it. Paulson is a Nixon-type conservative, a complete pragmatist. I heard him speak about the sub-prime crisis about two months ago. Immediately at the beginning of his speech, he declared he does not adhere to specific principles. He just wants to do what "works." He is bipartisan and can work with anyone. Well, Nixon had that attitude and we got one of the largest peacetime expansions of government power in our history: EPA, OSHA, wage-price controls, etc. Ugh! Of course, Bush is too ignorant of principle or economics to resist Paulson. Bush probably just thinks, "He's from Goldman. He must be smart. I will have faith in him." That is Bush's problem, too much faith. But that is another rant... -GB
  16. John, That is an interesting discussion on how the law regarding money changed. However, my read is that you reversed cause and effect. Fractional reserve banking did not so much arise because the law was changed. Rather, the market demanded fractional reserve banking, and the law changed to acknowledge the new practice. The market demanded that change from both the demand and supply sides. Parties, such as the king, wanted loans from the goldsmiths. The goldsmiths, in turn, wanted to get greater value from their idle gold hoardings. As a broad observation regarding laws and economics, typically an economic change happens first, and then the law gets around to acknowledging what has already become true in commercial practice. For example, the discovery of oil gives rise to a whole body of law on mineral rights, or the rise of banking gives rise to a whole body of law defining creditor-debtor relationships, etc. This appears to be another example of that phenomenon. -GB
  17. I am sorry AceNZ, but that is not what we are talking about here. All bills would bear the mark of the issuing bank. If a bank issues bills stamped "Galileo Blogs' FRB Notes," it would be clear what they are. All participants in the economy are free to accept those bills or not, or they could choose to accept the bills stamped "AceNZ 100% Reserve Bank Notes" instead. My bank's issuance of bills is my business and my customers' business, and in no way illegally affects your customers' acceptance of your bills. Of course, if I deliberately counterfeited bills to look like your bank's bills, that would be wrong. But that is certainly not what we are discussing here, at least as far as I am concerned. To get back to the real world examples I like to cite, during the free banking era, all bills bore the names of the private banks that issued them. Currencies competed for customers. Naturally, customers exerted great effort to select currencies issued by sound banks. That competition for customers also caused banks to maintain adequate reserves to be able to convert notes that were presented upon demand into gold. There was no promise to maintain 100% reserve backing of those notes, only a promise to convert them upon demand into gold. That did not require that 100% reserves had to be kept at the bank, any more than a supermarket needs an entire warehouse full of cat food to meet the needs of each day's customers who demand cat food (to extend my prior analogy). Instead of an entire warehouse full of cat food, the supermarket only needs to keep enough cat food in reserve in the back of the store to meet the expected day's purchases, with allowance for days when there are unusually large purchases. Likewise, a fractional reserve bank must balance the opportunity to gain immediate profits that comes from loaning out reserves with the long-term solvency and financial success that comes from maintaining an adequate level of reserves. As I mentioned, during the free banking era the percentage of reserves that balanced those two goals was rather high, in the low 40% range.
  18. The reason for distinguishing between types of inflation is to highlight that market-caused "inflation" such as the discovery of more gold is not a cause for concern, but if government has the ability to inflate, it is a serious cause for concern. The latter should be legally forbidden while nothing can or should be done about the former, apart from market participants themselves responding to it. As for issuing notes backed by fractional reserves being fraudulent or a form of counterfeiting, it clearly is not if it is fully disclosed to the bank's customers.
  19. QUOTE (Galileo Blogs @ Mar 26 2008, 09:36 PM) * "The main reason is that [maintaining a fractional reserve] economizes the supply of costly-to-store and maintain specie." Yes, the cost of storing the specie is the same, except that by only maintaining fractional reserves, a greater amount of lending can occur for a given quantity of specie. The bank makes more money. Another way to look at it is that for a given quantity of revenue-making loans, a smaller quantity of specie is needed to be maintained in the bank's vaults as a reserve. Therefore, it is undoubtedly more economical to maintain fractional reserves. If it weren't, then full-reserve banks would have a competitive advantage over fractional reserve banks and would out-compete them. That did not happen. Fractional reserves allow banks to perform their intermediation function at lower costs by economizing their reserves. By the way, this is where the insurance analogy is useful. Yes, banks and insurers are different, but both are similar in having to figure out how to make the most profits while preserving their ability to pay out their financial obligations. Participants in both industries have figured out how to do this while economizing on costly reserves. I can extend this analogy further to inventory management in general. Banks must maintain their inventory of reserves just as stores must maintain their inventory of goods to be sold. It is amazing how a supermarket virtually never runs out of key items, even though they never know with 100% certainty how many people will buy, for example, cat food on a particular day. Banks maintain their inventory of reserves in the same manner. In all industries, inventories are costly to maintain, and that is why merchants (including banks) seek to meet their obligations while maintaining the smallest possible inventories. To do this, stores constantly innovate to develop methods to manage their inventories more effectively. Stores locate warehouses near the stores, they come up with just-in-time inventory methods, etc. By the same token, banks innovate by maintaining high reserve levels (42% in the free banking era), but also by developing clearinghouses that allow banks to loan each other reserves. Moreover, investors in banks regularly evaulate the banks' published financial results, and bid their stocks and bonds up or down. That provides signals to the market about the financial health of the banks. Moreover, there is the phenomenon of adverse clearing that serves as a check on the issuance of notes. If a bank over-issues notes, those notes will trade at a larger discount, and people will be encouraged to present them to the bank for conversion into gold. Thus, convertibility serves as a check on the over-issuance of notes. Moreover, there are laws against fraud, which serve to minimize bank frauds. All of these practices were actually implemented in the 19th century, and it worked rather well. It is important to ground a discussion of this kind in facts. Fractional reserve banking not only makes sense in theory, but in practice it worked quite well. In particular, the argument that it somehow debases the value of money is completely belied by the general rise in the value of money that occurred during most of the 19th century. With such a pesky fact, could it be that the theoretical argument that fractional reserve banking causes inflation is perhaps wrong?
  20. I think this discussion would help from some definitions and proper understanding of key concepts. Inflation -- Inflation is not just any increase in money, regardless of cause. If the increase arises from voluntary market interactions, it is not inflation. So, the discovery of more gold, or an increase in lending by a bank is not inflation. Rather, inflation is an increase in money by government, or induced by government. It is an increase that is not tied to reality. It is artificial, arbitrary and subjective. To the extent it exists, it does represent an unfair theft of the value of everyone's money. (This idea became clear to me from a comment by Harry Binswanger posted on today's HB list [subscription required @ hblist.com].) The financial impact, a generalized increase in prices, can be the same from a huge discovery of gold as it would from a doubling of the money supply by the Federal Reserve, but at their root, these are two different phenomena. The discovery of gold is an objective fact of reality, and must be accepted. The increase of money by the Fed is an artificial, man-made phenomenon that need not be tolerated. On the contrary, it should be opposed and stopped. You can't stop the discovery of gold; it exists. It is objective. You can stop man-made manipulations of money, and should. These are related concepts, but they are different and require two different words to describe. One word, inflation, cannot be used for both. I would simply call the first case a market-driven increase in the supply of money. The second case is inflation. Using this definition, fractional reserve banking is not inflationary. Only when there is also a central bank is it inflationary. Historical evidence backs up this view. The socialization of credit beginning during the Civil War and the establishment of the central bank in 1913 led to a progressive reduction in the average reserve percentage in the economy (from the low 40% range to less than 5% today). It also led to a generalized increase in prices and destruction of money's purchasing power, beginning in the 20th century. Central banks are the problem, not the private, voluntary banking practices that arise in the market. ******* A related concept also requires some clarification. I have heard many times that fractional reserve banking is immoral because it reduces the value of other people's money. First, in the absence of a central bank, that is not true. As I described, the overall reserve percentage in the economy was stable when there was no central bank, and it only began to decline when credit became socialized and a central bank was established. Moreover, the value of money actually rose during this period, as it did nearly continuously during the 19th century, a period dominated by fractional banking, but without a central bank. However, even if fractional reserve banking did cause the value of money to fall, it would still not represent stealing. It is no more stealing than if a new product introduced by an entrepreneur reduces the value of something I own. For example, let's say I own a beautiful carriage and some healthy horses that I use to drive around town in. The entire set-up is worth $5,000. Now, Henry Ford comes along and invents the Model T and sells it for $100. Very quickly, as I trot around town in my horses, I begin to see cars everywhere. Next thing, when I try to sell my horse and buggy, I find that I am only offered $50 for it. Did Henry Ford steal $4,950 from me? Of course not. No one has the right to a certain market value for the goods they own, whether those goods are gold coins, dollar bills or horses-and-buggies. All values must be earned and fought-for in the marketplace. As long as physical force was not used to harm my possessions, any diminution in value that occurs due to market forces is mine alone to bear. So, no one has a right to a particular value for their money. The value of their money will be determined by the interaction of many market players -- gold miners, bankers, businesspeople, etc. Someone only has the right that the banks with whom they do business do not commit fraud. Honestly disclosed banking practices, whether of fractional or full reserve variety, are not fraudulent. There is nothing at all immoral with fractional reserve banking in a laissez-faire context.
  21. I would like to see how a lawyer answers this situation. Speaking as a non-lawyer, my understanding of state law is that typically you can only use deadly force if you have reason to believe that your life is in danger. So, if a thief is running at you, even if his intention is only to steal your television, you can shoot him. You don't know his intention, but reasonably fear that he may harm you. However, if he already has your television (or wedding ring, etc.) and is running away from you, you cannot shoot him. Not only is the imminent risk to your life over, but you are now acting as a judge imposing a death sentence for the crime of stealing. You cannot do that. Certainly, context matters. In the example of shooting a criminal who threatens your irreplaceable manuscript, one would probably have to go to trial, and let a jury of your peers evaluate the context. If I were on that jury, I would probably vote for acquittal. Or, I would vote for conviction and entrust the judge to give an appropriate, nominal sentence (e.g., a suspended sentence or probation).
  22. There was no socialization of credit during the free banking era. There was the complete privatization of credit. All notes were privately issued by banks. Government (largely) did not issue notes. Before the free banking era, there were the First and Second Banks of the United States, early central banks. I do not know what reserve ratios were like then. Before that, during our colonial and early revolutionary period, the United States had a very small, primitive banking system. It probably suffered from too few notes in circulation. The coins and notes that did exist were generally foreign. Spanish gold coins circulated as did notes drawn on British banks and on the one or two U.S. banks then in existence. In contrast, the free banking era was robust in many ways. Salsman goes into details. I can say that money was not just good as gold; it was better than gold. It gained in value throughout that period because the money supply was directly tied to the supply of gold. It gained in value as economic output grew at a faster rate than money did. Banks had to rely on their own private reserves of gold to redeem the currency they issued. Because there was no central banker of last resort to fall back on, the banks (excluding some dishonest ones) had to scrupulously maintain a large base of gold and high quality paper as reserves. It was the lack of a central bank that enforced prudent banking practices. As for inflation, mathematically it does not happen if the reserve ratio is steady. Money simply grows at a steady percentage anchored by the growth rate in gold. There are good reasons to maintain less than 100% reserves. The main reason is that it economizes the supply of costly-to-store and maintain specie. The experience of the free banking era supports the premise that banks are fully capable of deciding for themselves how much gold to retain as reserves. Moreover, it is highly likely that that percentage is less than 100%.
  23. I am referring to the problems described in John McVey's posts. As for inflation, that can only occur if there is a systemic decline in the fractional reserve percentage for the banking system as a whole. If that percentage is stable, there is no inflation. Interestingly, during the free banking era I describe, the reserve percentage for the entire banking system was remarkably stable at around 42% plus/minus a few percentage points. Only the existence of a central bank could permit system-wide reserve percentages to decline in a secular manner, as they have during the 20th century. Even now that process continues as the central bank has authorized government-sponsored lenders such as Fannie Mae and Freddie Mac to keep smaller reserves so they can lend out more money to homebuyers. That is inflation.
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