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What effects would a world wide depression (like the 1920-30's) have on a Laissez Faire Capitalist nation?
If it was totally isolated economically (a completely implausible supposition), none. Otherwise, we'd have to know what other nations did in response to the deprssion, e.g. did they confiscate LFC national's wealth in order to easy their pain; did they prohibit trade with LFC nationals?
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If it was totally isolated economically (a completely implausible supposition), none. Otherwise, we'd have to know what other nations did in response to the deprssion, e.g. did they confiscate LFC national's wealth in order to easy their pain; did they prohibit trade with LFC nationals?

Alright I'll expand on my hypothetical. If there had been a LFC nation during the great depression, and that country was involved in trade with the other countries of the world. What would the effects be on the LFC nation assuming that the mixed market nations responded pretty much as they did in the big one but still respected the sovereignty of the LFC nation and it's citizens.

These other nations may have nationalized privately owned assets from the LFC nation within their borders but lets say for arguments sake that there wasn't really that much.

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Those within LFC who were involved in business primarily of trade with the outer world would suffer to the extent that their market dried up. In a true LFC this might be few as it would almost be impossible to find ways to be both LFC and trade with countries burdened with numerous regulations. Likewise any access to any incomming goods or resources would likely be reduced as the companies on the outside providing them for sale to LFC would go bankrupt.

There is, however, another problem. Take as an example the fight going on in Switzerland right now about tax havens. Numerous countries will, by virtue of their flawed looter philosophies, try to make a claim to the wealth of LFC businesses or individuals. The kind of pressure which would be brought to bear might be substantial, even including the threat of war. While it is possible for countries with no wealth such as Cuba, North Korea, and Burma to remain isolationalist, the moment a looter (individual or nation) realizes you have something to loot, he will come running, gun in hand.

So, to summarize. At first not much of significance will happen to a stable and independant LFC country during a golbal economic collapse. Eventually, however, war is inevitable. This is why an objectivist country must have a substantial military, or the capacity and willingness to mobilize one at short notice.

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Alright I'll expand on my hypothetical. If there had been a LFC nation during the great depression, and that country was involved in trade with the other countries of the world. What would the effects be on the LFC nation assuming that the mixed market nations responded pretty much as they did in the big one but still respected the sovereignty of the LFC nation and it's citizens.

These other nations may have nationalized privately owned assets from the LFC nation within their borders but lets say for arguments sake that there wasn't really that much.

It's an interesting question. As the two other responders said: it depends on the international exposure of the LFC. Trade is one aspect, the other is investments. For instance, many foreigners bought US mortgage securities in the 5 years leading up to our latest downturn. Presumably many people in an LFC would have been among such investors.

With the caveat that this is highly speculative, I would guess as follows: folks in the LFC who have large foreign exposure would see a sharp fall (possibly even sharper than their bailed-out equivalents in the mixed-economy). Others in the LFC would see some impact (in proportion to the number of such exposed folk within the LFC), because when one group takes a big blow, it affects others. Overall, one would expect the blow to be sharp but brief -- less dragged out than in the mixed-economy (because redistribution and government assumption of losses is the essence of mixed-economy solutions). Finally, some years later, one would expect the LFC to have done better than the mixed economy (relative to their pre-depression starting points). This is because some of the guys with wrong business principles would have been wiped out in the LFC, while a higher proportion of them would have been subsidized into retaining key jobs in the mixed-economy.

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In a true LFC this might be few as it would almost be impossible to find ways to be both LFC and trade with countries burdened with numerous regulations.

I'm wondering why you think this. I would think that one of the strongest benefits of a Laissez Faire economy and business would be it's ability to adapt to the regulations of its trading partners. Without governmental interferance at home placing useless national standards on a product the businessman would be able to tailor his product to his market. I addition when the importing country applies a tariff there is no tax at the source to further increase the cost (to the purchaser or the builder) thus enabling the LFC business to still be competitive due to the mixed economy country taxing its own business' and their products.

Eventually, however, war is inevitable. This is why an objectivist country must have a substantial military, or the capacity and willingness to mobilize one at short notice.

I don't see how war is inevitable. If it were certainly WW2 would have begun much sooner and the reasons for it would reflect your theory.

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Economically, trade and investments as noted.

In the short term there would be job losses to the extent that employment was predicated on international trade. Unlike the rest of the world, however, the lack of controls on wages etc would see the unemployment not last long at all. On top of that, the banking sector in the LFC world would be at or close to 100% reserves, so there would not be the drawn out collapse of the money supply arising from what bank failures there may be. That in itself would make the necessary price adjustements able to be completed very much sooner and with less messing around due to people making mistakes regarding pricing structures. For that reason sNerd is right to say that the recession would be short and sharp.

A general loss of operating profitability is only possible when the money supply is collapsing and the realised-prices of goods sold is falling sooner than the contracted-cost of goods sold. That wont happen (not much, or not at all) in the LFC country. The initial losses will also predominantly take the form of asset write-downs rather than operating losses, though both will be affected (again proportional to the connection with international trade). Operating profitability is liable to remain reasonable even as the write-downs cause headaches. So, in financial reports, for instance, expect to see red-ink in the abnormals and asset-devaluation lines while seeing that margins will (on average) tend to remain in the black, with individual cases again being predicated on the business's relationship to international trade. Once the write-downs are complete, the continuing operating-profitability will serve as a spring-board to the recovery. After the short and sharp recession, therefore, overall profitability will be restored fairly quickly.

In the next short term after that, the LFC economy is likely to become more inwardly focussed because the bulk of the rest of the world is still likely to be following non-LFC policies or suffering from the after-effects thereof. The continuing operating profitability from above will still be reinvested, but with the rest of the world in turmoil the credit risk will be too high and so the investment will tend to be directed inward. The proportion of employment predicated on international trade (be that import or export) will fall, with the bottom limit being that amount necessary to have exports so as to pay for highly-required imports, such as particular items or resources that simply cannot be sourced locally (either cost-effectively or at all). I doubt that the proportion would drop that low, though. What it does mean, however, is that the future of the economy in this LFC becomes considerably more detached from the woes in the rest of the world.

What happens after that depends on the path taken by the rest of the world. If the rest of the world gets its act together and keeps a sufficiently free economy then more investment money generate by people in the LFC country will begin to be directed back toward international trade and investment. If the rest of the world becomes a basket case, then the LFC country will likely (on pure economic terms) stay quite insular, and trade only for what can't be obtained locally.

Whatever social, political and military matters may happen are another matter. The mere fact that the LFC country will be back on its own feet will not be sufficient to tell the rest of the world that what the people in the LFC country do and think is right. Thus these facts about the economic resilience of LFC, even with concrete evidence in stark full view of the rest of the world, cannot be relied upon by itself to rest on the assumption that the rest of the world will indeed take a hint and get its act together. Rather than being seen as a beacon, the LFC world could be said to be the devil incarnate and the cause of other countries' woes because the people of that country are just sooooo evil and selfish - "it's their fault we're poor!" Depending on the size and military strength etc of the LFC country in question, it could yet be in for a rough ride. That will in turn affect the nature of investment, employment, standard of living, and so on.

JJM

Edited by John McVey
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It's also quite likely that the LFC country would find itself sitting on a heap of gold as the investors in other countries look for somewhere safe to put their money during the economic convulsions. Granted, this isn't all that great when there aren't a lot of goods to buy, but you can invest that gold in production in your own country.

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What effects would a world wide depression (like the 1920-30's) have on a Laissez Faire Capitalist nation?

I would assume the effects would depend on the capitalist's country's aggregate trade surplus or deficit with it's trading partner's and in turn their trade relations with their trading partners.

However, if there was such a country, and it was the only one in the world, one could suppose the rest of the world would almost always suffer from "depressive" symptoms when compared to the free country.

What kind of answer are you looking for?

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What kind of answer are you looking for?

An educated guess, as what would (definitively) happen could only be considered a theory at this point...

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I'm wondering why you think this. I would think that one of the strongest benefits of a Laissez Faire economy and business would be it's ability to adapt to the regulations of its trading partners. Without governmental interferance at home placing useless national standards on a product the businessman would be able to tailor his product to his market. I addition when the importing country applies a tariff there is no tax at the source to further increase the cost (to the purchaser or the builder) thus enabling the LFC business to still be competitive due to the mixed economy country taxing its own business' and their products.

I see your point. This is how Hong Kong was back when I used to visit there in the Eithties. Man were they booming -- open port, no import or export tax, every international trader in asia had an office there.

I don't see how war is inevitable. If it were certainly WW2 would have begun much sooner and the reasons for it would reflect your theory.

Again Hong Kong might be an example of why war is, in my opinion, inevitable. Can you imagine what would have happened if Hong Kong had tried to gain their own independance, and remain a free and open capitalist country, rather than be absorbed back into China when the Brits contract ran out?

In the long run, what do you think WW2 was about, if not about the looting of the wealth of the aggressor's neighbors?

Edited by wilicyote
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Again Hong Kong might be an example of why war is, in my opinion, inevitable. Can you imagine what would have happened if Hong Kong had tried to gain their own independance, and remain a free and open capitalist country, rather than be absorbed back into China when the Brits contract ran out?

There is a big difference between invading a sovereign state and instigating a war of independence.

In the long run, what do you think WW2 was about, if not about the looting of the wealth of the aggressor's neighbors?

The same could be said for all wars. I guess I have a hard time with the "inevitable" part of your assertion.

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There is a big difference between invading a sovereign state and instigating a war of independence.

The same could be said for all wars. I guess I have a hard time with the "inevitable" part of your assertion.

I understand. I mean in the same way that taxes are inevitable. Looters are drawn to those who have loot to steal, it is in their nature (their philosophy in this case). If they exist and you have stuff, inevitably they will try to take it. This is equally true whether you are an individual, a global superpower, or anywhere in between.

I think instigating a war of independance can be a good idea, it worked out great for my country a couple hundred years ago. But I don't think you get my point about Hong Kong. China wanted it back specifically for its loot. The rest was all nationalist posturing. The same is true of Taiwan, I know, I lived there 20 years. China had no real interest in getting it back until it became modern prosperous country.

All of this gets off point. The crux is that people and nations alike follow their philosophies whether they acknowledge it or not. Give me one good reason why a neighboring nation, who believes philosophically that your wealth is their by right, by virtue of their need, their lack of success, will not act in accordance with their philosophy, and come to take it from your LFC nation? There is only ONE good reason -- your able and powerful military. Without one, you are toast, but of course you know this as well as I do.

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