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ET COGNOSCETIS VERITATEM ET VERITAS LIBERABIT VOS

Vol. 1 Issue 5 A journal of Faith, thought, and civics December 10, 2009

Comic Book Economics By Logan Hayward, Editor

Peter Schiff is running for Chris Dodd’s seat as Senator from Connecticut. He is a radical free-marketer, Austrian school economist, and participant in the Ron Paul movement. He has a father named Irwin Schiff, an economist, who is currently in jail for tax evasion. The elder Schiff apparently believes (firmly) that there is technically no income tax. He refused to pay that tax for some time, claiming that the Supreme Court ruled that “income” applies only to corporations, and is now, at an advanced age, serving a sentence that lasts until about 2016. Regardless of the legal validity of his tax evasion, he did write a glorious comic book in 1985: “How Economies Grow and Why They Don’t”. I have long been interested in comic books and economics, so I was intrigued upon learning of this book. The story starts off in a basic and catchy fashion: three men, Charlie, Able, and Baker, are fishers on an island. They spend all of their work hours in attempt to capture just one fish. They each only need one fish to sustain their appetites, so their consumption rate equals their production rate. This equilibrium lasts until Able dreams of a fish-catching net and decides to take a risk: he neglects his fishing for one day in order to build this net. Once built, he is able to catch two fish per day. He has a surplus. This beautiful example of production is merely a foreword to the grand economy that shall evolve on the island. Eventually, Able is able to loan his extra fish to Baker and Charlie so they do not starve while building fish nets of their own. In return, they pay him interest on their fish. The fish has become a unit of currency, and one with market-established value. The island economy becomes more and more complex, and more and more advanced. Schiff used the background of this fictional economy to declare all sorts of interesting beliefs (or truths) about economics and politics: he holds that everyone should have to pay to vote (“...if a vote costs nothing , it’s worth nothing!” says one character), he holds that banks should morally lend only to people who would subsequently use the loan to

produce (“Loans for consumption purposes reduce the amount of funds available to finance both capital projects and the consumption of more consumer goods, and therefore can only lower society’s standard of living and economic security.”) In addition to these fringe, yet refreshingly rational views, Schiff addresses many more issues as relevant today as they were throughout history. Of special importance is his blame of a certain organization for inducing inflation. I will hopefully be able to explain more of his radical beliefs in the next issue, but as a hint: the organization which led the island’s economy into inflation is led by a man named “Franklin Dee”.

Real or Counterfeit? By Luke Chellis, Editor

What’s inflation and what’s deflation? The reason that these words cause so much confusion and anguish is that many economists define these terms very differently. Despite what someone might tell you, economics is not a science. Its ideological content is enormous and for the good observer, obvious. Just ask Christopher Boone. True enough the most conventional definition of inflation is that used by the Bureau of Labor Statistics, which says, “The CPI (Consumer Price Index) is the most widely used measure of inflation.”i This definition is convenient because a general change in prices can easily be measured and averaged. This definition is also useful, some economists such as Alan Greenspan argue, because “monetary policy is an appropriate and proper tool [when] directed at achieving price stability or a desired rate of price change,”ii said Nobel Laureate and Professor Milton Friedman. In other words, the Central Bank’s job should be to control inflation, i.e. make sure prices of all goods stay constant. Economist Ludwig Von Mises describes the confusion over definitions of inflation:

“Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity

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of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term “inflation” to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. … As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”

One or several prices rising is a symptom of inflation rather than the definition of inflation. Just as in the case of diseases, describing a symptom doesn’t necessarily give us a clue to a cause. Inflation is an increase in the money supply. Deflation is a decrease in the money supply. Who’s in charge of the money supply? It’s the government operating through the Federal Reserve. A classic model used to describe the money supply and the cause of inflation is the game of monopoly. A standard game of monopoly contains $15,140. Let’s say I pack a nice stack of ten $500s up my sleeve, raising the money supply to $20,140 with an inflation of $5,000. I would of course have tremendous purchasing power and would be able to outbid all the other players. Through my purchases, my money would circulate through the game, and the purchasing power would equalize, causing a general increase in the prices of the properties. Who wants to play monopoly under these conditions? My inflation of the money supply, my counterfeiting, makes me a cheater. I have exchanged nothing for

something, and I have devalued every other dollar in the game. I haven’t changed the value of any of the properties; I have only made it necessary to trade more dollars for the same value. Like anything else, increasing the supply lowers the price, the price of money. But since I get to spend my money before the price drop, the difference is paid for by everyone else who trades hard assets for devalued money. Going back to the beginning: the idea of “price inflation” deflects the attention from the monetary policies of the central bank, and sometimes redirects the blame to “greedy businessmen,” speculators or whomever. The idea of inflation as an increase of the money supply is a clearer concept, because it decouples price fluctuations arising from supply and demand from monetary policy. Under a fiat money system, in which legal tender laws force the acceptance of US dollars, purchasing power is being siphoned from your earnings and savings even when the “price level” remains constant. No one is allowed to opt-out. Consider the fact that inflation is not only the most hidden but also the most regressive tax. Every man’s dollar, whether he has one or one million, is devalued the same. The chief role of money is as the medium of exchange. Money enables us to exchange something we have for something we want. Before an exchange can take place, an individual must have something useful that he can exchange for money. Once he secures the money, he can then exchange it for a good he wants. The money created out of thin air, however, diverts real wealth, or real, saved, final goods, towards the holders of new counterfeit money. As a result, less real savings become available to fund wealth-generating activities. This in turn leads to a weakening in economic growth. Which system would be better? My solution is to remove legal tender laws and also the taxes on gold, silver, and platinum transactions. The reason is that precious metals are much more difficult to counterfeit, hence the demise of the alchemist. If contracts are written in precious metals, the government has less power to steal from us.

The Case for a Television By William Kohler, Core Staff

My article today is a response to Hayward’s article “Soul-Numbing Brain-Washing Rays of Distraction” from issue 4, so if you’ve not read it yet, please do so before reading this article. Hayward’s basic premise is that television can be detrimental. I agree with that

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basic premise, but I disagree with most of the article’s content. Hayward’s reason that we should give up television is, "what good is it if the people are watching the same shows if the shows are frivolous?" First of all, this assumes that all television shows are frivolous, which he himself disproves two sentences later by saying many people watch educational shows. I very rarely watch television. But when I do, I watch CSPAN, one of the History channels, or the news. I am glad that television exists, because if it did not, I would never go out of my way to learn what I learn on television through the internet or any other source. Hayward says that what is intrinsically wrong with televisions is that they “project noise and/or pictures to an audience no matter where the audience is”, but the internet (which he endorses at the end of the article) does this as well. Television is at least stationary, but laptops and books can be brought anywhere and provide just as much of a distraction. Certainly, if he were consistent, Hayward would not endorse the internet then? And as for calling television frivolous, I fail to see how it is more frivolous than any other entertainment. Video games, books, internet, movies, all can be more frivolous than television. They can contain whatever they want. But television, on the other hand, is regulated! It can not contain anything blatantly inappropriate, which is not at all true of movies, books, video games, or the internet. This is why I strongly believe that television is much less frivolous than all of the aforementioned entertainment outlets. And to cast even more doubts upon Hayward’s thinking in his article, television is regulated; books are put in different sections for juveniles and adults; movies and video games are rated according to their level of appropriateness; the internet (which, again, he endorses at the end of his article) never warns you of content. It is possible to suddenly come upon something inappropriate on the internet, but it is extremely less likely, if impossible, to be totally deceived in this way through television, books, or movies. It is pointed out that television programmers design television shows to catch the eye of a lazy viewer. Everything is designed like that; it's capitalism. It is easily arguable that books and movies use this more than television. Movies play short clips with the best scenes from the movie to pique interest. Books use colorful pictures and clever titles. I've never actually watched a show because I saw a commercial for it. I have, however, seen a book at the store that looks good

and bought it (the same applies to renting video games). And so the chance of being tricked into watching television is far lower than with books and video games. Hayward also says that television programmers create shows for an easily-distracted viewer and not an inquisitive soul, and yet in the next paragraph he mentions Mythbusters and C-SPAN. These are shows for inquisitive souls! There are entirely separate channels for History, International History, Military History, and Military. Obviously the "inquisitive soul" market is large! In paragraphs 5 and 6, Hayward says that there is a seeming paradox in capitalism, that the more money you earn, the more money you have to spend on consumption instead of production. This is in no way a paradox. This is intrinsically evident, for, after all, when the biggest producers in the world make money, they have more money to spend on consumption. To say that this is a problem is to suggest that everyone spends all of their money on consumption. This is clearly not true if we have any remains of an economic system today. Something needs to be pointed out: producing (on the scale of a normal American) usually does not cost any money. Let’s say Fred works at a production line making cars. He doesn’t pay money to produce cars, he gets money, and the money he is paid as a low level employee is intended to be spent completely on consumption. To spend more money on production, as Hayward calls for, Fred would likely have to start a new company, because if he increases his production at the car factory, he doesn’t pay any more money for it. If anything, he makes more money for it. So in order to pay more on production, Fred has to completely start a new enterprise and start paying the costs of it. But on a larger scale, that of business, production does cost money. So let’s examine this. Hayward is calling for more production and less consumption. If there are 10 pizza stores in a town and 1,000 people eat pizza every night, this is good. But what if there are 1,000 pizza stores in a town and 10 people eat pizza every night (there is much more production than consumption, which Hayward says is good)? Most people can tell me that if there are 1,000 pizza stores and 10 customers to be spread between these 1,000 stores, perhaps one or two of these stores (to be generous) will go out of business. The most foundational statement of Hayward’s article, upon which all of his argument stands, is this:

“If watching television easily leads to extreme decreases in productivity,

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anyone who desires to guard a free republic and foster a truly prosperous economy must limit the amount of television programs that they watch, or, if they know in their heart that a television will always draw them too easily into its aura, they must choose [to] not own a television set.”

But watching television does not easily lead to extreme decreases in productivity. Hayward has admitted to watching television, but he would agree with me that he is a productive person. I see the spirit of Hayward’s points, and, in my mind, he is making the wrong argument. I want everyone to watch more television, but about the right things. I want more people to watch the political news and keep track of what our politicians are doing. As I’ve stated before and as I’ll write about in the future, one of the reasons we have so many problems right now is because too few people watch what our politicians are doing. Too few people take notes on their activities and check everything to make sure it’s constitutional and/or moral. ihttp://www.bls.gov/cpi/cpiadd.htm#2_1 iihttp://research.stlouisfed.org/publications/mt/20070101/cover.pdf

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