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My wife became a US citizen last week, completing an arduous naturalization process that involved overcoming many difficult hurdles (not the least of which was marrying me).  She had to fill out multiple and lengthy forms, spend a lot of money, pass a background check, and take a civics test.  Since she passed the background check I can only assume that no one in the FBI, CIA, NSA, IRS, DHS, or ICE reads this blog.  

As a dutiful husband, I initially offered to help her study for the civics test, but I thought better of it after flipping through the official US Citizenship and Immigration Services study guide, Learn About the United States – Quick Civics Lessons for the New Naturalization Test.  It’s amazing how little our government actually knows about our government.  Here are some sample questions from the text book, along with the official answers.  I’ve also taken the liberty of adding my own “unofficial” answers for each one.  

• Q:  What does the Constitution do?
• Official A:  Sets up the government, defines the government, or protects basic rights of Americans.
• Unofficial A:  It collects dust while being roundly ignored by those sworn to uphold it.

• Q:  What is the economic system in the United States?
• Official A:  Capitalist economy or market economy.
• Unofficial A:  Participatory fascism, or creeping socialism.

• Q:  What stops one branch of government from becoming too powerful?
• Official A:  Checks and balances or separation of powers.
• Unofficial A:  Nothing. (I found it interesting that the study guide actually underlines “one” in the question…as if they were going out of their way to distinguish the problem of one branch becoming too powerful from the total non-issue of all branches becoming too powerful).

• Q:  Who makes federal laws?
• Official A:  Congress, Senate and House of Representatives, or legislature.
• Unofficial A:  An army of unelected bureaucrats in the executive branch who write thousands of pages of regulations each year, each of which carries the force of law.

• Q:  Who does a US Senator represent?
• Official A:  All people of the state.
• Unofficial A:  His largest campaign donors.

• Q:  What does the judicial branch do?
• Official A:  Reviews laws, explains laws, resolves disputes, or decides if a law goes against the Constitution.
• Unofficial A:  All of the above (except for that last one).  Also acceptable would be “provides pseudo-intellectual rationalizations to allow government to exceed its constitutional limits.”

• Q:  What is the highest court in the United States?
• Official A:  The Supreme Court.
• Unofficial A:  The latest Gallup poll.

• Q:  Under our Constitution, some powers belong to the states.  What is one power of the states?
• Official A:  Provide schooling and education, provide protection (police), provide safety (fire department), give a driver’s license, or approve zoning and land use.
• Unofficial A:  The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people. (Evidently new citizens don’t need to know about the tenth amendment).

This is not to say that all the test questions are wrong.  For example, USCIS does manage to correctly identify the colors of the American flag (red, white, and blue).  And in some ways the new test is an improvement over the old test, which included questions like these:

• Q:  Where does freedom of speech come from?
• Official A:  The Bill of Rights.
• Unofficial A:  From our nature as human beings.

• Q:  What US Citizenship and Immigration Services form is used to apply for naturalized citizenship?
• Official A:  Form N-400 (Application for Naturalization).
• Unofficial A:  Same as Official A, but I thought it was funny that the people working for USCIS were so wrapped up in their own bureaucracy that they thought all new citizens should be able to reference government paperwork by name – especially since the form in question has to be submitted long before the citizenship test is even taken.

• Q:  What is the most important right granted to US citizens?
• Official A:  The right to vote.
• Unofficial A:  Rights are inherent, not granted.  But even if they were, are you kidding me?  The right to vote would be number one?

• Q:  Name one of the purposes of the United Nations.
• Official A:  For countries to discuss and try to resolve world problems or to provide economic aid to many countries.
• Unofficial A:  To transfer wealth from the American taxpayer to corrupt foreign governments.  And as an aside, can someone point to the article of the Constitution that authorizes the UN?  If not, then why should it be part of this particular test?

• Q:  Can the Constitution be changed?
• Official A:  Yes.
• Unofficial A:  Sure, but why go through the hassle of changing it when you can just act like an elected official and ignore it altogether? 

Don’t get me wrong, I am glad my wife is now an American.  But during this process I realized that it’s probably a good thing I am an American by birth, because there’s no way they’d ever let someone like me become a citizen.

About seven or eight years ago I was browsing through the politics section of my local Borders bookstore and came across a book on libertarianism. I had heard of libertarianism before, and I was definitely interested in learning more about it. So I pulled the book off the shelf and opened it to a random page. The chapter I turned to was titled, “Stop the Drug War.” I read the title, closed the book, and put it back on the shelf. I didn’t think about libertarianism again for at least another four years. Now, of course, I wish I had just opened the book to page one like a normal person. It would have saved me a lot of time, and I would be a lot farther along in my studies than I am now.

At the time, though, I just wasn’t interested in considering the arguments against the drug war. And like most people, I wrongly equated opposition to the drug war with support of drug usage. Once I finally returned to libertarian political theory, I came to understand the distinction being made and have since accepted the logic of the arguments against prohibition.

Thinking back on that day at Borders made me consider some of the things that we libertarians (myself included) do that may often be counter-productive. So in the spirit of a little healthy self-reflection, I’d like to suggest a few libertarian “opportunities for improvement.” I realize that in so doing it will be impossible for me not to over-generalize, so take this post with a grain of salt. I don’t mean to imply that all libertarians do all of these things all of the time, or even that these tendencies are always and forever wrong. Nevertheless, there’s room for improvement in any endeavor, and libertarianism is no exception.

The episode at the bookstore illustrates one such opportunity for improvement. When speaking with non-libertarians, we sometimes make the mistake of leading with the conclusion. When I first opened that book, I was presented with the conclusion to the argument against the drug war, and I missed all the points leading up to that conclusion. That was not the author’s fault, of course. When you’re writing a book, you have to assume that the reader has sense enough to start at the beginning. I’m sure he made a very powerful case for his position, but I skipped all that and was confronted with a conclusion I wasn’t prepared for.

And let’s face it – our conclusions can seem pretty “out there” to someone hearing them for the very first time. After all, it’s not as if the libertarian philosophy is spoon-fed to people daily on CNN, Fox News, or Oprah. We speak of things that simply aren’t part of the modern political lexicon – things like individual rights, private property, and the non-aggression principle. All of our positions flow logically from these foundational elements, but we should keep in mind how alien such concepts now sound to most Americans and remember to work from the ground up whenever possible.

Let’s take a hypothetical example involving Bob, a hypothetical libertarian. Bob is meeting Fred, a non-libertarian, for the first time and says, “Hi, I’m Bob. I’m a libertarian. We have to legalize drugs!” Bob is not helping. That’s not to say that Bob is wrong, it’s just that his approach is more likely to cause Fred to put up mental barriers that prevent him from giving Bob’s position serious consideration. I think a more productive approach is to lay the groundwork of individual rights and build gradually to the conclusion rather than trying to jump there straightaway. It’s always better to “show your math” whenever possible.

A second area for improvement involves what I refer to as “the libertarian pissing contest.” This refers to the tendency that we libertarians have of trying to purge the ranks of anyone deemed philosophically impure. This phenomenon usually manifests itself in the never-ending minarchy/anarchy debate, but it also pops up in some internecine rivalries among the various elements of the freedom movement. This is not entirely a bad thing, of course. There’s definitely value in having challenging debates in which we can hone our arguments and push the conceptual envelope. But it can also be overdone, and may sometimes lead to alienating people who might otherwise be very good allies in the effort to expand liberty.

Whereas these first two points – starting with the conclusion and trying to “out-libertarian” each other – relate mainly to small-l libertarianism, the last points I’d like to make are more relevant to the big-L libertarianism of the Libertarian Party. And here I would like to make two observations. The first is that I’ve noticed a tendency to equate the term “radical” with “shocking.” This is most often seen in discussions relating to the LP platform. The hardcore libertarians want the position statements to be more “radical” in order to differentiate the LP from the two major parties, and also to maintain as much philosophical purity as possible. To the degree that they use the word “radical” in its original Latin sense, meaning “get to the root of,” then I tend to agree with them. God knows the LP doesn’t need any more watering down. But at times I get the feeling that the intent is simply to shock people into paying attention. If that’s the case, then I think it’s a counter-productive strategy. Again, I prefer a more foundational approach that builds upon the core concepts of individual liberty. That’s just my opinion, of course, and I realize that different people respond to different communication styles.

The second suggestion I would like to make with regard to the LP relates to the candidates, and it is simply this: clean it up. We libertarians obviously celebrate individualism, and our membership reflects that. But when we enter the political arena, the goal is to communicate libertarian ideas in a way that resonates with voters who may be hearing them for the first time. If we want them to take our ideas seriously, then they have to take us seriously as well. Like it or not, our personal appearance affects how we are perceived by others. With that in mind, it’s probably more effective to show up to the candidates’ debate wearing a suit and tie rather than looking like you just got back from the Sturgis rally.

As I mentioned at the outset, these are merely anecdotal observations that certainly don’t apply to everyone. To the degree that they do apply, though, they are largely controllable. There are some elements of the freedom philosophy that have broad appeal, and some elements that have a very narrow appeal. That’s probably an uncontrollable constraint that we will simply have to accept. What we can do, however, is work on the controllable elements in order to more effectively communicate our ideas.

A few weeks ago I had a lengthy discussion with a political campaign consultant.  Although not a libertarian himself, he claimed to be broadly sympathetic to the libertarian philosophy, and was kind enough to offer me his services in my next campaign (should there be one).

Ours was the typical libertarian/non-libertarian political discussion.  That is to say, it was a seemingly endless series of questions about the mechanics of a freer society.  “How would poor kids be educated if we didn’t force people to pay for public schools?”  “What about health care?”  “What about immigration?”  Yada, yada, freakin’ yada.

For the most part, he was receptive to my responses.  Although not completely sold on the idea that individuals are quite capable of dealing with these issues without having a gun waved in their faces, he was at least willing to ponder the concepts being discussed.  But being a political advisor, he kept returning to the question of how to get votes with these ideas, and he challenged me with the following hypothetical situation:

“Let’s say you’re at a candidate forum, and a woman stands up and says, ‘I’m a single mom, and I’ve got to get from my house in Arlington to my job in Dallas.  I can’t afford a car, so how are you going to help me?’”

My initial response was, “Well, I’d tell her that the best way to improve transportation would be to strike down any subsidies or laws that protect inefficient city bus systems.  This would allow for greater competition in the transit sector, which would lower costs and inc-”

At this point he interrupted, “She doesn’t care about any of that.  She just wants to know how you’re going to get her to her minimum-wage job tomorrow morning at 9 a.m. for free.”

I replied, “Well, I can’t promise that.  If I wanted to promise people something for nothing, I’d be running as a Republican or Democrat, not a Libertarian.  What I can tell her is that the private sector is going to be far more responsive to her transportation needs than the Arlington city council will be, and that the best thing a politician can do is dismantle the regulatory barriers that are preventing the market from working as efficiently as it other-“

Again he interjected, “She doesn’t care!  She just says, ‘You have to get me to work tomorrow!’ Now, what do you tell her?”

Exasperated, I said, “I don’t tell her anything.  There are some people who simply can’t be reached, and at some point you just have to cut your losses and move on to those who are receptive to what you’re saying.  After all, libertarian principles are not that hard to understand.  Every individual owns himself.  Using force against someone who has not first aggressed against you is wrong.  If someone cannot or will not understand that, there’s only so much I can do.”

I think it’s time I started taking my own advice.  Although I enjoy discussing political philosophy with a wide variety of people, there are a few cold, hard realities that I have to accept.  The first is that the overwhelming majority of people simply don’t care about these broad, theoretical concepts one way or the other.  They’re just going about their lives, trying to put food on the table and focusing on the things that do interest them.  That’s not a bad thing in and of itself but it does probably mean that they’ll never think too deeply about political theory.  They might be receptive to some libertarian ideas on a case-by-case basis, but that’s probably about as far as this group will go.

The second reality is that, of the remaining minority that is interested in deeper political thought, the bulk of these people will also be largely unreceptive to the freedom philosophy.  If I remember correctly, it was Brian Doherty, author of Radicals for Capitalism, who once said that if a person doesn’t feel an initial sense of revulsion toward the coercive power underlying all government action, that person will never become a libertarian.  He may be persuaded to accept the libertarian position on this issue or that issue, but he will never become an across-the-board, principled libertarian.  Anecdotally, at least, I’ve found this to be true and I think it holds an important lesson for libertarians.

Now I’ll be the first to admit that there are plenty of things that libertarians do wrong (more on that in a future post).  But I think one of the first errors we commit is in believing that if we can just communicate the simple idea that “government is force” clearly enough and widely enough, that most people will feel that same visceral reaction against the use of coercion that we felt when we were first exposed to the concept.  They’ll be struck by the liberty thunderbolt and will immediately begin looking for voluntary, rather than coercive, solutions to the problems of societal organization.  After all, very few people point guns at their neighbors in the course of their daily interactions, so surely most people will be appalled once they finally understand that all government programs rely on force to achieve their stated objectives, right? 

Wrong.  Although I have no empirical data regarding this, it has been my experience that almost no one objects to using the government to achieve certain outcomes – even when they fully comprehend that by pursuing political “solutions” to perceived problems, they are merely outsourcing the pointing of the gun to people who happen to work in government.  There are a few individuals within this group who are at least honest enough to say, “So what?  As long as it’s my team pointing the gun, what’s the problem?”  The less honest will engage in a long series of ex post facto rationalizations, attempting to obfuscate the obvious truth that their preferred method of social organization is nothing less than institutionalized violence, and that all their “noble” efforts to mold society according to their own personal preferences rely on nothing but large-scale plunder.  The least honest within this group go one step further, painting their unwavering support for this institutionalized violence and large-scale plunder as virtue.  This last subgroup will also relentlessly attack anyone who dares even to question the morality of the means employed to achieve their desired ends.

So it’s likely that the number of people who are both interested in and receptive to the expansion of individual liberty is very small.  So small, in fact, that they may be little more than a rounding error when compared to the overall population.  So be it.  We libertarians are rabidly pro-free market, after all, and we may just have to accept the possibility that the market for liberty itself occupies a relatively small niche. 

This is not to say that we should stop trying to increase our market share by arguing forcefully for our positions.  After all, we’re selling a good product – one that would be very beneficial to society as a whole if taken in large doses.  And it’s impossible to know ahead of time where we might find those few unique souls who “get it” – or would do if they were just given the chance.  But as we all know, scarcity is a simple economic fact of life, and our time is a scarce resource.  If someone can’t or won’t be reached for whatever reason, we have to be willing to move on to the next prospect.  Life’s too short to argue with brick walls, particularly when there may be more rewarding exchanges somewhere down the line.

On many issues, libertarians can find common cause with either conservatives or liberals.  There are, however, at least two areas in which libertarians stand completely alone – the drug war and the gold standard.  I may deal with the drug war at a later date.  Given the recent economic news, we’re going to have to deal with the gold standard sooner or later whether we want to or not.  As they say, just because you don’t take an interest in monetary policy doesn’t mean monetary policy won’t take an interest in you.

Take a moment to consider the scope of the recent nationalizations undertaken by Bush, Paulson, and Bernanke.  Including the recent Citi bailout, the total comes to $7.76 trillion.  When adjusted for inflation, the bailout will cost more than the following government programs combined (data provided by Jim Bianco of Bianco Research):

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

President-elect Obama has already made it clear that he will both continue and expand this lunacy, much like FDR continued and expanded the plans initiated by Herbert Hoover (rebranding them as the New Deal).  Given the disastrous consequences these nationalizations will have on our economy, at some point even mainstream economists and media pundits will have to start talking about a return to sound money.  The only questions are how soon will that happen, and how much pain will we have to suffer in the meantime?

What is a gold standard?

Very simply, a gold standard is a monetary system that ties the value of money in circulation at any given time to gold.  Technically, what we’re really talking about is a commodity-based standard.  When we use the term “gold standard,” we’re making an assumption that gold will be the preferred commodity, but given the right circumstances a free market might choose silver, platinum, nickel, or any other commodity that meets all of the criteria for money.  In order for a commodity to serve as money, it must be portable, fungible, durable, divisible, and widely accepted.  For three thousand years, gold has performed these functions better than any other commodity. 

The easiest gold standard to envision is one in which we all walk around with gold coins in our pockets, but a gold standard does not require actual physical gold to be used in practice.  Although there should be no restrictions against using physical gold for everyday transactions, there are perfectly good reasons to use paper money.  Gold has a high value to weight ratio, so even ridiculously small amounts of gold can have significant purchasing power.  At today’s rates, a single gram of gold goes for $26, but a gram of gold is far too small to be practical for everyday use.  Gold is a very soft metal, and the normal wear-and-tear would quickly erode smaller denominations like a gram.  For these and other reasons, both silver coins and paper money have historically been used under various gold-based monetary systems.

In practice, a gold standard would function as a currency peg.  Under a gold standard, the bank issuing the paper currency (either a central or private bank) would maintain parity with a fixed weight of gold.  For example, the dollar could be defined as 1/30^th of a gram of gold.  It would be the responsibility of the issuing bank to maintain that ratio by inflating or deflating the supply of money in circulation as needed.

If too many banknotes are printed relative to demand, the nominal price of gold will increase.  In our example, it will now take, say, $32 to buy a gram of gold.  The issuing bank would have to retire the excess currency, reducing its supply relative to gold so that it returns to its parity rate.  Similarly, if too few banknotes are printed relative to demand, the nominal price of gold will drop.  It will now take perhaps only $27 to buy a gram of gold.  The issuing banks would then have to issue more paper currency to restore the 1/30^th ounce parity.  Under this system, the issuing bank has an incentive to keep its money honest by maintaining the parity rate.  Too few banknotes, and people buy cheap gold.  Too many banknotes, and there’s a run on the bank as people suspect the issuer cannot maintain its exchange commitment.

The system itself is not terribly complicated, but the implications for the economy are tremendous.

Why is a gold standard important?

A gold standard provides stability in the value of a currency.  In the United States, a dollar was defined as 1/20^th of an ounce of gold for a full century (1815-1914). From roughly 1800 right up until WWI, a dollar bought roughly the same amount of goods and services (actually, it bought a little more as technological improvements enabled the cost of goods to fall while production increased).

During the Great Depression, FDR made private ownership of gold a criminal offense, punishable by a fine of up to $10,000 (not payable in gold, I presume) and up to ten years in prison.  Executive Order 6102 commanded all Americans to surrender their gold in exchange for paper at the standard 1/20^th rate.  Roosevelt then devalued the currency by dropping the parity rate to 1/35^th an ounce.  This rate was honored, however, only in exchanges with foreign central banks.  At the time, foreign banks held considerably fewer dollar reserves, and the break with the domestic gold standard set the stage for massive inflation.

By 1971, only the US maintained even a nominal tie with gold, and foreign central bank dollar holdings had increased significantly after WWII.  The inflationary policies that had been put into place ever since the days of FDR made it clear that there was no way the US government could honor its commitment to pay foreign central banks in gold at 1/35^th an ounce.  France was the first to call the US government’s bluff, and began to convert its dollar reserves into gold.  Realizing that the jig was up, Nixon “closed the gold window” and severed the last vestige of a gold standard.  Freed of even the pretense of fiscal responsibility, the US government shifted into high gear, inflating the money supply at an astronomical rate.  The destruction of the dollar’s purchasing power has been so great that a dollar today only buys 3-5% of what a dollar bought in 1913, when the Fed was created.

Most mainstream economists and every single politician (with the exception of Ron Paul) take great pains to soft-peddle the harmful effects of inflation.  Even otherwise free-market economists such as George Mason University’s Russ Roberts claim that the Fed has done a pretty good job managing inflation.  How they make that claim in the face of the data is beyond me.  Evidently, “a pretty good job” just means that it doesn’t take a wheelbarrow full of dollars to buy a latte at Starbucks (yet).

The monetarists, following in the footsteps of Milton Friedman, believe that there is no problem with inflation as long as the destruction of the dollar is gradual and predictable.  But in this I believe they are overlooking a number of issues relating to inflation.  Inflation does not occur uniformly throughout the economy.  Wages are usually the last to catch up.  This is certainly harmful to those people living on fixed incomes and salaries.

One of the main functions of money is to act as a store of value.  Since money is durable (not perishable), we don’t have to make all of our exchanges as soon as we get some coin in our hot little hands.  We can delay consumption for the future by saving a portion of our money.  But in order to do this, we need the value of that money to remain relatively stable.  Money should purchase roughly the same (or even slightly more) goods and services in the future as it does in the present.

Inflation, however, distorts the store of value function of money.  Under an inflationary fiat monetary system, a dollar today buys far more than it will in the future.  This acts as a disincentive to savings, which reduces the capital pool available for sustainable economic growth (for more on this, see And Then What?).  This is one of the reasons for the pitifully low savings rate in the United States – in an inflationary environment, the real return on savings can turn negative.  Under those circumstances, it is completely rational to convert cash balances into tangible assets (like housing) or to favor current consumption over future consumption.

This probably seems straightforward to most people.  Nobody likes inflation, right?  Wrong.  Lots of people like inflation – they’re the ones who either work in government or just worship government power.  To these people, inflation is the best thing since sliced bread and sunshine because it allows government to literally create money out of thin air.  It is this inflationary prestidigitation that enables politicians to promise something for nothing, because they do not have to resort to direct taxation to pay for things like war and multi-gazillion dollar bailouts.  They just wave the magic government wand, say, “Abra-Bernanke” and poof!  “Free” money to buy votes with!  If the value of the dollar and your life savings gets destroyed in the process, so be it.

Because of the political advantages that derive from inflation, the pressure will always be to inflate the money supply under a fiat system.  The best check on this inflationary pressure is a gold standard, which ties the value of the money in circulation to a commodity that cannot be created out of thin air.  But this denies politicians one of their most potent weapons, which is why the gold standard is relentlessly attacked by government flunkies and their accomplices in the media and academia.

Nevertheless, the gold standard has a number of advantages that one should consider.  First, it has the advantage of actually being Constitutional.  Article I, Section 10 states, “No state shall …make anything but gold and silver coin a tender in payment of debts.”  To my knowledge, this restriction has never been repealed by Constitutional amendment.  Second, the stability provided by the gold standard (when maintained) has never been surpassed by any other monetary system ever devised by man.  Monetary stability is as vital to economic calculation as stability in physical measurement is to engineering.  Would you want to live in a house that was built by a contractor whose tape measure changed every time he used it?  Neither would I.  Why would economic calculation be any better with a continually changing currency unit?

Of course, we could just keep all discussion of the gold standard in the shadows where it has been since 1971.  After all, there is one other check on the inflationary pressures engendered under a fiat system – reality.  At some point, the inflation becomes so oppressive that it simply cannot continue.  Even the short-term stimulus effects of inflation cannot be continued without a geometric expansion of the money supply.

So what will it be?  Should we consider a return to the gold standard, even if it means accepting the fact that we can’t have something for nothing?  Or should we continue on our current path and get the wheelbarrows ready?

Note:  Obviously, there’s a lot more to this discussion than I can go into here.  If you’re interested, check out the following titles and links:

Gold: The Once and Future Money, by Nathan Lewis

What Has Government Done to Our Money?, by Murray Rothbard

Gold, Peace, and Prosperity, by Ron Paul

“Forget Bretton Woods II – We Need a Gold Standard,” by Walker Todd (Christian Science Monitor)