June 27, 2011

The Eminently Real Free Market (XI): The Fed Is to Greed as the Net Is to Lust (Except the Fed Is Worse)

It is not favorable to Mr. Ferrara’s reputation as a writer that he employs Kevin Carson’s writings in his propaganda war against Austro-libertarianism, especially its Rothbardian foundation. For the particular aspect of those writings that Mr. Ferrara highlights only develops a thesis that Murray Rothbard pressed for over forty years, as even a cursory glance at Mr. Carson's reference notes confirm. Rothbard encapsulated his view, expressed in many studies from the early 1950s until his death in 1995, in this passage:
For some time I have come to the conclusion that the grave deficiency in the current output and thinking of our libertarians and classical liberals is an enormous blind spot when it comes to big business. There is a tendency to worship Big Business per se . . . and a corollary tendency to fail to realize that while big business would indeed merit praise if they won that bigness on the purely free market, that in the contemporary world of total neo-mercantilism and what is essentially a neo-fascist corporate state, bigness is a priori highly suspect, because Big Business most likely got that way through an intricate and decisive network of subsidies, privileges, and direct and indirect grants of monopoly protection. [Murray Rothbard, private letter, 1966]
Mr. Carson’s complaint, uncritically repeated by Mr. Ferrara, may be fairly directed at some libertarians, but not at Austro-libertarians to the degree that they identify with Rothbard’s thought, which on this point, if on no other, Mr. Carson does.
That concurrence notwithstanding, Mr. Ferrara ridicules Austro-libertarians for explaining so much of modern history, including the development of “crony capitalism,” in terms of “statism,” or more precisely, the political struggle over control of society’s central apparatus of coercion, “rather than the sheer greed of the entrepreneurs who demanded favors from the state.” (12) Mr. Ferrara offers not one suasive consideration, let alone an argument, in favor of such a simplistic etiology. (Oh, he will, as we shall see, treat his readers to a gallery of historical sketches, but offer no theory that makes sense of history.)
Perhaps Austro-libertarians don’t favor his causal hypothesis, assuming they give it any thought, because greed, (φιλαργυρία, avaricia) is a constant in human history (as is every other deadly, capital, or cardinal sin). What is present all the time, however, distinguishes no time from any other.
The ability to resist the temptation to commit a deadly sin varies from person to person, but we can generalize to say that no one is immune from being "within range" of an occasion of sin. We can imagine how the ways of being within its “gravitational pull” can vary in number and intensity from territory to territory and from era to era. But by what conceivable warrant might one propose that in the general European population in, say, 2008, there was more (or less) latent greed—the inherent capacity to act on a greedy impulse—than there was in 1917, 1848, 1776, 1688, 1517, 1492, 1378, or 1204?
As we said, we can contrast one period of history with other in terms of the occasions it makes available for the expression of a given vice, but human nature’s fallen state is not an historical variable, at least not for Catholics. The advent of photography, for example, brought with it more opportunities to excite lust (πορνεία, fornicatio) than existed in the age of oils, graphite, ink, and charcoal; the age of film brought even more; then came home video, and now the Internet. But is there a good reason to believe that this technological progress corresponds to or reflects an increase in the level of latent lust? We can think of none.
The moral hazard that is the State offers many occasions for the expression of greed (to name no other sin), and they vary with the power of the particular state. A state with a central counterfeiting agency, more politely called the central bank, creates many more opportunities for greed to express itself than does a state without one. And while many people may wish they could exercise their influence over the state's personnel in order to create, through the implicit violence of state edicts, non-market advantages for themselves, only a few will be able to, and historical investigation is necessary to ascertain the identity of those criminal conspirators. Just as advances in technology decreased the fear of “getting caught” consuming pornography, so did the central bank in the financial markets decreased the fear of suffering losses for making bad loans. As Peter Schiff put it regarding the 2008-2009 Meltdown:
Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. Everyone wants to make money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic risk-taking and hard work that are essential to a vibrant economy.
But over the past generation, government has removed the necessary counterbalance of fear from the equation. Policies enacted by the Federal Reserve, the Federal Housing Administration, Fannie Mae and Freddie Mac (which were always government entities in disguise), and others created advantages for home-buying and selling and removed disincentives for lending and borrowing. The result was a credit and real estate bubble that could only grow—until it could grow no more.
While it is unfortunate that Schiff conflates the combination of entrepreneurial foresight and the virtue of industry with the cardinal sin of greed, his point holds even if foresight and virtue were wholly absent from the marketplace and only avarice ruled  (which Schiff is not saying).  For his point is that fear checks vice, and taking fear out of the equation removes a barrier to the commission of vice. The central bank is to the cardinal sin of greed as the Internet is to the cardinal sin of lust, except the Fed is morally worse: the Internet has more, and more morally acceptable, uses than facilitating the discreet consumption of pornography, whereas the Fed has but one evil purpose: to defy the divine injunction regarding honest weights and measures. (Lev. 19:36; Deut. 25:13-16)