It goes like this. He comes out with a book, and the highbrow experts say it’s crazy, that this time he has gone too far. Two-three years later, the world has changed, and his predictions have come true. His critics don’t admit it (have you noticed that few people ever admit errors?). By that time, he has a new book out, and the experts again say it’s crazy. And so on it goes. He is always one step ahead, like a prophet, but without the honor he deserves.

In his first major book, The Long Tail (2006), he said the common culture of enterprise would die, and this is great. Instead, in the future, consumer culture will be driven by the desire to curate micro-cultures for ourselves. Technology has allowed markets to become super focused on a niche, rather than the broad swath of humanity. In fact, he said, there are more profits associated with niche-focused business than the hope of selling to every man or woman on the street.

At the time, this idea seemed crazy. The conventional wisdom of business has been that the bigger the market sector, the better. He was saying the opposite. Now we look around and see that nearly every market is a niche: No two consumers are alike. Not only that, but the biggest and best companies today (Google, Amazon, the app economy) specialize in fanatical service toward millions of tiny niches, in every way that can express itself.

Then he came out with his book Free: How Today’s Smartest Businesses Profit by Giving Something for Nothing (2010). He said that the trend is taking all consumer products down to $0 for the basic service and making money on the add-ons. In fact, business in the future will be begging people to take stuff for free.

His critics went nuts and said, “Oh, this is crazy stuff. Can’t happen.” Today, if you want to denounce his thesis, you can do it in real-time video through Google+ Hangouts, Facebook video chat, Skype, Twitter, or uncountable numbers of free services that uncountable numbers of businesses are begging you to try. Contrary to every prediction, even Facebook is making money by giving away its main product for free.

Again, I’ve not seen his critics eat humble pie.

The purpose of Makers is to explain how manufacturing is traveling on the same trajectory as communication, publishing, and media. It will devolve from big institutions to small institutions, and finally to individuals. The focus is, of course, 3-D printing. He forecasts a world without shipping, without controls, without the huge transactions costs of getting things. Instead, our shopping will consist of downloading models and printing what we need.

Crazy, right? Yes, just like his previous two books — which is to say not crazy at all.

Why has he been so consistently correct in his outlook for the market’s future? Because he is hooked into the community that is making it happen. From his position as editor of Wired, he was constantly in contact with the edgiest and most entrepreneurial companies in the world, the people who are forging a new tomorrow. He observes a pattern, explains, and sees clearly that it will win the day because it works.

By the time the rest of the world catches up to see the point, he has moved on.

Well, this month was the month that the rest of the world saw the point, and it made the headlines in a huge way. Law student Cody Wilson of Defense Distributed printed out a workable handgun called “The Liberator.”

But with every great advance in history, there are those that resist it. The government, in this case, is the chief resistance force. Anticipating this, Cody complied with every regulation, every code, and every mandate. It took nine months to stabilize and perfect the models, but he finally did it. He had a workable model for a gun that anyone on the planet could print out and use. He made one himself and released the files to the world without copyright.

The feds jumped into this scene with an order that made anyone with an ounce of technical sophistication laugh. They demanded that the files for the gun be taken down from his website. He complied.

But this accomplished nothing. Nothing on the Internet goes away, especially not if the files were released to the world. The files for “The Liberator” were quickly re-hosted at storage website Mega and many other places. Once it became clear that the masters of the universe wanted these files down, people all over the world got into the act and began spreading them everywhere, and the downloads soared into the hundreds of thousands.

In a matter of days, people were already working to remix the files and customize them for different purposes and approaches. How is this possible? These files are not physical goods. They consist of information, and information has three features that government hates: It is malleable, reproducible, and — thanks to the Internet — immortal.

In this way, as Anderson explains in his book, the world has changed dramatically in a digital age in which even physical goods take the form of information. And in the long run, there is nothing that those who purport to rule the world can do about it. They can silence one or two people, but that doesn’t cause the things they don’t like to go away.

This is also why it is pointless that the defcad.org’s signup sheet was removed by its domain host, LaunchRock. A further example is the video that announced the creation of files that produced an operational 3-D handgun went viral after it was posted. It had tens of thousands of views, maybe many more. It was a video that ran only a few minutes. Now when you go to the video, a message appears that says it has been removed from YouTube.

Apparently, the video infringed on the copyright of Warner/Chappell. What’s that? That’s a music distributor. So the wrath supposedly had nothing to do with the gun or the subject. It was removed because the background music was alleged to be under copyright.

But wait just one moment. There are dozens of different YouTube videos that use that song. Here’s one. It’s also used in the movie Tree of Life. If it’s copyright protected, isn’t it just a bit strange that Warner happened to pick Cody’s video to order a takedown?

Cody, a law student, was scrupulous in complying with the law. But just as they got Al Capone on tax evasion charges, not bootlegging, Cody Wilson’s dramatic and historic video has been removed on copyright grounds! Never mind that most of his other videos could be removed on the same grounds, and so could perhaps a million other videos that use music from YouTube. This one video was singled out for a reason.

Meanwhile, of course, the video still survives in myriad forms (here, here, here, here, here). It’s just the canonical version that has been taken down. This is a symbol of the new reality that government has not yet processed. The Internet is different from the physical world. It is not only bigger; it lasts forever, no matter what the regulators do. They can drive things underground, but cannot finally stop the progress.

There is a pattern here. The government hates progress. It prefers a world fixed and immobile, so it can regulate and tax it, bully enterprise, and deny consumers. But entrepreneurs don’t like straitjackets. They keep coming up with new ideas and throwing them out there — at great personal risk to themselves.

Chris Anderson’s world will come true. In time. Every intervention that tries to stop it is at best a vast waste.

Sincerely,

Jeffrey Tucker

P.S. Here is a great interview with Anderson on EconTalk.

So I asked this gentleman what he thought of the talk. His response was quick (I paraphrase here):

“I’ve never once bothered with patents. They are expensive and pointless. They produce no revenue on their own. They sell no product or service. And they harm development by hemming in a company on a preset track. I need to be able to customize offerings and change what we do day to day. Patents bias a company toward old solutions even when they don’t work anymore.”

That’s an interesting perspective. And it raises the question: How much do patents have to do with innovation in the real world?

As much as we hear about patents, we might suppose there is some sort of direct link between them and the innovations we enjoy in our lives. Someone invents something and shows the plan to a bureaucrat. The exclusive license is issued, and away we go.

Economic historians have usually assumed a direct link between patents and innovation, basing much of their chronicle of history on records at the Patent Office. Much of what we think we know — that Eli Whitney invented the cotton gin, that the Wright Brothers were first in flight, that Thomas Edison holds the record for inventions because he has the most patents — comes from these records.

But is it true? Most patent holders assume so. They cling to them as a source of life and defend them against all encroachment. Some businesses build up their war chests with patents as purely defensive measures. The more you own, the more you can intimidate your competitors to stay out of your territory.

So how important are patents in generating innovation? The answer is not much, according to four economists from the Technical University of Lisbon. They are circulating their research on a platform sponsored by the St. Louis Federal Reserve. They looked at the best innovations between 1977-2004, as listed by the R&D awards in the journal Research and Development. They matched 3,000 innovations against patent records to establish the relationship.

Their findings are remarkable: Nine in 10 of the innovations were never patented. They were just created and marketed, and changed the world. In other words, it’s the market, not the bureaucracy, that innovates. The authors grant that there might have been downstream versions of the same innovations that were patented. But that fact actually doesn’t change the implications of the study, namely that there is no relationship between the existence of the Patent Office and direction and pace of innovation.

As you dig through their citations, you find other nuggets of information. It turns out that other researchers have found the same thing in early parts of the 20th century and even all the way back to the middle of the 19th. The results keep coming up the same way: There are patents and there are innovations, but they have little or nothing to do with each other.

These results are a classic case of the huge chasm between pop science and real science. In the pop version, people imagine that they will dream up some idea, file a patent, and then bring it into production and become a billionaire. The reality on the ground is that 90% of patents go completely unused. They are suitable for hanging, but not much else.

The patents that are actually in play in this world are used as weapons by big shots to hurt their competitors. They don’t cause business to succeed; it’s the reverse. The bigger the business, the more it is in the market for patents to help the big business hold its place in the market. They prompt lawsuits that go on for years that are eventually settled with an exchange of cash. Meanwhile, rather than actually fueling the innovative process, they put it on hold. So long as a patent is in existence, other innovations are legally bound not to do what they do best.

The software industry is an excellent case in point. In the 1970s and 1980s, patents were rare to nonexistent. Companies made money by making stuff and selling it, just as free enterprise would suggest. Then, the industry grew. People like Steve Jobs who once touted that talent for stealing the ideas of others began threatening other companies with lawsuits. Young programmers today know for a fact that if they ever come up with anything that threatens a big player, the small company is going to be hammered.

Two parallel streams of innovative software strategies have been running over the last 10 years: 1) highly protected and 2) patentless open source. Apple and Microsoft represent the patented style. Google is much more inclined to the open model. Companies like WordPress reveal their code to the world and make money in other ways. A good test case comes from the big smartphone war between Apple’s iOS, on the one hand, and Google’s Android operating system on the other.

The consensus today is that Android is winning hands down in terms of new users. The open-source system is roaring ahead with more than half the smartphone market already and a growing percentage of the tablet market. In terms of moneymaking, the app economy of the iOS is actually doing much better. But consider that it had a huge start, whereas the Android came much later. My own impression from dealing with both is that Android is moving ahead in every area fast.

We need to rethink our assumptions about the role of patents and innovations. If they have nothing to do with each other, and if patents actually dramatically slow down the pace of development, why not get rid of them altogether? That’s exactly what many of the old liberals of the 19th century pushed, and it the case is further bolstered by Stephan Kinsella’s Against Intellectual Property.

Government planning never works. Laissez Faire isn’t perfect, but it provides the best chance for innovations to appear and thrive and for prosperity to result. The lesson for anyone with a business idea: Run with it and don’t wait on a bureaucracy.

Sincerely,
Jeffrey Tucker

And no government in the world is in a position to stop it.

That’s not to say that governments won’t try. “It’s stomach-churning,” said New York Sen. Charles Schumer of this remarkable innovation. “We’re facing a situation where anyone — a felon, a terrorist — can open a gun factory in their garage, and the weapons they make will be undetectable.”

A big advocate of gun control, his real goal is not to make the world a more peaceful place. He simply wants government to have all the guns and doesn’t want to make it easier for you and me to get them. He wants to retain the present disparity of power between government and the people and senses that something is upsetting the balance.

Therefore, of course, he wants to amend the law to make printed guns impossible. If you haven’t noticed, this seems to be the main thing government does these days. It puts barriers in the way of progress and tries to stop technological advance.

Legislators just can’t reconcile themselves to the new reality that they have less and less power each day as the digital age progresses. It’s the force of innovators and consumers the world over — creating and exchanging to their mutual benefit — compared with the clunky and blunt instrument of the regulatory state.

The driving energy behind the printed gun is Cody Wilson, a 25-year-old law student at the University of Texas at Austin. He is the visionary behind Defense Distributed, a website that releases the plans, provides updates, and accepts donations in Bitcoin. He calls his new weapon “the Liberator” after the inexpensive, single-shot gun manufactured by the U.S. government during World War II. They were dropped all over Europe to scare and demoralize occupying armies.

Mr. Wilson thinks like the entrepreneurs of old. He had an idea and believed it was achievable. He saw every barrier not as something that would stop him, but as something to overcome. His crowdfunding project was removed by the website that first hosted it. His first rented printer was recalled by its owners. The regulatory barriers were huge, but he responded with overcompliance. And of course, the gun-grabbers consider him to be enemy No. 1.

I’ve been intrigued to watch his vision unfold over the last year. He clearly saw that the 3-D printing revolution has profound implications for the future. Among other things, it challenges the whole basis of government regulation of the economy, which is very much tied to controlling manufacturers and the buying-and-selling process itself.

With distributable and localized manufacturing, the core power of the regulatory state is faced with a fundamental challenge. Patents and other forms of “intellectual property” become irrelevant. If a design is constrained by regulatory controls, it is a simple matter of changing the design to produce an uncompromised product.

With or without printed guns, this new technology is going to lead to continuing upheaval in the years ahead. It is already deeply embedded in the manufacturing process. Boeing has installed some 20,000 different printed parts. Pratt & Whitney, GE, and many other companies depend on it for profitability.

As the revolution advances, printing will gradually replace shipping. More people of the world will have access without transportation costs, making prosperity affordable in a way that was previously unimaginable. (For more on the origins and development of this industry, see the wonderful book Makers by Chris Anderson.)

A crucial element in this disruptive technology is the role of open source sharing. This is a completely different approach from what prevailed from the Industrial Revolution until very recently. Usually, it was believed that a company’s profitability was bound with its proprietary control and its trade secrets. But through open source innovation, companies have discovered that they can extract better ideas by drawing on the energy and skills of people all over the world, resulting in a better product and a faster pace of development.

Defense Distributed uses the open source model. It allows the company to get from here to there faster and to distribute its results universally. Open source approaches also instill the manufacturing process with that crucial element of trust. Think of this as a globalized system of peer review in which nothing is hidden. It’s sort of the opposite of how governments do things.

Think of how the pace of change is accelerating compared with the past. The Gilded Age saw astonishing changes: railroads crossed the country, internal combustion became common, homes were lit with electricity, and steel replaced iron as the building metal of choice. But all of this took 25 years to come about. We are now seeing innovations proceed at a pace that makes the Gilded Age look like slow motion. It is affecting every sector of life — now even gun manufacturing and money and banking.

None of this would be possible without two critical institutions: the Internet and entrepreneurial dreams. Put the two together and you have miracles in the making.

How will Mr. Wilson’s gun change the world? Over time, it could fundamentally upset the balance of the relationship between citizens and their governments, not just here, but around the world. It makes 20th-century-style tyranny less likely, or at least gives the people a fighting chance to hold onto their rights and liberties. Public and private predators can be checked.

Freedom is the victor here, and one would suppose that this would be something to celebrate.

Instead, we get carping politicians, annoyed regulators, and legions of peanut-gallery critics who make fun of the gun’s design and functionality. This misses the bigger picture. We are living in the dawn of a new age, and the future is going to be much different from the immediate past. People like Cody Wilson are society’s benefactors.

Sincerely,

Jeffrey Tucker

• barely keeps up with population;
• features mostly temp workers;
• leaves out prime-age males and all young workers;
• and keeps labor participation rate at a low level from 1979.

This is good news? Hmmm…

But the central bank will save us, right? So say economic journalists. They love metaphors. Actually, professional economists love them too. The latest phrase being tossed around is that world central banks are “stepping on the gas” to get the economy to move.

The European Central Bank dropped rates again after noting that economies are stagnant or shrinking. The Federal Reserve too says it will not let up in its asset-buying program, all in an attempt to make economic growth happen.

Let’s look at the car analogy. I took my car into the shop the other day. It had developed two problems. The gas pedal was sticky. I mashed and mashed the pedal, but the car was unresponsive. At the same time, the brakes weren’t working right. I had to push the brake all the way to the floorboard to stop the car.

Let say the mechanics had said, “The fix is to do more of what you are doing. Just sit there and keep pushing the gas and the brake. Do this as long as necessary to get it going again.”

As a customer, I would have immediately seen that this was stupid advice. The point isn’t to keep doing the same thing, but to look for a deeper solution. One that actually fixes the problem. It turns out that a cable that made the accelerator work was slipping, and the brakes needed more fluid. The mechanics fixed both, and I was on my way.

But with the central bank, it never occurs to them to look under the hood or check the underlying mechanics. They just keep doing the same thing over and over again: lowering rates and buying bad assets with newly created money.

How’s that worked out?

Well, the results are in: five years of continued stagnation. The central bankers are sitting in the car and really want to make it move, but they keep using the tools they have in front of them. It’s almost as if they can’t discern the incredibly obvious fact that they need to get out and look under the hood.

One of the symptoms of the problem is right in front of their eyes. The money they are creating isn’t becoming part of the real economic lives of spenders. Instead, it keeps piling up in bank vaults, fixing the balance sheets of banks, but not achieving the end of bringing about economic growth.

On the one hand, there are the reserve balances of banks carried by the Federal Reserve. They have never been higher. The money to create the appearance of recovery and even create crazy hyperinflation is certainly there:

Banks Suddenly Turned into Hoarders After 2008 and the Introduction of Easy Money

On the other hand, there is the money velocity statistic. This measures the average frequency with which money is being spent. It is a crucial indicator, because consumers and borrowers are the ones who determine velocity. It is an extension of human choice that the Fed with all its power cannot control.

Now look at what’s happened. Velocity was at its highest point during the inflation of the late 1970s, because people couldn’t wait to get rid of their money. But as the inflation rate has fallen over the last 30-plus years, so too has velocity fallen. You can see that it rose slightly during the 2000s bubble, but then crashed again after the beginning of the 2008 recession:

Consumers, Not the Fed, Controls How Fast We Spend Dollars

Again, there is absolutely nothing that the Fed’s stimulative activities can do to change this. Yet in order for the Fed’s policies to actually inspire economic growth, this will have to change. Not that the Fed hasn’t been trying. It has knocked interest rates down to zero in order to discourage saving and punish people for failing to employ cash balances. But it hasn’t done the trick. It is just like the 1930s, when the Fed tried to inflate, but couldn’t manage to get the public to go along with its plan.

For anyone who believes in markets as opposed to central planning, these results are actually encouraging. They show that even the much-vaunted power of central bankers can be severely limited by human choice. If we don’t go along, they are circumscribed in their power. They can buy and buy and print and print, but it changes nothing about how you and I respond. Yet you and I are the keys to making their plans come to fruition.

What mistake have the central bankers made? To beat an already dead analogy, they failed to look under the hood and see that the economic problem cannot be cured through the exercise of the printing power alone.

What was revealed in 2008 is known as a bubble. Bubbles follow predictable courses. They appear and expand due to increases in the money supply. They are exacerbated by policies like “too big to fail” and federally guaranteed institutions like Fannie Mae and Freddie Mac. This money expansion gives rise to irrational exuberance that shows up in various sectors, and this is followed by the realization that such exuberance is unsustainable.

This pattern is not new. Doug French demonstrates this in his wonderful book Early Speculative Bubbles, available now to all members of the Laissez Faire Club.

Tulip mania, the Mississippi bubble, and the South Sea bubble were all due to this same thing. They were blown up by increases in the money supply. They were cured by deleveraging and starting over again.

Here, you can easily see the relationship between recession (in the gray bars) and the expansion and contraction of the rate of increase in the money supply:

How an economy responds to delusional, know-it-all central bankers

The most recent period of recession is particularly interesting. The people who calculate whether we are in a recession or not called its end in 2009. Yet has expansion really been the result? Not really. We had the deepest collapse in economic activity in the postwar period, followed by the slowest sustained rates of economic growth in living memory. Meanwhile, incomes continue to fall, small-business creation is pathetic, and the falling rate of unemployment is due almost entirely to labor-force dropouts.

This is not a pretty picture, yet the central banks just keep doing the same thing over and over. This is not scientific public policy. This is pure witchcraft. And it is dangerous. Moreover, it all traces to one fundamental error. The Fed was unwilling to let the economy hit bottom so that it could enter a sustainable growth path. Its role as savior after the bubble collapse has gone nearly unquestioned. It’s as if the whole world just suddenly decided that dealing with economic pain should be against the law. Ironically, this decision has only prolonged the pain.

Back to the original metaphor. If the time of honesty ever arrives and someone in a position to fix the problem finally lifts up the hood of this stalled engine, there will be an ugly sight to behold. That person will find a bank sector sustained by fake money, a housing sector sustained by a fake market, a savings sector gutted by mandatorily low returns, and a whole new series of new bubbles that will prove themselves unsustainable.

The managers of the central banks can look at these charts same as you or I. They just choose to ignore the obvious lessons they impart.

It kind of makes you long for the days of Tulip mania. The episode in Holland was nuts, but at least no one tried to repair the damage by doing more of what caused it in the first place.

Sincerely,
Jeffrey Tucker

This is a major factor in why, despite every prediction that it could never work, Internet commerce rose from the ashes of the dot-com crash to become a huge and growing profit center today.

Alas, those days seem to be coming to an end. And why? Because the U.S. Congress is highly sympathetic to the plight of its state-based cousins, who are starved for money. As a proposed fix, Congress is suggesting a new innovation. Congress wants to give the OK to states that want to take your money.

Here is one argument you will not hear in the debate over taxing Internet sales: This will be good for the business climate. Instead, the debating points concern how much revenue it will raise for states, how onerous the burden will be for small business, whether it is “fair” to brick-and-mortar shops to pay and for online sellers not to pay, and so on.

The real issue — whether this is good for business and prosperity — is not even on the table.

Will taxing all Internet purchases harm business, harm job creation, harm the profitability of those who have seized on digital venues as a viable commercial space? Of course it will. There can be no doubt. The question then becomes: Why is the political class interested in unleashing state legislatures to collect sales tax when it is so obviously harmful to prosperity?

Maybe the answer is obvious, but it still needs to be said. Despite the stump rhetoric, the political class is not interested in fostering a vibrant commercial life to help you and me get by in this world. Instead, it is interested in extracting as much revenue as possible from the existing commercial environment. The government elites want their cut, regardless of the consequences.

You can learn something about the way the world works just by watching the way this legislation is coming down the pike. Here we are, still in a deeply struggling economic environment. Young people have a hard time getting jobs. Growth rates are anemic. Families are still smarting from the surprise payroll tax increase earlier this year.

Online commerce — with low startup costs and a potentially unlimited market — actually represents a ray of hope. This is especially true for young and tech-savvy people.

So what do the politicians do? They plot another hammer blow. Even by old-fashioned Keynesian standards, this is the worst possible time to enable vast tax increases across all states that hit millions of people. But economic rationality is not high on the list of values held by Capitol Hill.

What does this say about whole libraries full of books that instruct the political class on how to foster the well-being of society? What does this say about the hundreds of well-worked-out theories of how the government can manage the economy in the best possible way? What does this say about the oceans of policy reports that presume that the political class has the best interests of the public in mind?

If it is true that political actors only want to get the government’s beak wet and otherwise don’t care a flying fig about the consequences for you and me, many theorists are going to have to go back to the drawing board. The bulk of writing on political economy over the last hundred years might as well be pulped.

There is also an interesting dynamic taking place in terms of those pushing for the change to allow states in which there is no physical presence of the relevant Internet retailer to tax purchase. The world’s largest and most successful Internet retailer, Amazon.com, is backing the change, and paying politicians left and right to go along.

Why? Here, we need to understand something about way regulations are used as a competitive tool in the world of enterprise. The larger the business, the more it is in a position to absorb new regulatory costs. The regulations will invariably hurt the little guy more than the big guy. Therefore, even though the big guy is paying more, the regulations end up working as a kind of subsidy to keep competition at bay.

Not to put too fine a point on it, but Big Business and Big Government work together. Does that sound like a wacky conspiracy theory? It shouldn’t. The reality goes back at least 100 years. Big Business was a huge supporter of the Progressive Era regulations of food and safety, the New Deal’s interventions on prices and labor, the Great Society medical expansions, protectionism during the 1980s, and almost every other major intervention in free enterprise in the annals of history.

Sometimes the biggest enemies of capitalism are not socialists, but the capitalists themselves. They don’t like capitalism because they don’t like competition, because it threatens their business and their profits. A real free market has winners coming and going. But a heavily regulated markets entrenches elites who are working with the political establishment.

You might think that this would cause left liberals pause, but apparently not.

Here is what the blog at National Public Radio said about an Internet sales tax:

“Collecting state and local sales tax all around the country would require a fair bit of effort on the part of online retailers, because sales tax rules vary from state to state. That’s not a huge deal for a giant company like Amazon, but it would be more of a burden for smaller online retailers. From Amazon’s point of view, that’s a good thing — it makes life harder for Amazon’s smaller competitors.

“That’s why big businesses, despite what they may say, often like regulations. They make life harder for small, would-be competitors.”

The Amazon sales tax case is complicated by the fact that it is already mostly paying these taxes because many states started interpreting the law to mean that if there is a warehouse in the state, it is subject to tax. Amazon has warehouses all over the world so that it can offer same-day delivery. That allows it to go after physical stores with even greater intensity.

The average eBay mom and pop is not going to be in a position to file tax statements to every state where it shipped goods. Amazon will be there to not only comply, but have the competitive edge on everyone. The battle between Amazon and eBay has been so intense that the Internet Association has refused to take a position.

This is how business becomes cartelized. There is still competition, but it is not on a level playing field. You have to be heavily capitalized just to get your foot in the door. Then people look at the configuration of the remaining industries and scream, “Hey, business is too big and too powerful!” But they don’t discover the reason. It is too far back in time. And the cause and effect is too opaque to the casual observer.

It’s not hard to imagine the consequences. There will be fewer startups because the accounting costs of filing with states every month will be too daunting. Consumers will start looking at overseas merchants to buy their goods — as they are already doing for cigarettes, prescription drugs, and electronics. Digital currencies will help facilitate this move.

Meanwhile, the domestic market using government currency will be dominated by just a few players.

Everyone these days is sitting around regretting the way the recession just goes on and on, seemingly without end. If you are looking for the answer, look to Capitol Hill. Every time free enterprise tries to come up for air, the Congress and the regulators are there to put it underwater again.

Sincerely,

Jeffrey Tucker

When do we know it is money? As I was preparing a report for subscribers of the Laissez Faire Club, I was going through the list of goods and services currently priced in Bitcoins and available on the Web. It is mind-boggling how many there are. I’m not sure I knew just how much you can get right now. The conspicuous hole in this panoply are local merchants — the pizza joint down the street, the rent, the cab fare. Otherwise, anything you can buy on the Web, you can buy with Bitcoin.

Then it suddenly occurred to me.

If you put this list together and look at the total, what you find are more goods and services available right now using Bitcoin than have been available to most everyone in all times and places using any money that has ever existed in all of human history except for the past few years.

True, you can buy more with dollars now, but you can get more stuff with BTC now than you could get with dollars in the 1980s or any earlier time in history. You can buy more varieties of grain, cereal, and spices now than you could get with government money at the local grocery back then. You can buy smartphones, tablets, scanners, and cameras that didn’t even exist back then. You can get clothing at prices that were unthinkable back then.

In other words, from a broad historical perspective, Bitcoin is already one of the most functional currencies in the history of humanity.

What keeps it from being money — Bitcoin’s value is constantly assessed in terms of its exchange ratios with government currency — is not its usability, but its stage of development. Its volatility is a problem that raises other problems. The other problem has to do with current infrastructure of Bitcoin that is not sufficiently mature to justify calling it a full-blown money at this point. All the signs look great, but we are not there yet.

For example, many in the Bitcoin world today are enormously frustrated with Mt. Gox, the Bitcoin exchange in Japan that processes some 67% of the Bitcoin business on the Web. That’s down from its near-monopoly status just two years ago, and its percentage of overall business will continue to decline.

One factor that troubles many is that Mt. Gox is highly conventional in its political relationships with the state. Just getting an account requires a great deal of information, more than most people would give even to open up a local bank account. There is no anonymity — not even close. However, this situation will surely be short-lived. The more government money moves to digital currency, the more exchanges can rely on a self-sustaining Bitcoin economy. The problem of state-connected, privacy-violating corporations is a feature of the transition, but not of the long-term operation of the system.

The process toward this self-sustainability will follow no predictable course. In the digital age, conditions can change extremely rapidly. As we saw with Cyprus, if people believe that government can rob them of their money, they will do what they can to move it, regardless of ideology. No one likes to be robbed. A technology that can prevent that can go from obscurity to ubiquity in days.

But there are other problems with Mt. Gox. It has borne the brunt of anger for several instances of technical failure since 2009. Most recently, the runup of the BTC-to-dollar exchange ratio from $30 to $266 in a matter of days overwhelmed Mt. Gox’s servers. At the same time, the service was hit by DDoS attacks. After the onslaught and constant crashes that drove a selling panic, the company finally declared a cooling-off period of 12 hours while it upgraded its servers.

Right now we are watching a mad scramble for other services that can provide more reliable service and thereby diversify the Bitcoin trade. Many people sense that the market function of price discovery is being inhibited by industrial concentration in the world of Bitcoin. It seems unsustainable for there to exist tens of thousands of Bitcoin retailers and services but for one company to so thoroughly dominate the producer end.

But there’s a beautiful thing going on here. There are no restrictions on establishing a Bitcoin exchange. The barriers to entry are extremely low, and there are not yet any prohibitive legal barriers. This means the competition for handling coins is already very intense. For Mt. Gox to survive in this environment will require it to be unrelentingly innovative.

Is it? All services like this wear their flaws on their sleeves, because they are seen by 100% of users. When things go wrong, we lunge for our rotten tomatoes and start hurling them. Having been on the other side of this for many years, my sympathies go out to any company faced with these sorts of problems.

In the world of server administration and website management, problems are preludes to solutions. The failures serve a profoundly important purpose: They draw attention to the weak points of the current server and database configuration. Things have to break in order for them to be fixed properly and with precision. One hates for this to happen in real-time, but such is the way with markets. This is no perfection out of the box, and this is the way it must be. The upheavals are more productive in a market economy than the stability. And again, these problems have nothing to do with Bitcoin, but rather with the infrastructure in which it is being introduced to the market.

A larger problem with Bitcoin concerns its essential structure that lends itself to growing value in terms of goods and services over time. This is also known as deflation. With a supply that grows on a predictable basis leading to a final fixed supply, it will always buy more and more. Why would that be a problem? Deflation poses special problems for merchants.

Let’s say that for 100 Bitcoin, you buy five tablets that you intend to resell at a profit. But by the time they enter the market, the value of Bitcoin has risen and you can’t resell them at a reasonable markup. This is a similar situation many merchants found themselves in with memory sticks and thumb drives over the last 10 years. They bought them and ended up eating them, given their falling retail prices.

How can merchants deal with this? Well, we can be inspired by the software and computer markets over the last 20 years. Deflation has been the rule. The retailers who have made it through have proven themselves to be radically “antifragile,” in the neologism of Nassim Nicholas Taleb. They have adapted through limited inventory, providing top service, excellent marketing, and a general reliance on relentless improvements in product quality to carry the day. These have been gigantically profitable industries in spite of the constant fall of prices of their goods relative to money.

If Bitcoin does, indeed, grow in value over time, savers will be rewarded. But never forget this fundamental truth: The only point of saving is eventual spending. Those who are hoarding Bitcoins today will be on the market for Bitcoin products and services tomorrow. This is a truth that Keynesians of all sorts turn away from, but it highlights the reality that hoarding is actually a productive force in the market economy.

Still, replicating that model with today’s wild volatility of Bitcoin seems implausible. But this raises another issue. Why should this volatility matter in our minds at all? Because the market is still in its infancy. We are accustomed to constantly checking the price of Bitcoin in terms of other currencies. It does not always have to be this way. For example, most people today couldn’t tell you anything about the dollar-euro exchange rate, because it just doesn’t matter. The more we deal in one currency, the more we think in terms of that currency, not its exchange rate.

Bitcoin will have matured as a currency when people concern themselves not with the exchange rate in terms of other monies, but with its value against the goods and services it buys. At that point, it will not be necessary for merchants to constantly adjust prices. The prices in Bitcoin will have meaning on their own. Even now, Bitcoin users grow tired and frustrated with the relentless focus on its dollar price. This focus tempts people to think of Bitcoin as a speculative product or investment, rather than what it seeks to be: an emerging unit of account.

Part of the irony of Bitcoin’s volatility is that it is a sign of its success. The markets are testing it, flitting between belief and doubt based on events such as bank runs and currency upheavals. It is a viable alternative today to government currencies, which is why we are seeing panic rushes to buy, followed by panic rushes to sell. Once the futures markets of Bitcoin have matured, we will start seeing those ups and downs smoothed over in a way that at least incorporates the speculative judgments of the players with skin in the game.

So yes, there are myriad problems between where we are today and where I think we will eventually be, with money finally leaving the analog age and entering the digital age. But the trajectory is clear, and those who see this and act on it will be ahead of the historical curve.

Sincerely,

Jeffrey Tucker

A version of this piece was published at the Daily Anarchist.

Bitcoin came into the world worth absolutely nothing in January 2009, only four years ago. In late 2010, it started to move up in ways that blew the minds of innumerable skeptics. In February 2011, there was a milestone that stunned people who were paying attention. It seemed like the impossible was happening, or maybe it was just a crazy bubble.

It was in that month that Bitcoin achieved parity with the dollar. You could trade 1 Bitcoin for $1. It had officially arrived, or so it seemed. Some hyper-geeks who had been owners of thousands of Bitcoins figured that the moment had arrived. They sold their Bitcoins for dollars and made several thousands of dollars. That was the end. They congratulated themselves for being savvy speculators.

Whoops. If they had held on, what might have happened? Well, they would be millionaires today. But once they sold, they had to spend even more to acquire the same amount. Welcome to the real world of speculation. You win some and you lose some. Sometimes both happen with the same trade.

The “early adopters” know this sector very well. They are not shaken at all by the run-ups and sell-offs. They know not to panic in either direction.

One of the fascinating things about this market is how it has drawn in a younger generation to do boots-on-the-ground investing. It has taught people a number of important life lessons, such as to avoid doing the obvious. If you do what is obvious, you buy high and sell low. To do the opposite requires you to break from the pack and trust that your knowledge is better than that of the screaming mob out there.

If you talk to savvy Bitcoin people, they will be the first to tell you that the intense focus on the exchange rate — which afflicts virtually every “newbie” out there — is absolutely wrong. If anything, they say the exchange rate is a distraction.

The purpose of this virtual currency is not to be a speculative vehicle, but rather a means of exchange — a real money. Of course, it has to have value in terms of goods and services in order to achieve that, and that value can also be assessed in terms of existing government monies. But the real aim of this combination payment system and means of exchange is to go its own way as an authentic money.

If this happens, a new world opens up. Just imagine that a Cyprian-style haircut is scheduled in the United States. Ben Bernanke is plotting a press conference to announce an across-the-board tax on all bank deposits in order to refund the Federal Deposit Insurance Corp. This is not bad for you, he will point out, but actually good, because it saves the banking system, and therefore, 99% of your money. If you object, he reasons, you are being shortsighted.

But before he gives his press conference, he remembers that it is a new world. Vast numbers of people have already set up a direct link between their bank accounts and some Bitcoin exchange. As soon as the rumor leaks, people can easily log in and exchange dollars for Bitcoins. Billions could disappear from the money supply in a matter of hours — government money escaping to the private-sector cloud, where it cannot be traced or accessed.

What then? In this case, Bernanke’s plans all come to naught. He will fear his own policies could backfire simply by causing people to lose confidence in the system. By then, people will be aware that they can buy all the tools, groceries, and pharmaceuticals they need with Bitcoin. By that time too, Bitcoin debit cards will make it possible to get gasoline. Under those conditions, what is the point to keeping anything but the bare essentials in dollars?

Might Bernanke rethink his little press conference? Probably. In other words, Bitcoin has suddenly done more than the U.S. Constitution to restrain the state and its banking cartel. The people are no longer monetary prisoners; they have a means of escaping into a realm of monetary freedom. This escape hatch turns out to be a core guardian of freedom and prosperity.

Two years ago, this vision would have seemed outlandish, but today? It is an approaching reality. And unlike gold, which has the problem that it must be kept physically, Bitcoin can live in the cloud, out of the reach of all the bad guys, essentially forever. This is probably the most difficult aspect of Bitcoin for people to grasp.

Now, to be sure, I’m writing as someone only recently converted to the cause of digital currency, so I love nothing more than to talk with people with longer experience. They also have tales of losing money, not just in terms of its exchange rate, but actually losing real coins in the course of buying and selling. It can happen, and most every case I’ve heard of is traceable to user errors. You send money when you don’t mean to. You get your wallets tangled and find that you have mislaid them. This is a particular problem for people who keep their wallets physically on their hard drives and then suddenly find that their computer won’t boot up.

What’s the solution? Aaron Lasher of Real Virtual Currency talked to me at length about the merit of “cold storage.” By way of explanation, hot storage is what you have on hand to use in daily transactions. But cold storage is a way of keeping your coins offline and safe so that no one can access the stuff. You can bring the coins from cold to hot, but it requires a transaction. Many exchanges and client services now offer this feature.

There is an even deeper method of doing the same thing using what is called a “brain wallet.” Under this system, you come up with a 40-character phrase. It could be a poem or a series of random words. You put that into a converter union that changes it to a long private key. Then you move on with your life.

Should the time come when a solar flare hits, or you get in a shipwreck, or you find yourself exiled to Guantanamo Bay, your money is absolutely safe. When real life returns and you get back to normal — this could be years later — you only need to type in your brain wallet phrase, and your access is unlocked. All your money is there, all without having to hide it physically or launder money or any such thing. A brain wallet, then, is the most secure way that anyone can possibly imagine to keep coins.

And it addresses a fundamental fear that many people rightly have.

I’m most fascinated by seeing how the development in the Bitcoin world is proceeding in a beautiful way. We are seeing more retailers jumping onboard. We are see exchanges open up. Venture capital is pouring in. The Keynesian punditry class is furious and denouncing it. The theoreticians are taking up the cause.

On the latter point, I’m thrilled to see the author of one of my favorite books, George Selgin, weigh in on the Bitcoin issue. His book from Laissez Faire is called Good Money and covers the history of private coinage. His new paper on Bitcoin examines the viability of what he calls “synthetic money.” It’s the most coherent scholarly paper I’ve seen yet. You can access it here.

It was also my pleasure to interview Aaron Lasher on issues of security. There are some pretty geeky topics discussed here, but it is extremely informative.

Sincerely,

Jeffrey Tucker

The particular issue concerns one company, Myriad Genetics, and its claim to own the source code of two genes called BRCA1 and BRCA2, which, when mutated, are related to breast and ovarian cancer. If anyone else tries to test for this mutation, the company’s lawyers swoop down and stop it. Their patent claim has netted the company a great deal of profit, and the CEO a huge salary (nearly $6 million).

The Myriad patents have understandably annoyed many people who are interested in the spread of human knowledge about how to defeat this and many other horrible diseases. That’s why the American Civil Liberties Union has sued. One lower court sided with liberty, and another court sided with the monopolist. Now the high court is called upon to settle the dispute.

In particular, the court will try to decide whether these two genes are more correctly thought of as part of nature, and therefore not subject to patent, or are different enough in isolation to constitute a real technological discovery. Obviously, the entire scientific community is rooting against this company. Researchers need up-to-date information.

It’s one thing for a company to keep its stuff private. That’s a normal business practice. Think of Google: Its search algorithm is a closely held secret, but most everything else it gives away. Every business would like to keep its secret sauce secret. But the nature of the commercial marketplace is always working in the other direction. Profits attract competitors, who try to outdo the innovator in service and price.

That’s how free enterprise works. The patents take a secret to a different level. The technology behind the patent is public information — in fact, it has to be. What the patents do is actively prevent other companies who have reverse-engineered the code from using their newly acquired information. In other words, patents essentially violate other companies’ rights to innovate. This is the bone of contention.

In other words, the patent holder is making a killing using a government grant of privilege over something that has been with us since the dawn of humankind. Meanwhile, anyone else who wants into this business suffers, as do the people seeking testing for cancer.

The opinion will be rather tricky to write. It will attempt to avoid the largest question that everyone is asking these days, which is whether any patents are economically and morally valid. Instead, it will try to narrow the ruling to cover only the point in dispute.

The larger issue is what can and cannot be patented with the government. It’s a controversy that has been around as long as the patent power itself. During the Industrial Revolution, it was only the high-profile inventions that were subject to the patent. Think of the steamship or, much later, the telephone and the airplane. Now the limit of the patent is entirely up to the clerks at the Patent Office. They can issue one on anything, and are tested only later in court.

That’s why for those who are convinced that patents in general are a gigantic error — a form of government grant of monopoly privilege — this decision will be disappointing either way. There are so many more patents that deserve a look closer, such as those on software, seeds, and industrial machinery. They all end up slowing development. They are dragging us down.

In a paper for the St. Louis Fed, Michele Boldrin and David Levine makes the point as plainly as possible:

“The case against patents can be summarized briefly: There is no empirical evidence that they serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded — which, as evidence shows, has no correlation with measured productivity. This is at the root of the ‘patent puzzle’: In spite of the enormous increase in the number of patents and in the strength of their legal protection, we have neither seen a dramatic acceleration in the rate of technological progress nor a major increase in the levels of R&D expenditure — in addition to the discussion in this paper, see Lerner [2009] and literature therein.”

This should not be a surprise at all. People say that patents incentivize innovation. That’s just wrong. The prospect of profits incentivizes innovation. The patent only extends the period of profitability — if it comes about — beyond which the market would otherwise allow it. The patent does this by using legal restrictions to prevent anyone else from emulating the invention or improving on it.

The case of the human genome is a great case in point. Research is proceeding at a breakneck pace in every area. Most of the code is not subject to patents. Some of the old patents have run out and become irrelevant. It is only in this area of genes “owned” by one company that we have a bottleneck.

Back in 1851, The Economist magazine had it exactly right. The patent “‘inflames cupidity,’ excites fraud, stimulates men to run after schemes that may enable them to levy a tax on the public, begets disputes and quarrels betwixt inventors, provokes endless lawsuits… The principle of the law from which such consequences flow cannot be just.”

There are many absurd aspects to the current patent case in the hands of the Supreme Court. First, the idea that these lawyers should be arguing a case involving difficult details of scientific discovery is preposterous. Second, the notion that the DNA sequence itself should be subject to patent offends the whole idea of self-ownership. Third, the reality that there is no effective limit on what innovations can or cannot be patented is deeply dangerous to the free commercial marketplace.

The whole debate gets to the core of the whole problem of intellectual property itself. Do we only own the stuff we own or do we own the ideas that go into shaping the stuff we own into other things? Example: If you use ingredients to make a cake, do you own the cake or do you own the way to make the cake — and, therefore, do you have the right to forcibly prevent anyone else from using your method?

The broadest sweep of human history is absolutely clear: We own what we own and nothing more. We can do what we want with our stuff, but we can’t prevent others from doing what they want with their stuff. Not to put too fine a point on it, but Myriad Genetics does not own me or you.

On the other hand, a century or more of decisions shows that the Supreme Court evidently thinks it owns you, me, and everyone. If the court decides against Myriad in this case, how to respond? Thank you, guys, for recognizing the existence of an essential postulate of freedom in this one case at least?

Sincerely,
Jeffrey Tucker

Illustrating the point is the bitter news that the IRS has considered it completely legal to demand access to your email archive whenever it wants. This news came about because of a Freedom of Information Act request filed by the American Civil Liberties Union.

The filing unearthed a 2009 memo that stated outright: “The Fourth Amendment does not protect communications held in electronic storage, such as email messages stored on a server, because Internet users do not have a reasonable expectation of privacy in such communications.”

Forget search warrants and legal processes. In the interest of getting its share, the government can have it all on demand. This assertion was made again in 2010 by the IRS’ chief counsel: The “Fourth Amendment does not protect emails stored on server” and there is “no privacy expectation” on email.

This assertion openly contradicts a 2010 legal decision from the Sixth U.S. Circuit Court of Appeals. United States v. Warshak said that the government must obtain a probable cause warrant before forcing people and providers to cough up email archives. Granted, even that’s not much protection. Government always has its “probable cause.”

Good for the ACLU for making an issue of this. In the coming months, there will continue to be legal wrangling over this issue, which is obviously important to absolutely everyone. But at some level, it’s all beside the point. The problem isn’t the legal process that allows the government to do what it wants; the problem is that government has a hook into personal income that allows powerful people to have their way with the whole of your life.

As we look back at the history, we can see that the income tax enabled a century of intrusions into our lives. It’s been 100 years of a form of imposition that no American in most of the 19th century could have ever imagined or tolerated. The income tax is what enabled Prohibition, for example. Without the ability to monitor and adjudicate how people made money, the power of enforcement would not have been there at all. Remember that Al Capone was not convicted for bootlegging, but for tax evasion.

It is what made possible the central planning of the New Deal. The government’s presumption that it owns the first fruits of labor gave rise to wage controls and mandatory participation in the Social Security system. It allowed the central planners to push aside young workers and tell them that they aren’t allowed to be part of the workforce. It allowed the introduction of the minimum wage that continues to shut out whole sectors of society.

And look what happened during World War II. The price controls on wages and salaries — made possible only because the income tax gave government a fiduciary interest — inspired companies to start offering health care benefits as part of the compensation package. That practice was intensified over the decades until it became mandatory. That practice is a major source of the health care problems we have today. So there we have it: There is a direct link from Obamacare today back to the income tax of 100 years ago.

Just the other day, with the IRS still on the march, the elaborate lunches provided in highflying companies like Google entered onto the radar screen. Shouldn’t these wonderful buffets be considered as compensation subject to tax? The decision is yet to be made, but there is just something unseemly about an agency that can’t let people even enjoy a lunch without demanding a cut.

Frank Chodorov, author of the masterpiece The Rise and Fall of Society, was right to call the income tax the “root of all evil.” We look back to history and are in awe that anyone ever had the full right to earn whatever money he or she wanted to and to never have to tell the government about it. But that was the way it was for the dominant part of American history. That’s the system once called freedom.

It’s striking when you realize just how completely unnecessary the income tax is for the funding of government. In 2013, the income tax will generate $1.2 trillion in revenue for the government. What if we cut back government spending by exactly that amount so that we replace the income tax with absolutely nothing? That would take us back in time to 2004. As Ron Paul would ask, was the government really too small back then? Would society really collapse if we went back to a government we had just nine years ago?

So let’s face it. Yes, the government likes our money and always wants more of it. But more crucially, the government uses the income tax as a primary means of controlling not just our money, but the whole of our lives. That’s the real purpose of the income tax and why the government will fight for its preservation to the end.

Right now, many Americans are sweating it out to get their taxes done in time for the filing deadline of April 15. It would be immeasurably hard without the brilliant companies that have put together software programs — updated constantly! — that make what would otherwise seem impossible rather easy. This is the type of thing that free enterprise and the private sector do. They help us to have better lives. But government? It just takes, snoops, and controls.

Sincerely,

Jeffrey Tucker

It seems unthinkable to people today. That’s because none of us in living memory has had experience with a currency that rises in value. The emergence of Bitcoin — a digital currency that has grown in purchasing power over time — has changed that experience dramatically. As a free-market currency, it does what currency should do, which is increase in value over time.

Conversely, government currencies usually fall in value. That’s the only kind of currency we’ve known throughout our lives. This reality affects our personal financial decisions in ways that we aren’t always aware of. We’ve come to assume that there is no inherent prize to be won by merely holding money.

With paper money, governments and central banks are in a position to punish holding money. Because it can be created without limit, discipline vanishes. Individuals, families, businesses, and government can ramp up spending without limit and avoid the consequences of their behavior. There’s no reason for them not to be profligate.

The dollar didn’t always behave this way. During the Second Industrial Revolution, after the Civil War in the so-called Gilded Age, we had a gold standard. Prices were generally declining for everything. Another way to look at it: The dollar was growing more valuable. It’s almost impossible for us to even conceive of a world that worked this way.

The dollar bought three times as much grain in 1894 as it did in 1867. It bought nearly twice as much cotton in 1877 as it did in 1872. Farmland became more affordable. In general, the dollar gained 2% in value through the whole period. Wages were falling nominally, but rising in real terms, simply because the dollar could buy more. You were getting raises even without begging the boss.

During the same period, population soared and output expanded at levels we’ve not seen anywhere in living memory. Today, we celebrate 2% and get on our knees in gratitude that production isn’t generally falling. But back between 1870-1890, we saw growth rates of 6% and more, and that became the new normal. Sound money was the basis of unprecedented prosperity.

The 20th-century experience flipped our expectations for what money should do. Especially in the postwar period, the falling value of the dollar punished savings and rewarded spending. This is exactly what the Keynesian economists hoped for. They wanted money always circulating and never “hoarded.” “Deflation” was to be avoided no matter what.

To be rewarded for savings, we needed interest that outstripped inflation. That worked for a while, but starting about 20 years ago, the central bank conspired to deny us even that. Today, there is no reward whatsoever. There’s no point to keeping paper around. We hold money only to prepare for future uncertainties, not as a way of investing.

How does this affect the culture? It has a profound effect. It means that people need to be constantly nudged to save. We anticipate losses in holding money, but expect gains by buying and holding stuff like homes. We spend what we can and live at the height of our earning power, which is to say slightly beyond our means. This is the pattern by which many generations have lived.

This tendency has dramatically depleted the capital stock. Again, Keynesians have celebrated this as a wonderful thing. Actually, it is a terrible thing, because it puts the entire economic structure on life support. We end up depending more and more on the central bank and less and less on our own personal wealth. Debt becomes the basis for life itself. If anything threatens to cut off the flow of relentless credit, everyone freaks out.

How does Bitcoin change this? It rewards holding money. It impresses upon the human mind that the cost of spending money is not just the money spent, but also the foregone gains that you would have otherwise realized by saving.

You can try this experiment at home. Let’s say you have a problem teenager who lives like everyone else, throwing around cash and seeing no point whatsoever in saving money. Send that kid a Bitcoin and see what happens, even without hectoring instructions.

To be sure, he could spend it right away on BitcoinStore.com or somewhere else. But there would be hesitation before that happened. After all, on Jan. 1 of this year, Bitcoin was worth $15. As we write, Bitcoin is trading for $218 on the most popular exchange, Mt. Gox.

The thing has been increasing in value daily. Far from wanting to spend it, there would be every reason to hold it.

The kid would even become reluctant to spend on fripperies. Even the act of spending means a current and future loss.

To be sure, this value-increasing pattern of Bitcoin is taking place ridiculously fast, but the point remains: With sound money, there is merit to saving. It is not even something you have to teach. It is something that is built into the program. It changes all our incentives.

Bitcoin is based on the idea that the money supply can and should be fixed. There is an upward limit of 21 million Bitcoins that can be created, and none of us will be alive when that limit is reached. In the meantime, only one Bitcoin “block” is added to the existing stock every 10 minutes. You can’t create more by pyramiding loans on top of existing Bitcoins. A credit market can emerge, and they surely will be these markets, but they won’t actually cause new units of the currency to magically come into existence.

That’s why Bitcoin is often described as a “deflationary” currency. This is exactly why Paul Krugman hates it so much. He very astutely observed in 2011 that this currency means the end of the pattern of a full century, and this is why he hates it:

“In effect, Bitcoin has created its own private gold standard world, in which the money supply is fixed, rather than subject to increase via the printing press…

“What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in Bitcoin…

“And because of that, there has been an incentive to hoard the virtual currency, rather than spending it. The actual value of transactions in Bitcoins has fallen, rather than rising. In effect, real gross Bitcoin product has fallen sharply.”

Here’s what beautiful about this experience: It doesn’t matter in the slightest what Paul Krugman thinks. It doesn’t matter how many economic experts Paul Krugman lines up to oppose Bitcoin. It doesn’t matter how many Nobel Prize winners denounce it and oppose it. That’s because Bitcoin is not a “policy” invented by elite and privileged intellectuals. It is a market-based currency, one created by an entrepreneur and chosen by market players.

And this brings us to another lesson that Bitcoin has taught us. Money is like any other good in society in that it can be produced and managed entirely by the free market. This is the reverse of what scholarly opinion has said for more than 100 years.

Every expert will tell you that the state has to create and manage that money. If we do not do that, we’ll have chaos on our hands. Bitcoin proves the opposite, that a money can emerge from within the market itself, based purely on voluntary behavior, and needs no privileged elites to manage it.

That is an essential postulate of the free society. When government gets hold of the money, freedom is in peril. When the market makes and manages money, freedom has a built-in reinforcement in half of every transaction. In short, just based on our experience with Bitcoin so far, we see the conventional wisdom of a century completely turned on its head. Fantastic!

Should more and more of the world’s money supply be gradually converted to crypto-currency, we will see changes in the way people and businesses manage money. We could see our pattern of capital depletion reversed so that capital accumulation again becomes the norm. People have every reason to get out of debt and start saving again.

Even our teenagers will learn a thing or two about putting off currency consumption and sacrificing now for greater gain in the long term. It’s all so beautiful: the reassertion of the old verities within the most postmodern technology one can only imagine!

Most exciting of all, with money back in the hands of the market — made sound by the brilliance of well-written software — the prospects for freedom will become bright again.

Sincerely,

Jeffrey Tucker

It turned out very differently. A developer suggested that I download a smartphone application called Blockchain. I did this. He then took at an image of my QR code — that funny square design that looks like a 3-D bar code. It looks like this:

Within a few seconds, I was the proud owner of my first Bitcoin. I felt the rush. Ownership changes everything.

My wallet lived on my smartphone. Only three years ago, some wonderful applications had already developed around the currency unit. Although I’m a bit of a “techy”, I’m not a rocket scientist, and I’m quite certain that I would have been out of my league.

But this is how digital institutions develop to become ever more user-friendly. At the same event at which I became a Bitcoin owner, I also used a Bitcoin ATM. I put in the green stuff, held my digital wallet up to the scanner, and then felt the buzz on my smartphone. Physical became digital. Beautiful.

But still I wondered what exactly I could do with these things. That’s when the consumer world of Bitcoin products appeared before me. We aren’t just talking about Silk Road — a website that became notorious for enabling the easy, anonymous buying and selling of drugs. There are Bitcoin stores everywhere. And there are services through which you can buy from any website with a Bitcoin interface. There was even talk of Bitcoin futures markets. Some companies were rumored to be going public with Bitcoins, thereby bypassing the whole of the Securities and Exchange Commission. The implications are mind-blowing.

Sacred Pliers

Still, I’m a tactile kind of guy. I need to experience things. So I went to one of these sites. I brought the first product I saw (why, I do not know). It was a pair of pliers for crimping electric cables. I put in my shipping address and up came a note that said it was time to pay. This is the moment I had been waiting for. A QR code popped up on-screen. I held up my “wallet” and scanned. In less than two seconds, the deed was done. It was easier than Amazon’s one-click ordering system.

My heart raced. I jumped out of my chair and did a quick song and dance around the room. Somehow, I had seen it thoroughly for the first time: This is the future.

The pliers arrived two days later, and even though I have no use for them, I still treasure them.

Bitcoin had already taken off when the surprising Cyprus crisis hit. The government was talking about seizing bank deposits as a way of bailing out the whole system. During this period, Bitcoin essentially doubled in value. Press reports said that people were pulling out government currency and converting it, not only in Cyprus, but also in Spain, Italy, and elsewhere. The price of Bitcoin in terms of dollars soared.

Another way to put this: The prices of goods and services in terms of Bitcoin were going down. Yes, this is the much-dreaded system that mainstream economists decry as “deflation.” The famed Keynesian Paul Krugman has even gone so far as to say that the worst thing about Bitcoin is that people hoard them, instead of spending them, thereby replicating the feature of the gold standard that he hates the most! He might as well have given a ringing endorsement as far as I’m concerned.

Obsession and Resentment

My own experience with Bitcoin during this time intensified. I began to call friends on Skype and scan their QR codes and trade currencies. I began to rope other people into the obsession based on my experience: You have to own to believe. After one full day of buying, selling, and using Bitcoins, I had the strange experience of resenting that I had to pay a cab fare in plain old U.S. dollars.

How can you obtain Bitcoins? This can be a bit tricky, but you have choices. You can go to localbitcoins.com and find a local person to meet you to trade cash for Bitcoins. Usually, this takes place at high premiums, anywhere from 10-50%, depending on how competitive the local market is. It is understandable why people are reluctant to do this, no matter how safe it is. There is just something that seems sketchy about meeting a stranger in an all-night cafe to do some strange digital currency exchange.

A more conventional route is to go to one of many online sellers, link up your bank account, and buy.

This process can take a few days. And then when you set out to transfer the funds, you might be surprised at the limits in the market that exist these days. Sites are rationing Bitcoin selling based on availability. It could take 10 days or more to go from nonowner to real owner. But once you have them, you are off to the races. Sending and receiving money has never been easier.

Doubts?

As of this writing, a Bitcoin is trading for $139. Just three years ago, it hovered at 0.14 cents. Many people look at the current market and think that surely this is a speculative bubble. That could be true, but it might not be. People are exchanging an unstable, fiat paper for something with a real title that cannot be duplicated. Everyone knows precisely how many Bitcoins exist at any time. Anyone can observe the transactions taking place in real-time. Its price can go up and down, and that’s fine, but there is no real speculation going on here endogenous to the Bitcoin market itself.

Is it a pyramid scheme? The defining mark of a pyramid scheme is that more than one person has an equal claim on the same money or good. This is physically impossible with Bitcoin. The program is set up as a strict property rights regime with no exceptions. In fact, in early March, there was a brief hiccup in the system when some new coins were approved by one group of developers but not by another. A “fork” appeared in the system. The price began to fall. Developers worked fast to resolve the dispute, and eventually the system — and the price — returned to normal. This is the advantage of the “open source system.”

But what about the vague sense some people have that a handful of coders cannot on their own cause a new currency to come into existence? Well, if you look back at what Austrian monetary theorist Carl Menger says, this is precisely how gold became money. It was not at first used by everyone. Every new currency is at first used only “by the most discerning and most capable economizing individuals.” Their successful behaviors are then emulated by others. In other words, the emergence of money involves entrepreneurship — that is, being alert to opportunities to discover and provide something new.

The single biggest problem with Bitcoins right now is getting them. The exchanges are overloaded. They can’t sell them fast enough. The virtual Bitcoin trading floors of these exchanges are full and it’s becoming increasingly difficult to make a deal.

This is all part of the pangs of growing, but it can be extremely frustrating for users. What we need are more ATMs that are hooked directly into exchanges. When those come online, crazy things could start happening. We could be looking at the global unraveling of all government paper.

Leviathan Leers

But what about a government crackdown? No doubt that attempt will be made. Already, government agencies are expressing some degree of annoyance at what could be. But governments haven’t been able to control the cash economy. It would be infinitely more difficult to do this with a virtual currency with no central bank, with encryption, with millions of users per day. Controlling that would be unthinkable.

There was a time when the idea that e-books would replace physical books was absurd. When I first took a look at the early generation of e-readers, I laughed and scoffed. It will never happen. Now I find myself looking for a home for my physical books and loading up on e-books by the hundreds. Such is the way markets surprise us. Technology without central planners makes dreams come true.

It’s possible that Bitcoin will flop. Maybe it is just the first generation. Maybe thousands of people will lose their shirts in this first go-round. But is the digitization of money coming? Absolutely. Will there always be skeptics out there? Absolutely. But in this case, they are not in charge. Markets will do what they do, building the future whether we approve or understand it fully or not. The future will not be stopped.

Sincerely,

Jeffrey Tucker

A version of this article appeared in The Freeman.

Absolutely no one imagined such a thing five years ago. Why are we surprised? We should get used to surprises in this digital age. Thirty years ago, for example, if someone had said that electronic text — digits flying through the air and landing in personalized inboxes owned by us all that we check at will, any time of the day or night — would eventually displace first-class mail, you might have said this is impossible.

After all, not even The Jetsons cartoon imagined email. Elroy brought notes home from his teacher on pieces of paper. Still, email has largely displaced first-class mail, just as texting and social network private messages and even Voice over Internet Protocol are replacing the traditional telephone.

It turns out that the future is really hard to imagine, especially when entrepreneurs specialize in surprising us with innovations. The markets are always outsmarting even the most wild-eyed dreamers, and it is certainly smarter than the intellectual who keeps saying such and such cannot happen.

It’s the same today. What if I suggested that digital money could eventually come to replace government paper money? Heaven knows we need a replacement.

Solving Problems a Byte at a Time

Money started in modern times as gold and silver, and it was controlled by its owners and users. Then the politicians got hold of it — a controlling interest in half of every transaction — and look what they did. Today, money is rooted in nothing at all, and its value is subject to the whims of central planners, politicians, and monetary bureaucrats. This is not a very modern system when we consider a world in which the market is driving innovations in other aspects of our daily lives.

Maybe it was just a matter of time. The practicality is impossible to deny: Gamers needed tokens they could trade. Digital real estate needed to be bought and sold. Money was also becoming more and more notional too, with wire transfers, bank computer systems, and card networks serving to move “money” around. The whole world was gradually migrating to the digital sphere, but conventional money was attached to the ground, to vaults owned or controlled by governments.

The geeks went to work on it in the 1990s and developed a number of prototypes — Ecash, bit gold, RPOW, b-money — but they all faltered for the same reason: Their supply could not be limited, and no one could figure out how to make them impossible to double- and triple-spend. Normally, reproducibility is a wonderful thing. You can send me an image and still keep it. You can send me a song and not lose control of yours. The Internet made possible infinite copying, which is great for media and texts and — with 3-D printing — even objects. But this is not a feature that benefits a medium of exchange.

After all, a currency is useless unless it is scarce and its replication carefully controlled. Think of the gold standard. There is a fixed amount of gold in the world, and it enters into economic life only through hard work and real expenditure. Gold has to be mined. All gold is interchangeable with all other gold, but when I own an ounce, you can’t own it at the same time. How can such a system be replicated in the digital sphere? How can you assign titles to a fungible digital good and makes sure that these titles are absolutely sticky to the property in question?

Follow the Money

Finally, it happened. In 2008, a person called “Satoshi Nakamoto” created Bitcoin. He wasn’t the first to solve the problem of double-spending. A currency called e-gold did that, but the flaw was that there was a central entity in charge that users had to trust. Bitcoin removed this failure, enabling miners themselves to constantly validate the transaction record. Nakamoto had each user download the full ledger of all existing Bitcoins so that each could be checked for its title and not used more than once at the same time. With his system, every coin had an owner, and the system could not be gamed.

Further, Nakamoto built in a system of mining that attempts to replicate the experience of the gold standard. The math equations you have to solve get harder over time to adjust to expansions of computing power involved in the mining. The early creators had it easy, just as the early miners of gold could pan it out of the river, though later they had to dig into the mountain. Nakamoto put a limit on the number of coins that can be mined (21 million by 2140). (A new coin currently is mined every 20 seconds or so, and a transaction occurs every second.)

He made his code completely open source and available to all so that it could be trusted. And the payment system uses the most advanced form of encryption, with public keys visible to all and a scrambling system that makes its connection to the private key impossible to discover.

No one would be in charge of the system; everyone would be in charge of the system: This is what it means to be open source, and it’s the same dynamic that has made WordPress a powerhouse in the software community. There would be no need for an “Audit Bitcoin” movement. Trust, anonymity, speed, strict property rights, and the possibility that applications could be built on top of the infrastructure: This was perfect.

It went live on Nov. 1, 2008. To really appreciate why this matters, consider the times. The entire political and financial establishment was in full-scale panic meltdown. The real estate markets had collapsed, pulling down the balance sheets of the major banks. The investment banks were unloading mortgage-backed securities at an unprecedented pace. Boats delivering goods couldn’t leave shore because they couldn’t find backers for their insurance bonds. For a moment, it seemed the world was ending. The Republicans held the White House, but the unthinkable still happened: Government and the central banks decided to attempt a full-scale rescue of the whole system, spending and creating trillions in new paper tickets to fill bank vaults.

Clearly, government paper was failing. A digital alternative had to exist. But what gave Bitcoin its value? There were several factors. It was not fixed to any existing currency, so it could float according to human valuation. It was made from real stuff: the very 1s and 0s that were driving forward the global market economy. And while 1s and 0s can be reproduced unto infinity, the new coins could not, thanks to a strict system in which the coin and its public key were strictly controlled and the ledger updated for every transaction. Its soundness could be checked constantly through instant conversion to other currencies as well as goods and services.

The model seemed impenetrable, the first digital currency that really addressed all the problems that had doomed previous attempts.

Stay tuned for tomorrow’s conclusion, in which you’ll learn about my own personal experience with the currency, including my very first Bitcoin purchase. Hopefully, you’ll see, just like I did, how simple, revolutionary and exciting this idea can be.

Sincerely,
Jeffrey Tucker

It was only a few weeks ago when a local Bitcoin trader in my town wanted a 40% premium for a local cash-to-BTC exchange at the rate of $70 per coin. I balked on grounds that it was too high, since the prevailing market rate was $48. Today, that same trader is asking $132. Seems like I passed up a good deal.

Many people fear that Bitcoin is overpriced right now. This view is held even by people in the Bitcoin community who worry that a move from $15 to $93 in three months is not good for long-term viability. A crash could bring down the currency unit in devastating ways, leading to another round of debunking and clucking from the advocates of government money.

But here’s the truth: No one knows for sure. Maybe the price will keep climbing. Next month at this time, people might be kicking themselves for not getting in right now. My instincts right now tend in this direction. I’m seeing BTC at $250, then $500, and then $1,000 by year-end.

Why bullish? Government paper is failing at a faster pace than anyone imagined would have happened in the past year. The Cyprus disaster took nearly everyone by surprise. No close observer believes that the latest bandage amounts to anything permanent. Moreover, the Cyprus save sets in place an incredible precedent: Bank deposits will hereafter be treated as government property first and belong to the depositors only at the discretion of the masters of the money.

It’s no wonder that Bitcoins are being brought from locales all over Europe, including Spain, Greece, Italy, and beyond. This also accounts for why mainstream news outlets are starting to write about Bitcoin as if it were the real thing, something serious, something that really matters on the world stage.

Meanwhile, Bitcoin applications are flourishing all over the Web. Among them:

• Bitspend.net, which allows you to use BTC on any website
• Bitpay.com, which enables payments on any website
• Coinbase.com is a popular place to buy and sell BTC, plus it gives you a local wallet
• Bitcoinstore.com is the emerging Amazon of BTC
• Blockchain.info is the application that many smartphone users choose.

I can completely understand why this emerging currency causes alarm, not just for central bankers, but also for regular people. People have a hard time wrapping their brain around the whole idea of a digital currency. It seems too abstract, kind of sketchy; maybe it is a pyramid scheme of some sort.

Now, you might think that these same people would have just as much trouble figuring out how such a thing as a dollar or a euro exists. After all, this stuff is just cotton fiber paper backed by nothing real at all, and its value has nothing whatever to do with its physical properties. That has been the case for fully 40 years now, since Richard Nixon destroyed the last remnants of the gold standard.

So there is actually nothing entirely unusual about a money being an abstraction. What’s ironic here is that Bitcoins are in fact more “real” than dollars or euros. They are built from 1s and 0s arranged in a particular way to serve a particular monetary function.

Someone might say, “But that’s not real. That’s just code.” Well, actually, code is real, as real as email, YouTube, Microsoft Office, the weather application on your smartphone, or any other piece of software on the planet.

When Bill Gates first started experimenting with the idea of making an economic good out of software and turning it into a commercial enterprise, he was practically alone. The whole idea of “commodifying” stuff made out of code struck many people as outlandish and probably impossible. We know what happened: Code has become the basis of practically every significant economic advance over the last 30 years.

Yet we still have doubts! I’ve thought about this a long time, investigated my own doubts, and here’s what I find to be an additional major point of resistance.

In the world of software and digits, stuff is reproducible. You send an image to Mom and you still keep the image on your computer. When you download a song, you don’t “take” it from anyone; it’s still there for someone else to download. When you invent software, you don’t have to keep inventing it; instead, you sell the same thing thousands or millions of times.

In other words, copyability is the key advantage that the digital world offers over the physical world. The Internet is one big copy machine.

But copying money? That’s not a feature; it’s a bug. Any digital currency has to and must solve the problem of reproducibility. It must be strictly controlled, as with the gold standard. If you want more gold, you have to mine gold.

It turns out that this is exactly how Bitcoin works. The servers run by miners have to work very hard solving complex math problems that grow more difficult over time. You have to use real resources to make more Bitcoins.

But what about those that exist? How can property rights be enforced? This is the real brilliance of Bitcoin. The structure includes a ledger that keeps track of all existing coins and their owners (not by name, but by digits). There is absolutely no way for one coin to be possessed by two separate people. The ledger is open and changes second by second, depending on the trades.

This is why Bitcoin succeeds where every other attempt to make a digital currency (and there were plenty before) had previously failed. Bitcoin assigned property rights to each unit of exchange and made that ownership a major feature of the software itself. In other words, Bitcoin used computer code to reject what is seemingly the key advantage of computer code: its status as a nonscarce good. Instead, it built scarcity into the code.

Incredible, isn’t it? What’s more, the integrity of the system itself doesn’t depend on a single institution like a central bank or one big corporation, but instead operates in a completely decentralized way, peer to peer. There are no money masters and no money slaves.

Dollars can be produced infinitely, and this power has been used too liberally since 2008. Bitcoins, in contrast, are mined about one every 20 seconds, and each new Bitcoin has a particular owner and cannot be spent simultaneously by two owners. In other words, it is sound, like the gold standard, and structured to be this way. This is why so many people are drawn to it.

There are other advantages that this currency unit has over even gold itself. Gold in large quantities usually has to be stored. Historically, this gave rise to deposit banks that tempt bankers to blur the lines of ownership. When accounts are overleveraged and banks find themselves unable to pay out, they traditionally turn to government for help. That’s how we ended up with egregious institutions like central banks.

Bitcoins completely bypass this problem of storage, since they are literally weightless. They cannot be owned by more than one person at a time, so all loan markets will have to emerge within the strict confines of property rights. That means that emerging markets will exist on a sound basis, with no sneaky attempts to blur ownership titles.

Of course, the promise held out by an anonymous, market-created global unit of exchange with near-zero transactions costs can only be described as mind-blowing. Will it continue to advance? No one knows for sure, but my doubts are melting by the day, especially given the incredible failure of government money and the global clamor for a modern currency that serves human needs.

Sincerely,

Jeffrey Tucker

A notification pops up that there is a meeting taking place in Austin, Texas, a digital Meetup sponsored by the Mises Circle as run by a student name Michael Goldstein. I’m invited to join.

Surely, their bandwidth won’t support my joining. But I figure I will try it anyway. Suddenly, I find myself on camera along with many others, and looking not only at others who have entered the digital space, but also at a group of students in a room where the meeting itself is taking place.

So I do a double take, glancing at my screen and out the window again, and I almost have to pinch myself. I’m flying above the clouds, yet I’m also on the ground in Texas. In technological parlance, the whole thing is made possible by “cloud computing,” but it is also literally true.

When exactly did this kind of thing become possible? There was no headline in The New York Times. There was no grand announcement. I’m not even sure myself when this became possible. Google Hangouts are about 18 months in existence, but the technology keeps improving bit by bit. It seems almost like it all happened in the blink of an eye.

Remember how people warned us about how digits would destroy personal contact? How we would all get sucked into the Web vortex of fake friendship and digital relationships and lose the ability to engage each other face to face?

As far as I can tell, experience is showing the opposite. The digital world is making possible new forms of robust physical networks too, people meeting face to face in social settings that did not and could not have existed even five years ago. And these physical meetings are integrating with digital ones.

And maybe that’s the great benefit of the digital turn. Digits link real-life human beings in ways that had never been possible in previous ages. This allows the formation of human communities to serve a crucial social and political function: They serve as a buffer between the individual and the state. Such networks are essential for the building of human liberty.

Today, there are thousands of gatherings of people from all walks of life that would not otherwise exist. There is a simple reason. Now we can form them and get the word out, and others can find out about them. These enthusiast groups cover crafts, running, surfing, painting, music, technology, philosophy, religion, investment, and every other conceivable thing.

For example, I just returned from an exciting speaking tour of sorts in southeast Texas. Gatherings of this sort — huge cross sections of people from many walks of life — would have been so much more difficult in the pre-digital era. Why? Well, in the past, the organizers might not have known there was a demand, they might not have had the resources to promote, and people wouldn’t have thereby known they should even attend at all.

But with the digital world of Web communities and social media, it all came together quite beautifully. There was a traditional meet and greet in a restaurant one night with a standing-room-only crowd where your editor gave a talk on new strategies for reclaiming our right to be free. This was sponsored by Liberty on the Rocks, an expanding network of meetings all over the country for libertarians.

At the main event, held at Stephen F. Austin State University, in Nacogdoches, Texas, Young Americans for Liberty and the Charles Koch Foundation sponsored a conference on libertarian ideas, as well an event with a more formal and academic approach (but still fun!).

Stefan Molyneux gave a paper on how politics compromise ethics. Jessica Hughes eviscerated the idea that the Constitution is a source for freedom and human rights. Stephan Kinsella presented an illuminating case against John Locke’s idea that we own the products of our labor. Your editor presented a tutorial for living outside the state.

The place was packed, with people coming from long distances to be there. We even had one digital speaker. Walter Block appeared on Skype on the big screen and answered a number of audience questions on banking, labor, the environment, and other matters.

Stefan Molyneux, Stephan Kinsella, yours truly,
and other “meet and greeters,” at Liberty in the Pines, Feb. 23, 2013.

It was a fun, educational, and exciting experience. We all take this for granted, but again, trying to put this kind of meeting together 20 years ago would have been nearly impossible. Today, it is commonplace. In fact, even this very evening, I’m speaking at a student gathering that was easily formed and promoted through Facebook and Twitter, whereas it would have required plastering posters all over campus in the past.

I first began to sense this some years ago when a friend of mine moved to Shanghai. Had this happened 20 years ago, this young American would have been lost and isolated for years, maybe forever. But he and his wife notified their network in advance and arrived with a social structure already in place. They moved into a foreign country with an unfamiliar culture where the language is forbidding and still felt right at home.

This type of thing is happening all over the world and probably in your hometown. It began a few years ago with the institution of the Meetup. But over time, many different venues have served the same purpose. Facebook and Google started allowing events to be created, shared, and promoted. And the lines between digital and physical are blurring so that Google Hangouts and Skype meetings of groups commonly extend and entrench the relationships formed in physical spaces.

As a result, all kinds of intellectual societies are becoming ever smarter and more sophisticated. This is particularly true in libertarian circles. Students today are able to read and borrow from thinkers from all ages. Barriers between factions have broken down. The learning never stops, extending from digits to real life and back again. This has put new pressure on me as a speaker, but in a good way: If I ever repeat myself, someone will take note!

Coming up in Las Vegas, July 10-13, 2013, is the largest gathering of the year. The event is FreedomFest, and there could be as many as 3,000 people there. Laissez Faire Books is sponsoring an entire day of talks and panels. We’ll have a large book table of all the speakers’ books. The event keeps growing year after year because it gets better and more people are hearing about it.

Technology has heightened the value of the event, and the event has heightened the value of the technology. They work together. The result is the formation of a new community of people who find new forms of strength, intellectual confidence, and human camaraderie in discovering that we are not alone, but are part of something much larger than ourselves. We are part of a generation radically rethinking the way the world works and the role of politics in society.

Sincerely,
Jeffrey Tucker

A new survey shows that 57% of households have less than $25,000 in total household savings and investments. And the trend line looks terrible and is getting worse.

Meanwhile, everyone is living longer, but not healthier, meaning that people will be more dependent in their older years than ever before.

The moralists are quick to condemn this as resulting from a deep character problem in all of us. But economists prefer to look more deeply at institutional factors. What could account for such shabby planning on the part of American households?

Look at monetary policy. Where’s the reward for saving? It’s not there. The Fed has nearly abolished the normal rate of return on savings.

More than that, a policy of zero interest encourages living for the day, spending as much as you can, and leveraging up lifestyle. After all, where’s the downside? Zero rates suggest little or no risk to borrowing. They suggest that there is no reward for saving. The signal is all is right with the world, so spend, spend, spend. In other words, this isn’t a character flaw at work. People are merely responding to the signals they get. The Fed, not the human heart, deserves the blame.

I’ve spent a good part of the week doing a close study of Ludwig von Mises’ writing on the business cycle, which Laissez Faire has collected in a handy volume called The Illusion of Wealth, edited by Robert Murphy. What I found here has surprised me. What we get from this theory is not a mechanistic caricature as portrayed by Paul Krugman and others. It’s not as easy as: 1) The Fed expands money, 2) production revs up, 3) price inflation goes nuts, and 4) the system crashes.

Mises’ views are much more subtle and complex than that. The effects of loose money and artificially low interest rates do not always show up in the form of a general increase in prices. It all depends on the response of the banking system and the expectations of consumers. More likely, the price effects will show up in particular sectors like the stock market and wages. This is where the cyclical activity can be observed, says Mises. All the while, such a policy depletes capital and savings, leaving the economy more fragile in dealing with future contingencies.

According to Mises, there are two vehicles for economic progress: “the accumulation of additional capital goods by means of saving” and “improvement in technological methods of production.”

If you look around the world today, you see gobs of technological improvement. In fact, we’ve seen astonishing amounts of it over the last 15 years. This is exactly what Mises’ theory would predict. When the Fed lowers the interest rate, the pace at which new technologies come to market increases. The risk of failure is lower.

The common view is that when scientists and engineers discover stuff, it is quickly shoved out into use and becomes part of our lives. End of story.

This is not how Mises views the situation at all. In his view, there is vastly more technology available than is ever put to use at any moment of time. It’s like it is stored in a huge warehouse. The hand of the market — powered by capital accumulation — reaches into the warehouse and pulls out technology and tries it out in the marketplace to see if it can succeed or if it will fail. The entire process is nicely balanced: New things are supported by savings and capital.

The entire balance is upset when the Fed lowers rates of interest and injects speed into the system. The hand that reaches into the knowledge warehouse works at a much faster pace. We get ever more cool things to use at an ever increasing pace. This innovation is not fake; it really is a source of economic progress.

So what’s the problem? The problem occurs on the other end of the scale, in the realm of saving and capital. Here we see depletion. Consumers leverage up. Businesses expand dramatically. Everything in sight is put to use as soon as possible. There is no rest, no pulling back, no waiting. Everything must happen now, as if there is no tomorrow. This particularly affects the financial industry, which grows larger and larger despite fewer and fewer real resources.

This tendency toward relentless capital depletion, combined with a hyped-up pace of technological development, perfectly describes our economic times. If we look at what has happened to individuals saving since the Fed got in the business of interest-rate manipulation as a full-time gig, we see a steady rate of savings become utterly wild. It is depleted in the boom, and then panic sets in during the bust. Once the crisis settles, private saving plummets again.

This is a direct result of Fed policy that has been driving rates systematically lower over the decades and intervening ever more in the market’s signaling mechanism.

Meanwhile, we are literally addicted to technological progress. We have to have it at increasing rates else we stop growing. The progress is real, but too necessary to sustain prosperity. It’s like a person who goes to the gym and gets stronger and stronger, but must or else he can’t run or walk at all. The economy is not self-sustaining. The credit has to flow and flow to keep underwriting innovation.

And as Mises would predict, what seems like economic progress is not entirely fake but it comes with a rub. Incomes aren’t really increasing, because capital is not being accumulated. Prosperity exists and continues apace, but it has a very weak foundation. It is nothing more than a “castle in the air,” as Mises would say. (In the original German, the word is Luftschloss, meaning a dream that is not realistic.)

Notice that the scenario that Mises maps out here can include such things as the hyperinflation of history and legend, but it need not. Bad money does damage either way. And the damage is long term — not a crisis tomorrow or the next day, but a long-run effect that slowly erodes the foundation of a growing economy.

This is not the usual business cycle story that we hear attributed to the Austrians, but it is the one told by Mises in his most mature writings collected in this wonderful book ,The Illusion of Wealth. The scenario doesn’t make the headlines and doesn’t embolden politics movements, but it is no less real.

People can live in a house a long time without paying attention to the reality that the foundation that holds up the building is cracked and rotting. What’s the way out in this case? We need sound money with market-based interest rates. It’s not we who are corrupt, but the policymakers behind the Fed who are choosing short-term gains over long-term sustainability.

Sincerely,

Jeff Tucker

True to the nature of government propaganda, the Cypriot head of state, Nicos Anastasiades, says this “stability levy” is necessary to forestall “a complete collapse of the banking sector.” It’s the same kind of language we heard in the fall of 2008 — an intimidation tactic used to shove through TARP and unending bailouts.

More likely, the plan to tax all Cyprian bank deposits 6.75-10% will trigger one. Or maybe just the talk of it already has. We can’t know for sure, because the government of Cyprus has declared a banking “holiday,” a term that means that the robbers take a vacation from being held accountable for their actions.

What this plan signals is pretty clear: Your money is not in the bank. If you get there fast and withdraw what you can, you might survive. If you delay, all bets are off. That means an old-fashioned bank run — the ultimate check on the soundness of banking.

Another way to look at it: It’s a game of musical chairs, and the music has stopped. The purpose of the “holiday” is to tase people so they can’t find their chair.

The tax is part of a $10 billion bailout arranged by eurozone countries together with the IMF. So far during the long, slow, relentless, meltdown of the world’s banking systems over the last few decades, the idea of outright confiscation has been something that governments have generally tried to avoid.

It turns out that people don’t like to be robbed. They normally like to think that the money they put in the bank is accessible to them. So when Anastasiades demanded this, he got massive pushback from legislators and depositors.

Meanwhile, people were scrambling to get money from ATMs and trying to wire money out to safer havens. That’s when the rude surprise came: Their accounts were locked and transfers have been stopped. ATMs are marked “out of order.”

As I write, legislators have backed off the proposal to loot absolutely everyone equally, but instead will focus the most intense effects of the heist on only the very rich. This might make it more palatable for lawmakers, but no more so for the population at large. Politicians can promise that this is a “one-off levy” all they want, but anyone who believes that is an utter fool. Citizens can be pretty dopey in believing political promises in general, but when it comes to their own money in their banks, their gullibility certainly has its limits.

Americans can be forgiven for having spent most of their weekend ignoring news out of Cyprus, a country they last heard about when studying ancient civilizations in high school. A friend of mine from Cyprus who lives in the U.S. gave up trying to explain where he is from long ago and is now satisfied to tell people he is from Greece.

Actually, Cyprus is one of the world’s most prosperous countries, owing mainly to its status as a world financial hub. As Doug French put it to me, “This is a bank with a country attached.”

Its population is mostly tourists and fluctuates based on season. But its prosperity for the last 20 years is due mostly to the deposits it receives from all over the region, especially from Russia. This is why Vladimir Putin has become involved in the current controversy, denouncing it as unfair and unwise.

The trouble is that Cyprus has to raise the money. It has to come from somewhere. The core problem is that this proposal, especially the idea of taxing deposits that fall below the deposit insurance ceiling, undermines that elusive but absolutely essential thing called confidence.

If people no longer believe in the system and run on the banks, the whole thing can unravel very quickly. In most countries today, there is depository insurance that provides the illusion that people’s deposits are safe. The remarkable thing about the “security levy” is that it amounts to an open announcement that there is no assurance that the money must come from somewhere, so they might as well get from in the most obvious place.

There was a time when banks operated like normal businesses, performing a service in exchange for payment, while clearly delineating what part of people’s deposits were at risk (and, therefore, paid a premium) and what part were security (and, therefore, a service to be paid for). But central banking and fiat paper money have confused the issue to the advantage of the financial system, but to the disadvantage of depositors, especially when faced with a crisis moment such as this.

Still, it is an unprecedented move, one that harkens back to the days of the early New Deal, when FDR closed the banks, suspended the gold standard, and outright changed the definition of the dollar in order to bail out the banking system. This kind of thing is not supposed to happen these days. The bankers are supposed to be wiser and more sophisticated, using fancy tools of monetary policy to continually shore up confidence in the system.

The suggestion that the banking system just outright steal people’s money — even if it doesn’t end up getting through the legislature — has dramatically changed the psychology of banking throughout the eurozone. Over the coming weeks, Spaniards, Italians, Russians, and many others throughout the region are going to be quietly (or maybe not so quietly) testing the same, pulling deposits and finding other ways to secure their funds.

The word central bankers everywhere dread: contagion. It means the spreading of truth and actions based on that truth. Might Cyprus be the new bubble that breaks the world? It’s a good time to revisit our friend Garet Garrett’s 1932 classic that retains all of its explanatory power: A Bubble That Broke the World.

For banking regulators and politicians, this really amounts to an epic fail, even from their own point of view. They never want the veneer of stability and soundness stripped away. They want a population of depositors blissfully unaware of the vulnerability of the monetary and financial systems.

You might ask, “If you are so smart, what do you suggest?” That’s easy: default and bankruptcy.

Contrary to the conventional wisdom, the Lehman Bros. case is not a model to avoid, but one to follow. Let the Cypriot banks that are under threat die a quick death, even if that means not paying those who believe they are owed. Under the conditions, there is accountability and there are permanent lessons learned.

This approach — yes, it is far-flung and stands zero chance of actually happening — might actually restore sound banking practices. Just imagine a world in which banks operate like honest, solvent, self-reliant businesses, not lying, not teetering on the brink, not depending on government and politicians and central authorities. Seems like a dream, but we can get there through a simple step: Allow the failure to happen.

But might that approach trigger a Euro-wide meltdown? Maybe. That seems to be something that is going to happen with or without this “one-time stability levy.”

Meanwhile, the banks are closed. No one in the eurozone is sleeping well at night. And it’s going to be a wild week.

The Euro crisis alone might account for why Bitcoin has moved from $15 to $48 in three months. Is it possible that Russia’s largest depositors saw this coming and have been slowly moving money out to the digital safe haven? We’ll never know, because the transactions are anonymous (thank goodness). But ask yourself this question: Where would you rather have your money? In Bitcoin or insured deposits in Cyprus?

Sincerely,
Jeffrey Tucker

It’s not a crazy assumption, either. In government’s ideal world, the politicians and their bureaucratic armies would have all the guns and the people would have none.

We know this from experience too. Look what happens in a natural disaster when FEMA takes over under martial law. They confiscate weapons. Heck, it’s true when the U.S. invades a foreign country. The people are disarmed, all in the name of keeping order. They did this in Iraq and Afghanistan.

So it’s not paranoia to suspect that government wants to disarm the population. That’s as true at home as it is abroad. It is all a matter of whether powerful rulers can get away with it.

Fortunately, in the U.S., it’s not so easy to just take people’s guns away. We have this thing called the Second Amendment. It turns out that sizeable parts of the population believe that it should be read and interpreted as if it were plain English. And for that reason, every president who wants to ban guns has to float the idea (a trial balloon) to push it through some kind of proto-legislative process.

Even since Clinton’s Federal Assault Weapons Ban of 1994, trial balloons have been a “buy” signal in the gun market. Really, the whole thing is hilarious. The president’s threat to ban even small classes of weapons — inevitably — causes a massive, populationwide scramble to buy as many guns as possible. Talk about unintended consequences! These small-time gun skeptics end up being the direct cause of a whole population of people arming themselves to the teeth!

See Ruger’s stock price:

Anyone who reads my stuff knows that I’m not really into guns myself. But I directly benefit personally when other people arm themselves. I might be the only home on the block without a gun rack and a pistol in every room, but would-be criminals don’t know which is mine. In states where people can walk around packing heat, criminals can’t know who is and who isn’t. They have to be that much more careful.

So, of course, the same thing has happened with Obama. After the Sandy Hook massacre, left-liberal pundits went nuts, demanding new weapons laws. Then Obama himself passed some executive orders that didn’t amount to much, but vaguely seemed to look down on private ownership of guns.

That was the trigger. Backfire! Lines formed outside every gun shop in the country. My local places started staying open 12 and 18 hours. Ammunition flew off the shelves. Wal-Mart started rationing bullets. Others just ran out. Secondary markets started showing up in sketchy areas of the Web.

The shortage caused police departments themselves to stock up. That alone furthered speculation that the police state was imminent, thereby fueling more fears of future shortages. The whole problem has been going on for weeks now, getting worse and worse for consumers and better and better for the industry itself.

It’s been the same with gun ranges. You used to be able to walk in and get a spot to shoot. Now you need a reservation. And the more people shoot, the more they need to buy because, well, you use up bullets when you fire them.

In short, it is a bull market in weapons and ammunition. Ironically, the whole mania has been set off by the government’s own anti-gun language. It’s getting to the point that the best path to business success in America is for some powerful politician to suggest that your good or service might need to be banned.

What a symbol of the ineffectiveness of government in our time! The whole nation figures that government is up to no good (all polls show that government is more deeply unpopular than ever before), so whenever government says one thing, the people run out and do the other. It’s a great turn of events in the history of public policy and, truly, one worth celebrating!

But you might be thinking: This can’t be all good. After all, guns could actually be banned in time. They keep ramping up the restrictions year by year. More reporting. More background checks. More papers to sign. More disclosures. In time, it could really happen. They will grab them all. Then we’ll be sunk.

Not so fast. The market’s love of technology is coming to the rescue.

On the front lines is a group called Defense Distributed. Their idea is to develop and publish plans for guns that can be printed off 3-D printers. These contraptions are in the process of revolutionizing manufacturing. They are already used industrywide (including even building large aircraft) and are coming online for home use. With a wiki-gun blueprint, anyone will be able to print a gun at home. And so much for all gun control.

This is edgy, but not illegal. It is not illegal to manufacture guns; the restrictions pertain only to selling and buying them. So what Defense Distributed is suggesting here falls within the law. Still, it’s controversial. They first started raising money with Indiegogo, but the fundraising site caught wind of the project and pulled it. Fine. The group turned to raising money from its own website, encouraging Bitcoin donations. Problem solved.

But then another problem cropped up. They were leasing a big, expensive printer to do the testing from the company Stratasys. Stratasys too freaked out and demanded its printer back. Of course, any private company has the right to do this, but the hand of government — threatening everyone — is in the background here.

Such are the roadblocks to the future. But here’s a principle to learn and count on: Regulators and bureaucrats can slow down the future, but they can’t stop it. It is going to get here one way or another.

3-D printing promises to change the whole relationship between citizens and those who govern. Patents, regulations, product bans, prohibitions, taxes, and everything else collapse in the face of such things that smack of Star Trek replicators. When the whole world — even the physical world — is digitized, it is out of anyone’s control.

With technology, freedom is our destiny. Those who rely on command and control will find themselves without anything to command or anyone to control. It’s a beautiful thing.

If you are curious about Defense Distributed, take a few minutes and watch their video. This is serious. No one is going to stop it.

The term scapegoat comes from the Bible and refers to the goat cast out of the community as part of a purification ritual. Perhaps when people saw that lonely goat walk away and probably into its death, it made them feel better about themselves.

Weird, right? We don’t think that way today. Except we do.

The scapegoat since the 2008 financial disaster has been the business sector in general. The anti-capitalist frenzy started with a justified hit on the financial elites who benefitted from the bailouts. But inevitably, public wrath turned against anyone trying to make a buck.

The caricatures have been absolutely brutal. Every corporation is criminal. All rich people are thieves. Wall Street is nothing but a racket. Every entrepreneur is a con man. The driving motivation of all business is greed.

And so it has been for five solid years. The public sentiment has made the whole of commercial society very nervous and paved the way for more government intervention and taxation.

Those who know something about real-life business watch all of this with stunned silence. Are people really all that clueless about how hard it is to make a buck in this world?

It turns out to be very difficult to come up with ideas for goods and services that people will accept in exchange for money. It is even more difficult to take in more money than you spend in order to provide those goods and services. And there’s an even more difficult step: You have to compete with everyone else who is trying to do the same thing. This competition has a tendency to drive whatever fleeting profits you make to zero.

It is a common error to believe that entrepreneurship consists of coming up with one good idea and making one good judgment. Nonsense. Good judgment is a daily requirement. It affects everything you do from product development, research, inventory decisions, and employment to marketing. A bad decision tomorrow can negate all the good decisions of the last month.

Risk is inescapable. You bear it all; the consumers bear very little or none. Then there’s the uncertainty. No one has a crystal ball on what the future looks like. It doesn’t matter how big or how allegedly mighty a business is. It can never escape the curse of the dark glass that clouds the future.

The only way to accomplish this is to be wildly attentive to unmet needs in society, to be super attentive to accounting details, and to always be prepared to improve in your service to others. As for greed, anyone can be possessed by it — rich or poor, public or private — but it makes no real contribution to business success. Ramping up greed only tends to cloud judgment.

The truth is that the commercial life is one of implausible self-sacrifice. It is a life of instability. You never go to sleep at night fully relaxed and you never wake with absolute confidence about what the day will bring. Every day brings changes and events that defy expectations. This tendency instills a level of humility in the commercial world unknown in politics or academia.

But what about the wonderful profits? Well, if they are there at all, which they are not most of the time, the true capitalist is actually rather cautious about how they are used. We often hear about the “profit motive,” but I doubt that this phrase means much at all. Profits are never certain, nor do they last. They can’t be the sole reason that people enter business life.

What function, then, do profits serve? For the entrepreneur and the capitalist, they serve a symbolic value. The signal that the enterprise is on the right track. They are the sign and the seal of a job well done. It’s not about the money as such; the profits are an indicator that helps guide decision-making, ratifying the good steps of the past and pointing toward a possible plan for the future.

Once you begin to understand the real nature of business, you have to wonder: Why the heck does anyone do this? It comes down to a personal passion, the desire to make a difference. It’s a vocation, a calling, a special flame that appears in the hearts of a certain class of persons. It is not universal. But neither it is possible to entirely extinguish.

A free and prosperous society should marvel at the accomplishments of its businessmen and businesswomen. These are true public servants, people who endeavor at great personal sacrifice to drive history forward and grant the human race a greater degree of material prosperity tomorrow than it enjoys today. These are the people who really keep hope alive.

Yet… as if to perform some ancient superstitious ritual, what do we do? We throw a rope around their necks and drag them out to the desert. They are the scapegoats.

It was my rare privilege to catch up with one fascinating young entrepreneur named Trevor Koverko, who is in the early stages of putting together an Internet startup called eprof.com. In this interview, he tells the inside story of the sacrifice, the work, the dream, the disappointments, and the incredible vision that it takes to make something like this happen.

There might come a time when this young man’s website will be as popular as Amazon or PayPal. Becoming just another website that everyone uses and all people take for granted as if it had always been there. No big deal. In the end, it’ll be just another successful business, and surely the entrepreneur behind the thing deserves no special adulation.

Therefore, I present to you what such enterprises look like in their earliest stages. You will appreciate getting a look at what it takes to live this kind of life. I hope you come away from this interview with a great respect for the commercial sector and its contribution to our world.

He deserved it. Before the end of the night, the significance of what he was doing was being described as “epic.” What began as a surprise political move became a bipartisan cry against all the evils of our times, which somehow all come down to the egregious power of the executive state and its omnipotent power over our lives and property. It became political theater unlike any we’ve seen in many years. The target: all terrible things.

In short, it was a beautiful day on Capitol Hill.

It all came courtesy of Sen. Rand Paul, the man who has brought truth, excitement, fun, and the appearance of real-life morality back to the Senate.

We aren’t used to this. What normal person pays attention to politics, much less to the Senate? Here was something that actually happened — for once. Something important. Something even… epic.

This is a story about one man who decided to say, “Enough.” It’s a so-called “talking filibuster,” a last-ditch effort that stops legislative action completely. Something undertaken only in an epic case, a time when there is a hinge of history. Is this that hinge?

Alice in Wonderland? Nicely played, Senator.
“Stand with Rand” and send a clear message to your senator by clicking here.

Sen. Rand’s action began just before noon. He started by standing alone against the nomination of John Brennan for the head of the CIA. This Brennan guy is the top advocate of the drone program and the White House’s super-creepy claim of the right to kill American citizens on American soil using unmanned aircraft.

The White House that wants him appointed refuses to rule out killing you and me if dear leader thinks it is necessary. The policy as fact has been in place for a long time, but this administration wants it formalized.

Are civil liberties at stake? It’s a no-brainer. Well, why is there any controversy about this at all? How much despotism can the American people stand? How did we come to this point? How long will the politicians in Washington pretend like this isn’t happening?

There is an elephant in the living room. That elephant has been nominated to head an agency that has been up to no good since its inception after World War II. An agency that operates in secrecy and embodies everything that is wrong with the whole institution of government. And now some guy who favors the right to kill you and me on a whim has been tagged to head the agency.

Something’s gotta give.

Sen. Paul seemed to break the taboo. He finally said it: This winner of the Nobel Peace Prize is asserting the right to kill citizens right here, without any recourse to courts or law or anything related to the dead letter called the Constitution. His appointee is ready to do the deed.

In his first hours, Sen. Paul said:

“When I asked the president, can you kill an American on American soil, it should have been an easy answer. It’s an easy question. It should have been a resounding and unequivocal, ‘No.’ The president’s response? He hasn’t killed anyone yet. We’re supposed to be comforted by that.”

Again, his one question: Why won’t the president say that he won’t kill noncombatants with drones on American soil? The White House pretended none of this was happening.

Just before noon yesterday, Rand Paul stood alone. Then others joined him. Still others. Rand talked and talked. He went on and on. The online crowd began to grow. And grow. The tweets grew and grew. Facebook went nuts. It went on all day. The Senate chamber filled up by the evening. The fracas became frenzy and then became a mania. Hashtag #StandWithRand became the Internet meme of the night.

Here is how the global Twitter map looked a few hours before the filibuster ended, with #StandWithRand as the top hashtag used around the world (the larger the hashtag, reflects a larger number of tweets emanating from that area.)

Sen. Paul spoke for the multitudes. And he continued. And continued. It was brilliant. It stopped only once biological needs called.

It’s pathetic that it had to come to this to see some meaningful protest. Still. It’s thrilling that this protest has finally come. That The Wall Street Journal and The New York Times heaped disdain on the Senator confirms that he was on the right track.

I have my own theory about the meaning of all of this. I think it is about the digital revolution finally reaching the most impenetrable apparatus on the planet. Sen. Paul was the instrument, but the tune is made of technology.

I must invoke the memory of the prophet of our age Aaron Swartz. He is dead due to horrible hounding by the government. But before he died, he was working on a new software package that was extremely powerful. It offers a way to apply digital media to the cause of politics. He showed the power of his model with the 2012 attack on SOPA. Pretty much working alone, he defeated this cursed legislation that would have disabled the Internet.

Like most people, I long ago lost faith in the political process. It is a waste of time. It is a game for suckers and fools. The government owns the system, and it will always be so, no matter who is ostensibly in charge.

Yet… I respect Swartz. He might have been on to something. He posited that there is power when the people can swarm the state apparatus with digital communications: emails, petitions, tweets, memes, digital protests. This is different from regular politics. It is turning the machine upside-down and inside out, bypassing the lobbying, rallies, voting, and electing entirely in favor of direct confrontation between the ruled and the rulers.

Remember that government is the most paranoid institution on the planet. It is extremely jumpy for that reason. You know how the petty thief is always watching his back, worried that he is going to get caught? Government is like that. It is always and everywhere engaged in criminal activity. It mainly worries about being found out. It fears discovery. Digital media permit every American to say, “You have been found out!”

Is that what’s going on? It has made a difference in this case. The drone issue, which has been a big one for Laissez Faire — our petition against Brennan and his drone policies gathered 10,000 signatures — has been one that has sent a powerful signal to the power elite.

Sen. Paul is a great political entrepreneur. He stepped out in front — alone at first, but with the whole body behind him eventually, and today a large whole of the people too.

Government should fear the people. Today, at least some sectors of the government are a bit more afraid than they used to be. My friends, that’s victory. It is not about who will gain power next. It is about dismantling power completely, one step at a time.

“Can I get a candy bar?”

Someday, that candy will be freedom itself. It’s coming. It’s going to happen — with or without our political leaders.

P.S. To all people who are sending me evidence of Rand Paul’s various heresies, you can save your bandwidth. I’m not interested in saint making or witch burning. I’m only interested in one thing: progressive reductions of the role of all government power in people’s lives all the way to zero if possible. Whatever brings that about, in whatever sector it happens, and whether it happens slowly by steps or all in one fell swoop, I’m for it. I really don’t care who or what makes a contribution to this end or how it comes about, so long as it is ethical and it actually achieves the aim of human liberation, the mother of all progress, order, and higher civilization.

Curious about what it looks like outside, you finally manage to pry open the front door. Off in the distance you see what appears to be a herd of cattle. But they are not moving. Maybe they are dead, frozen as anything would be. But then why are they standing?

Fearing starvation and longing for the taste of beef, or maybe even fresh milk, you decide to take the risk and creep out into the weather. The herd is perhaps 100 yards away. As you get closer, they do not run. They seem stuck in place. You notice that there is steam coming out of their nostrils, so they are not dead.

It turns out that they have all been blinded. The steam from their nostrils turned to ice and hardened around their eyes. Cows don’t move when they can’t see.

The cows are branded, meaning that they belong to someone, but they are clearly lost and probably far from home. One cow looks almost dead. You take out your pistol and shoot it, putting it out of its misery. It is not lost on you that you can drag it back to your dugout and cook it.

Then the prospect of milk occurs to you. You are not a thief. Stealing a branded cow seems not quite right. So you look through the herd. You find one without a brand. You lead it back through the snow to your shed. You return to grab the dead cow, drag it back, and chop it up for meat.

Then you return once again to scrape the ice off the eyes of the remaining cows, and they garner strength to move at last. They head out, perhaps returning to their pasture or perhaps to town. You can’t know for sure but you do know this: if you hadn’t done this, they would all die in a day or two. You saved the whole herd but for the nearly dead cow you killed and the one you took for milk.

How do you deal with this morally? This is the dilemma faced by a young frontier woman of 17 who is trying to survive by herself in the Dakota territory.

The story appears in the gripping novel Young Pioneers by Rose Wilder Lane. The young woman is morally scrupulous, a good person who would help anyone in need and who would never steal what belongs to someone else.

But these were extraordinary times. She feels oddly about what she has had done but ends up reconciling herself to it. After all, she save the whole herd or at least gave the herd a second chance for life. The payment for her services — though they were never contracted as this would be impossible given the weather — was some meat and one live cow.

It strikes me that she did what many might do, and that there is probably nothing wrong with what she did. The owner would be grateful. It’s unlikely any reasonable jury side against her. Personally I like the story because it seems more real world than the abstract and purely hypothetical scenarios that intellectuals conjure up to decided the rights and wrongs of private property. The story isn’t structured to bring about some grand conclusion. It seems more like real life.

What does the story imply about property rights and ethics? Probably nothing grand. At most, it shows that a temporary expedient taken during an emergency does not violate the larger principle for private property and against theft. Life is more complicated than any philosopher’s or ethicist’s model. It also illustrates how people can work out their own problems even in absence of government (which didn’t exist in this land and in this time) so long as there are clear boundaries about what is mine and what is thine.

In fact, this might be considered a summary of Lane’s whole worldview, and the worldview of that entire generation. The novel Young Pioneers is based on real life, exactly as the author had heard it as relayed by her mother Laura Ingalls Wilder, the author of the Little House series. Indeed, there is strong evidence that Rose herself heard all those stories from her mother and wrote them up, assigning authorship to her mother (they were her stories after all, drawn from real frontier life).

And yet, Rose herself signed a number of books herself. Her most famous is the Laissez Faire Club selection The Discovery of Freedom. It’s a favorite of mine. She shows how the human spirit is uniquely capable of creativity and productivity when it is unencumbered by authority that overrides individuality. It’s a stunning reconstruction of history in light of this one simple insight.

But her novel Young Pioneers takes that insight and puts it in novel form. We follow the harrowing life of David and Molly as they leave their comfortable lives in the East for a crazy adventure into the unsettled West. This is period in which unprecedented prosperity was dawning in the East. The tycoons of industry were building mansions and the age of steel was being born. People were living longer and happier lives.

And yet, at this very time, a new generation set out West into a land of terrible danger and grueling nothingness — all in the hope of living out a life of freedom and independence. All while making a grand contribution to founding a new society based on the principles of self reliance. David and Molly nearly met their doom but they refused to relent. What an inspiration it all is! And yet how forgotten it all is!

Today people complain when their wireless network is flakey, when a smartphone app is available in one operating system but not in another or when the beef at the store is corn rather than grass fed. Talk about your “first-world problems.”

More strangely, people spend the big bucks in elite stores to consume an upscale primitive lifestyle with natural soap, free-range chickens, and eco-friendly toilet paper.

This book reminds us of what real primitivism looks like: disease, starvation, killer grasshoppers, freezing to death. Not all problems are imposed by nature in her narrative. Some are man-made, like personal indebtedness. This proves to be as much an enemy as wolves and outlaws.

The biggest enemy of all today is one that no one in the West in 1870 had to deal with: massive taxation, regulation, legal barriers, depreciating money, and the ghastly burden of government generally. The pioneers overcome their barriers. Can we overcome ours?

As I closed the book this weekend, feeling completely enraptured about the history and the world that had been opened up to me, I had to find the right way to urge everyone to read it — especially young people who know nothing of such suffering. They know challenges of a different sort — mostly dealing with a government that has cut off opportunities for their own achievement of self reliance.

What this generation needs are examples of people who faced far higher barriers and far worse trials and overcame them. What if Lane’s purpose in writing a book like this (which came out at the dawn of the New Deal) was to show a way forward for future generations? What if she was writing an allegory that applies in all times and all places?

Fortunately, I have a way to share this book with a new generation. The Laissez Faire Club is offering this book as an instant download with membership in the Club. Also, the Club offers her other masterpiece, The Discovery of Freedom, for free, along with many other membership benefits. Click here to see them all.

A book like this can inspire, teach, and change a life. That’s why Lane wrote it. It is a timeless classic with lessons for then, now, and the future.

Sincerely,

Jeff Tucker