04/22/07 – Robert Murphy – The Scott Horton Show

For LewRockwell.com and Chaos Radio 95.9 FM in Austin, Texas, I'm Scott Horton and this is Anti-War Radio.
First guest today is Robert P. Murphy, Ph.D.
He's an adjunct scholar at the Ludwig von Mises Institute and an analyst at Laffer Associates.
He has worked as both an economic scholar and law professor.
He's a scholar and lecturer as an investment business analyst and as a writer of popular journalism on economic topics.
He's from Nashville, Tennessee.
Welcome to the show, Bob.
Thanks for having me, Scott.
Well, you've got this great book here, The Politically Incorrect Guide to Capitalism, with a big capitalist pig right on the front.
Yeah.
And underneath an endorsement from Congressman Ron Paul, I should add.
And this is a great read.
You know, anybody can probably sit down in one evening and get through this.
And it's hardly comprehensive, but it's a really great introduction, I think, to capitalism overall.
And you do a pretty good job, I think, taking on the arguments of statists of different varieties and why they think that the free market isn't adequate.
So congratulations to you for this book.
It really is good.
I'm sure you're going to sell hundreds and hundreds of thousands of copies.
I can only hope so.
Yeah, I hope to see you on Sean Hannity pitching it.
Okay, not that I would even see you on there if you were on there, but anyway.
Somebody might tell you that I was on there.
Yeah, yeah, there you go.
I could read about it on the Lew Rockwell blog or something.
Okay, so yeah, The Politically Incorrect Guide to Capitalism.
Let's start off with foreign policy.
And I guess I should say, just as a preface to this entire interview, that I already agree with Bob Murphy.
I have no use for the state at all.
And I'm an individualist, I believe, in private property rights and capitalism and so forth.
So I'm going to try to play devil's advocate throughout this interview, but it's going to be half-hearted at best because, you know, I'm already one over.
But okay, so here's the accusation, Bob.
War.
That is because of greedy, evil, stinking capitalist pigs like yourself.
You are the ones, people like you are the ones who keep getting this country into all these terrible wars for your big business buddies.
Right, you're right.
That's certainly a common charge that socialists, for example, will make.
And I think those of us who are sort of, you might say, right-wing, free marketeers, even though that's a little bit of a misleading term, I think we shouldn't just throw those accusations out without considering them because really there are, of course, actual people running corporations, multinationals and so forth, the big oil companies.
I'm sure a lot of those people do cut backroom deals with politicians and, of course, I don't know the specifics, but it wouldn't shock me if major shareholders and big oil companies had something to do with our foreign policy.
But the question is, is that really the fault of capitalism?
And when we define capitalism as a system where the government and everyone else respects the private property rights of individuals, and for those who are really extreme that say, well, it really shouldn't be a government if everyone's just obeying private property rights, if everything is voluntary in that sense, then there's no role for these corporations to sort of hijack the power of the state.
And so it's ironic, if what the leftists are afraid of is big business taking over the military and sort of hijacking the democratic process is the kind of language they use, well, the solution to me is not to try to stamp out commerce and condemn capitalism per se and corporations per se.
The solution to me would seem to be to either put stricter limits on what the government can do with its military or better yet, just privatize the military, take it off the table altogether.
So basically, tell me if this is fair for me to say, Bob, that the average businessman, if he's not a principled libertarian like yourself, basically operates his business in a moral way.
And if he can make an investment in a congressman and have his company's revenues come out of the treasury rather than out of the free market, he's going to do that.
As long as that money is available, as long as the government is a possible customer, he's going to seek out the government because it's a safer bet, right?
Right, that's exactly right.
I think that's something that people who grow up believing in the free market and capitalism, a lot of times they're naive on this point.
A lot of my former students at Hillsdale College, for example, I think were shockingly naive on this issue.
We need to accept and realize that the people who run major corporations, the capitalists, are not necessarily advocates of pure laissez-faire.
As ironic as that is, that a lot of times it's big business who lobbies the government for stricter regulation because, yes, it hurts them, but they're more capable of having their team of lawyers and accountants and so forth fill out all these stupid forms and jump through all the hoops, whereas the mom and pop operations, they can't possibly comply with all those regulations.
And as you say, when it comes to the military, of course, there's plenty of big companies that they cater to the military and they have these lucrative defense contracts or Halliburton over in Iraq getting all these billions of dollars to engage in what they call reconstruction over there.
And I'm just going to go out on a limb and say, I bet the type of people who are good at playing the political system are not the ones who would be on top if it were a truly free market.
So those people have every incentive to keep the system the way it is.
Right.
And now this is really important when we go back in history, and this is something that you touch on in your book, is things like the Federal Reserve System, which was a product of the progressive era when what we now call progressive liberal leftist types were pushing for more government regulation to rationalize capitalism and so forth, that it was really all a show put on by the bankers themselves.
They were the ones who wanted the Federal Reserve Act.
Yes, that's exactly right.
And the best description of that, I think, is Rothbard's work.
And it's it's really it's surprising if you think about anybody who's actually seen the implementation of an actual government program.
We all know that the politicians involved were saying one thing with the speeches and then they were cutting deals in the back room.
Or if you've worked for a major corporation, you can see that, you know, it's free trade is good in theory, but not when it comes to that company's product.
Then you want to have protection from foreign competition.
And it's it's it's totally understandable.
It's not that all these people are a giant evil conspiracy necessarily, but people care about their own bottom line.
And it's not it shouldn't be surprising then to find out that the nation's bankers, if the government's going to give them cover to form a giant cartel, which is basically what the Federal Reserve System is.
Why would they not go for that?
Who wouldn't want to be part of a big cartel where everything's regulated and they can be assured of their profits?
And hey, if they make too many bad loans and they're about to go under that, the government will come in and bail them out because they're too big to fail.
Right.
And that Federal Reserve System, I really you know, I'd like maybe if you could explain how that works a little bit better, that cartel, it's it's like a private cartel.
But one of the partners is the federal government.
Right.
How does it how does the Fed work?
Okay.
Yeah, it's it is a really mystifying process.
And it's even for an economist to teach this to my undergraduate classes in macroeconomics.
I'd have to really think it through and make sure I understood it because it bottomed it.
So it's almost unbelievable.
You can't believe this.
Surely it can't be like this.
This can't be what our system is, but it really is.
So just to break it down, what happens is the the Federal Reserve, at least, you know, in recent years, since they started setting interest rate targets, they decide that they want what's called the federal funds rate to be a certain amount.
And what that is, that's the interest rate that member banks can charge each other for overnight loans on federal deposits with the Federal Reserve.
And so if if the market determined rate is too high and the Fed wants to lower it, what do they do is they want to come in and they flood the market with new reserves that they issue.
And people are picturing, OK, so if the Fed comes in and buys bonds from these banks, for example, to give the banks more reserves and that lowers the yield on those bonds, in other words, pushing the interest rates lower.
So when the Fed is loosening, people normally would think, oh, so the Fed must have some money stored in a vault somewhere that it enters the market with.
Well, no, the Fed, the way it actually does that is it just the account that it has in its computer system for that particular bank, if the Fed wants to buy a billion dollars worth of bonds from that bank, it just credits that bank's account for a billion dollars.
It just goes in and changes the entry in the computer.
And you say, well, where did that money come from?
It didn't come from anywhere.
So it's it's literally as if the Fed just printed it, except it doesn't even have to do that.
It just enters it in the computer.
And now all of a sudden there's a billion more dollars of base money in the system.
And then, of course, because the fraction reserve banking system, the banks can then go out and make loans to home buyers and other people based on how many how much reserves they have with the Fed.
And so ultimately, that creation of a billion dollars might multiply into 10 billion dollars more money in the economy.
And all that borrowing is basically for the warfare state, right?
I mean, that's basically a post World War Two invention, the perpetual readiness for war, engagement in war and spending all this money created out of nothing.
Right.
It's really hard to pin down exactly who is benefiting from this, because, of course, any individual bank, it's subject to market forces.
And if it's getting cheap money from the Fed, well, then it has to lower the rates that it charges its own borrowers because it's got competitors.
And so they can't completely just pocket the difference.
But I think this is what we were talking about earlier about the cartel nature.
Again, I'm not an expert on the particular regulations, but I certainly don't think you and I, if we pooled our assets together and got some investors to go with us, I don't think we could just open up our own bank that's a member of the Federal Reserve System, then we could have access to this privilege where the government just prints up notes, in a sense, out of thin air and buys bonds from us, and then we're part of the system.
I think that it's a privileged membership.
And so that's where the cartel nature comes in, that basically, the people who are the first recipients of this money that's being printed up out of nowhere, that there's certainly benefits to being in that club.
And that's what the Federal Reserve confers on the special banks.
Right.
And on their favorite clients, such as, as you said before, these corporations that are too big to fail, like Chrysler or something like that, I think in G. Edward Griffin's book, The Creature from Jekyll Island, he has a chapter called The Name of the Game is Bailout.
When the government needs more money than they can tax us without us revolting, they go to the Fed to create money out of nothing.
And then when the banks need more money or else they'll fail because they've made bad decisions in their investments and so forth, made loans they can't collect on, then they go to the Fed and get the money created out of nothing for them.
And so it's this kind of perfect partnership both ways.
Right.
That's true.
And I guess to answer your question from before about the warfare state, I mean, clearly, if the government is spending beyond its means, in the sense that it's running massive budget deficits, and obviously if you're conducting foreign operations that cost hundreds of billions of dollars, that's one of the things contributing to that situation.
If you remember what I said, what the Fed is actually doing when it engages in what's called open market operations is it's crediting these member banks, it's adding to their reserve balances, it's like it's just adding numbers to their checking account balance, if you will, and what it's getting in exchange is it's buying bonds from them.
And typically those are themselves bonds issued by the government itself.
And so it's really just a smoke and mirrors.
It's incredibly complicated to figure out what's happening.
But basically I think it's accurate to say the government is selling bonds to the public and then it's printing up money in order to buy them from the public.
And so it's artificially keeping down interest rates on the debt that it's incurring itself.
So there's a fancy way, whereas it would be a little bit too blatant if the government spent $300 billion more than it collected in tax revenue and then just literally printed off $100 bills to make up the difference.
I think most people would look at that and say, wait a minute, you can't do that.
But what they do in practice is just so complicated that most people don't realize it's basically the same thing, except it's even worse because there's so much slippage in the system that they have to end up printing and generating a lot more money to cover a given deficit because it's such a complicated process.
And now you've written this book, Robert Murphy, The Politically Incorrect Guide to Capitalism, arguing for capitalism, obviously, and you seem pretty critical of the Federal Reserve System.
So would you say that America's currency system, the way money operates in this country, is not capitalism?
Well, it's hard to know where to come down on that issue.
I mean, obviously, the United States economy is fairly capitalistic compared to some other places on the planet.
But no, when it comes to our monetary system, I mean, that's basically socialism, right?
You're not allowed to issue your own money.
That's a crime.
If you try printing off $100 bills, you're going to go to jail.
And I'm not entirely well-versed in the specific regulations, but I think even if you tried to issue Scott Horton notes that were redeemable for a certain amount of gold, for example, I think there are plenty of regulations that would really hamper your ability to do that.
And certainly, if you started making headway and people started using your currency instead of U.S. Treasury notes, the government would find a way to shut you down.
They wouldn't sit back and let you take over their monopoly.
So certainly, when it comes to the monetary system per se, it's literally socialism.
The government runs that, but there's no doubt about it, it runs it from the federal level.
And so, yes, in that sense, our monetary system is socialist.
And now, in your book, you touch on the wildcatters in the 19th century and basically accusations that in a free market where you could have Robert Murphy notes and I could have Scott Horton notes, that basically we just live in a big land of fraud and all go bankrupt.
Right, that's the reason that people often think that the government has to regulate the monetary system, because as you say, if everyone could just open up shop and start printing up new notes, we'd have rampant inflation.
And the thing that's interesting about that is inflation has been much, much higher once centralized governments completely monopolized the production of money.
And so, if it's inflation you're worried about, look at Interwar Germany, that wasn't because they had wildcat free banking, that was because the German central bank was printing up money like crazy.
Well, what incentives would bankers have to keep rampant inflation in check if it was just left up to them?
Wouldn't they just be greedy and seek the most money in the short term for themselves, close up shop, move away somewhere else?
Well, they would certainly have, on one side there would be an incentive to do that, but on the other hand, the only way they would get people to hold their notes is if people trusted them.
And so what people have to remember is, it's relatively new that everyone just uses pieces of paper as money.
Historically, the money commodity was something that was intrinsically useful, whether it was gold or silver or cattle or what have you.
And so, back in the so-called wildcat free banking period, gold and silver were the actual money, and then banks would just issue notes that were basically tickets entitling you to go to the bank and turn it in and get your money.
So the point was to just save you the inconvenience of having to cart around pounds and pounds of gold on you, because of course that was just a chore and also you were more liable to get robbed.
And so, you could certainly issue Scott Horton notes that if merchants in the area knew that, oh yeah, I have customers come in and they give me these notes issued by the Horton bank, and I can go and I've never had a problem.
If I'm getting too many of those in my drawer, I give them to my employee, he goes down the street to the Horton bank, in terms of the minute he gets gold on the spot for them.
And so if you build up a reputation like that, more and more merchants would be willing to accept those notes.
But if it were a truly free market and some guy just, you know, I start issuing Murphy notes and no one's heard of me, no merchant is under any legal compulsion to turn over his goods for those things.
He can say, no, I don't know who this guy Murphy is.
Whereas that's not the case now that, you know, there's a legal tender law.
If you go into a shop, you can hand over green pieces of paper and that's good for settling debt, that's good in commerce.
And so that's the law of the land.
So the government really has established a monopoly and more or less forces people to use its paper currency in exchange.
Whereas individual bankers, you're right, if everyone had to accept their notes, then they would have every incentive, just as any counterfeiter would, to print notes like crazy.
But once they defaulted on a particular customer who came in wanting to redeem those notes, because if they printed more than they had gold to back it up, then the word would get around it, everyone would all of a sudden stop holding them.
So there might be isolated incidents here and there and runs on banks.
And that is what happened in the 19th century.
And it's funny that that's the way you keep the bankers honest is if there's a run on the bank, if they get too irresponsible and they're issuing too much paper money, then you want customers to get suspicious and go have a run on the bank and it keeps them in check.
The last thing in the world you want to do is to have a cartel so that everyone gets lulled into a sense of complacency and the government can then print money like crazy and then no one can make a run on the bank.
So where most people would think, well, it's a good thing that the government came around and finally created the FDIC to guarantee everybody $100,000 to stop the runs on the banks, you're saying that really that was an unnecessary step because you really want to have runs on banks to keep them from staying in business when they're making bad decisions with people's money.
Right, that's exactly true.
And just to clarify, because I'm sure some of your listeners might think that sounds crazy, the point is not the run per se that's good, it's the fact that there's a threat of a run that keeps the bankers honest.
And so it would be like saying, is it good if a company goes out of business?
Well, no, ideally you would want all the business people to make the proper forecast and buy the right amount of inventory so that no one ever goes out of business.
But if there is a company that can't cover its costs and it has to shut down and lay off people, you don't want the government to come in and bail out that company because then that just makes every company not watch its costs.
So in a free market, there's a profit and loss system and that gives feedback to people so they know whether they're making the right decisions.
So by the same token, in the banking sector, the possibility of a run where customers go and they demand to get their money out, that keeps bankers somewhat responsible.
And if you take away that threat, then you're going to get what you have right now, which is rampant inflation.
This is, I guess, throws all principle aside, strictly a utilitarian argument, but there are those who have said that really the only reason that there is a middle class in America, a giant middle class, instead of a very small percentage of very rich property owners and then everybody else living at basically poverty line style wages and so forth, is because of inflation, because the average guy can buy a house for dollars and pay it back in dimes.
And that's why the average guy who's a working stiff, if he spends his money carefully, can own his own house.
And that otherwise, if we had a hard money standard and high interest rates, that the average doofus just would not be able to get a loan and own his own place.
And we'd all be tenants living on the land of ten giant property holders.
That's funny.
I actually have never heard it put in those words.
So, to answer that objection, no, I mean, if you want to talk about helping the middle class and allowing the little guy to build a future for himself and for his children, the last thing in the world you want is to have rampant inflation, that if you had a hard money standard, everybody would know what was coming.
They would know a dollar today can buy the same stuff it'll be able to buy 20 years from now.
Okay, wait, but let's cut out the word rampant and let's just call it, I don't know, 3 or 4% inflation.
I don't know what's considered a nominal level of inflation on a yearly basis, but something like that.
Assume a pretty much level rate of inflation over a 30-year mortgage or what have you.
The average guy is taking out a loan and paying back much less for it in terms of real dollars, right?
Right.
So, the immediate answer is that interest rates reflect expected inflation.
And so, if you look, for example, at long-term interest rates during the 1970s, they are much higher than they were during the 1980s.
They came way down during the 80s and that was precisely because investors realized that, okay, the Federal Reserve has been a lot more responsible now under Volcker and inflation rates have been a lot lower and so the nominal interest rate that they demand is much lower.
So, the banks aren't stupid.
They know full well that they're going to be paid back in dimes, to use your terminology, and so the interest rate they charge is going to be that much higher so that, yes, they're being paid back in dimes, but they're being paid back in a lot more dimes because of the higher interest rate.
And so, yes, the immediate answer would just be if people really did know that there was going to be 0% inflation for the next 30 years, then the rate that they would get on their fixed 30-year mortgage would be a lot lower than it is if there was a perpetual 3 to 4% inflation year after year.
I see.
And so, but the benefit is it's not just a wash because, in practice, if the government has the ability to have 3 to 4% inflation, well, then there's always a chance they might have a little bit more.
Like, what if there's a war?
What if something happens?
And so, once you give the government the power to inflate the money supply, it's naïve to think that they're going to be responsible and keep it under wraps.
Right.
And now, another thing about inflation, too, and I forget if you mentioned this in your book, but I've always learned that really it's the elderly, the retired people living on fixed incomes, and also really the working stiffs who make not salaries but wages, that they're always the ones who suffer the most really from inflation because, well, obviously, the old people's savings is being eroded out from under them, but the workers are always the very last ones to get a raise, basically, to keep up with the cost of living.
And then, of course, the Fed chairman goes on TV and says, oh, no, wages are finally going up a tiny little bit.
This might cause inflation.
Right.
Yeah, the whole analysis of what causes inflation is really funny that, like you say, the government is literally creating money out of thin air and prices are rising, and then they're pointing at the rising prices and, oh, that's causing the inflation.
I mean, that's really laughable.
And, yes, to answer your question, certainly people on fixed incomes, they are the ones directly hurt if the price level rises.
And, now, to the extent that people correctly anticipate what's going to happen when they make their long-term arrangements, you can mitigate the impact of inflation.
But the point I was making earlier is it's not merely that, oh, is it good to have inflation of 0% perpetually or 3% perpetually.
If those really were the choices, it wouldn't be that much, it wouldn't make that much of a difference because everyone would just take that into account when they made their contracts.
But the problem with inflation is, even in a country like the U.S. where it's relatively moderate, the rate from year to year varies wildly.
Like I said, just from the 70s to the 80s, the inflation rate was totally different.
And so, yes, it wasn't as bad here as it was in certain Latin American countries or in interwar Germany, but it was still pretty high in the 70s.
So, the point is it really makes it hard for businesses and individuals to plan for the long-term because they just don't know what the value of their money is going to be 15 years down the road.
And so, beyond just the impact of, oh, I'm getting an annual stipend from Social Security and now that can buy less, just everything about it, businesses can't plan for the future, so production itself is less efficient because everybody can only operate, let's say, with a 5 to 10-year timeline or horizon because beyond that it would just be silly to commit to long-term plans because for all we know there's going to be hyperinflation 20 years from now.
What does it mean when our government has a $3 trillion annual budget?
What term do you use to define the economy of the United States when you look at a number like that?
I don't want to call it fascism because nobody wants to accept the word fascism unless there's guys in gray uniforms who are stepping down the street.
But what do you call it when there's $3 trillion worth of government at war?
Yeah, I'm not sure what to call it.
It's certainly, it's not that debt per se is bad, but it is, of course, the case that they're doing that because it allows them to spend more in the present than they otherwise would, that if they had to tax explicitly and to pay for everything that they're buying right now, the public would just have a massive revolt.
And so it's, you're right, I don't know if fascism is the term, but it's certainly dishonest.
It's smoke and mirrors and it's allowing people to have a lot more, they're a lot more liable to the federal government than they realize.
Right.
Well, and this goes back to, again, the bottom line of the average businessman.
I recall an interview that I did with Richard Cummings, who's a guy who's written quite a bit for LouRockwell.com as well, and at least in the past, and he wrote an article for Playboy called Lockheed Stock and Two Smoking Barrels.
And it was about how the military industrial complex will spend a few million dollars a year keeping all the best wines and cigars at all the best restaurants to take all the congressmen out, whatever.
And in exchange for this, they make billions and billions and billions of dollars.
And it's the kind of thing where if you had the capital in the first place, Bob, to invest a few million dollars in a few congressmen, you could set your entire family for life for generations.
And this is the kind of thing that's impossible to resist for most people, I think.
Right.
I think it's naïve for people to try to reform the system without getting rid of that.
Like you're saying, if these congressmen have billions of dollars at their disposal, they can lavish on politically favored groups, of course you're going to have what we call corruption.
Of course you're going to have waste, that you're going to have ridiculous things where, you know, the, well, whatever it was, $600 toilet seats or whatever that number was.
I mean, you're going to see that stuff all the time.
And the thing about military spending is that those aren't isolated incidents where, oh, you had the ridiculous thing where the hammer was $60 or whatever, the screwdrivers were $60 and the toilet seats were $600 and those things.
The reason those shock us is because we know how much they ought to cost.
But when, you know, a stealth bomber costs $300 million or whatever the number is, those numbers are similarly exaggerated.
It's just you're not allowed to buy a stealth bomber in the open market.
So you don't know how much it would cost if you really had a free market.
Ah, good point.
Right.
So it's, you know, those numbers are just ridiculously exaggerated.
And as you say, it's because those people running those companies, it's not that they're the best at producing helicopters, for example.
I mean, if you actually read up on this stuff, you'll know that there's all sorts of just boondoggle projects and a lot of people don't want to fly the helicopters in certain areas because they just know these things crash like crazy.
So people have this idea that, yeah, the military spends a lot of money, but at least we produce some of the best hardware in human history.
And that's not entirely accurate.
And it's, again, it's not surprising that if you give the government a monopoly on something, and the military in particular is where it's hard for journalists to go in and investigate the waste and fraud because the government can just claim, nope, national security, keep people from investigating.
Is it any wonder, then, that you're going to have massive fraud and you're going to have all sorts of, you know, wasteful spending projects?
This is Antiwar Radio.
I'm Scott Horton.
I'm talking with Robert P. Murphy, Ph.D. from the Ludwig von Mises Institute, author of The Politically Incorrect Guide to Capitalism.
And I'm wondering if you could help me with something that I don't know if I'll ever really understand all the way, but it's the IMF and the World Bank system.
Well, first of all, I want to put the idea or the formula of how they loot third world countries for all their property and roll over the debt onto us and that kind of thing kind of off to the side in brackets for a minute.
What I'm really interested in is the form of the world banking system and, well, I'll just put it this way.
I've read all my life critical things about the IMF world banking system and the Bretton Woods agreement that created it from the right and from the left.
And basically what I want to know from you is whether it was a commie plot or an imperialist conspiracy, because, of course, the right wing points out that Harry Dexter White, who was the prime mover there at the Bretton Woods deal, was a KGB agent.
And they'll say that the whole structure was ginned up basically to loot all of America's gold and let all the foreign countries take their foreign aid paper dollars that they got from America and buy up all our gold with it to the point where Fort Knox is basically empty and Nixon had to take us off the gold standard and everything.
But then the left wingers will criticize it and say that the whole purpose of the IMF world banking system after World War II was to loot everyone else in the world by pegging everybody's dollar to our dollar, which was an inflationary dollar, and basically our government stealing from the whole world the same way they steal from us through inflation.
So that's all I know, Bob.
Set me straight.
Well, you're going to think I'm trying to dodge the question because I think both of those views are correct.
And when it comes to something as complex as world institutions that are formed when all sorts of political leaders meet after World War II and sit down and agree to something, I think it's a mistake to try to say, oh, what's the one overarching reason for such and such?
I think that we have to remember that there are various competing factions that, yes, George Bush and Rumsfeld at the time and Cheney and so forth, they had all their agenda, but other people, the head of the Saudi family, they all have their agenda and so on.
And although they cut deals with each other and they do things when it serves their interest to cooperate, ultimately they all have independent agendas.
And then we have the fact there are billions of people on the world.
And so even these incredibly savvy political leaders who have all the connections and all the money and all the power, all the guns behind them, they can't control the fate of mankind.
They can steer things, but they can't control the future.
And so when you throw that all into the mix, I think what happens is, I think, like I said, both of those people were right.
So now if you're asking, well, which is it?
Are we stealing from the world or is the world stealing from us?
I think that, yes, it's certainly true that the system set up after World War II allowed the U.S. to export inflation, is the way a lot of people describe it, so that because foreign banks were tied to the dollar, in a sense that allowed the U.S. to inflate its money supply and suffer fewer repercussions than it would have when we were back on a true gold standard.
And so that's certainly true, but it's also the case that it allowed foreign countries to get the gold out of Fort Knox, as the right-wing critic that you mentioned brought up.
And so I think both things are true at the same time.
Ultimately, it's powerful people fleecing the little guy.
And so both of those things can be true, that the U.S. is inflating and then all the consumers of the world are that much poorer because of it, but there also was a net outflow of gold from U.S. vaults.
Okay, well, I don't think that was really dodging the question.
That was a pretty good answer.
Okay, and now my brackets off to the side is how the IMF goes into third-world countries, gets them in debt, and then has them hand off all their prized socialist-controlled resources to connected corporations and that kind of thing.
Right, so the thing people – one misconception that I want to clear up is a lot of people talk about the shock therapy and the IMF comes in, especially in more recent times, with these market liberalization reforms, and the standard leftist criticism is it's unfair to foist these Western ideas on South American countries that have had a history of oppression and things like that.
And so it makes you think that the IMF comes in and tells a country you've got to cut taxes, cut government spending, liberalize your trade relations, and do all these things that, as a free-market economist, sound pretty good, and then, lo and behold, the country is still a hellhole three years later.
And so it looks like, man, the free market must not work for some people, for some cultures.
And that's really not what's going on.
For example, what will happen a lot of times is the IMF will come in and – or the World Bank will come in and they'll see some country that's being run by a military dictatorship, and the government there, in order to stay in power, of course, is printing money like crazy and they're handing out money to special interests to maintain their power, and they're running up a huge debt.
So the bonds on the foreign markets are losing value because people are more and more thinking, man, this country can't keep doing this, they're going to default one of these days.
And so eventually it's going to catch up with them.
And so the IMF or the World Bank comes in and says, all right, we'll bail you out, we'll allow you to pay off your interest payments on these bonds that you've issued, but you have to agree to certain things.
And a lot of times what they do in order to balance the budget is they tell them raise taxes on your people, thinking that, oh, well, that's a way to be responsible to bring in more revenue.
Well, of course, that's just the last thing in the world you want to do if you have a heavily regulated socialist economy is to raise taxes.
And yet a lot of times it's reforms like this that are called austerity and people think it's a shock therapy for the free market.
So to go back to your specific question, yeah, what they'll do a lot of times is giving the offer of all this money that was kicked in from governments around the world, which means from unwitting taxpayers around the world who contribute to the IMF or the World Bank, they'll come in and say, okay, we'll give you this money, we'll relieve you from your debt obligations for a few years, but you have to allow this deal to go through where some multinational is going to come in and maybe take over your coal mining operations.
And it's probably true in a lot of these cases that the foreign multinational is more efficient than the socialized domestic producer was, but still it's representing a transfer of what was controlled by the domestic population in the sense that their government owned it and now it's being run by a foreign corporation.
And so that's the grain of truth in the leftist critique of these operations where it really is the case that before, in a sense, the government of these people owned it and they could have, you know, if you wanted to have a market reform, these Latin American governments should have just sold it to the domestic people or sold it and then given the revenues back to the people in the form of lower taxes, but that's not what happens, of course.
And so when the multinational comes in, it really is, I think, accurate to say that the local government stole the mine or the gold or whatever from the people and handed it off to some foreign company.
And that's not capitalism at work, that's just government theft and redistribution, which is the antithesis of capitalism.
But unfortunately, it's this sort of thing that people champion as market liberalization.
And, oh, see, now this, you know, Argentina is opening up its trade to foreign corporations and that's good.
Now we're having, you know, normalized trade relations where before they were protectionists when that's not really free trade to let some foreign company come in and transfer a nationalized industry over to its balance sheet in exchange for tax dollars that were siphoned off from people around the world and funneled to the IMF.
That's the furthest thing from free trade, but yet that's what's called free trade.
Yeah, that's like you say about the little guy on both sides is the one getting stuck with the tab because when they cancel that debt, basically what they're doing is rolling it over onto the American taxpayer.
That's what they're doing.
So it's either the poor guy in the third world country paying the taxes or the little guy in America paying the taxes or both.
Right, right, it's going to be both.
And that's the thing is people have this idea like, oh, isn't that nice that they forgave the debt of Brazil or whatever.
And, you know, the reason on the foreign markets that those government-issued bonds of the Latin American countries were falling in value or they're having a huge risk premium was precisely because credit analysts knew that there's a really good chance that that country's going to default on its payments.
And so for the World Bank or the IMF to come in and just, you know, to guarantee that we'll make good on those, or when the U.S. government did that for Mexico a few years ago, I think it was under Clinton, you know, that propped up and sort of guaranteed Mexico's debt.
That sort of thing, it doesn't get rid of the risk, it just transfers it on to some taxpayers' shoulders.
It takes it off the government that causes the risky situation and just makes some other people have to bear the brunt of it if it turns sour.
And so it's, you know, you really can't forgive something that you're not liable for in the first place.
It's like me going up to the people who have the mortgage on your house and saying, well, I'm going to forgive Scott's debt.
And, you know, I don't have the power to do that.
And the same thing, the IMF doesn't really have the power to forgive the debt that these countries owed to foreign bondholders.
And, you know, where conservatives are concerned, and I think rightly with things like the North American Union and the free trade area of the Americas and that kind of thing, coming and expanding, you know, international control over the United States and vice versa and that sort of thing.
We've really got to put ourselves in the other guy's feet, too.
How would we like it to be Ecuador or Argentina and told that we're going to be folded into some free trade area of the Americas is what they're going to call it.
You know, you look at South America and wonder why all these countries are electing reds.
It's pretty obvious, I think, when you talk about all this corruption in the name of free trade and capitalism.
Right, that's exactly true.
And it's really frustrating because, you know, just to give switching context a little bit, that I am, of course, for free trade, and yet I oppose NAFTA.
And people think, well, you know, you say you're for free trade, so why wouldn't you be for the North American Free Trade Agreement?
And it's because, well, it was a thousand plus page document with all sorts of new regulations and new supernational bodies that would deal with disputes between different countries.
Just for example, that if foreign countries don't have the same labor or environmental regulations that are applicable to U.S. businesses, then a lot of times these free trade agreements would penalize the products coming from those countries to sort of level the playing field.
And so that's not free trade when you impose artificial tariffs because some other country doesn't impose the same interventions in particular markets that your own government does to your businesses.
That's just sort of leveling the playing field of statism.
And to call that free trade is just so Orwellian, you don't know what to do with it.
But it makes it hard because then, of course, people who can see firsthand the people who live in these countries and they know that things have been bad since their government started working hand in hand with the actual U.S. government, for example.
And they know that that happened and George Bush visits their country and talks about free trade and liberalizing relations and they might see certain areas of their society that are just horrendous because of it and they mistakenly conclude, yep, that's what capitalism does and that's why I'm going to go vote for a socialist.
Absolutely.
This is Antiwar Radio.
I'm Scott Horan.
I'm talking with Robert Murphy from the Mises Institute about his new book, Politically Incorrect Guide to Capitalism, in which he argues for completely unregulated, unrestrained, laissez-faire, wildcat freedom and liberty in this country.
And I wanted to basically get to, I guess the first time I ever learned the term laissez-faire was in my government school, I think in seventh grade.
And they taught us that laissez-faire was a disaster.
Laissez-faire, meaning hands off I guess in French, something close to that, that having free market capitalism was a disaster because it has these terrible excesses of these business cycles and these booms and busts and depressions and so forth and that the Great Depression proved this beyond anybody's doubt.
And so now we have the Federal Reserve System and the other different government interventions in the economy in order to smooth out the booms and busts and try to save the little guy the havoc of being completely thrown out of work every once in a while.
So if that ain't right, Bob, set me straight.
Okay.
Yeah, you're right.
I can remember back, I must have been in high school at the time when I was coming more and more around to liking the free market, but one big stumbling block for me was I thought, because I had learned it in my history class like you said, that the Great Depression was caused because of unbridled market forces.
You had all the people on the stock market buying on margin because that was unregulated and people could just go do whatever they wanted and there was no one watching to make sure that the system as a whole was behaving properly.
And then there was the Great Depression, the stock market crashed, everyone was getting laid off.
And man, Herbert Hoover was just such a dogmatist, he just sat back and did nothing because he believed in the free market.
He thought things would fix themselves and thank goodness that Franklin Roosevelt was finally elected and then got off his stuff and didn't care so much about this old-fashioned constitution and just allowed the central government to help everyone and saved us.
So that's the standard story.
Boy, you summed that up very well.
Thanks.
And what's ironic is every single component of that is just completely wrong.
That for one thing, there was not a free market that caused the initial crash.
The Federal Reserve System, the whole point of that, the whole raison d'etre, to use another French phrase, is to prevent the sort of systematic crises, the boom-bust cycle that allegedly would happen under a free market.
So a lot of people, if you ask them, you know, they say, well, when do you think the Fed was formed, they would probably think, oh, you know, maybe Franklin Roosevelt formed it in 1935 or so, right, because we know that the Great Depression happened because of the free market.
The Fed is supposed to prevent depression.
They probably would think the Fed was formed after, but no, the Fed was formed during World War I and I believe it was the Federal Reserve Act was 1913 and it actually opened for business in 1914.
So the Fed had been in operation for 15 years before the stock market crash.
So the idea that the Fed was going to prevent the Depression, no, the Fed actually caused that massive imbalance.
Specifically what happened is by issuing unbacked paper money and sort of phantom credit, it caused some of the prosperity of the 20s and then because all these businesses were started, all these production processes were set in motion based on credit that really didn't exist, it wasn't that people actually saved and built up more stocks with capital goods and inventories to finance all these projects.
It was just based on illusory credits with the Federal Reserve.
Eventually, that had to hit a brick wall somewhere and that's what happened when businesses started realizing that.
And then on top of that, you had Herbert Hoover, who was the furthest thing from a laissez-faire candidate or a laissez-faire president.
And in the book, I have some of these calling from Murray Rothbard's work on this, where speeches that Hoover would get when he was running against Roosevelt saying how, I didn't listen to the reactionary economists, I did everything I could.
I urged businesses to keep wage rates high.
I spent public money to put people back to work.
And really, Herbert Hoover did everything the New Deal did, but just not as much.
And so FDR, far from coming in and reversing course, all he did was exaggerate the things that Herbert Hoover had done.
And then in terms of, well, at least the New Deal got us out of the Depression, no, I mean, if you just look at the unemployment figures, and these aren't things that I'm taking from some wacko right-wing website, I mean, just go look at the official unemployment figures that the government websites will tell you.
They were shockingly high when FDR came in, like 25% or so.
And then several years later, they were still up there around 13%, 14%.
And so whereas with the previous Depression, with a small d, they had usually run their entire course and the economy was back to normal within about 18 months or two years.
Whereas under FDR's allegedly wise policies, five, six years into it, we still had unemployment that was double digits.
So just every aspect of that story is completely wrong.
And the thing that's so frustrating is we really don't live in the 1984 world.
I mean, all this information is available to anyone who wants to go double check what I'm saying.
It's not as if they backtracked and made it so the Fed was actually founded in 1935.
No, I mean, they're in the history books.
It's just the interpretation is given the pro-government slant, and most people don't stop and think about it.
They don't stop and think, well, wait a minute, if unemployment was still 14% in 1937 or 1938, then how the heck are you saying FDR got us out of the Depression?
Well, you know, some, I think even mainstream professors at the University of Texas or what have you probably would say, well, you know, the New Deal did a lot, but it wasn't quite enough because that's just how bad capitalism had made the Depression.
And what it really took was World War II.
That's what saved America and made it great.
Yeah, that's right.
And it's funny because a lot of so-called right-wingers will use that.
I think even my dad told me that when I was little.
Yeah, it wasn't FDR socialism.
It was the war that got us out.
And what's ironic about that is that those really aren't such diametrically opposed things.
People want to contrast, you know, government pump priming on the one hand versus the war effort.
But what is the war effort except government spending billions and billions of dollars on things that are inherently useless, namely, they're not even useless.
They're counterproductive.
So the idea that a war could make an economy richer is just ludicrous.
When you think about what does war do, and especially what happened in World War II, you took millions of able-bodied, skilled young men and you took all sorts of resources and you diverted them into producing things that just went to offset each other.
You know, the men trying to kill each other to just destroy laborers in other countries and taking all these natural resources.
Instead of building cars and trains and factories with them, you used them to build shells to blow up other people's factories.
And the idea that that could make the world richer and that's what got us out of an economic slump is just crazy.
Well, but weren't the late 40s and the early 50s a time of great economic expansion and all that?
I mean, wasn't the Depression in fact over by the time the war was over?
What made the difference?
Well, I think part of the difference was a lot of the New Deal was rolled back and there's two things going on.
So on the one hand, yes, people certainly did, because of the war effort, go out and work harder.
I mean, for example, all the women entering the workforce when the men went overseas.
So, yeah, if all of a sudden millions more people are working in factories whereas before they had been staying at home raising children, obviously you're going to have more material things being produced during that period.
But to say that World War II got us out of the Depression, I mean, you could just as well say, well, no, it was because the date 1943 occurred and that magically made everything better.
I mean, yeah, it's certainly true chronologically that you had the Depression, World War II happened, and then afterward you didn't have the Depression anymore.
But it wasn't that the Depression, or excuse me, it wasn't that World War II fixed things.
It was, like I said, that the policies that had prohibited or prevented the economy from fixing itself, namely FDR's New Deal policies, many of them had been rolled back in some of their most egregious forms.
Because the thing people don't realize is it was really bad for a while in the 30s.
It wasn't just that FDR had Social Security and taxes were high and things like that.
I mean, he had the NRA, the National Recovery Administration, which it was true fascism.
It was just the government controlling and cartelizing businesses and telling them what to produce.
As I talk about in the book, I mean, there were literally agents from the federal government that would go around and kick in doors and factories and arrest people because they were sewing a pair of pants in the middle of the night, and you weren't allowed to do that because that was violating the code set down by the government.
And so it was really incredibly regulated during the period, and unfortunately the Supreme Court struck down some of it, and then the government backed off a little bit.
Well, and also in your book, I think you say that in reaction to the Depression, the Fed thought it would be a great idea to raise interest rates through the roof and cut the money supply by a third or two-thirds or something like that.
So I guess I wonder whether they had relaxed that policy.
If you look at the official money supply figures in the early 30s, it fell by about a third or something ridiculous like that in a few years, over a few years' time, which is, if you think about it, there's a slump in the economy, people are nervous.
You would think probably it's not a good idea to just suck a third of the money out of the economy.
That's probably going to be disruptive.
That's what the government did.
Well, and they had realized that they had way overinflated, right?
So they were trying to fix the problem.
I'm not exactly sure.
I've heard different theories as to what the government was doing.
One thing I heard was that they were worried about the budget.
Well, for example, they also raised taxes.
That's another thing.
In the early 30s, I don't remember exactly what year, but they actually raised taxes.
And I was asking my boss about that, and he said, oh, because they wanted to have a balanced budget.
So, of course, because of the crash and everyone getting laid off, the federal revenues were falling.
And so what do you do when that happens?
Well, you've got to balance the budget so you raise taxes.
Brilliant.
Right.
On the one hand, you want to say, well, if you were trying to wreck the economy, like if evil geniuses from around the world wanted to destroy the U.S. economy, they couldn't have done a better job than what the people in Washington did.
But on the other hand, it's not surprising, because why are we focusing on these few years?
It's because it preceded the longest depression in U.S. history.
And so that's why we're looking at this period.
Of course, they must have done something really terrible, because that's why we're looking at what these people did.
Yeah, accidentally or otherwise.
And, in fact, I think I read somewhere that Benjamin Strong, the chairman of the Fed, had died.
And he was the man.
Nobody else around him had the slightest idea of what they were doing.
You know, picture the Three Stooges running monetary policy during the Great Depression.
Ben Strong's dead.
There's nobody to tell him what to do.
Yeah, it's really funny.
Well, I don't know, funny is the word.
But, for example, there's some quotes from Irving Fisher, the famous Chicago economist, that Milton Friedman and other people in Chicago just look to as their intellectual father.
And some of the statements he made, it was shockingly close to Black Friday, when the market crashed in 1929, about how, I see prosperity as far as the eye can see, and there's no systemic imbalances in the U.S. economy, and we're just going to keep chugging along this great expansion of the 1920s into the indefinite future.
And if you want to go Google it, if people look at Irving Fisher predicts depression or something like that, and he'll try to find the quotes, it's just hilarious how wrong he was.
He was one of the most respected economists at the time.
And so I think you're right.
I think part of it was because the Fed was relatively young at that time.
It had only been established 15 years previously.
And I really do think that a lot of people just didn't understand what the heck happened.
And then, of course, the response to it, though, this isn't an excuse for it, but the response was just the exact worst thing you could do.
Well, and this is ultimately the thesis of your entire book, is that nobody has enough information to plan anything like this.
This is why you need to have a free market economy so people are free to screw up and the consequences never spread that far for everybody else to have to suffer.
Right, that's exactly right.
There's several reasons why you don't want to have centralized monopoly power in the hands of the central government.
And one of them is because what if bad people get in charge, which we know is going to happen, more likely than not, that it's not the tenderhearted people going to politics, or the people who have an undying passion to tell the truth are going to win elections all the time.
So there's that argument.
But even if you did have angels running the system, they just don't have enough information, that it's not an engineering problem to say, well, how many people should go to the coal mines, and how many people should go to the car factories, and how many people should be lawyers, and how many accountants.
There's no central group of people that can have all the relevant information to make that decision.
Whether or not you could trust them morally to go ahead and implement it, rather than cater to their own selfish desires, it's not just a matter of their morality.
It's a matter of just the information or the calculation problem.
And so, as you say, that's what the free market does.
It allows people, through market prices and voluntary transactions, to transmit the relevant information to other parties so they can make their own plans.
And then it's what's called a spontaneous order emerges, where, wow, lo and behold, we always have enough bakers.
It's never that we just run out of food because enough people didn't decide to become farmers, that no one needs to be in charge of making sure there's enough diapers produced this year.
All that stuff just kind of takes care of itself.
And really what it is is it's free people interacting through a market economy.
If there is a shortage in a certain area, the prices go up and people go into that area.
And it sort of takes care of itself, but really it's not that it takes care of itself.
It's that the market harnesses all of the disparate abilities of billions of people around the world.
And now I guess I should have tried to break into this area earlier when we were talking about world trade in terms of the IMF and things.
And of course you brought up NAFTA.
What about, for example, the Paul Craig Roberts argument against free trade?
Because he says that the actual means of production are so easy to move to other places now that that throws off the economic theory of David Ricardo that everybody bases their belief or something.
Yeah, yeah.
I do want to say that I pick on Paul Craig Roberts a lot in my writings on this, but that's because he's such a good opponent that he is very clear in his writing and he's the smartest guy that I've seen rail against the multinationals and outsourcing and all that stuff.
And there's no fiercer opponent of Bush, Cheney, and their warfare state either.
Right, exactly.
And so he and I really do have, I think, a genuine intellectual disagreement on this.
It's not that he's in the pay of protectionists or something like that.
So that's why I choose to always argue with him.
And as opposed to somebody like Lou Dobbs, it would be too easy to pick apart stuff that he says.
So what Paul Craig Roberts is saying is that he's making a valid point that when people cite comparative advantage and the stuff that your listeners probably heard if they took an intro to economics class and why free trade benefits both parties, it's the idea that even it's what's called comparative advantage.
And so just to give a little background, Adam Smith, when he was arguing for free trade, he tended to talk about what's called absolute advantage.
So it would be silly for English workers to produce wine and sweaters if, by trading with French workers, they could get wine at better terms than they could producing it domestically.
If the French were just better at producing wine, let's say, they could produce a wine bottle of given quality with fewer man-hours than the English workers could, then it would be crazy, Adam Smith said, for us to produce it domestically.
We'd just trade with them.
So that's pretty straightforward.
But then people thought, well, what if there's some country where the workers there are just inferior at making everything?
Surely you don't want to trade with those people.
And that's where David Ricardo extended the argument, and he pointed out that, no, you still benefit.
And just to give you an analogy, it certainly benefits a lawyer to hire a secretary even if he's a faster typist.
So even if he's better at her job than she is, it's still he can make more money by outsourcing the job to her, by bringing her in so it frees him up to focus on his comparative advantage, which is going out to the courtroom or whatever, billing clients.
So that's where the argument stood.
When modern people arguing, you know, defending outsourcing and when companies close their factories here and they ship the jobs overseas and all that stuff, they point to David Ricardo and his law of comparative advantage.
So Paul Craig Roberts is totally right when he says, no, what David Ricardo was defending was not countries moving workers or capital across borders.
David Ricardo's motto assumed that the workers and equipment each stayed in the countries where they started out, and the only thing that was crossing borders was the finished products.
And that's what Ricardo showed is that by having free trade, unfettered trade, and products across country lines makes everybody richer.
And that's not what is happening in the modern economy.
So Paul Craig Roberts is right that Ricardian arguments by themselves can't be applied to the present situation, but I think he's wrong when he says, and therefore we don't know that unfettered trade is good in the modern economy.
So just to give a quick example of why that is, one of the arguments I made was, look, Paul Craig Roberts has agreed if Chinese manufacturers could make, let's say, a product that could do a little black box, they would send overseas here and then hospitals would use it to give people an MRI and give them a quick diagnosis.
He agrees that if that put U.S.
-based doctors out of business, that that would be a good thing for the economy as a whole, because that's the Ricardian argument, it's just the finished product getting sent over the ocean.
But if that's true, then I'm asking, is it really that fundamentally different if instead of the Chinese doctors programming the little box and sending it over the ocean in the finished product, what happens nowadays is you get the MRI in the U.S. and then they use the internet to transmit the results to specialists overseas in India or China or wherever, and they analyze your test results, they give you the diagnosis, and then they email it back, and then the hospitals here tell you what it is.
So it still puts U.S.
-based surgeons or whoever doctors out of business in favor of the outsourced medical experts overseas.
And to me, whether the doctors are actually doing this stuff over in China or whether they put their information into a product and send it overseas, I don't think that's a fundamental difference, and yet that's the kind of position that Paul Craig Roberts is in.
So basically, just to sum up, if you understand the Ricardian case for free trade where it helps us to be able to get cheap imports from abroad, to get cheap television, cheap cars, by the same token, it's good for the U.S. economy if we're able to employ workers in other countries who are willing to work for less than U.S. workers and can produce similar output.
The quick answer when I'm doing radio interviews, you know, quick 15-minute deals, people will say, well, how can you defend outsourcing?
The answer I give them is because when a company outsources its operations, it cuts its labor costs, and so if there's competition, then it allows the company to sell the products more cheaply to the U.S. consumers.
So it's the same thing as if, you know, what if somebody just developed some new machine that just did the job of a thousand U.S. workers, and so the company laid off a thousand people and they had to go get other work, and now you could produce the same thing before, but now using the machine instead of a thousand workers, those displaced workers would be mad, and they might write to their Congressman and say, you should outlaw the use of this new machine, but obviously machinery helps the U.S. consumer because it lowers prices.
So it's the same thing.
It's not a machine that's been developed.
It's now the ability to efficiently produce things overseas and then ship them across the ocean, or using the Internet to get information, get services provided by smart people in India and China and wherever, and then they email the results, and so it's not a machine that's displacing U.S. workers.
It's foreign laborers, and if you understand why efficiency helps in the long run when a new machine is developed, then you can understand why now all of a sudden it's just giving more options to the U.S. consumer.
So now instead of having to rely on things that U.S. workers produce, you can also buy things that are produced by Indian workers or Chinese workers, and so to get more options doesn't make us poorer.
And now we really don't have very much time left, and I've really left out many of the great arguments that you make in your book about the little guy, about racism and the minimum wage and that kind of thing.
I think a lot of times we talk about economics and ups and downs and, well, like you just say, new technologies coming in and a lot of people lose their jobs.
At the end of the day, we're talking about people's ability to have a warm place to live and food to eat, and I know people who would call themselves laissez-faire, free market people who at the very same time, oh, they don't want a welfare state, but they want a safety net.
They want to make sure that there's always a save somebody from the gutter of last resort and that that must be government's role.
Or another example would be the minimum wage that says maybe somebody at McDonald's would have to lose their job for the rest of them to get a dollar an hour raise, but ultimately it's just not moral to pay anybody less than whatever arbitrary price.
So what do you say, Bob?
Well, the minimum wage, I think, is an easy one.
That's simply pricing the least productive people out of the market.
And so if you really want to help the dispossessed and the minorities and the underprivileged and all those terms people use, the last thing in the world you want to do is raise the bar and say people need to be this productive, need to bring in this much revenue for the bottom line of the firm, or else it's illegal to hire them.
Because if the government says you've got to pay people, what is it, $5.15 an hour, I think they're going to raise it pretty soon, and someone really is just only worth $3 an hour once you've figured in the cost of training them and all that, it's not that the businesses are just going to suck it up and eat the $1.85 difference or whatever it is, $2.15, I guess, difference.
No, they're just going to not hire them in the first place.
So the minimum wage law doesn't force businesses to hire every applicant and pay them a living wage.
No, it just says you're not allowed to pay someone below this.
And so businesses are still given the option of not hiring them in the first place.
And so then it's no wonder that in certain areas there's really high unemployment.
And then as far as the safety net, again, I think you just need to look at, there's the moral issue, first of all, that people will give to charity on their own and it's just not right to have the government force people to give to charity.
If everybody knows we ought to have a safety net, we don't need to vote in politicians who then take our money from us.
Why don't we just voluntarily give it to the charities of our choice?
So there's that moral argument, and the pragmatic one, just look in practice at what has happened with inner-city housing projects or the people who have been living on welfare for generations at a time.
And you have to say, are these people really better off because of Lyndon Johnson's Great Society, for example?
Right.
Well, I just wish I had more time to spend going through this book and some of the things in it.
You talk about capitalism fighting racism.
You argue against trust-busting, anti-monopoly government action, against Social Security and the Food and Drug Administration.
And I'll tell you what, Bob, it sure is the politically incorrect guide to capitalism, there's no doubt about that.
Well, I'm glad it's correctly titled.
Yeah, everybody, check this out.
It's a great read.
You sit down and read it in one evening and pass it on to friends.
It's fun and very informative.
Robert P. Murphy, Ph.D., The Politically Incorrect Guide to Capitalism.
Thanks.
Thanks for having me.