Comments on Comments #2

In this edition of “Comments on Comments,” I’ll respond to reader responses to #1, as well as any responses to subsequent stand-alone posts.

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In response to my post about the declining value of the dollar, Matt from Without Hyphens notes that:

India has decided to stop accepting the U.S. Dollar at tourist sites such as the Taj Mahal because of it’s declining value… Rupees all the way now.

You know shit’s getting bad when rappers are flaunting waving their papers in Euros instead of Dollars. The dollar is also losing it’s prestige as the world’s reserve currency.

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At FSK’s guide to reality, FSK makes the following statement:

Just because a lot of time was wasted on something, doesn’t mean it has any actual value or an alternative wouldn’t be more productive.

Background: we’ve had some arguments over the “labor theory of value” in the recent past. I think this puts them to rest. As we’ve both noted, I think it really was a problem of definitions/semantics. Previous arguments for the LTV that I’ve heard all want to assume that wasting time on something actually creates value. I’ve always understood the LTV to be somehow tied to the idea of “intrinsic value” or “just prices” or some other gobbledygook. But it sounds like we’re on the same page now. I agree that two principles hold:

1. Labor produces valuable things in a free market. (Note: This statement is independent of how much value, it only says that labor will produce things which are expected to be valuable.) Also, it’s a straw-man argument to try and refute this idea with government-subsidized make-work programs like ditch digging, because nobody would endeavor to dig unwanted ditches in a free-market.
2. In a free market, labor’s compensation will tend to approach the market-value of its product, that is, labor will be compensated based on how valuable its contributions are (or are expected to be) in the eyes of consumers, bound by the relative supply of labor.

A caveat is that although Labor’s expense may be strongly correlated with value, the final arbiter of value in a free market is the subjective consumer. And it is the consumer who determines how valuable a product is (and hence how valuable the inputs required for its production are). Value determines how much (and of what quality) labor will be used in production.

In regards to a discussion about the free-market utility of lawyers, FSK asked that I blog about how I think a free-market justice system would work. I don’t believe I said I would do this, and if I did I misspoke, because I’m just not really inclined to re-invent the wheel. In any event, I think the notion of adversarial “justice” is flawed, and many of the tasks done by lawyers in today’s non-free market are 100% wasteful, they are in essence ditch-digging programs. The great corpus of legal knowledge is probably mostly crap, and in a free market 9 out of 10 things that presently require the assistance of a lawyer could probably be arbitrated peacefully without the assistance of counsel. I still think lawyers (by whatever nomenclature) would come in handy for drafting contracts and ensuring compliance with contracts and other agreements for business, nuptuals, real estate, etc. The idea is that they would maybe be more useful as preventative measures than they would be in reconciliatory service.

For example, think of how real estate title insurance works: someone with intimate knowledge of land titles examines a piece of property and its chain of title along with encumberances, etc., and then determines whether its clean or clouded. The idea is that you pay someone to indemnify you against things about which you are unqualified to make a judgement. You don’t buy a house and then hire a lawyer if someone contests your claim, first you have someone guarantee that nobody will contest your claim, then you buy the house. The same could be true with business agreements and contracts, etc. Once a contract was in place, counsel may (or may not) be retained to ensure that you aren’t accidentally in breach.

Of course I have no inclination to stipulate what sort of justice system that would be used. I’m only hypothesizing as to how things might develop. I could certainly be mistaken in whole or in part and do not claim to be an authority on the matter.

+++ Replies to Comments on Comments #1 +++

Francois Tremblay asks, in response to my property rights approach to smoking bans:

Oops, you sure walked right into that one viz smoking. Since we’re against work hierarchies, the argument that employees rights are fundamental is correct because all businesses should be self-managed.

I’m not necessarily against “work hierarchies.” I’m against coerced hierarchies.  I also didn’t say that employees’ rights are not fundamental.  Only that there is no such “right” to work in a smoke free establishment that is owned by someone else, just like there is no such right to walk in to your neighbor’s house and demand that he extinguish his cigarette.

Employee’s rights quâ human rights are fundamental, but they don’t start getting a whole new set of rights when they enter into an employment contract. There is no such right to be “free from secondhand smoke” when you’re on someone else’s property, in any capacity, if the proprietor permits smoking. Either the workers can somehow arrange this with the proprietor, or they cannot and consequently should seek employment elsewhere which does not permit smoking. If we’re talking about worker-owners, then among themselves they’ll need to reach an agreement as to how the business will operate and what it will tolerate. Then we’re not talking about “worker’s rights” but rather, proprietor’s rights. The property-rights approach still holds.

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KipEsquire makes several comments in reply to my reply to his inquiry about specie-backed currency:

Yet gold-as-currency is also “creating money out of thin air.” Can I put gold coins in my gas tank and drive my car?

Kip, you can’t put FRN’s into your gas tank and drive your car, either. I’m not sure where you’re going with that…

I think we have a misunderstanding about the ex nihilo concept here.  Gold is not created out of thin air because it has an opportunity cost that is non-zero, whereas Federal reserve notes can be created electronically, literally out of thin air at a cost that is zero for all intents and purposes — there need not actually be any physical piece of linen and cotton. Our current “money” can come into existence as a bookkeeping entry alone. Gold cannot be created in such a manner, despite the alchemists’ protests, and there is little reason to believe (or assume that I suggest) the amount of gold needs to change.

Gold is not valuable because it’s gold; gold is valuable only because someone else considers it valuable.

I’m not claiming that there is some intrinsic value in gold. That would be foolish. But it is equally foolish to argue that gold is an anachronism which has failed a market-test, and that fiat money is valuable by the same standards as specie money. I’ll reiterate: Federal reserve notes are only valuable because a government declares that you must accept them as valuable, enforced by a gun; and people are generally prohibited from dealings in anything other than FRNs for the large majority of transactions.

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Tony inquires about the efficiency of a gold standard.

One point within the gold standard … I’m interested in is efficiency.

The fact of the matter is that for most of recorded history, when emperors and king’s weren’t busy clipping, debasing, or otherwise defrauding their subjects, some variant of a specie standard was used. Foreign coin had no fixed exchange rate, but instead traded on volume. Where legally permitted, debased coin traded at a discount, thus invalidating Gresham’s Law. Bad money can only drive out good money with the force of law behind it. If you’re inquiring about the pain of carrying solid gold coin, I don’t imagine it would be difficult to implement redeemable banknotes or token coins.  As long as they’re redeemable.

Furthermore, the Great Depression was a product of the “efficiency” of fractional reserve banking. So too was the more subtle post-WW2 inflationary era. The current financial turmoil is the most recent product of our “efficiency.” I guess for the time being, I’ll need further clarification as to what you mean by “efficiency,” because perpetually rising prices, and frequent bouts of inflation, leading to booms, then busts, does not strike me as particularly “efficient.”

At the risk of spending too much time on gold, I’ll table it for the time being. I’ve already parsed out some of my reply for later publication, but I will respond to further commentary.

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Tony also likes the “Comments on Comments” format. I got the idea from FSK’s guide to reality. I like the interactive nature as a supplement to my usual rants and declarations.