Comments on Comments #3

Welcome to my third edition of “Comments on Comments.” I like the way it’s going so far as it’s encouraging a more lively discussion of some topics than would otherwise take place in the comments section of individual blog posts.

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On the Peak Oil Myth, Robert Odle says:

Proving that oil [will not run out] (even a weak proof) is not the same as disproving the peak oil hypothesis. The peak oil theory is simply that the amount of crude oil produced by the world will ultimately hit a peak and then decline. Many believe the time is near. And it really doesn’t matter why the peak occurs … political problems are just a troublesome as the fact that oil deposits are becoming more sour, deeper, and mixed with sand.

Robert, you’re absolutely correct. Proving that oil will not run out is not the same as proving that we’ll eventually stop producing it in favor of something else, in fact that’s one of the points I’m trying to convey. When I refer to peak oil as a myth, I’m referring to the apocalyptic doom-and-gloom-James-Howard-Kunstler predictions, to paraphrase loosely, “The world is running out of oil and we’re all going to die and there’s nothing we can do about it. So, what are you going to do about it?” This is the myth to which I refer, which couldn’t be further from the truth, unless governments want to make it a self-fulfilling prophecy.

For the record, I don’t think Roberts’ proof is weak. If it is believed that oil has reached a price below which it is unlikely to fall, at $100/bbl (or any price, for that matter), and if there exist sustainable and readily usable alternative energy sources, the transition to the new source should follow, but it will take some time and cause some hardship. TANSTAAFL. As competitors strive to satisfy the demand for energy, innovations ought to drive a wedge further between the price of oil and the price of alternatives, ensuring that oil will eventually cease being used, as its opportunity cost rises.

Dan Z says:

Not only does the increased taxation of oil companies reduce the incentive to invest, but it is also worth noting that companies themselves dont pay taxes, only individuals do, so that burden will be passed on to the consumer, not the company.

Dan, thanks for reiterating the very same point I made in the blogpost to which you responded:

Furthermore, the taxes levied on businesses are always passed on to individuals in one form or another…

Full disclosure: I have to give him shit for this because he’s my brother, and that’s what brothers do.

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In a response to my response to his response about smoking bans and workers’ rights, in Comments #2, Franc says:

You missed the point. If you are an Anarchist, you are against the State, and many businesses currently existing (and all corporations) are part of the State through subsidies, preferential treatment, eminent domain, etc. Since the State cannot justifiably own anything, those businesses actually belong to the workers.

Work hierarchies are coercive by definition because they are enforced by the State, with no alternatives. In the meantime we must create our own alternatives, but when the State is gone so will those hierarchies, because they are part of the State. If we still have work hierarchies in an “Anarchy,” then it’s not really an Anarchy to begin with.

I don’t disagree with any of the first paragraph per se, of course the status quo is wrong and immoral, but that should not be read to imply that mutually respectful and earned positions of authority could not arise in a more meritocritous and free economy. A crew of rough carpenters needs a foreman, a team of researchers needs a project manager, a kitchen full of line-cooks needs a chef. Someone needs to Captain the ship, so-to-speak. Someone needs to manage the project, and others need to do the dirty work. A shop owned by and employing 2 or 10 or 1,000 worker-owners still needs to decide on rules, practices, standards, etc.

You could take a “homesteading” approach to the development of these rules, whereby the rules are implemented by founder(s), and any late-comers comply with them, or seek employment elsewhere.  Or they could develop an internal democratic process, or some other method might be used.  What matters is that the rules are freely consented to by the participants, who are free to leave at any time.  All other things being equal, we can surmise that as the “rules” within a given organization become excessively restrictive (determined by the free market), the profits accruing to that organization should fall to reflect the premium placed on control, as the workers demand greater compensation to reflect the premium they place on their liberties.  (Note: I’m sure there are exceptions to this rule!)

I view my current work-hierarchy as highly collaborative, and an effective work hierarchy needs to be collaborative, with information flowing both ways, not simply a command-control environment. Many existing hierarchies do not satisfy these conditions, but that doesn’t mean that they can’t, and it doesn’t mean that collaborative, merit- or ability- or knowledge-based hierarchies can’t arise without a State. So, just because businesses currently existing are part of the State (and these businesses have a hierarchical structure) does not mean that without a State, hierarchies will cease to exist, or cease being necessary.

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Also in Comments #2, regarding the gold standard, Tony generally agrees with my analysis but asks a series of follow-up questions, I’ve numbered them in brackets, below:

You got the basic idea. I’m looking more for commentary on reversing the requirement on using FRNs in transactions. [1] How does it change when people can use anything? I think they should be able to, [2] but would they? [3] And how would a specific standard impact efficiency in the market for those who aren’t interested in gold or whatever?

Or rather, [4] what would a free market stabilization mechanism look like?

Reversing the FRN requirement immediately would probably be calamitous, because the market probably doesn’t know what prices ought to be in terms of commodity-backed money. It would probably take some considerable time for things to work themselves out, which is to be expected after a century of meddling with the price mechanism.

1. Throughout time and space, people have used many competing mediums of exchange, from large stones, nails, gold, sea shells, cigarettes, and so on. But metals have withstood the test of time and have been generally accepted in nearly all places at nearly all times.

2. People can or could use literally anything: you could make an offer to purchase real-estate denominated in livestock, if you so chose, and if the seller was willing to accept that medium of payment. But just because you could use anything, doesn’t mean that people by-and-large would use anything. Gold emerged as a common medium of exchange in part because of the properties I’ve previously described. Part and parcel to these qualities, settling on a general, commonly accepted medium of exchange eliminates the “double coincidence of wants” that is necessary for a barter economy. In the above example, the seller would only be inclined to accept an offer of livestock if he had a use for livestock. So even though it might be easy for you to offer livestock, unless you can find someone who also wants livestock, it behooves you to exchange your livestock for something that is more liquid, otherwise you would probably have to pay a significant premium. This process leads market participants to settle voluntarily on a medium of exchange that is widely accepted. Of course, livestock contracts could certainly be implemented and enforced. But it’s terribly unlikely that these would be commonplace.

3. Regarding a “specific standard,” I want to reiterate that when I refer to a “gold standard” or other commodity-based economy, I’m not talking about something that is legislatively decreed. Gold arose superior out of a natural and spontaneous order (see Mises’ “regression theorem” in The Theory of Money and Credit [2.1mB .pdf]) and there is little reason to believe that it wouldn’t reassert itself if given the opportunity.

4.In short, the market is the stabilization mechanism. There is a chapter about the “Economics of a Gold Standard” in Mark Skousen’s The Structure of Production that outlines how a specie-standard operates. Basically, the long-run supply of gold has fails to keep pace with the average annual growth of GNP, exceeding it only in rare and isolated instances, leading to mild deflationary pressure on the overall economy over time. Furthermore, the total stock of gold in the world has never declined (i.e., monetary contraction) year-over-year.

According to Skousen, “New additions to the monetary stock must involve the use of real resources at their full value… It is this expansion in the use of real resources that embodies the increase in the savings pool… an essential feature to preserve the validity of Say’s Law.” Quoting Harrison H. Brace, “Each addition to the supply [of gold] after it has had its price effect, tends to make the value more stable as it takes it place in the permanent stock. And each subsequent increment of a given amount is less and less percentage of it, so in the latter part of a great influx of gold, the effects of additions grow smaller and smaller.”

This is by no means an exhaustive treatment of the economics of a specie standard. I’d encourage those interested to try and locate a copy of Skousen’s book and review the relevant chapter, and the subsequent chapter about the economics of a fiat standard.

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Please, feel free to comment on any post (I think they close after 30 days). I do not censor comments and will make an honest effort to respond courteously to any comments left, anonymously or otherwise. Dissenting opinions are always welcome.