Topic: Political Philosophy

Friedman and Hanke on Bitcoin

In 2008, Bitcoin was mysteriously introduced to the world in an obscure, technical paper written under the pseudonym Satoshi Nakamoto. By late 2013, the financial press was filled with reportage on Bitcoin and its dramatic price increase.

Well ahead of Satoshi Nakamoto, Nobelist Milton Friedman, champion of free market economics and noted expert on money and banking, anticipated the coming of digital currencies, and foresaw the potential impacts that they would have on finance and economics.

In a 1999 interview, Prof. Friedman concluded:

I think that the Internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing, but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B without A knowing B or B knowing A. The way I can take a $20 bill hand it over to you and then there’s no record of where it came from.

You may get that without knowing who I am. That kind of thing will develop on the Internet and that will make it even easier for people using the Internet. Of course, it has its negative side. It means the gangsters, the people who are engaged in illegal transactions, will also have an easier way to carry on their business.

Prof. Friedman’s anticipation of Bitcoin is truly remarkable. He even understood the concept well enough to anticipate something like the Silk Road scandal involving illegal Bitcoin transactions.

In April 2013, Nathaniel Popper of The New York Times reported on Bitcoin in an article titled “Digital Money is Gaining Champions in the Real World”. In his reportage, Popper asked me if I thought Bitcoin had the makings of a speculative mania like the 17th century Dutch tulip bulb frenzy. My response was clear and unambiguous: “To say highly speculative would be the understatement of the century.”

Subsequently, the price action in Bitcoin confirms my diagnosis (see the following chart). In January 2013, one could buy a Bitcoin for about $13. By late November, one Bitcoin would have set a buyer back over $1100. And what about Bitcoin’s price volatility? As shown in the chart, Bitcoin’s volatility is truly fantastic.

While the price currently fluctuates around $600, Bitcoin remains far from secure. Serious discrepancies in price exist even between exchanges. For example, the price of a Bitcoin on the Mt. Gox exchange has fallen by over 50% in the past week, while the price of the exact same Bitcoin on the BitStamp exchange has fallen by only 3% in the same time period.

Nick Gillespie and Matt Welch on the New Episode of “Free Thoughts,” the Libertarianism.org Podcast

On Free Thoughts, the newish podcast from Libertarianism.org, Aaron Ross Powell, myself, and our guests explore the deep questions in libertarian thought. Guests include philosophers, economists, other Cato scholars. Rather than focusing on current public policy issues, we try to take a deeper look at how libertarians see the world. 

Nick Gillespie and Matt Welch joined us for this week’s episode, and Jason Kuznicki filled in for Aaron. We discuss whether there is a growing movement of independents that is a cause for optimism among libertarians. Are we in for a better, more libertarian era than ever before? Or should we be skeptical of this kind of optimism, given the growth of the federal government in recent years?

You can also subscribe to the iTunes feed or the RSS.

Obama Administration Turns Antique Collectors And Dealers Into Criminals

The Obama administration is preparing to treat virtually every antique collector, dealer, and auctioneer in America as a criminal.  In the name of saving elephants, the administration is effectively banning the sale of all ivory objects, even if acquired legally decades ago.  Doing so will weaken conservation efforts and enrich those engaged in the illegal ivory trade.

Under the Convention on the International Trade in Endangered Species of Wild Fauna and Flora (CITES) only ivory from before 1989 can be sold.  Unfortunately, ivory prohibition has not stopped the slaughter of elephants. 

The greatest demand for new ivory comes from Asia.  Most ivory in America arrived legally, many years ago. 

Until now the rules were simple and sensible.  Ivory imported legally can be sold.  Moreover, the burden of proof fell on the government to convict you of violating the law.  That’s the way America normally handles both criminal and civil offenses.

However, in mid-February the administration issued what amounted to a ban on ivory sales.  As I point out in my new Forbes online column:

In practice, virtually every collector, dealer, auctioneer, and other person in America is banned from selling ivory items, even if acquired legally, owned for decades, and worth hundreds or thousands of dollars.  Every flea market, junk shop, estate sale, antique store, auction showroom, and antique show is at risk of raids, confiscations, and prosecutions.

First, no imports are allowed, not even of antiques, which before could be brought to America with a CITES certificate. 

Second, all exports are banned, except antiques (defined as over a century old) in what the Fish and Wildlife Service says are “exceptional circumstances.”  At best the administration is raising the administrative and cost burdens of exporting to countries which already limit ivory imports to items with appropriate CITES documentation.  Or the new rule may restrict the sale of items previously allowed, thereby hindering Americans in disposing of their legal collections. 

Venezuela Verifies Hayek on Exchange Controls

Foreign airlines have begun to restrict ticket sales in Venezuela. As the bolivars’ value evaporates, and with exchange controls in force, the airlines fear that the funds they have in Caracas will evaporate, too. By restricting ticket sales, the airlines will limit the amount of new money that is trapped behind the government’s wall of exchange controls.

Of course, President Nicolas Maduro isn’t the first autocrat to impose exchange controls, and he won’t be the last to impose these confiscatory policies. Indeed, the pedigree of exchange controls can be traced back to Plato, the father of statism. Inspired by Lycurgus of Sparta, Plato embraced the idea of an inconvertible currency as a means to preserve the autonomy of the state from outside interference.

So, the temptation to turn to exchange controls in the face of disruptions caused by hot money flows is hardly new.  Tsar Nicholas II first pioneered limitations on convertibility in modern times, ordering the State Bank of Russia to introduce, in 1905–06, a limited form of exchange control to discourage speculative purchases of foreign exchange.  The bank did so by refusing to sell foreign exchange, except where it could be shown that it was required to buy imported goods.  Otherwise, foreign exchange was limited to 50,000 German marks per person.  The Tsar’s rationale for exchange controls was that of limiting hot money flows, so that foreign reserves and the exchange rate could be maintained.  The more things change, the more they remain the same.

This brings me to Nobel laureate Friedrich Hayek’s 1944 classic, The Road to Serfdom. Many thought Prof. Hayek hurt his case because he was extreme. What nonsense. Just consider the Wall Street Journal’s reportage from Caracas about the real concerns of foreign airlines that have funds locked up in Venezuela. And then reflect on the following insightful analysis from the Road to Serfdom:

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference.  Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty.  It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

Hayek’s message about convertibility has regrettably either been overlooked, or thought to be too extreme. Exchange controls are nothing more than a ring fence within which governments can expropriate their subjects’ property. Open exchange and capital markets, in fact, protect the individual from exactions, because governments must reckon with the possibility of capital flight.

This House Does Not Believe in Hope

Happy Valentine’s Day, Washington: Netflix has a present for you. Tonight, you and your significant other can curl up on the couch with Frank and Claire Underwood, D.C.’s favorite backstabbing power couple. House of Cards, Netflix’s ridiculous (yet hard to resist) telenovela, is back. Apparently, many Hill staffers were irate that Netflix didn’t release the show early, for binge-streaming during yesterday’s snow day.

HoC’s story, focused on a Machiavellian congressman’s rise to power, isn’t heavy on verisimiltude. Like many fictional depictions of Washington, it fails to capture “the nation’s capital as the bureaucratic and constipated place that it in fact is,” as Christopher Hitchens once put it. It takes a lot of suspension of disbelief to buy into the show’s vision of a Capitol of cunning and competent schemers.

Still, some of the characterization rings true. Two decades in, this town probably would transform Princess Bride’s pure-hearted “Buttercup” into a vicious social X-ray running a phony environmental think tank. Likewise, my colleagues at Cato’s Center for Educational Freedom will probably appreciate the casting choice that led to former Sopranos hitman Mikey Palmice’s turn as a teacher’s union leader.

And overall, HoC is a major improvement over the last Beltway drama official Washington fell in love with: The West Wing, Aaron Sorkin’s unctuous Valentine to the Heroic Presidency. Sorkin built that show around the concept of an incorruptible president devoted to good works: the unbearably decent Josiah (Jed) Bartlet, a theologian-cum-Nobel laureate in economics, backed up by a staff of the most selfless, high-minded, public-spirited and charming political operators ever devised. It was altogether the throne-sniffingest portrayal of Washington imaginable.

I’ll take HoC’s Beltway Borgias over Sorkin’s Cartoon Camelot any day. As I wrote in the Washington Examiner this week: “At least ‘House of Cards’ is willing to entertain the idea that political animals aren’t angels and that ‘public service’ often deserves the scare quotes.”

Hayek: The Market and Other Orders

Volume 15 of the Collected Works of F. A. Hayek has just been published by the University of Chicago Press. This volume, edited by series editor and Hayek biographer Bruce Caldwell, is The Market and Other Orders. It contains many of Hayek’s most important papers:

  • The Use of Knowledge in Society
  • The Meaning of Competition
  • The Results of Human Action but Not of Human Design
  • Competition as a Discovery Procedure
  • The Pretence of Knowledge, his Nobel Prize lecture
  • and The Political Ideal of the Rule of Law, lectures delivered in Egypt in 1954-55 that served as early drafts of chapters 11, 12, 13, 14, and 16 of The Constitution of Liberty

That’s only the beginning in this impressive volume, which should be of interest to any Hayek scholar, and indeed any student of economics or complex social orders.

Lawrence Summers, former secretary of the Treasury and president of Harvard, said in an interview for The Commanding Heights, Daniel Yergin and Joseph Stanislaw’s 1998 study of the resurgence of economic liberalism,

What’s the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That’s the consensus among economists. That’s the Hayek legacy.

This volume is a great introduction to those key ideas.