This month’s Cato Unbound continues our tradition of stirring up controversy. The lead essay is by Patri Friedman, who challenges the advocates of liberty as follows:
I deeply yearn to live in an actual free society, not just to imagine a theoretical future utopia or achieve small incremental gains in freedom. For many years, I enthusiastically advocated for liberty under the vague assumption that advocacy would help our cause. However, I recently began trying to create free societies as my full‐time job, and this has given me a dramatic perspective shift from my days of armchair philosophizing. My new perspective is that the advocacy approach which many libertarian individuals, groups, and think tanks follow (including me sometimes, sadly) is an utter waste of time.
Argument has refined our principles, and academic research has enlarged our understanding, but they have gotten us no closer to an actual libertarian state. Our debating springs not from calculated strategy, but from an intuitive “folk activism”: an instinct to seek political change through personal interaction, born in our hunter‐gatherer days when all politics was personal. In the modern world, however, bad policies are the result of human action, not human design. To change them we must understand how they emerge from human interaction, and then alter the web of incentives that drives behavior. Attempts to directly influence people or ideas without changing incentives, such as the U.S. Libertarian Party, the Ron Paul campaign, and academic research, are thus useless for achieving real‐world liberty.
Cato isn’t called out by name, but it easily could have been. Like I said, Cato Unbound tries to be controversial.
What’s needed, Friedman claims, is not more study or advocacy, but a change in the deeper institutional structures that give rise to government policies. Competition among states (and non‐state agents!), new technologies, and new intentional communities may just induce old‐fashioned governments to behave a whole lot better. By contrast, just recommending somewhat better policies won’t do very much, not if all we do is write about them. (Friedman seems particularly skeptical about blogs. Ahem.)
Is this just a young person’s impatience? Or has Friedman found a serious weakness in libertarian activism? One reply I might make is that Cato scholars have researched quite a few topics that Friedman would probably find worthwhile. It’s important to document these things, and much of this work directly furthers the kind of structural reform that Friedman favors.
Consider the many Cato scholars who have heralded the rise of tax competition — in which states feel increasing pressure to deliver a low‐cost product when their taxpayers can move elsewhere. Or consider Bryan Caplan’s The Myth of the Rational Voter, a book whose conclusions inform Friedman’s own project. This book began with a series of discussions among public policy scholars (on a blog no less!). Cato actively promoted Caplan’s work, and we would hope that Friedman would find this an effort well‐spent. An upcoming event with author James Tooley shows how the world’s poor are founding their own schools to educate themselves, admirably free from any state interference — a new, private social practice bests an incompetent government! These things matter, I’d say, and they matter even if we accept Friedman’s premises. (We’re also giving a platform to Friedman, both here and at an event on April 7.)
In any case, this a big and very important discussion for the libertarian movement, of which the Cato Institute is only a part. Cato Unbound will have a remarkable series of panelists commenting throughout this week and next, including Jason Sorens, founder of the Free State Project; Peter Thiel, co‐founder of PayPal and noted philanthropist; and Brian Doherty, who has researched and written about more forms of libertarian activism than most of us can even recall. Whatever side of the debate you end up taking, be sure to stop by to catch this month’s edition of Cato Unbound.
Back in 2007, presidential candidate Ron Paul generated a lot of talk, especially among libertarians, about monetary policy, the Federal Reserve, and the gold standard. As a longtime believer in sound money, I was surprised to discover how many smart young libertarians thought that talk of the gold standard was nutty. And perhaps more surprised to discover that they thought it was unnecessary now that the problem of central banking had been solved. As two of them wrote when I asked about their objections,
“The gold standard is the solution to no actual problem that is of concern to anyone. I think it’s a mistake to take a relatively professional and independent central bank for granted, but we have one. Inflation is low and predictable. The monetary climate is stable and amenable to savings and investment, etc.”
“What’s the beef with the Fed? By my estimation, it’s been one of the most effective, restrained government agencies over the last twenty five years. They’ve dramatically reduced the volatility of the business cycle while achieving low, reasonably constant inflation.”
Well. How’s that confidence in central banking looking now? I’m reminded of Murray Rothbard’s comment in 1975 about what the era of Vietnam, Watergate, and stagflation had done to trust in government:
Twenty years ago, the historian Cecelia Kenyon, writing of the Anti‐Federalist opponents of the adoption of the U.S. Constitution, chided them for being “men of little faith” – little faith, that is, in a strong central government. It is hard to think of anyone having such unexamined faith in government today.
Partly in response to such criticisms of the gold standard, in February 2008 Cato published a paper by Professor Lawrence H. White, “Is the Gold Standard Still the Gold Standard among Monetary Systems?” White argued:
The gold standard is not a flawless monetary system. Neither is the fiat money alternative. In light of historical evidence about the comparative magnitude of these flaws, however, the gold standard is a policy option that deserves serious consideration.
In a study covering many decades in a large sample of countries, Federal Reserve Bank economists found that “money growth and inflation are higher” under fiat standards than under gold and silver standards.
A gold standard does not guarantee perfect steadiness in the growth of the money supply, but historical comparison shows that it has provided more moderate and steadier money growth in practice than the present‐day alternative, politically empowering a central banking committee to determine growth in the stock of fiat money. From the perspective of limiting money growth appropriately, the gold standard is far from a crazy idea.
And he quoted a devastating line from an essay (p. 104) by Peter Bernholz:
A study of about 30 currencies shows that there has not been a single case of a currency freely manipulated by its government or central bank since 1700 which enjoyed price stability for at least 30 years running.
In February 2008 White’s study didn’t get much attention. Most people still thought the Greenspan‐Bernanke Fed was doing a great job, so why talk about alternatives to fiat money? But now, after the crash of 2008 and the growing realization that Dow 14000 was the product of a cheap‐money boom that led to the inevitable bust, maybe it’s time to think about the gold standard or other constraints on politicized money creation.