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Economics For Individuals:Let’s Talk Time Preference, Democracy And The Decline Through Which We Are Currently Living.

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One of the most important concepts in economics is time preference. It’s a bit hard to get one’s head around. A high time preference signifies presentism – an individual with high time preference wants everything now, now, now. An individual with lower time preference is willing to forego some present consumption, and to save and invest for the future, feeling that they will value future goods higher than present goods.

In societies that display, on average, a lower rather than a higher time preference, there will be more net investment, more capital formation and greater capital accumulation. Production becomes more sophisticated. Labor becomes more productive and wage rates rise. More people become saver-investors, and they identify more and more sophisticated and beneficial future-improving projects in which to invest. Future incomes rise more; the social time preference rate becomes lower and lower. This tendency has been called the process of civilization. 

The tendency will continue and civilization will progress unless there is interference in the freedom of individuals to exercise their property rights as saver-investors. One type of interference is crime: theft, fraud, or physical violence. To combat this, the saver-investor will divert some funds towards defense: safety products, insurance, security and the like. Although this use of funds is not as productive as other forms of investment, the diversion does not typically obstruct the process of civilization to a major degree. Criminals are usually in the minority and less sophisticated than their targeted victims.

This changes when property rights violations take the form of government interference. 

In Democracy, The God That Failed, Hans-Hermann Hoppe writes:

The distinctive mark of government violations of private property rights is that, contrary to criminal activities, they are considered legitimate not only by the government agents who engage in them, but by the general public as well.

Hence in these cases, a victim may not legitimately defend himself against such violations.

Government interventions that tend to increase the time preference of citizens include taxation of property and income (reducing the individual’s stock of present goods and therefore shifting focus to shoring up the present rather than investing for the future); government money-printing, which has the same effect as criminal counterfeiting; and any regulation concerning what the individual property owner may or may not do with his or her property.

Because of their perceived legitimacy, government violations affect time preferences n a fundamentally different fashion than criminal violations. Crime occurs only intermittently, but government institutionalizes violations into a predictable and unavoidable future pattern. The future-oriented actions of saver-investors become more constrained and everyone becomes more present-oriented. The natural tendency to build an accumulation of capital goods may come to a standstill or even be reversed. People become less farsighted. This is the process of decivilization. 

Politicians and the employees of democratic governments have no incentive to concern themselves about this process of decivilization. Their time preference is high. They are not the owners of government, but temporary caretakers. Their incentives are to take advantage of their position as much as possible and as quickly as possible in the short term. They will want to maximize current government income and increase current government power. Taxes will increase, more government money will be printed, more debt will be accumulated, and more government employees will be hired (and the kinds of people who take the jobs will exhibit high time preference and limited farsightedness).

The state will be increasingly transformed into a “welfare state”, where income redistribution is implemented via transfer payments, “free” goods (like healthcare), and “protective” laws, all directed at transferring income and wealth from low time preference / high productivity citizens to high time preference dependents. The future becomes more uncertain for producers, and those who have produced little or nothing are rewarded. More people will opt to join the latter group.

This trend of decivilization is inevitable in a democracy. When unproductive people, such as politicians and government employees, can aspire to powerful roles in a government that has a legitimate monopoly on the transference of income and wealth to reward and reinforce non-productivity, they will seize the opportunity it represents and exploit it to the fullest. When high time preference non-governmental workers can become recipients of present goods from government-authorized redistribution, as a payment for not producing, or a subsidy for low production, more people will join those ranks.

The only defense against this trend of decivilization is to change public opinion from legitimizing democracy and social-democratic government. Our theory of government is wrong. We must change it.

The Four Negative Developments That Are The Opponents Of Civilization.

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Is civilization lost? One definition to be found in the dictionary is that civilization is social development at its most advanced. If social development is going backwards, then civilization is eroding. That’s certainly how it feels.

The advance of civilization depends on the outstanding, brave, pioneering individual. Mark Shupe has written about individuals shaping the great institutions of civilization and defining the great scientific frameworks that give us understanding of our universe and pave the way for modern technologies. He also described how the bureaucracy of the status quo has defaced our institutions and pushed fake science that is confusing our understanding rather than advancing it.

Therein lies the problem. Today, there is opposition to civilization. There is precious little room for the independent, curious, barrier breaking, outside-the-box thinker to investigate the frontiers of knowledge. The major opponents civilization faces include:

Expanding Government.

Government hates both advancement and innovation, which could undermine its position. Government wants only control, and control is anti-civilizational. Control is the very thing that free-thinking individuals stand against. As government expands into controlling more areas of individual life, as it produces more legislation and administrative rules, as it spends more money and accumulates more debts that will never be paid, and as it militarizes and surveils more and more, and as it designates more of its internal affairs and conversations ‘SECRET”, so it extends its dead hand of suppression over more and more civilizational possibilities, until they are all gone.

The Inflation Of The Money Supply.

Government money and the institutions that produce it merit special attention because it is the production of counterfeit money in unlimited quantities – what the economists refer to as inflation – that makes all government activities possible.

It was not inevitable that we gave the monopoly over the production of money to government, but we have done so and the world reaps the consequences. Without a role for private property, the production of money is perverted into an instrument of exploitation.

According to Jorg Guido Hulsmann in The Ethics Of Money Production:

Legal monopolies, legal-tender laws, and the legalized suspension of payments have unwittingly become instruments of social injustice. They breed inflation, irresponsibility, and an illicit distribution of income, usually from the poor to the rich. These legal institutions cannot be justified and should be abolished at once.

Among the detrimental effects of government money, Hulsmann includes hyper-centralized government suppressing both local government and individual freedoms; war, paid for with money from government printing presses; tyranny – the pursuit by government of goals that do not have the support of the citizens; the elimination of true entrepreneurship, since enterprises sustained by excessive debt are puppets of banks, unlike those sustained by owner equity; economic booms and busts, since unlimited supply of inflationary money encourages risky undertakings that otherwise would never be financed; the sterility of maintaining the status quo, since the debt that is injected into sustaining existing businesses requires defense against innovation and disruption if those indebted businesses are to survive competition; the financial dependency of individuals, which weakens self-reliance and replaces independent judgment with submissiveness; and the expansion of the welfare state which actively undermines the family, which is the ultimate source of morality and education.

Bureaucracy.

Max Weber was the sociologist of bureaucracy. He defined bureaucratic administration as domination through knowledge of processes and rules that non-bureaucrats could not know and were powerless to fight. He predicted, as a result of increasing bureaucratization, a “polar night of icy darkness”, in which increasing rationalization of human life traps individuals in a soulless “iron cage” of bureaucratic, rule-based, rational control.

Ludwig von Mises devoted an entire book to the subject of bureaucracy. He feared “that the strait jacket of bureaucratic organization paralyzes the individual’s initiative” resulting in “stagnation and preservation of inveterate methods” rather than the progress and improvement that stems from entrepreneurship. Robert K Merton warned us of a “trained incapacity” of the population resulting from “over conformity” to bureaucratic rule.

While bureaucracy has been around for a long time, it approaches closer and closer to its own perverted perfection. It started in government, but has migrated to big business, largely as a device to integrate the governance of the largest firms with the governance of the state for mutual benefit. Innovation becomes repressed. For example, bureaucracy has transformed Google’s original vision to “organize the world’s information and make it universally accessible and useful” into its current mission of becoming a leading member of the surveillance state and a purveyor of predatory advertising.

Perversion Of Technology.

Technology is a great tool for civilizational progress. It is fundamental to the release of humans from the drudgework of merely sustaining life to the mind work of imagination and invention. But government, government money and bureaucracy all pervert the civilizational role of technology.

In “What Happened To The Future”, Bruce Gibney of Founder’s Fund tracked the shift of venture capital from supporting technological development in the 1960’s – 1990’s, to “cynical, incremental investments”, like Pets.com rather than Intel, in the present era. He wonders if we have “reached the end of the line, a sort of technological end of history?” Since technology is the fundamental driver of growth in the world, and hence the engine of advancing civilization, the prospect Gibney raises is chilling.

Along the way, Venture Capital has ceased to be the funder of the future, and instead has become a funder of features, widgets, irrelevances.

The best founders want to radically change the world for the better. To many investors, visionary entrepreneurs come off as naïve or worse – isn’t it safer/easier/more profitable to create a(nother) social network for cat fanciers than to try to cure cancer, defeat terrorism, or organize the world’s information?

His point is that we are losing the desire, the hunger, the sense of exploration and risk to make the world a better place. The energy comes from individual entrepreneurs, innovators, founders and researchers. The more we suppress such individualism, the more the decivilization process accelerates.

Economics Provides Us With Hope.

The size of government versus private enterprise, money production, the role of bureaucracy and managerialism versus entrepreneurship, and the pursuit of real technological progress are all economic questions, best managed by free societies and free markets. And when they are, life is enhanced by the introduction of visual arts, architecture, music, and the aesthetics and morality of civilization. The alternative is fresh in our memories – Soviet construction and Socialist Realism.

How Government Money Destroys Wealth, Health, Nutrition, Education And Civilization.

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A slow drain of the value of money over time is a slow transfer of wealth from those who hold money to those who produce it. The government produces money, whether printing their pieces of paper or conducting quantitative easing or creating credit at the overnight repo window. They declare their intent to make the money decrease in value by 2% every year. They can print unlimited amounts for themselves and their cronies, while you and I, who can’t produce money but must use it and hold it, face a guaranteed loss of value.

In The Bitcoin Standard, a book about Bitcoin as a decentralized alternative to central banking, Prof Saifedean Ammous starts his argument from this point. Clearly, the government has great power over us when it can rob us of a guaranteed 2% of our money every year. It is as a result of this process that the dollar in our pocket is almost worthless compared to its value in 1913, when the central bank embarked upon this long journey of declared robbery.

But the problem is far worse than the guaranteed annual theft of 2% of our wealth.

Allowing a sovereign the control of the money can only lead to them increasing their control of everyone’s life. Civilized human living itself rests on the integrity of money providing a solid foundation for trade and capital accumulation.

Professor Ammous lists several examples of the cultural, sociological and political depredations due to government money.

Government Control

Government control of money has turned money from being the reward for producing value to the reward for obedience to government officials.  It is impractical for anyone to develop wealth in government money without government acceptance. Government can confiscate depositors’ money from the banking monopolies it controls, inflate the currency to devalue holders’ wealth, and reward it to the most loyal of its subjects, impose draconian taxes and punish those who avoid them, and even confiscate other wealth that citizens hold.

Fiat currencies reduces people’s sovereignty over their wealth and leaves them helpless in the face of the slow erosion of the value of their money as central banks inflate the money supply to fund government operations. It becomes increasingly impractical to accumulate capital and wealth without the permission of the government issuing that money.

It is government’s ability to finance its operations through inflation that allowed for the birth of the heavily interventionist managerial state, with all its associated totalitarian and authoritarian tendencies.

Sound money, not controlled by government, is an essential requirement for individual freedom from despotism and repression, as the ability of a coercive state to create money can give it undue power over its subjects, power which by its very nature will attract the least worthy, and most immoral, to take its reins.

Economic Depressions

The cause of the Great Crash of 1929 was the diversion away from the gold standard in the post WWI years, and the deepening of the depression was caused by the government control and socialization of the economy in the Hoover and FDR years.

Currency manipulation emerged as a tool of trade policy between governments who deserted the gold standard in order to print unlimited amounts of their own money; trade barriers were erected, with disastrous consequences. Loud and violent nationalism followed.

War And Militarism

In Keynesian economics, spending is deemed the driver of the economy, and when consumers are saving too much and not spending enough, in the eyes of the Keynesians, the government must step in and do the spending. All spending is spending, in this naïve economic thinking, and so it does not matter if the spending comes from governments mass murdering foreigners. It all counts in aggregate demand. In fact, Prof Ammous describes government’s standard economic war policy as “violent militant Keynesianism”.

Politics

In the presence of unlimited fiat money to finance government, political differences between parties disappear as politics no longer contains trade-offs, and every candidate can champion every cause.

Democracy becomes a mass delusion of people attempting to override the rules of economics by voting for politicians who promise a free lunch, and being manipulated into violent tantrums against scapegoats whenever the bill for the free lunch arrives via inflation and economic recessions.

Education

The academic system is completely corrupted by government money. Government schools become propaganda mills, where the curriculum is not determined through its accordance with reality, but through its accordance with the political agenda of the government funding it.

In academia, professors spend very little time and effort on the teaching and mentoring of students, focusing most of their time on publishing unreadable research to get government grants and lucrative government consulting and projects.

Big Companies, Bad Food

In a world where central banks allocate credit, both directly and through its captive monopoly banks, the larger firm has an advantage in being able to secure funding at a low rate that its smaller competitors cannot get. This helps explain why large-scale food producers proliferate so widely around the world, as their lower interest rates allow them to finance growth and bloat.  The triumph of mass produced, highly processed junk food cannot be understood outside the effects of large scale that government money affords to producers.

Decivilization

Sound money protects value across time, which gives people a bigger incentive to think of their future – to lower their time preference – and to save and invest in order to accumulate capital, increase production and elevate the quality of life for all. The lowering of time preference is what initiates the process of human civilization and allows for humans to co-operate and live in peace.

Government money has the opposite effect. It increases time preference, and lowers incentives to save and invest. It reverses the process of civilization.

Bitcoin Is The Workaround

Friedrich Hayek believed that there will never be good money again until it is taken out of the hands of government. “All we can do is by some sly roundabout way introduce something that they can’t stop.”

Bitcoin.

 

Photo by Pepi Stojanovski on Unsplash

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