TheInfiniteBankingConcept...ComparedtoWhat?

ByErnestFalkner,III ErnestFalkner+Company Nash/Bullock/FalknerAlliance

Afterwatchingtheeventsofthelifeinsuranceindustryforthelast30years,youandI canwellbelievethatwehaveaboutseenitall.Let'ssiteafewareas... Foroneexample,inthelastthirtyyears,howmanytimeshaveyoubeenencouraged and/ormotivatedtoacton"IRSPrivateLetterRulings"asanagentorclient?TheIRS statesthattheserulingsare:"writtenstatementsissuedtoanindividualtaxpayerbythe departmentandinterpretthetaxlawsbasedonthatparticularindividualtaxpayers specificsetoffacts.Ataxpayermayrelyupontherulingtotheextentthefactsarethe sameasthoseintheruling." Evenassuch,we'veseentheserulesappliedtotaxationandleveraginginsurance techniquesregardingindividuals,businesses,charities,governmentplans,retirement programsandmanyothers.Theresult:untoldmillionsofinsurancepremiumdollarshave flowedintoinsurancehomeofficesonthefragilityofsuchrulings. IBCISNOTBASEDONANYPRIVATELETTERRULINGS. Question:Howmany"advancedunderwriting"national/regional/localmeetingshaveyou andIattendedwheretheH.O.attorneysand/orAUmanagementpersonnelhavehosted themeetingwhere"allthenewestandlatesttechniques'arepresented?Someofthe techniquesrangedfromsimpleandunderstandabletoothers,whichwouldrequiresuch technicalknowledgeandunderstandingthatitwouldbeunreasonableforacommon clienttounderstand.Inmanycases,theapplicationswereforextremelylimitedaudiences andpractitioners. Theresult"IfIcouldnotunderstandthepresentedtechnique...HowcouldIpossibly presentitwithconfidencetoclients?" IBCISNOTBASEDONHOMEOFFICEADVANCEDUNDERWRITING. Unfortunately,inthelastthirtyyearsandmorespecificallythelastfifteenyears,many majorlifeinsurancecompanieshavebeenbesiegedbyuntoldlawsuitsfromconsumers andconsumergroupsoversalesandmarketingtechniquesandpractices.Somanyof thesediscrepanciesarewrappedinsaleslanguageomissions,orgetrichquickthemes,or unfoundedandunrealisticpromises,orevenoutrightdeception.Allofthisactivityhas resultedinacostofBillionsofdollarstotheinsuranceindustry. IBCISNOTBASEDONANYOFTHEABOVE.

Inthepastthirtyyears,insurancehomeofficeshavebirthedseveralmarketresponsive andbasically"unbundled"insuranceproductsasaresponsetotaxlaws,interestrate swings,andevenstockmarketparticipation.NowweareallfamiliarwithUL,VUL,VL, SWL,andonandon. Bottomline...evenwithallthecreativehomeofficeproductdesignsandtheresulting applications...wenowhaveproductsthataremoredependentontheexternalforcesof portfoliomanagement,interestrates,higherexpenseratios,(tonameafew)thatcan affectresults.Consideringthat,theproverbialindustrystandardofapardividendpaying wholelifepolicystillhasthemostpredictableandguaranteedresults. IBCISBASEDONAPARDIVIDENDPAYINGWHOLELIFEPOLICY. Inthelastthirtyyears,youandIhavewitnessedmoreandmorepersonallossofcontrol ofourmoneyinordertogainsometaxfavoredbenefits.Example:Individual retirement accountshavedeductionformulas,withdrawalpenalties,minimumandmaximum distributions,participationallowances...assuch,individualsincreasinglyfindthat becauseofthelackofcontrol,inflexibilityofwithdrawals,andtheuncertaintyof politicalandtaxclimates...therearerealhesitationsintheparticipationandmotivationto directsubstantialfundingtotheseplans. IBCISNOTBASEDONIRARULES,PARTICAPATIONORLIMITATIONS. Inthelastthirtyyears,wehaveseen"KnockOff's"andevendownrightthieveryinthe areasofmerchandisingproductsandservices.Thatsaid,thereisonly ONE"Becoming YourOwnBanker"andtheInfiniteBankingConceptthathasit'soriginofoverthirty yearsandhasnotdeviatedfromthatpositionormessagesince(PleaseseetheFAQ sectionofthiswebsiteunderthetopicof"Education"). So,anypromotionorpromotionallanguagethatevenhintsofoverpromise,overselling orinflammatorysalesstatementsshouldnotandwillnotbeassociatedwith IBC(onany authorizedbasis). IBCISTHEONEANDONLY...CHALLENGEANYTHINGQUESTIONABLE. Asitisprofoundlychronicled,IBCisbasedonsoundeconomicprinciples,U.S.taxlaws andinsurancecontractualguarantees.Inotherwords,thereasonthatIBCworksis becausetheseprinciplessupercedesalestechniques,gimmicks,creativeaccounting,trust manipulations,giftingstrategies,leveragingmethods,etc. Conclusion:Whenwelookbackonthelastthirtyyears,yeswecanseealotofchanges intheinsuranceindustryandtheresultingproductsandservices.But, comparedtowhat hasbeendevelopedandtheresultofwhatisavailabletoday,IBCfromR.NelsonNashis undoubtedlydistinguishedasoneofthemostoverlookedyetfactuallyunique applicationsoftheindustry'smoststandardproductofthelast100years.

Aslongasthereisapardividendpayingwholelifeproductoutthere,IBCshouldhavea verybrightfuture. P.S."GettheVideo...Outstanding!" ____________________________________________

FiveBooksThatExplainItAll
ByJeffreyTucker
Thedrivetowar,thethreatofterrorism,thestockpricemeltdown,thecontinuing recession,andthedeclineoflibertyalladduptoamomentofgraveinsecurityin whichgovernmentpowerthrivesandgrows.Underneathitalliswidespreadconfusion aboutwhathappenedtoturntheprosperousandrelativelypeaceful90sintothecurrent madness,whoorwhatistoblame,andwhattodoaboutit. Whatmostpeopledoinsuchtimesisclingtothewords ofpoliticiansandthestatements ofTV'stalkingheadsthetwosourcesleastlikelytoofferabroadperspectivethat yieldsanswers.Thebestmeanstofightbackagainsttheirsuperficialprattleisserious studyofhistoryandeconomics.LookingovertheMisesInstitute'sshelfofbooks,five standoutforprovidingaclearahistoricalperspective,atheoreticalexplanation,a forecastforthefuture,andanagendaforchange.Thesearethebooksthatareessentialto understandingourtimesofconflictandstagnation. TheCostsofWar,editedbyJohnV.Denson.Adebateiscurrentlyragingconcerning howmuchBush'sproposedwaronIraqwillcost(indollarterms)andwhetherthose costsoughttobefiguredintohisnewbudget(theyarenot).Thisisanimportantconcern, insofaraswarisalwaysfinancedwiththepeople'smoneytakenfromthembyforce.But thisbookshowsthatthecostsofwararefarhigherthanmostpeoplerealize. Inadditiontooutrightexpenditures,wemustalsoconsidertheforegoneusesofthe resourcesthatgointowarmaking.Withtheresourcesusedtospreaddestructionand death,familiesmighthavesentkidstocollege,savedforretirement, orinvestedinfuture production.No,warisnever"goodfortheeconomy." Moresignificantly,wemustconsiderthecostsofwar onfreedom.Denson'sbookargues, asdidMises,thatevenvictoriouswarcanbedevastatingtoacountry'swellbeing.This isapointthatwaswidelyunderstoodatthecountry'sfounding,whichiswhythe foundinggenerationwassoadamantthattheUSshouldtradewiththeworldbutavoidall politicalentanglements,particularlythosethatleadtointrigue,conflict,andfinallywar. ThisisamplyshownbyanexaminationoftheriseoftheAmericanleviathan,the consolidationofgovernmentpower,andthedeclineofAmericanliberty.Contributors suchasMurrayN.Rothbard,AllanCarlson,ClydeWilson,JosephStromberg,Hans Hoppe,RobertHiggs,PaulFussell,RalphRaico,andmanyothers,weighintocover

majorareasofAmericanhistoryandmosttopicsassociatedwiththeideaofwar.The overridingthesisisthatthefriendoffreedommustalwaysbegravely skeptical of governmentwarplans. Theinfluenceofthevolumehasbeenimmense.Appearingin1997,itwasthefirst(and isstillthebest)revisionistviewoftherelationshipbetweenwarandfreedomtoappear aftertheendoftheColdWar.Inmanyways,thisbookcalledthepartisansofliberty backtotheirroots.ItshowsthatbelieversinfreedomwereagainsttheNorthernattackon theSouth,againsttheSpanishAmericanWar,againstWorldWarI,andagainstFDR's drivetowar.ThesupporttheAmericanRightgavetotheColdWarwasanaberration.If youhavedoubtsaboutBush'swaronIraq,ortheadministration'sbelligerentposein general,thisbookshowsthatyouareingoodcompany. America'sGreatDepressionbyMurrayN.Rothbard.A Republicanpresident,facingrelentlesslyfallingstockprices, trieseverymannerofinterventiontoshoreupaneconomy headedtowardliquidation.Theresultisnewprotectionism, welfareforlabor,vastincreasesingovernmentspending,andan economicdeclinethatjustseemstogetworseallthetime.This narrativecouldapplytoGeorgeW.Bushinourowntimes,butit alsoappliestoHerbertHooverandhisresponsetothe1929crash onWallStreet. Eventoday,studentsaretaughtthatHooverpursuedapolicyof laissezfaireandthatFDRrescuedthecountrywiththeNew Deal.Rothbardshowsthatthestoryiscompletelyfalse.The Hooverpresidencywasoneoframpantintervention,policiesforwhichhewascriticized by(ofallpeople)FranklinRooseveltbeforehewaselected.Rothbardfurtherdocuments howHoover'spoliciesdrovethecountryintodepressionfromwhatmighthaveotherwise beenabriefrecession.Hisprotectionismlaidthefoundationforconflictsthatledto WorldWarII,hisattempttopropupbanksledtothelaterbankclosings,andhislabor interventionspreventedwagesfromfallingastheyshouldhave. Hereagain,itishardtooverestimatetheimportanceofthisbook.Forgenerations,ithas beentaughtthatthefreemarketisatfaultfortheGreatDepression(inthesamewayitis saidthatBushispursuingfreemarketpoliciesnow).Rothbard,especiallyinhischapter ontheAustriantheoryofthebusinesscycle,showsthatitwastheFederalReserve's loosemoneypolicythatsetthestageforthestockmarketcrash,andthegovernmentthat prolongedthesufferingwithpoliciesthataccomplishedtheoppositeoftheirstatedaims. Inotherwords,thisbookrefutesacentralmythofthe20thcentury,andshowsthatthe currentpathofcountercyclicalpolicywillnotonlyfailtosaveitit willdigusindeeper. OmnipotentGovernment:TheRiseoftheTotalStateandTotalWar by LudwigvonMises.BeforewritingHumanAction,Miseswentto workonabookexaminingtheriseofHitlerisminGermany.

AppearingthesameyearasF.A.Hayek'sRoadtoSerfdom,Misesprovideswhat maybethebestaccounteverwrittenonthepsychology,economics,andpoliticsof asocietyovertakenbychauvinismandmilitarism.Hedealswiththe dangersinherentinacitizenry thirstingforvengeance,beingledbya governmentheadedbyapowermadexecutivewitharelentlesspassionforwar makingatanycost.Inshort,Misesunlocksthesecrettohowaseeminglynormal countrycanfinditselfplungedintonationalisttotalitarianism. BooksonGermanpoliticsinthe1930sareubiquitous,butonlyMisesprovidesa thoroughexaminationoftheeconomicdoctrinesthatformedthebasisofGerman nationalisminthisperiod.Beginningwiththedesireforautarky,Germanypursueda disastrouscourseoferectingtheplanningstatethatregimentedofeveryaspectoflife, fromeconomicstoeducationtolanguageandreligion.Hecontraststheprevailing doctrineswiththeideasoftheoldGermanliberals,whofavoredtrade,peace,toleration, andselfdetermination. MuchofthishistoryhasbeenlostandreplacedbyanexclusivefocusontheevilofHitler himself.Apparently,theparallelsof Hitler'spolicieswiththoseoftheUSintheperiod (orinourowntimes)arejusttoocloseforcomfort.Thatissueaside,Mises'sbookstands outamongalltheliteratureonthistopicasaterrifyingexaminationoftheconsequences ofstatistideology,warpropaganda,andmisplacedpatriotismanditslessonsapplyin alltimesandplaces. ReassessingthePresidency:TheRiseoftheExecutiveStateandtheDeclineofFreedom editedbyJohnV.Denson.IfGeorgeWashingtonhaddeliveredaspeechalongthelines ofGeorgeW.Bush'sStateoftheUnioninJanuary2003, theoutcrywouldhavebeen palpable.ItwouldhavewidelybeenassumedthatKingGeorgehadreturned,madder thanever.OnewasgiventheimpressionthatnothingintheConstitutionrestrainshis warmakingpower,nothingpreventshimfromspendingbillionsupon billionsonwhat hewantstodo,andthatanyonewhoobjectsisanenemyofallthatisrightandtrue. Theframersenvisionedthatthepresidentwouldhavefewpowersatall,andthosethathe didhaveweretobeexercisedwithsternoversightfromthelegislativebranch.Ifyouare seekingananswertohowwecametoimperialpresidencyofthecurrentday,don'tlook attheconventionalpresidentialhistories,inwhichitiswidelyassumedthatthemore powerthechiefexecutivegrabs,the"greater"heis.Especiallywartimepresidentscome inforgoodmarks,whilethedownsideiseithernotdiscussedordownplayed. Thismassivevolumetakesacompletelydifferentapproach.Itexamineseveryimportant presidency,andeffectivelyreversesthejudgmentthatyouarelikelytogetfromthe mainstreamtreatments.Eachchapterisaclassiconitsownterms,butifwehaveto singleoutafew,specialmentionshouldbemadeofRandallHolcombe'sreconstruction ofthepresidentialelectionprocess,ScottTrask'srehabilitationofAndrewJohnson, ThomasWoods'sdemolitionofTheodoreRoosevelt,RalphRaico'sshreddingofthe Trumanpresidency,JohnDenson'sfirstshotrevisionism,andJosephSalerno's examinationoftheroleofmoneymanipulationinfundingexecutivedictatorship.

Readthisbookandyouwillneverthinkofthepresidencyinthesameway.You th certainlywon'tcheera StateoftheUnionaddress(whichisa20 centuryinvention inanycase)inwhichthepresidentpromisesthathealonecandefendyourfreedom andsecurity. AHistoryofMoneyandBankingintheUnitedStates:TheColonialEratoWorld WarIIbyMurrayN.Rothbard.Anyonewhohasstudiedtherelationshipbetweenmoney andstateeventuallycomestoaremarkablerealization:thereisnomodernleviathan withoutthecentralbank.Itistheanalyticalkeytounderstandinghowgovernmentcan runupdeficitsanddebtswithoutlimit,bailoutforeigngovernments,fundwarswithout end,andotherwiseattempttomanagetheglobe.Takeawaythepowertoprintandyou robthegovernmentofitsprimarymeansofexpansion. (Morethananyreform,thegold standardwoulddevastatebiggovernment.) ThestoryofAmericanpoliticalhistoryisradicallyincompletewithoutahistoryof moneyandbanking,andyetthereisnotonehistorythatgavethecompletepictureuntil thistreatisebyRothbardappearedjustlastyear.Thehistoryitselfismasterfullydone, enhancedbythetheoreticallensofAustrianSchooleconomicsthroughwhichtheauthor understandsevents.Butwhatreallymakesthisagreatread(asidefromthesparkling prose)isthewayRothbardweavestogetherthetheoryandhistorythroughthelivesof shadyfinanciersandthepoliticiansandpoliticalmachineswithwhichtheyare connected. Inmanyways,thistreatisebringsallthethemesofourdaytogether.Itshowshowcentral bankingcreatestheboombustcycleandfundswars,howthefinancialsectorservesas theessentiallinkbetweenpoliticsandbanking,andhowpapermoneymakesbig governmentpossibleandmanagestomakeworsealltheproblemsitoriginallycaused. Mostimportantlyforourpurposes,thisbookshowsthatnomatterhowextraordinaryour timesappear,therearemanyprecedentsforthecurrentmess,andoneclearpathaway fromdestruction:freedom,soundmoney,andeversmallergovernment.

JeffreyTuckerisvicepresidentoftheMisesInstitute.
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SoYouThinkYouveGotaTrustFundWithYourUncle Sam...
byJohnAttarian

OneofSocialSecuritysgreatestmythsisthatbenefitsarepaidfromatrustfund accumulatedfromtaxesheldintrust.True,thereexistan"OldAgeandSurvivors InsuranceTrustFund"anda"DisabilityInsuranceTrustFund,"usuallyreferredto togetheras"theSocialSecurityTrustFund."Sureitsatrustfund.Why,itsayssoright hereonthelabel! Orisit? TheoriginalSocialSecurityActcreatedan"OldAgeReserveAccount"in theTreasury. Eachyear,anamountdeemedsufficienttopaythatyearsbenefitswouldbeappropriated totheAccount.Appropriationsunneededforbenefitswouldbeinvestedinfederaldebt, includingunmarketabledebtissuedforthispurpose,earning3percent.SocialSecuritys taxratewastorisegradually,tocreateareservebigenoughsoitsinterestwouldhelp defrayfuturecosts.Taxcollectionswouldbeginin1937benefitpayouts,in1942thus thefundwouldstartaccumulating. Criticismarose.WinthropAldrichofChaseNationalBankarguedthatthereservewould beafictionthegovernmentwouldjustbeissuingitselfpromissorynotes.Inhisfamous MilwaukeespeechonSocialSecurityduringthe1936presidentialcampaign,"Alf" Landonlikenedthereservetoafathertakingdeductionsfromhiskidswagestoinvest fortheiroldage,"investing"themin"hisownIOU,"andspendingthemoney,leaving hiskidsnothingbutIOUs,makingSocialSecuritysforcedsavings"acruelhoax."Social Securitytaxdollars,PresidentFranklinRooseveltretorted,"areheldinaGovernment trustfundsolelyforthesocialsecurityoftheworkers." Aftertheelection,theattackskeptcoming.GeneralHughJohnson,formerheadofthe NationalRecoveryAdministration,andjournalistJohnT.Flynn,pointedoutthatunlike insurancecompanies,whichinvesttheirpremiumstobuildareservetopayclaimsby theirinsured,thegovernmentwasonlyissuingitselfIOUs.Sothereservewasworthless. Topayfuturebenefits,Americanswouldhavetobetaxedagain.Defendersresponded thattheIOUtalkwasmisleadingarentallprivateinstruments,suchasstocksandbonds, reallyIOUs,theirvaluedependingontheresourcesandethicsoftheissuingfirms? In1939FDRproposedamendingSocialSecurity.Intheensuingcongressionalhearings anddebates,thereservecontroversyexploded.CriticsaccusedtheAdministrationof "embezzlement"andreiteratedthatthereservewasjustIOUs,soAmericanswouldbe taxedtwice.No,no, no,defendersshotbacknoembezzlementwashappening,there wouldntbeanydoubletaxation,andtheIOUswerethesafestinvestmenttherewas governmentbonds.Bynowthreeyearsold,theacrimoniouscontroversywashurting SocialSecuritysprestige. The1939Amendmentscreatedan"OldAgeandSurvivorsInsuranceTrustFund"atthe Treasury.Therecordisclearthatthiswasdonetoendthereservefundwrangle. TestifyingbeforetheSenateFinanceCommitteeontheAmendments,SocialSecurity BoardchairmanArthurAltmeyer,whenaskedwhatthepurposeofthetrustfundwas,

stated,"toallaytheunwarrantedfearsofsomepeoplewhothoughtthatUncleSamwas embezzlingthemoney." Moreover,thetextsoftheoriginalSocialSecurityActregardingtheReserveAccount andofthe1939AmendmentsregardingtheTrustFundarevirtuallyidentical.Section 201oftheoriginalAct,"OldAgeReserveAccount,"wasreplacedbyanewSection201, "FederalOldAgeandSurvivorsInsuranceTrustFund."Theonlyrealchangewasthe eliminationofthespecificannualappropriationtransferringrevenuestotheReserve Fund.Instead,asumequivalenttoSocialsecuritytaxreceipts"isherebyappropriated"to theTrustFundforthefiscalyearendingJune30,1941,"andforeachfiscalyear thereafter."Inotherwords,themoneynowgoesintotheFundautomatically.Theonly othernewfeatureswereaBoardofTrustees(SecretaryoftheTreasury,Secretaryof Labor,andChairmanoftheSocialSecurityBoard)tomanagetheFundreplacementof3 percentinterestwiththeaveragerateoninterestbearingfederaldebtandpayingmoney fromtheFundtotheTreasurytodefraySocialSecurityadministrativeexpenses. Otherwise,theTrustFundoperatedjustliketheReserveAccount.Infactitwasthe ReserveAccountthelattersassetsasofJanuary1,1940weretransferredtotheTrust Fund.TheAccountwas,accordingtotheAct,"anaccountintheTreasury,"andtheTrust Fund,pertheAmendments,was"onthebooksoftheTreasury,"makingthetransfera formality.Essentially,ashoeboxfullofbondsjustgotrelabeled. Theevidenceisclear:SocialSecuritysTrustFundisaTreasuryaccount,nothingmore. The"trustfund"labelwasapublicrelationsploytoreassurethepublicthatSocial Securitywastrustworthy.Itworked.Thereservecontroversyfadedaway. IstheTrustFundtherealMcCoy?Letssee.Atrustfundismoneyorotherpropertyheld inatrust,atrustbeing"Afiduciaryrelationshipwithrespecttoproperty,subjectingthe personbywhomthepropertyisheldtoequitabledutiestodealwiththepropertyforthe benefitofanotherperson,whicharisesasaresultofamanifestationofanintentionto createit."Atrustmusthavea"settlor,"whocreatesthetrustandputspropertyintoita "trustee"whomanagesitandholdslegaltitletothepropertya"beneficiary,"whohas equitabletitletotheproperty,andforwhomthetrusteemanagesit"termsoftrust," spellingoutthetrustspurpose,thedutiesandpowersofthetrustee(s)and,ofcourse, th property.(CharlesE.Rounds,Jr.andEricHayes,Loring:ATrusteesHandbook,)8 ed., th pp.12,5,79GilbertThomasStephenson,EstatesandTrusts,4 ed.,pp.6366). SocialSecuritystrustfunddoesnothavethesedefiningfeatures. Congressisnotthesettlor.Asettlorputshisownpropertyintothetrust,whichCongress didnotdo.AndSection201oftheAmendmentsdidnotevenmentiontheBoardof Trusteeshavinglegaltitletoanyproperty.Downgotwocharacteristicsofatrust. Also,Section201saidnothingaboutproperty becausethereisntany.In Flemmingv. Nestor,theSupremeCourtruledthattherearenoaccruedpropertyrightstobenefits.If youhavenopropertyrighttobenefits,howcanyouhavepropertyinthetrustfundwhich

supposedlypaysthem?Propertyinthetrustfundimpliesapropertyrighttobenefits,and viceversa.Atrustmanagespropertyonsomeonesbehalf.Noproperty,notrust. SuffolkUniversitylawprofessorandtrustexpertCharlesRoundsaptlysummedup: "Despitethetermtrust,theSocialSecuritysystemcontainsnothingthatremotely resemblesthecommonlawtrust.Thereisnosegregationofassets,noequitableproperty rights,noprivaterightofenforcement(allcharacteristicsofthecommonlawtrust).Itis merelyasystemoftaxationandappropriationsprinkledwithtrusttermstohideitstrue nature." Finally,considerhowtheTrustFundoperates.SocialSecurityrevenuesgointoTreasury generalrevenueandarecreditedtotheFundasunmarketableTreasurybonds.The Treasurypaysbenefitswithgeneralrevenue,debitingtheTrustFundanequivalentvalue ofbonds.Anyremainingrevenuefinancesgeneralgovernment,withanequivalentvalue ofbondsintheTrustFundasSocialSecuritys"surplus."(HouseWaysandMeans Committee,1998GreenBook,pp.73,75,77).ThatsaTreasuryaccountinaction,nota trustfund. SocialSecuritysTrustFundisbogus.Meaningthe"robbingthetrustfund"issueis phony,too.Yetseniorsbuyit.Lastnightoneofmyfriendstoldmehedtriedto straightenouthis77yearolduncle,buttheoldboyjustwouldntbelievehim.Evenmy Momfellforthat"robbingthetrustfund"baloney.SocialSecurityspropagandistshave programmedmanyAmericans,especiallyseniors,likeMoonies.Deprogrammingis imperative. ____________________ JohnAttarianisawriterinAnnArbor,Michigan,withaPh.D.ineconomics.Hisbook SocialSecurity:FalseConsciousnessandCrisis,whichtreatsthemythsandrealitiesof SocialSecurityindetail,hasjustbeenpublishedbyTransactionPublishers. _______________________________________________________________________

IstheWorstYetToCome?
byWilliamL.Anderson
Astheeconomicdownturnmovesintoitsthirdyear,makingitthelongestinthepostwar period,theWhiteHouseannouncesyetanothereconomic"stimulus"package.Now,this setofproposalsisnottobeconfusedwith"StimulusI"or"StimulusII,"oreventhe ongoing"stimulus"actionstakenbyAlanGreenspanandtheFederalReserveSystem. No,thisproposalisbaseduponthesamefoolishnessastheotherlegislativepackages emanatingfromWashingtonthatnotonlyhavebroughtaboutthisrecession,butalso blocktherealrecovery.

Moreover,thechatterbyeconomistsandotherpunditsoverwhichistheproper "stimulus"actiontotakedemonstratesthattheKeynesianRevolutionhasbeenevenmore influentialintheeconomicsprofessionthanthetextbookswouldhaveusbelieve.From MiltonFriedmantoLarryKudlowtoPaulKrugmantoMaestroGreenspanhimself,most economistscanproudlyrepeatwhatPresidentRichardNixonutteredAugust15,1971, whenheintroduced"PhaseI"ofhisdisastrouseconomicprogram,"Weareall Keynesiansnow." Theoldjokethat"ifyoutakealltheworld'seconomistsandlaythemendtoend,you'll neverreachadecision"hasbeendiscredited,atleastwhenitcomestoproposingpolicy "solutions"tothemoribundeconomy. Actually,thebeliefthatgovernmentcan"stimulateaggregatedemand"doesnotbegin withKeynes,althoughthereseemtobesomeeconomistswhoactuallybelievethis.One canaccuratelysay,Ibelieve,thatmostoftheeconomicsprofessionhasnotprogressed th muchbeyondthe18 CenturyMercantilistsandtheir"inflationstimulatestrade" nonsensethattimeandagainhasdrivennationaleconomiestoruin. WhileIsuspectthatmostpunditsactually wouldcheertheprospectofKudlowand KrugmanagreeingthatthewaytostoptheeconomicmessisfortheFedtoprintwadsof newmoney,thetragedyhereisthatneithermanhaseventheslightestideahowthis currentdownturncameaboutandwhatshouldbedone.Shouldthegovernmentcontinue tolistentothisnewestgenerationofcranksinthetraditionofSilvioGesell(theItalian inflationistwhoKeynescalleda"prophet"),wecanexpecttofollowinthefootstepsof Japan. Ashasbeenwrittenonthispagemanytimes,the1990sboomtermedthenasthe"new economy"wascreditdrivenandcollapsedunderitsownweightofmalinvestedcapital. Unfortunately,thosewithpoliticalpowerandtheiralliesinacademeandthemedia

believethatourcurrentproblemisnothingmorethanalapsein"aggregatedemand," whichcanbecuredbysomenewmoneyandafewthousandgovernmentcheckstobe writtenforvariouswastefulfederalandstateprojects. Whilethereseemstobenoshortageofadvicegivenfromallquartersonhowtostopthis downturn,theanswerissimpleandbrutal:lettheliquidationcontinueuntilitreflects theproperpatternsofconsumerspendingandpreferences.Inotherwords,unlesswe permitanunhamperedeconomytoengageinthevery necessaryadjustments,the economywillcontinuetoslidefurtherandfurtherintoruin.Contrarytothebeliefsofthe chatteringcranks,theU.S.economyisnotdepressionproof. WhilemostMises.orgreadersareawareofthemassiveU.S.recessionof 198182,few rememberthattheFedengagedinamuchmoreresponsiblemannerthanwhatwehave seenunderGreenspanthesepastfewyears.First,andmostimportant,theFedpermitted interestratestosoartoveryhighlevelsinresponsetothehighratesofinflationthathad plaguedtheU.S.economyformorethanadecade. Whilehighinterestratestemporarilychokedoffanumberofcreditfueledindustrieslike housingandfarming,whatismostimportantisthatitpermittedthemassive malinvestmentsofthepreviousboomtoberapidlyliquidated,thusallowingforarobust recovery.AlthoughPresidentRonaldReaganwonahugelandslidevictoryinthe1984 elections,fewpeoplerememberthatin1982,astherecessionragedon,mostpolitical expertshaddeclaredReagantobepoliticallydeadandtherewasopentalkinRepublican circlesofsomeoneelsefillingtheGOPticketfor1984. HadtheReaganAdministrationhoweverunwittinglynotpermittedtheliquidation processtogoon,itisdoubtfulthattheeconomywouldhaveexperiencedastrong recoveryin1983and1984.Unfortunately,theadministrationofGeorgeW.Bushdoes notseethingsthatway,andthegovernmenthasbeendesperatelyattemptingtokeepthe neededeconomicliquidationfromoccurring.FromtheFed'ssettinginterestratesatnear zerolevelstomassivehousingsubsidiestosteelandlumbertariffstothelatestre emergenceofhugefarmsubsidies,nottomentionthesaberrattlingofthesocalledwar onterror,theBushAdministrationhasfailedtopermittheeconomytosettlebackintoits correctproportions. WhileIapplaudthepresident'sattemptstocutthetaxburden,hisplanstoincrease governmentspendingandpayforitwithborrowedmoneymakeshisentireeconomic packageahollowoneatbest.Moreover,theDemocratsseemtobetakingtheirorders fromPaulKrugman,whoseemstobelievethatinflationplusafewchecksfromthe alreadybankruptU.S.Treasurywillcurenearlyeveryeconomicill. Thebeliefthatourpresenteconomicdownturnisnothingmorethanalackof"aggregate demand"issimplywrongheadedonallcounts.First,"aggregatedemand"isinandof itselfafraudulentterm.Itassumesthatallspendingandallinvestmentsandcapital,for thatmatterarehomogeneouswhentheyclearlyarenot.Furthermore,itisimpossibleto measure"aggregatedemand,"andeventhewaythatitisshown(withtheConsumer PriceLevelonthe"y"axis)presupposesthatinflationisthekeytoconsumption.Toput

itanotherway,"aggregatedemand"is,aseconomistRogerGarrisononceputit,awayto trytoteachmacroeconomicprinciples"onthecheap"bytryingtomodeltheentire economywithsingledemandandsupplycurves. Notonlyisthemethodologyofmeasuring"aggregatedemand"terriblyflawed,butthe beliefthatsimplyencouraging"consumerspending"byplacingmoremoneyinthehands ofpeoplethroughthe"magic"ofinflationisalsoridiculous.Letmeexplain. CrankslikeKudlowandKrugmanwritethatifthegovernmentfindsawaytoquickly increasetheincomesofindividuals,thenthosefolksarelikelytospendagoodlyportion, ifnotall,ofthenewmoneyonitemslikeanewcarortelevisionorsomeothersetof goods.Inventoriesforthosegoodswillbeclearedatthe"old"pricesandpeoplewhosell thosegoodswillhaveatleastatemporarysourceoffurtheremployment.(Wherethey differisthatKudlowbelievesinmoreacrosstheboardtaxcuts,whileKrugmanwants onlylowerincomepeopletogetthenewmoney,sincehebelievestheywillbemore likelytospendthemoneyimmediately.) Evenifthescenariopaintedbythecranksistrue,thereisnothingintheirplanthatwill leadtoeconomicgrowth.Atbest,itemsthathadbeenlanguishinginwarehousesand elsewherewillbesold,butthatdoesnotprovideasignaltoinvestorsandbusiness executivestoengageinfurtherinvestmentofnewcapitaloreventokeepcurrentlines ofproductionopen. Forexample,oneofthedemandsmadebyDemocratsisthatanytaxcutbetemporary andlimitedtolowerincomeindividuals.WhileIwouldwelcomeanyreductionintaxes toanyoneatanytime,theideathatthisplanwould"stimulate"theeconomyissimply ridiculous.Atbest,itwouldpermitexistinginventoriestobepareddown,butthatis abouttheextentofits"stimulus"qualities.Apparently,anythingthatmightpermitsolid longtermpossibilitiesofeconomicgrowthisanathematothenation'spolicymakersof bothparties. Unfortunatelyforthepoliticalclasses(andtherestofuswhohavetolivewiththe politicalclasses),thekeytosettingthetableforeconomicrecoveryistoendurethe liquidationwithouttryingtointerfere.Sinceanypoliticianwho"doesn'tdoanything"to stoptherecession,eitherbyinterveningtokeepfirmsinbusinessordolingout governmentlargesstothosewholosetheirjobs,willcomeunderheavycriticism,the prospectsofnoninterventionduringthiscriticalperiodarejustaboutnil.Thus,the "compassionate"politiciansarethosewhoactuallyaredoingthemostdamagetothe economy. DuringBillClinton's1992presidentialcampaign,hismanager,JamesCarville,posted "It'stheeconomy,stupid"signsthroughoutcampaignheadquartersandelsewhere. Perhapsweneedanewslogantofighttherecession:It'stheliquidation,stupid.WhileI doubtthemottowillcatchonwithBushandhispoliticalrivals,intheend,itreallyisthe liquidation.Thosewhoignorethiskerneloftruthreallyarethestupidones.

WilliamAnderson,anadjunctscholaroftheMisesInstitute,teacheseconomicsatFrostburgState University. ____________________________________________________________________________________

HOWTORELAXANDENJOYTHEENDOFTHEWORLD
byBillBonner Theworldaswehaveknownitiscomingtoanend,butwhat dowecare?Welaughandvowtoenjoyit. IttooktheRomanEmpirehundredsofyearstofall.During thattime,mostpeopledidn'tevenknowtheirworldwas comingtoanend.Mostmusthavegoneabouttheirbusiness, plantingtheircrops,drinkingtheirwineandbouncing childrenontheirknees,asiftheempirewereeternal. Ofcourse,themobsinRomeitselfmayhavereeledand wailedwitheverynewsflash... ...thebarbarianshadcrossedthePoe...andwereheaded South...soon,theywouldbeatthegates! Butotherslivedquietlivesofdesperationandamusement asifnothinghadhappened.Andwhatcouldtheyhavedone aboutitanyway...exceptgetoutofharm'swayandtendto theirownaffairs? PlentyofpeopleenjoyedtheGreatDepression.Ifyouhada wellpayingjob,itmusthavebeenparadisenowaitingin lines,noneedforareservationatgoodrestaurants. KeepingupwiththeJoneseshadneverbeeneasier because theJoneseswereinreverse!Ifmuchofthesatisfactionof lifecomesfromfeelingsuperiortootherpeople...what bettertimethanadepressiontoenjoyit? Besides,hereattheDailyReckoning,dearreader,we're suspiciousofheadlineevents.Wecouldneverquiteget intothespiritoftheGreatBoomofthe'90s...wedoubt we'llgetmuchjuicefromtheGreatBusteither.Norcanwe getveryenthusiasticaboutgoingtowaragainstenemieswe don'tknowforreasonswecan'tunderstand. Itisacharacterdefectwejustcan'tseemtogetintune withmasssentiments.We'veneverbeenabletodo'The Wave'atbaseballgameswithoutfeelinglikeafool.Now,

wecan'tevenwatchfootballontelevisionwithoutfalling asleep. Butthatisthewayoftheworldonemadnessleadstothe next.Amanfeelsexcitedandexpansivebecausetheeconomy issaidtobeinthemidstofaNewEra...andthenhefeels alittleexhaustedwhenhediscoversthattheNewErahas beenfollowedbyaNewDepression.Andallthewhile,his lifegoesonexactlyasithadbefore.Hisliquorisno better,hiswifenoprettieroruglier,hisworkeverybit asinsipidorinspiringasitwasbefore. Andwehavenocomplaintaboutit! Still,"theworldistoomuchwithus,"wroteEmerson: "Mostmenhaveboundtheireyeswithoneoranother handkerchief,andattachedthemselvestosomeoneofthese communitiesofopinion.Thisconformitymakesthemnot falseinafewparticulars,authorsofafewlies,but falseinallparticulars.Theireverytruthisnotquite true.Theirtwoisnottherealtwo,theirfournotthe realfoursothateverywordtheysaychagrinsus,andwe knownotwheretobegintosetthemright.Meantimenature isnotslowtoequipusintheprisonuniformoftheparty towhichweadhere.Wecometowearonecutoffaceand figure,andacquirebydegreesthegentlestasinine expression..." Whatbettertimetoshuttheworldoutandwipethatsilly grinoffourfacethannow whentheworldwehaveknown for5decadesiscomingtoanend? Americanconsumercapitalismisdoomed,wethink.The trendsthatcouldn'tlastforeverseemtobecomingtoan end...ortheywillsoon.Consumerscan'tcontinuetogo deeperintodebt.Consumptioncan'tcontinuetotakeup moreandmoreoftheGDP.Capitalinvestmentandprofits can'tgodownmuchfurther.Foreignerswillnotcontinueto financeAmericans'excessconsumptionuntiltheSecond Comingatleastnotatthecurrentdollarprice.And fiat,papermoneywillnotcontinuetooutperformthereal thing gold forever. Americawillhavetofindaneweconomicmodelforitcan nolongerhopetospendandborrowitswaytoprosperity.

Thisisnotacyclicalchange...butastructuralone,which willtakealongtime.Partlybecausestructuralreforms thatis,changingthewayaneconomyfunctions donot happenovernight.Andpartlybecausethemachineryof collectivizedcapitalismresistschangeofanysort.The Fedtriestobuoytheoldmodelwithcheaperandcheaper money.Thegovernmentcomesforwardwithmultibillion dollarspendingprogramstotrytosimulaterealdemand. Andthepoorlumpeninvestoriatblesstheirgreedylittle heartswillnevergiveupthedreamofAmericanconsumer capitalismitwillhavetobecrushedoutofthem. Theworldissomuchwiththesepeople.TVsareturnedon 247.Thinkingenmasse,thelatestnewsgetshomogenized intoonegloppypaste,whereAmerica'ssuccessasan economyisamalgamatedwithitssuccessinthewaragainst terror."Consideringthatwe'regoingtogetanuptickin corporateprofitsandaquickwinoverIraq,"saidScott BlackinoneofBarron'sRoundtables,"Ithinkthemarket willbeup5%to10%fortheyear." Meanwhile,Americahasbecomesuchanoutsizedmilitary powerthattheworldhasbecome'unipolar,'saythelatest editorials.'Tisastrangeworldwithasinglepole,we noteoutofbalance,itcannotlast. Natureabhorsamonopoly.ThusmustAmericafindawayto destroyitself...andseemstohavefoundtwo: First,itsconsumereconomydependsentirelyuponthe kindnessofoverseasstrangers.Whentheyarefinallyfed up,Americanswillhavetostopbuying...andstartsaving themselves.Sinceitissomethingthatmusthappen,wewill behappytoseeithappen,forwemightaswellrail againstdeathasopposeaninevitablechangeinthe economy."Itwillallhavetobeadjustedsomeday,"asPaul Volckerputit.Whynotenjoyit? Secondly,GeorgeW.Bushturnedthegodsofwaragainst AmericawhenheannouncedthattheU.S.wouldinitiate armedconflictwithanynationitfeelsposesathreat. Hehasonlytopursuethisstrategy,andhewilleventually turnthewholeworldagainstAmerica,too.Wedon'tknow wherethisleads,butwewilltrytomakethemostofit. HereattheDailyReckoning,wehavealreadymadeourNew

Year'sresolutions.Wewilltrytorememberbirthdaysand vintages...weresolvetofindabetterwayofcuring ham...and,ohyes,wewillbuygoldondipsandsellthe dollarandstocksonrallies.TheTradeoftheDecade,we keepsaying,istosellstocksandbuygold.Thistradehas beengoodtoussofar.AtitspeakinMarch2000,ittook 41ouncesofgoldtobuytheDow.Youcanbuyitnowfor about25ounces.Beforethedecadeisover,andherewe takeawildguess,itwillbeonetoone,asitwasbefore theGreatBoombegan. Thismayormaynotbeaprofitablestrategy,butwedon't care.Wewilldowhatweoughttodo,evenifitturnsout tobeunprofitable.Occasionallywewilldowhatweought not,too,butthatwillbejustforfun.

BillBonner
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Health CareInterventionism:ACaseStudy
ByChristopherWestley
Weareoftentoldthat40millionAmericanslackhealthinsurance,and thatthisisascandalcausedbygreedyhealthcareprovidersinthe privatesectorconstantlyraisinghealthcarecosts.Thissimplymustbe truebecauseitistoldtousbyThoseWhoCare. Ofcourse,thereismuchmoretothisstorythanthestorytellersleton. Manyoftheuninsuredareuninsuredbychoice,andnotbynecessity. Healthcarecostsriseinresponsetoproviderstryingtorecoverlosses emanatingfromgovernmentinterventionsintoanalarmingly socializedmedicalindustry.(Thatpricestendtofallinindustries markedbyscantinterventionleadsonetotheconclusionthatif"public servants"reallycaredabouthelpingthepoorandsick,theywould simplygoaway.) Thetruthisthathisstoryislargelyamythpromotedbythosewho standtobenefitinsomewaybyabiggergovernment.Thisexplains whyeventssuchasthosethatrecentlyhappenedinmyownstateof Alabamararelyreceivemediacoverage. SeveralyearsagoinBirmingham,aprivateinitiativetostemtheflow oftheuninsuredtoareaemergencyroomfacilitiesresultedina

programknownasHealthPlus.Inthisprogram,doctorswould volunteertheirtimeandfacilitiestoprovidefrequentemergencyroom visitorsprimarymedicalcare.Thecarewouldbelessexpensivethan tripstotheER,andunliketheER,paymentscouldbemadeona slidingscale.Besidesreducingtheburdensplacedonlocalhealth institutions,HealthPluswouldprovidetheworkingpooranavenue throughwhichtheycouldreceivethepreventativecarenecessaryto reducetheirfutureuseofthem. Itsoundedlikeagreatprogram,reflectingtheeffortsofprivate individualstotrytodealwithproblemsmadeworsebygovernment regulations,suchasthosegoverningtheuseofprivateERs.It suggestedsomeofthewaysthattheworkingpoormightbeservedby afreemarketinmedicineifonewereeverallowedtocomeabout.Its armyofdoctorvolunteersunderscoredthenotionthatfactorsother thangreedwerecausinghealthcarecoststospiral. What'smore,HealthPluswasgearedtothesegmentofthe40million uninsuredthatismostofteninvokedbymedicalsocialiststojustifythe U.S.government'sadoptionofaCanadianorBritishhealthcare system.Asaresult,HealthPlusattractedfundingfromtheRobert WoodJohnsonFoundationforathreeyeartest. However,oneproblembecameobvioustwoyearsintotheprogram. Veryfewpeoplewantedtouseit.ToeffectagenuinereductioninER crowding,HealthPlushadtoattract3000patients.Aftertwoyears,it succeededinattractingonly500individualstosignupforthe program,andofthese,farfewerkepttheirfollowupappointmentsat participatingclinics.Recently,theprogramwasdeclaredafailureand officialswithdrewtheirlastyearoffundingtotaling$150,000. Whathappened?Whilefocusgroupsshowedthatpatientsperceived emergencyroomcaretobeofhigherquality,theyalsoshowedthat patientsconsideredtheconvenienceofusingtheERoptionmore importantthanthefinancialandhealthbenefitsthatwouldresultfrom utilizingalternativesprovidedthroughHealthPlus. SinceprogramssuchasHealthPlushavebeensuccessfulinother statesingettingpatientsoutofemergencyroomsandintoprimary carebyofferingmedicineanddoctor'svisitsfreeofchargeto recipients,therewillmostlikelybeanefforttoresurrecttheprogram withthesebenefits.

Intruth,thedemiseofHealthPlusillustratestheunintended consequencesthataccompanyanygovernmentinterventionofmarket forces.Inthiscase,federalregulationsrequireprivateownersof hospitalstoprovidehealthcaretoallcomers.Theintentistocreatea medicalsafetynettouninsuredindividualsinneedofhealthcareand unabletootherwisepayforit. Hospitalsprovidethisservice,butathigherpricesthantheycharge patientsutilizingnonERusingcustomers.Effortstoforcehospitalsto reducethispriceresultsinanoveruseofthesefacilitiesbythe uninsuredandageneralincreaseofpricesforallotherconsumersof healthcare. Thisresultiscompletelycongruentwitheconomictheoryingeneral, andAustriantheoryinparticular.AsMisesarguedoversevendecades agoinhisCritiqueofInterventionism,suchsolutionsinevitablyleadto moreinterventionsinthefuture.Bycreatingunforeseenproblems, theyleadtomoregovernmentprogramstodealwithproblemsthat wouldnototherwiseexistpriortotheinitialintervention.Asthis processrepeatsitself,wholeindustriescanbecomeeffectively socialized.Nooneishappywiththeresultssaveforthegovernment bureaucratschargedwithoverseeingit. Thispointisimportanttorememberwhenpolicymakersdiscuss providingfreemedicalcaretorepeatERusersinanefforttomake HealthPluslikeprogramsworkasdesigned.Sucheffortsactuallyharm theverypeopletheyareintendedtohelp.Whilereducingcrowding problemsintheERs,otherproblemswouldarise,suchasthecreation ofperverseincentivestothosereceivingtheaidtoremainboth uninsuredanddependentonthefruitsofother'slabor. Moralhazardproblemsabound,asthosereceivingtheentitlement havelittleincentivetoavoidunhealthybehavior.Thissolutionalso furtherlegitimizestheseizureofwealthandgivingittoothersinthis case,oftaxdollarsgoingtodoctorssoastoallowrecipientsof medicalcaretocontinuetopayazeropriceforit. Intheprocess,bothdoctorsandpatientsbecomedependentonthe expansionofmedicalwelfareprograms,thusmakingsuchprograms endsinthemselvesandprovidingreliablevotingblocsforthe politiciansthatmakethempossible. Thesearepartsofthehealthcarestorythatdonotmakeitintomuch ofthemainstreampressandtheyshouldberememberedthenext

timeyouhearofthe40millionAmericanswholackhealth insurance.Onewishestheyweremerelyfairytales.Theycan, however,havehappierendingsonceenoughpeoplestand athwartthesystem,andyellstop.

ChristopherWestleyisanassistantprofessorofeconomicsat JacksonvilleStateUniversity. _______________________________________________________

LivingwageFollies
byJohnB.Egger
Sympathyandjusticearewonderful.I'mallforthem.Butneitherisfurtheredby the"livingwage"movement.Myownuniversity,toitsgreatcredit,hasn't surrenderedinundeservedguilt,asacoupleoflettersinthestudentnewspaperand ourInterimPresident'sappropriateandcourageousresponsetoprotestorsillustrate. ButIthinktheproperroleofaprofessoristofocusonbasics.There'sroomforjust afewhere. First,onemustnotidentifyapersonwiththatperson'slabor.Thismistakesounds vaguelyMarxistcertainlynobodywhounderstandscapitalismconfusesthetwo.I wouldn'tpayaNobellaureatemorethan$10tocleanmygutters,butthat'snotmy judgmentofhisworthasahumanbeingandneitherintendsnorconveysany disrespect.Thiserrorpopsupinthe"livingwage"argumentthatrespectforworkers ashumanbeingsrequiresahigherpricefortheirlabor.Humanbeingsaresomuch morethantheirlabor,andit'sinterestingthatcapitalistsseemtounderstandthat betterthandothelivingwageprotesters. Second,anyargumentmustberejectedifitinvolves"realworth(or value)"determinedindependentlyofmarkets.Thiserror,againfoundin Marx's"labortheoryofvalue,"wasclearedupinthe1870swithCarlMenger's insightthatvalueisalwaysanindividual'ssubjectivejudgmentshapedbycontext. Here'stheprinciple:IfI'dpay$100tohaveataskdone,andyou'ddoitfor$2,we mightbargainto$60,apriceatwhichI'mpayinglessthanit'sworthbutyou're receivingmorethanit'sworth.Paradoxorcontradiction?Notwith"tome"and"to you"properlyinserted.Andthequestion"Yeah,butwhat'sitreallyworth?"hasno meaningwhatsoever. Ifmanymorebuyersandsellersjumpedin,theircompetitionwouldestablishaprice (say$6perhour)forthistypeoflaboratwhichthebuyerstowhomitisworth more,andthesellerstowhomitisworthless,areequalinnumber(say1,000 personhoursperday).Thatthousandthhourisworthbarelymorethan$6toits buyerandbarelylessthan$6toitsseller.Prudenteconomistsarealittle uncomfortableconcludingthatthismarketprice"measuresvalue,"butit'sthebest anyonecando.Sowhetheryourinterestis"thelivingwage,"economicsystems

withoutmarkets,or"comparableworth"legislation,keepinmind that"worth"or"value"cannotbedeterminedexceptbyvoluntarymarketexchange. Ratherthanpursuingeconomicissuesthatwerenicelyaddressedbyourstudent letterwriters,I'llconcludemyshortlistofbasicswithacoupleofrelated implicationsofthemoralfoundationofcapitalism.Theymaybelessfamiliarand morecontroversial,butit'svitalthatourjudgmentsofequitybeconsistentwithour widelyheldvalueoffreedom. Third,it'simportanttoappreciatethattradersdealessentiallyasequals.That's becausevoluntaryexchangerequireseachparticipanttomakethetradebeneficialto theother.Considerarichexecutivewho'snegotiatingforthecareofherlawn. Distractedbyherwealth,wemightstopwiththeinsightthatthecontractormust meetherterms,suggestingherpoweroverhim.Buthehastermstoo,andshemust meetthemorhewalks,sohehasthesamepoweroverher. Ofcoursedifferencesinwealth,education,gender,race,orsocialstatusarerelevant tomanyissues,butnottotheprinciplethattradersdealasequals.Again,the thoughtfulscholarofcapitalismisawareofthisit'svariousprotestingcriticswho seemtoviewthelesswealthyassecondclasscitizens.That'scurious,butnotreally surprising. Fourthandfinally,everyonewho'sgenuinelyconcernedabouthumandignitymust takeseriouslytheimplicationsofcapitalism's"traderethic."Itrequireseachpartyto respecttheother,toacknowledgethatwhatonereceivesmustbeearnedby providingtheothergreatervalueinreturn.(Indeed,that'swhat"earning"means.) Neitherreceivesnorgrantscharityeachhonestlypaysforthevaluehereceives. Thisishowtotreatotherswithdignity,notbypayingmoreforlaborthanitsmarket priceandtherebyturninganhonestlyearned(evenifnotveryhigh)wageintoa mixtureofwageanddole.Manyproudworkers,likesomeI'vedealtwith,are insultediftheyareofferedmorethantheyaskedfororthinkajobisworth.Ifone wantsotherstohavebothdignityandmoremoney,thatmoneyhastobeearned throughgreaterskillandresponsibility.Onedoesn'trespectothersasequalsby posturingasanoblegrantorofcharitywithoutwhosegiftstheweakrecipientsof one'swelfarecouldn'tmakeit. It'sencouragingtoseeenergeticandintellectuallycuriousmembersofour communitycaringaboutothers,butfeelingsnotproperlydirectedbyreasoncando moreharmthangood.Theuniversityshouldn'tputitsworkersonitsownwelfare system.Torespecttheirdignitywemustpaythemwhattheyearn,andthatcanbe establishedonlyonthemarket.

JohnEggerteacheseconomicsatTowsonStateUniversity.