"The ordaining of laws in favor of one part of the nation, to the prejudice and oppression of another, is certainly the most erroneous and mistaken policy. ... These measures never fail to create great and violent jealousies and animosities between the people favored and the people oppressed...." ~ Benjamin Franklin
Column by tzo.
Exclusive to STR
Some 2,400 years ago, the Greek playwright Aristophanes put forth an idea in one of his plays that I would like to codify into a law of human behavior. Here are the pertinent lines from his play "The Frogs":
The course our city runs is the same towards men and money.
She has true and worthy sons.
She has fine new gold and ancient silver,
Coins untouched with alloys, gold or silver,
Each well minted, tested each and ringing clear.
Yet we never use them!
Others pass from hand to hand,
Sorry brass just struck last week and branded with a wretched brand.
So with men we know for upright, blameless lives and noble names,
These we spurn for men of brass...
Some readers will recognize that the writer's observations concerning the circulation of gold, silver, and brass coins is a formulation of what is commonly referred to today as Gresham's Law. Gresham's Law is an economic observation stating that bad money drives out good money if exchange rates are set by government force. It applies to unfree economic markets that are restricted by government through fiat currency issue and legal tender laws.
Specifically, if two or more competing monies are in circulation and their respective values are forced upon the market, then the money with the least commodity value will circulate while the others will disappear from view (into hoarding or black markets) or else flee the restricted market to where they can be exchanged for greater value.
If you find, for example, a 1964 quarter on the street, the government mandates that coin be worth the same as any other base metal quarter in circulation. Now, if you are paying attention, you know that older quarter actually contains well over $3.00 worth of silver, making it many multiple times more valuable than say its official valuators.
So what's the most intelligent thing to do with that silver quarter? Buy a gumball for your kid or trade it on the market for three or four dollars in Federal Reserve Notes? Or perhaps hold onto it because you know its value will continue to increase in relation to the government's bad money? I hope we can all agree that spending it as if it were any other quarter in circulation would be the least intelligent thing to do.
So Gresham's Law is quite obvious and straightforward. Human beings respond to incentives, and so in this case they will keep what is undervalued and exchange away that which is overvalued. Government tokens will freely circulate within the controlled market while the more valuable commodity monies will not.
But Aristophanes' Law goes further than this, as the first and last two lines from the citation above liken the "circulation of people," if you will, to the circulation of coins. In a vein similar to Gresham's Law, then, let's formulate Aristophanes' Law as:
When competing items (money, ideas, actions) are in circulation in a government-controlled market, and their respective values are forced upon the market by that government, then the items with the least free market value will circulate while the others will disappear from view (into hoarding or black markets) or else flee the restricted market to where they can be exchanged for greater value.
or in simpler terms:
In a government-controlled market,
• bad money drives out good money;
• bad ideas drive out good ideas; and
• bad people drive out good people.
Now the economic interpretation of Aristophanes' Law may seem obvious, as we noted in the example with the silver quarter, but is it really valid to apply the same logic to the ideas held and actions taken by people? The affirmative answer can be found in the science of praxeology—the study of human action.
All human beings must act in order to survive, and in a society, they often act by interacting with other individuals. Every human action is a calculated event—the individual takes an action in an attempt to change his current state of being into a new and preferred future state of being. When two individuals voluntarily interact, they are making a transaction in which both feel they will benefit. Economic transactions are merely a subset of human action that involves the transfer of a medium of exchange called money. At their core, these transactions are the same types of human actions as are helping a person who has fallen down, playing a game of chess with someone, or nodding hello to a passerby. Anything anyone does is human action.
We can see, then, that Gresham's Law is actually a commentary on human action, and its principles do not have to be restricted to monetary exchange transactions, and so its scope is justifiably broadened here under the heading of Aristophanes' Law.
Now the concept of value appears in Aristophanes' Law, and we can readily understand this term as it pertains to money. There is no intrinsic value to a bar of gold—the value is determined by a free market and not by any other method. If you do not believe that, then consider that by United States government fiat, a troy ounce of gold is currently worth $42.22. The free market (such as it is) values one troy ounce of gold at over $1,200. Which would you guess is the more accurate value? Because I will happily buy all the gold you may have on hand at $42.22/troz. Anyone?
Fiat value is arbitrary. It is like a stopped clock in that it is not impossible for it to be accurate on rare occasions, but it is not a recommended method for tracking the hours of the day. If you want a realistic assessment of anything, free markets have it all over coercive markets; everybody knows this.
And so we can understand that the value of money is a function of the commodity value it commands in a market, but how do we assign value to human ideas and actions? Well, in exactly the same manner. Ideas and actions have ethical values in markets, and these values are artificially set by government valuators in a government controlled market, while their true ethical values are determined in a free market of ideas and actions. What these exact values may be is irrelevant. What is important is that the values differ depending upon if they are in a free or unfree market.
Let's call ideas and actions "ethical currency" in order to accentuate the congruency to the economic subset of human action. Now consider the following: Aggression is both an unethical idea and an unethical action. In a free market society, all reasonable participants acknowledge this.
In a coercive market society, however, the valuators of ethical currency—the government—make many exceptions for aggression, most notably for themselves. The ethical currency that "aggression is unethical" has its value set lower than the "some aggression is ethical" fiat ethical currency. The valuable ethical currency thus fails to circulate while the fiat ethical currency thrives. These ideas initially manifest themselves in the type of individuals that occupy the offices of government: Ethical politicians are logically nonexistent creatures.
But remember that the entire society—both the coercive members and the coerced—all use the same ethical currency. In a society run by a government, there are only government participants—officials and citizens—that play their roles within the organization, and it is the idea of government that binds them all together. Government is the idea that coercion must be used to organize society. After that, some coerce and others are coerced, but they all play together. Whatever actions and interactions are undertaken in the society are a result of adhering to the government's coercive ideology and are undertaken by all the participants.
Now the one thing all government participants cannot bring themselves to believe (outside of the outright brutal tyrannical systems that have dropped all pretense of being good) is that they are living in an unethical manner. The mass of humanity wants to think of themselves as being good people, and so in any governmental system, justifications must be invented in order to create a blind spot and to clear the conscience.
It should come as no great surprise, then, that government can best be understood as an enormous act of mass self-delusionary justification. We must act in an unethical manner in order to be ethical. Therefore we are ethical.
And the consequences of this mass delusion? Fiat currency has a free market commodity value of nearly zero, but society is made to believe through the offices of its government that it actually has a positive value. Society then engages in the exchange of fiat currency under this illusion of value. Likewise, coercion, the ethical currency endorsed by governments the world over, has a free market ethical value of zero. A society is made to believe through the offices of its government that it actually has positive value. Society then engages in the exchange of coercive ideas and actions under the illusion that these ideas and actions have positive ethical value.
And so just as the society becomes accustomed to using fiat currency—essentially valueless green strips of paper—in their everyday economic transactions, they likewise become accustomed to the fiat ethical currency. Everybody does it, so that's the way it's done. Also, the guys with the guns aggressively discourage competing currencies, and so the competition drops out of sight. And so begins the slide down the slippery slope, all the way on down to the bottom.
Ethical ideas and actions that are associated with freedom are the very antithesis of a coercive system. The valuators of ideas and actions in a government-run society are the government officials, those that Aristophanes referred to as men of brass, and by necessity they must undervalue freedom in order to drive it out of circulation. Coercion is the coin of the government's idea and action realm. It does its best to polish up this base metal token into something respectable looking, but whatever thin, shiny veneer is applied, the core remains coercive violence.
But perhaps I am being overly pessimistic here. Perhaps a society can "turn it around" and reduce the coercive governmental element down to a bare minimum? Well, that would certainly be a first, so I wouldn't bet on it.
If you give coercive human beings monopolies both on force and on a society's money supply, they will take more and more money for themselves at the expense of everyone else. This is accomplished by running the government printing press until it is red hot, and any and all stored wealth that the coerced attempt to keep for themselves dissolves like an Alka-Seltzer in a tall glass of water. There has never been any other result in all of human history when it comes to fiat currency. It is strictly a one-way street, all downhill. Fiat currency devaluation via the printing press is simply a massive wealth transfer via stealth robbery, and no group of coercive individuals with a monopoly on force has ever resisted the temptation to plunder in this manner.
And if you give coercive human beings monopolies both on force and on a society's money supply, it is not just the money that will increase in their hands—the force will increase as well. The same principles are in play. Government violence increases as each new player takes a turn with the reins of power and grabs just a little bit more. Ethical behavior, both in government officials and their subjects, necessarily declines. Whatever force a coercive person is given, he will naturally increase that force because there is nothing to stop him from doing so. The result is that the entire society becomes more violent as, remember, all the members of the society are government participants. Where do you suppose the government officials come from, other than the vast pool of citizens?
Bastiat summed up this dynamic quite nicely over 150 years ago:
When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.
Fiat currencies, both monetary and ethical, always devalue down to zero. Monetary hyperinflation and government collapse or violent popular revolution are inescapable conclusions. All coercive systems are suicidal—illogical constructs that eventually kill themselves. There is a basic fault in their foundational belief that coercion can throttle freedom indefinitely and that, coupled with the bloated and ever-growing bureaucratic structure that piles on top of this rotten foundation, eventually leads to its inevitable collapse. This is the summation of every government that has ever existed.
Does this all not strongly suggest that freedom is natural and logical and self-sustaining, while coercion is its opposite?
Freedom is the natural state of being for all living things. It can wait patiently in the wings while government participants delude themselves into thinking their ideas are mightier because their fiat creations make freedom disappear from view. But freedom is merely hidden, not gone. It is hoarded, guarded, and used in black markets. It may flee to less restrictive markets. Meanwhile, the government buffoons prance about and make their decrees and fancy themselves omnipotent even as reality persists. Inevitably the charlatans overdo it and lose their grip and the illusion falls away. And look: Reality—freedom—was there all along, right behind the cheesy backdrop.
But up until now, we human beings have had the unfortunate habit of continually revolving around the central hub of governmental coercion, each revolution merely another spin of the wheel. The spokes of this wheel must be broken. The dead end that is government must be recognized and avoided. We must one day choose freedom, our natural state of being, over coercion. We must choose to live in an ethical manner. We cannot continue to choose to use violent systems that are guaranteed to degrade due to Aristophenes' Law into bloody chaos.
Don't hit people and don't take their stuff: Lessons learned by most of us by the age of five. How is this simple yet profound wisdom so easily lost?
Wise people, even though all laws were abolished, would still lead the same life.