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  • Update to When Will the Bubble Burst?
    called new economy companies fell yesterday but is up 12 81 percent this year This extraordinary divergence in the market reflects two views held by investors that Alan Greenspan the chairman of the Federal Reserve continues to be deadly serious about raising interest rates to curb the economy s growth and that these rate increases will hurt some industry groups far more than others The older more established companies that make up the broader market indexes will be hurt by rising interest rates investors believe because these companies borrowing costs may rise substantially But because the fledgling technology companies found in the Nasdaq composite do not rely as heavily on banks for capital these concerns will not face rising costs as a result of a few interest rate increases What is wrong with this analysis is that it is ignorant of the actual connection between rising interest rates and stock market activity or economic activity in general The main connection is not the extent to which rising interest rates affect the costs of doing business The main connection is that rising interest rates engineered by the Federal Reserve System signify a slowing down in the creation of new and additional monetary reserves for the banking system and thus the slowing down of the creation of new and additional money by the banking system That in turn as I have explained in When Will the Bubble Burst represents pulling the rug from under the whole financial bubble on which most of the last few years rise in the stock market rests If the Federal Reserve really is serious about raising interest rates and thus about cutting back on the increase in the quantity of money which unfortunately one cannot yet say with certainty then Nasdaq and its high tech stocks will be pulled down along with the rest of the stock market Indeed they will fall much further for it is they even more than the older more familiar stocks that have been driven up by the pouring of new and additional money into the stock market Their values are in the clouds resting on the vapor of hope that in turn has been supported and fanned by the transitory passage of ever more new and additional money from buyers to sellers Once the manufacture of sufficient new and additional money ceases that will be the end of the tech stock bubble The rise in Federal Reserve interest rates i e the rise in the Federal Funds Rate is a rise precisely in the rate of interest banks charge and pay to one another in the lending and borrowing of reserve funds These are funds that banks are obliged either by law or by the circumstances of their business to have available either in the form of actual currency or in the form of checking deposits of their own with the Federal Reserve System A rise in the Federal Funds Rate signifies that the Federal Reserve is feeding new and additional

    Original URL path: http://www.capitalism.net/articles/Update%20to%20Bubble.htm (2016-02-12)
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  • No Imperial Presidency
    in almost exactly the same kind of circumstances as the President and while many others have been fired from their jobs for such far lesser acts of deceit as having answered falsely a question on an employment application the President of the United States we are told must be allowed to remain in office Different rules we are told apply to him than to ordinary citizens Indeed his exemption from the legal and moral sanctions applicable to ordinary citizens should we were told just a few months ago extend to his being exempt from the reporting of possibly criminal acts committed by him in the presence of the Secret Service agents assigned to protect him What underlies this attempted elevation of the presidency to a level that its occupant is deemed to be above the law and ordinary morality is the public s conviction that the office bestows nothing less than god like powers Evidence of this belief practically leaps from the public opinion polls so often cited in favor of the need to retain Mr Clinton in office The United States is enjoying considerable prosperity or at least the appearance of such I use the word appearance because much of what today is assumed to represent prosperity namely the great rise in the stock market may turn out in retrospect to have been nothing more than an inflationary bubble The leading cause of this real or imagined prosperity is assumed to be what The inventiveness and enterprising spirit the saving and investment the labor and effort of America s tens of millions of individual citizens living under the still considerable freedoms bequeathed to them by the country s founders No The leading cause is assumed to be the work of one indispensable man whom we in this country still call President but who given the way in which he is apparently viewed by a majority of today s American people might just as well be called Caesar or Pharaoh It is to him that the prosperity is attributed In fact of course the prosperity of the American people or of any people anywhere at any time does not come from a divine or divinely inspired leader It comes from the people themselves acting separately and individually in mutually beneficial voluntary cooperation in their ordinary day to day economic activities The only contribution that governments can ever make to prosperity is to provide protection for individual rights including property rights and the freedom of contract and then to stand aside as the individual citizens pursue their material prosperity and happiness To whatever extent Mr Clinton may in some respects have improved the protection of individual rights by reducing government interference in the economic system he deserves credit But any estimate of the actual contribution of Mr Clinton to America s prosperity cannot fail to include the enormous harm he has done to the practice of medicine in the United States through the unleashing of the HMO s on the American

    Original URL path: http://www.capitalism.net/articles/no_imp.htm (2016-02-12)
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  • Microsoft and Its Enemies: Which Is the Monopolist
    in Ayn Rand Capitalism The Unknown Ideal New York New American Library 1966 pp 50 51 In this instance the judge clearly appeared to find no significant distinction between cases in which competitors were excluded by means of physical force and cases in which they were excluded by means of superior productive performance Indeed he seemed to think merely that the latter was a more effective form of exclusion Had the Supreme Court recognized the need to distinguish between cases in which the status of sole supplier is the result of the initiation of physical force and cases in which it is the result of free competition it would not have been surprised by what Standard Oil had accomplished It would have realized that what it described as the usual results of monopoly applied only to cases in which the position of sole supplier was the result of the initiation of physical force Like Standard Oil and Alcoa Microsoft s eminent status in its field is also the result of productive accomplishment Its productive accomplishments can be found in all of its improvements in personal computer operating systems from DOS 1 0 to Windows 98 and in its growing leadership in providing applications that most successfully exploit these improvements such as word processing spreadsheet database and programming language programs It has successfully overcome the competition of such seemingly well entrenched giants of the software industry as WordPerfect Lotus 1 2 3 and Paradox and Borland International not to mention previously getting out from under the shadow of IBM It has accomplished this by providing software that the market judges to be substantially better than these already excellent products What all this points to is that there is something very wrong in thinking of monopoly as being constituted by any case in which there is just one seller The critical element is what is the foundation of that situation Is it the initiation of physical force by or on behalf of the seller or is it the seller s superior performance under free competition In the first case there is something present that is clearly against the interests of the buyers The buyers are being forcibly deprived of something that is better in order to allow the success of something that is worse and could not succeed under free competition i e without the aid of the initiation of physical force In the second case the buyers are clearly better off the sole seller is the sole seller because his product or service is better than the alternatives and the buyers have chosen it and him over the alternatives Here the result is the outcome of free competition not of its suppression Furthermore once the status of sole seller is achieved under the freedom of competition it can be maintained only by that seller continuing to offer a better combination of price and quality than any potential competitor This is because newcomers are free to challenge him at any time Once

    Original URL path: http://www.capitalism.net/articles/microsft.htm (2016-02-12)
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  • Capitalism, Global Crisis and the Survival of
    a comparative sense To think of Russia and the other countries of the former Soviet Union as having become capitalistic is such a distortion of the concept that it implies that the virtual total absence of secure private ownership of the means of production can somehow constitute capitalism The freedom that characterizes capitalism is freedom from one specific thing the initiation of physical force above all by the government Under capitalism government exists to protect the individual citizen from the initiation of physical force by others including their use of fraud which is a species of theft The only restraint it imposes on the individual is that he too is not to initiate the use of force against others Under such freedom each individual is able to use his mind to look at the world and the opportunities it offers for his betterment and to choose the best of the opportunities open to him His efforts are almost always enormously aided by the cooperation of other people who are the suppliers of everything he buys and the customers or employers for the goods or labor that he sells Under capitalism each individual obtains the cooperation of others by means of a process of voluntary exchange in which both parties gain The greatest most extensive mutual gains under capitalism occur as the result of the activities of fortune builders Fortunes are earned under capitalism by introducing new and improved products and methods of production which is the source of earning a high rate of profit The fortune builder saves and reinvests the far greater part of his high profit The physical wealth that his growing fortune represents the factories machinery and so forth is used in producing goods that the general public consumes At the same time it is the foundation of his growing demand for the labor that other people sell The general public in its capacity as sellers of labor and buyers of consumers goods is actually by far the major beneficiary of the fortunes built under capitalism Just think of how many houses automobiles television sets and practically every other consumers good are owned by average working men and women in the United States compared with how many are owned by the tycoons Furthermore the high rates of profit earned by the introduction of improvements soon invite competition which reduces those rates of profit to a more modest level To go on earning a high rate of profit the fortune builder must repeatedly introduce fresh improvements The net upshot is a continually rising standard of living for everyone To abandon this fabulously successful system of mutual cooperation in the pursuit of individual self interest and replace it with one whose essential characteristic is the government s pointing a gun at people s heads precisely in order to prohibit them from pursuing their self interests and to compel them to act against their self interests is an act of colossal self destruction If this is what the people of

    Original URL path: http://www.capitalism.net/articles/cap_surv.htm (2016-02-12)
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  • The Line-Item Veto Is A Bad Idea
    can bargain with the members of Congress with respect to which items he will exercise the line item veto or not exercise it Remarkably hardly anyone seems to have realized that this must put the President in the position of being able to join four square in the Congressional pork barrel and log rolling process himself In exchange for not exercising the line item veto power over the pet projects of Congressmen the President can demand the inclusion of his own pet projects in appropriation bills In effect the line item veto power thereby grants the President implicit legislative powers This is clearly not the way to restrain Congressional spending indeed in the long run it can only increase it The problem of runaway Congressional spending is a serious one and it demands a serious solution not a self defeating gimmick How far we are from a real solution becomes clear almost as soon as the real solution is named for in the in the very next instant it is almost certain to be rejected out of hand as simply unthinkable That solution as the late Ludwig von Mises showed is the adoption of a full bodied gold standard with practically all of the gold in the physical possession of the citizens Under such a monetary system Congress and the government are made financially dependent on the citizens The only money they can spend is money obtained from the citizens Under such a gold standard government spending is automatically limited by the physical limitation of the money available to the government from the people Under today s system in contrast Congress and the government are not limited to spending money that is obtained from the citizens Through the instrumentality of the Federal Reserve System they have the power to create

    Original URL path: http://www.capitalism.net/articles/li_veto.htm (2016-02-12)
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  • A GOLD STANDARD TODAY
    formulas are i paper dollar price of gold dollar 1 20 x paper dollar price of an ounce of gold ii gold dollar price of any good paper dollar price of the good divided by paper dollar price of gold dollar The series of tables below illustrates the use of the gold dollar as the standard of prices of goods The tables are based on paper dollar prices of an ounce of gold of 340 400 500 and 800 respectively The examples used in each case include paper dollar and gold dollar prices of a medium priced house a medium priced automobile and an expensive restaurant meal for four The gold dollar price of the paper dollar itself which is particularly significant is also included It ranges from a low of 2 5 gold cents when the paper dollar price of an ounce of gold is 800 to a high of less than 6 gold cents when the paper dollar price of gold is 340 per ounce The gold dollar price of the paper dollar is an indication of the extent of the depreciation of the paper dollar 340 Gold Item Price in Paper Dollars Price in Gold Dollars Defined as 1 20 of an Ounce of Gold One Ounce of Gold Approx Current 340 20 One Gold Dollar 17 1 One Paper Dollar 1 06 House Medium Priced 300 000 17 647 Automobile Medium Priced 20 000 1 176 47 Restaurant Meal for Four Expensive 400 23 53 400 Gold Item Price in Paper Dollars Price in Gold Dollars Defined as 1 20 of an Ounce of Gold One Ounce of Gold Recent 400 20 One Gold Dollar 20 1 One Paper Dollar 1 05 House Medium Priced 300 000 15 000 Automobile Medium Priced 20 000 1 000 Restaurant Meal for Four Expensive 400 20 500 Gold Item Price in Paper Dollars Price in Gold Dollars Defined as 1 20 of an Ounce of Gold One Ounce of Gold Previously 500 20 One Gold Dollar 25 1 One Paper Dollar 1 04 House Medium Priced 300 000 12 000 Automobile Medium Priced 20 000 800 Restaurant Meal for Four Expensive 400 16 800 Gold Item Price in Paper Dollars Price in Gold Dollars Defined as 1 20 of an Ounce of Gold One Ounce of Gold Peak Thus Far 800 20 One Gold Dollar 40 1 One Paper Dollar 1 025 House Medium Priced 300 000 7 500 Automobile Medium Priced 20 000 500 Restaurant Meal for Four Expensive 400 10 To make the idea of gold dollar prices more real one should imagine using actual old U S gold coins to make the purchases described in the tables Thus prior to 1933 there was a twenty dollar gold piece known as the Double Eagle which contained just about one ounce of gold the exact quantity of gold bullion representing 20 at the legal definition of 20 67 equals one ounce of gold Similarly there were 10 5

    Original URL path: http://www.capitalism.net/articles/dollars.htm (2016-02-12)
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  • Only A Gold Dollar Will End Deficits
    money of its own Its ability to spend is thus absolutely limited by its ability to obtain money from the people True the government could borrow for a time even under these circumstances But whatever it borrows comes from the people and every dollar that it is obliged to repay must also come from the people together with interest And this is the rub in borrowing gold dollars To the extent the government borrows and runs up debt it has to obtain more and more money from the people the interest and the principal payments added to the funds required for its regular operations This has limits To press the limits means to confront the day when the government simply runs out of money To go down the path of borrowing at all means that it becomes financially more and more difficult to run the government Under a system of gold dollars the President and the Congress know all this very well They live in the same financial world as the citizens a world of limited financial means They are compelled to act responsibly because there are serious negative consequences for them of not acting responsibly consequences which they easily recognize Thus they avoid deficits for the same reason that every responsible private citizen avoids deficits and for the same reason that they avoid any other kind of obviously self destructive behavior such as jumping from high places or eating spoiled food No constitutional provision is required perception of the facts of reality is enough But under a system of irredeemable paper money such as we have had since 1933 everything is turned upside down Now the government has its own money money that it itself manufactures It is no longer financially dependent on the people If the tax revenues obtained from the people are not enough the government can supply the necessary funds from its printing presses or by the stroke of a pen or the use of a computer keyboard With these last it can have as many new dollars credited to its checking account as it wishes Government borrowing takes on a very different character A substantial part of government borrowing even ceases to be actual borrowing It is money creation that is called borrowing i e the Treasury sells securities in one part of the market and the Federal Reserve System a government agency buys government securities in another part of the market paying for them with irredeemable paper dollars that it creates virtually out of thin air Even the borrowing from the citizens that goes on undergoes a radical change in its significance Because it can manufacture its own money the government need no longer be concerned that it will lack the means of paying its debts If need be it can simply manufacture the necessary additional funds But the most profound change that results is the total reversal of the financial relationship between the citizens and the government When the government has the power

    Original URL path: http://www.capitalism.net/articles/goldvdef.htm (2016-02-12)
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  • Social Security Rescue Plans Mean Government Ownership of Business
    purpose is supposed to be to earn a higher rate of return on the money than government bonds provide and thereby prevent the impending bankruptcy of the system around 2015 Up to now government bonds have been the only legally allowed investment use of the funds The proposal for stock market investment has met with widespread enthusiasm and virtually no criticism So far nobody seems to have noticed the fact that implementing such a proposal would almost certainly mean a major increase in the government s power over business Unless the government were prepared to give full freedom to the individual to invest in any stocks of his choice it would as a minimum have to draw up a list of stocks that it approved for purchase The result of this would be that a very large number of publicly traded companies would be under pressure to convince the government to add their stock to the list and to keep it on the list In order to do this ofcourse a company and all the individuals prominently associated with it would have to avoid doing anything that might displease government officials and thereby lead the government to shun the company s stock Thus a major new avenue of arbitrary government power would be opened up Almost certainly however the government would not be content with merely drawing up a list of approved stocks and then leave the choice of the specific stocks within the list and the timing of their purchase and sale to the discretion of the individual taxpayers Doing so would contradict a major underlying premise of the whole social security system That premise is that the average person cannot be relied upon to provide adequately for his old age even under conditions in which all he would have to do is regularly deposit money in a savings account at a bank or pay the premiums on an endowment insurance policy The truth of course is that the average person and the great majority of people even of substantially below average ability certainly could do this much provided that they could take the future buying power of their savings for granted But the government long ago destroyed the gold standard and the resulting chronic inflation has left such people in a situation in which they really are unable to cope with the requirements of saving and investing on their own They are unable to cope precisely because investing in the stock market has been left as practically the only viable form of investment since it at least offers hope of keeping up with the rise in prices Such people tens of millions of them really do not possess the necessary knowledge or indeed the necessary time to seriously follow the ever changing conditions of the stock market and of the individual companies and industries whose shares are traded Alleged concern for these people must almost inevitably lead to the government taking full and direct charge of any stock

    Original URL path: http://www.capitalism.net/articles/soc_sec.htm (2016-02-12)
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