This post is partly cribbed from a talk given by Guido Hülsmann at the Property and Freedom society which I linked to a while back.

Pervasive and ongoing expropriation by the progressive state motivates a small elite to work much harder than they would otherwise. Because income, capital gains, and effective regulatory taxation creates so much waste on each marginally profitable dollar, it creates conditions of more rigorous competition than might otherwise exist.

Competition in markets in turn creates signalling waste, as companies then need to spend more in advertising, marketing, and financial expenses in order to gain the same level of earnings which they’d be able to in a less democratic, more private order.

This is readily observable in any highly competitive market in which there are few qualitative differentiators among firms. This can even extend down to floral shops, which sell a mostly perishable commodity below a certain price point. When products are urgently needed and there are few providers, those providers need to spend less in market signalling to earn a profit. Instead, they can invest more into long term improvements, product quality, staff retainment, and other areas.

Long term investment — in a society which expropriatory legal norms — is an invitation to expropriation. This is one of the reasons why many third world societies have trouble igniting lasting economic growth: pockets of wealth will tend to get looted rather than respected.

When the state effectively takes half of every dollar that a company brings in, the short term needs of the enterprise become more acutely felt, especially because it’s harder to accumulate funds. In turn, the state creates vast classes of exceptions for its favored friends — the ‘corporate class’ in modern America falls under this umbrella. For example, a pharmacy conglomerate like CVS is in part more able to crush its local competitors in most markets because it’s more capable of negotiating tax credits, regulatory compliance, and supplier deals.

This fear of expropriation tends to keep what mercantile elites there are in modern democracies in line — or at least busy corrupting legislators and bureaucrats to respect their interests. In states with secure and absolute property rights, the laws are relatively simple. In states with arbitrary and shifting property rights, the people who can pay the bribes can keep their property, and those who can’t cannot.

This creates a social divide between the small business classes, the higher end corporate classes, and the slightly larger welfare-bureaucratic classes. The former two pay for the latter third, but both are subordinate to the bureaucracy. The bureaucracy plays the two groups of the productive against one another, with the corporates having an upper hand over the former thanks to their regulatory advantages.

What is gradually happening is that the higher end corporate entities are being slowly gobbled by the state bureaucracy, with the former’s interests being suborned to the latter’s. Starbucks enourages all its baristas to ‘have a chat about race,’ in return for some unspecified favors down the line. This sort of thing is a violation of the previously established line between state and private propaganda — you could get the same sort of ‘chat about race’ in any public school, but for the most part, ignoring the occasional HR initiative and casting calls in advertisements, the link was kept subtle.

Now, not so much.

Similarly, ‘Google Doodles’ were once subtle accents on the homepage. Now they are as didactic as any public school curriculum with a parade of featured (mostly invented) heroes of the United Soviet States of America.

Countries that go through paper money crack-ups tend to be overwhelmed by some combination of financialization and taxation — both of which amount to close to the same thing.

Finance, properly understood, exists to make complex plans feasible. Finance under central banking tends to perform some of the same functions as with more historically stable hard-money finance, but with some critical distinctions — namely, that to make most plans possible, everything needs to go through the public banking system at some point.

Further, a central bank or some sort of coinage monopoly can continually skim and redistribute throughout the financial system. Currency ceases to be a highly accurate unit of account — a means of ‘keeping score’ — and becomes more a measure of how well connected and obedient you are to the system as a whole.

Under such a system, price distortions become systemic. This is what Mises called the ‘calculation problem’ — when the currency is elastic, it becomes a matter of debate as to whether or not its quantity is increasing or decreasing. Traders and other actors in the financial markets will often debate whether or not conditions are ‘inflationary’ or ‘deflationary,’ because even with all the reporting requirements, it’s not even possible for the central banks to ascertain with total accuracy what’s actually going on with the money supply and what the direction is likely to be.

Just correcting these price distortions becomes an entire industry. Speculators correct price distortions, but the need for them becomes most dire in paper-money type systems, since the unit of account is systemically and unpredictably distorted through unequal and challenging-to-predict gyrations in the supply of money and credit along with the political system.

Under such conditions, to be a skimmer becomes higher-status than to be a producer. If producers exist to be milked by the connected, more people will try to pile in to the skimming side of things than the productive side.

The overloading of university systems throughout the modern world tends to be a good indicator of this development. Students who attend for careerist reasons tend to be there to accumulate credentials under the false pretense of learning ‘skills’ or ‘relevant knowledge,’ while they’re really accumulating connections and pull.

This problem has become most severe in Europe in particular, as entire generations of young people — who had expected to enjoy happy, fat lives as parasites upon graduation — discovered that the existing parasites were not too keen about leaving their blood-sucking spots. So they must return home, be unemployed, and collect paltry welfare checks instead while they post updates on social media.

It’s less that, as Ayn Rand had hoped, the producers would band together and rebel. Rather, it’s mostly the opposite — the producers will instead happily collude with the parasites to kill off their competitors. Rand also sort of understood this — which is why she put so much effort into the construction of Objectivism as a secular philosphy and social group — but it never reached the stature of a religion or full culture which could have prevented the eventual destruction of the West on the predictable socialist line.

The descendants of the classical liberals will tend to want to save liberalism from its own consequences, while still preserving it as a tradition. What seems to be more likely is that the liberal states will just be destroyed by internal strife and external competitors. Its line will be broken, and the land where it thrived will be salted over.

This is the difficult-to-conceive of aspect of things that few will want to say. It’s one thing to contemplate your own death — quite another to contemplate the death of your civilization.

The alternative prediction, which some have made, is that no such external competitors exist, and that the internal strife will be manageable. Judging on the longer historical scale, neither seems all that likely, even allowing for impressive technological changes like the development of nuclear weapons.

This doesn’t pass the test of observation, as states like Russia have seized territory from the American orbit with only a weak, erratic, and unenthusiastic resistance — quite recently besides. Weak rebels have sent Americans packing from Libya to Yemen, with no attempt to mount a defense or a retaliation. The loss of informal territory is already happening abroad. The highly unstable and unpredictable international financial system is a fulcrum on which all the other international systems rest. As it destabilizes, so will everything else.

There’s been a lot of chatter recently about a possible turnaround in the stock market. Investors are, by and large, losing confidence in the absurdity of the worldwide zero interest rate policy (ZIRP) which central banks have coordinated to impose on most developed economies.

While there are some intellectual excuses for ZIRP, the more practical one is that it allows governments to maintain their popularity for a little while longer by silently expropriating savers in favor of connected cronies. Further, ZIRP boosting financial markets ensures that pension funds for government workers don’t go immediately bust or have cash flow issues. The government would start to have immediate legitimacy problems if any of this occurred — similar to what we’ve seen for the government of Greece, but with many more states, people, and territory involved.

Banking interests have to be tiring of ZIRP because, while it may confer a few benefits, it puts a lot of pressure on the entire commercial banking system because of low rates on loans across the board. It also diminishes demand for savings, which will tend to be absorbed by other asset classes — particularly risky ones that represent opportunities.

It’s becoming more challenging for touts to justify the continued bull market in financial assets, but it’s necessary to try to pump it up as much as possible for the short-term interests of the state. This is part of the general problem of democracy — with a maximally expanded franchise, you have to continually buy people off with bribes and make-work jobs. This comes at the expense of the most productive elements of society, who become gradually corrupted and then impoverished as the policy goes on.

Those productive elements, by and large, have adopted a sort of self-sacrificing ethos that would have seemed extreme to some of the most go-go 1980s yuppies. This ethos says that highly productive people should sacrifice their private lives almost entirely for their corporations — a sort of campaign for self-obliteration, an inverted parody of Marxist agitation, but for the managerial classes.

Since 2007, many states — especially the US — have tried to float a propaganda campaign that spectacular economic progress was right around the corner, despite fiscal issues and ‘experimental’ (i.e. desperate/crazy) monetary policy. The thought was that, despite tax shortfalls and other issues, monetary and fiscal stimulus would have an enormous ‘multiplier effect’ which would return ‘economic growth,’ whatever that term can be taken to mean.

New eras in finance, particularly with unorthodox policy, all tend to end the same way — with collapses in the paper asset markets as financial dis-coordination disrupts real production and pauperizes speculators.

The question this raises s whether or not there was ever really a serious choice involved in all these matters. The answer is ‘probably not.’

The institutional inertia of more than a century of precedent, combined with a culture eager to deny reality, made it so that dissent against the policy was like hollering into a hurricane. It was never going to work, but everyone had to pretend that it’d work, if only to conserve the remaining momentum in the society. These are the consequences of decisions made in past decades, many of those by people who have been dead a long time.

A thousand thousand excuses must be invented and promulgated to avoid much of any criticism of the root causes — instead, various immaterial phenomena must be blamed — anything but the willfully deceptive decisions made by those administrators with temporary authority. In some ways that makes sense, because individuals are rarely responsible for anything — instead, there are institutions, and empowered administrators, but none have clear, absolute responsibility for anything.

This has been part of the issue preventing a better resolution of 2007 — while many elements of the government and the banks may have wanted to be responsible — even some prominent academics have attempted to solve the most pressing problems — it was never possible for all the institutions that needed to do so to coordinate to propose something that could have restored more credibility to the state and its banks. After the failed compromises, various parts of different institutions sort of went their own separate ways, some plans were drafted that were never enacted, and the press covered up the embarrassment with glossy pap.

After that, all the responsible people declared that the problems were over, and that anyone who thought otherwise was a ‘chicken little’ type. At the end of it perhaps some can comfort themselves with the observation that, even if people had wanted to do the right thing, it wouldn’t have been possible to put it into practice.

Or perhaps more accurately: no one with much authority really liked the United States of America enough to want to keep it together. A lack of authentic belief in the thing itself allowed enough people to shrug their shoulders and permit it to begin to fade away.