Understanding Economics

By Robert Higgs:

"You cannot understand the social world without understanding economics. And it doesn't mean everybody has to be an economist. It's not necessary for everybody to be an economist. But you have to know the basics of economics; if you don't you are doomed to be at the mercy of people making very fundamentally flawed arguments about why things happen as they do."

Anarchists and Minarchists

There is a group of people who hold individual liberty to be a value and an end in and of itself. We believe that man cannot be fully human without the capacity and freedom to chose how to lead one's life. A life of servitude and obedience to the master and to unjust authority is not the life deserving of the word human. It is rather a reduction to the level of an animal or a plant. A plant cannot draw its own path. It cannot choose which action to take in light of its circumstances. So too are the animal's choices strictly limited to its ability to adapt itself to the environment. Only humans are unique in their, in the words of Murray Rothbard, "ability to reason, to make conscious choices, to transform their environment in order to prosper, or to collaborate consciously in society and the division of labor." To reduce one's ability to chose based on one's reflections and values is to deny in part the humanity to this person.

One might hastily object that this reasoning entails also the freedom to aggress against another person or their property. But the argument does no such thing. It puts forth exactly the opposite. Every aggression is necessarily denying humanity to the person on the receiving end of the aggressive act and is therefore contrary to the argument, which states only that one person should not deny the freedom to choose to another person. The argument puts natural limits on choices where aggression against another person or property is involved.

Yet within this group of people who defend individual liberty there are factions, as there must be wherever people differ in opinion or principle. As one faction, known as the minarchists, believes that to secure individual liberty and the rights which are its corollary a government with a monopoly on force and taxation is necessary, the anarchists like to point out that this very institution is the antithesis to the principles it is supposed to be protecting and that even provided that this limited government situation should be reached, as it arguably was in the earliest hours of the American Republic, the situation is not sustainable and the institution always grows into an intrusive entity.

However, this might not be the central issue of our day. As we look around we see that the various governments round the globe in their military boots and with all-invasive powers have practically no limits on what they can or cannot do. Our society is worlds away from the ideal of either one of these two factions. Even as the ideal worlds we paint in our respective imaginations do not overlap perfectly, we should and must concede that the road we wish to travel is to a large extent the same road. We should therefore as fellow travelers join hands and may our paths then once again split in honest disagreement when our dissent can, by the blessing of all that is good, actually make a practical difference.

This is not to say we should compromise on our principles and stop advocating what we think is right. There is a difference between opportunism and pragmatism. An opportunists is a person without any principles who takes selfish advantage of any situation. A pragmatists deals with actual occurrences and tries to better the situation by working towards his ideal without having to compromise his principles. And I, for one, shall certainly never tire of conveying what I think is the proper framework of human interaction.



Matej Avsenak Ogorevc

The Next US Dictat-- Khm, I Mean President

You are probably familiar with the fact that the US Congress passed a law called National Defense Authorization Act (NDAA) in 2011, which President Obama (conveniently) signed on December 31st after having first promised to veto it. Of course the veto threat was removed after the bill was changed so that, as the White House stated, "the language does not challenge or constrain the president’s ability to collect intelligence" and "incapacitate dangerous terrorists". In other words, after the bill gave more power to the President. And you thought Obama had threatened to veto because of his civil liberties concerns.

Either way, the 562 page long Act contains some language that you can easily imagine a dictator using. In fact, it does seem to lead the US down the road of presidential dictatorship. Here is section 1021:

"Congress affirms that the authority of the President to use all necessary and appropriate force pursuant to the Authorization for Use of Military Force... includes the authority for the Armed Forces of the United States to detain... A person who was a part of or substantially supported al-Qaeda, the Taliban, or associated forces that are engaged in hostilities against the United States or its coalition partners, including any person who has committed a belligerent act or has directly supported such hostilities in aid of such enemy forces... The disposition of a person under the law of war... may include... Detention under the law of war without trial until the end of the hostilities authorized by the Authorization for Use of Military Force."

Notice the vague language. As rollingstone.com noted, what does it mean to be a part of? Or substantially support? What is substantial? What are associated forces and what can be meant as hostilities? What is a belligerent act? And so on and so forth. These are not trivial questions in any way. Substantial can mean almost anything. So can hostilities. Demonstrations, or even criticism can easily be interpreted as being hostile. Normally these terms would be decided in Court after due process of law but remember, we are talking about "Detention under the law of war without trial". This means that any person in the world can be indefinitely detained if the US President expresses such a will or wish. Not that this has not been the practice thus far but at least it was not codified in a Statute. 

Furthermore, the NDAA may be understood as allowing indefinite detention of US citizens also. It's true that the Act contains the language that "Nothing in this section shall be construed to affect existing law or authorities relating to the detention of United States citizens...", but, as the tenthamendmentcenter.com explains, "there is no Supreme Court case providing the necessary protection preserved by the law’s provision that “existing law or authorities” are preserved." NDAA also includes "The requirement to detain a person in military custody under this section does not extend to citizens of the United States." But again, as per the tenthamendmentcenter.com "This section says that the administration is not REQUIRED to keep a U.S. citizen or legal resident alien in indefinite military custody. But it does not prevent the administration from doing so."

No wonder the political race for the White House is so fierce. Up for grabs potentially is a military dictatorship of the world. Nice!

Matej Avsenak Ogorevc 

Mitt and His Love for Students

"We're also gonna have our loan program so that people are able to afford school", said Mitt Romney, the presidential hopeful, in the last debate. No surprises there but it might be a good idea to reiterate just how toxic this student loan bubble has been.

Now typically when you borrow money from your friend, what do you say to them? Give me some money so that I can afford this or that? Of course not! You tell them "give me some money because I can't afford this or that. When you don't have your own money to pay for something, that's precisely when you can't afford it. And the fact that you have to borrow money for it proves exactly this. When you borrow money it doesn't magically reverse this and make you afford it. It means that you still can't afford it and that you will have to make sure you can afford it at the point of time in the future when you have to return the loan.

Of course students don't benefit from any of this and it doesn't make schooling affordable. It does the opposite. When government gives or guarantees student loans it makes it possible for Universities to jack up prices. So it makes schooling even less affordable. Naturally. The old story of government programs - they tackle a problem, make it worse and then blame everyone else for the outcomes. And then at the end students are graduating with mountains of debt and very few jobs out there with which to pay off the debt. Today student loans in the US are north of $1 trillion, which is higher than credit card debt. Great, congratulations!

But I'll tell you who does benefit from all these loans. The banks. They love it!



Matej Avsenak Ogorevc

The Workings of Income Taxation

When you think about it there is no consensus on how much money people should give up for the so-called common things to be administered by the government. You pay what you are told because you know that if you don't (and get caught) you'll be sent to jail.

Rather, the way it works is that the people in the government decide how much of our money they want to spend and then send us the check. The rest they graciously allow us to keep. But the higher claim on our money, and also our property life, obviously goes to the government because they can change the rules and the amounts any time at penalty of incarceration. We don't keep the portion of our income that is not taxed away because there is an agreement among people that this amount is right. We keep as much as we do because the government tells us how much we may keep and because keeping any more would likely bring the full wrath of the gun and the badge od the State.

Frank Chodorov in his book The Income Tax: Root of All Evil gives us the naked truth about the matter:

"The government says to the citizen: "Your earnings are not exclusively your own; we have a claim on them, and our claim precedes yours; we will allow you to keep some of it, because we recognize your need, not your right; but whatever we grant you for yourself is for us to decide."

This is no exaggeration. Take a look at the income-tax report that you are required by law to make out, and you will see that the government arbitrarily sets down the amount of your income you may have for your living, for your business requirements, for the maintenance of your family, for medical expenses, and so on. After granting these exemptions, with a flourish of generosity, the government decides what percentage of the remainder it will appropriate. The rest you may have.

The percentage of the appropriation may be (and has been) raised from year to year, and the exemptions may be (and have been) lowered from year to year.¹ The amount of your earnings that you may retain for yourself is determined by the needs of government, and you have nothing to say about it."

You can find a great discussion on taxation from a libertarian perspective in Thomas DiLorenzo's lecture at the 2011 Mises University:

Nigel Farage on Why He Thinks Angela Merkel Is Dangerous

A bit of an insight on who the eurocrats are and what their agenda is.

Thanks again to EPJ.

Ron Paul in a Very Candid Interview As Usual

I'm just gonna leave this here.

Thanks to EPJ.

Tom Woods on the Fed, Gold, Moral Principles, and Much More...

Ok so you've opened this link and came to this website, I thank you very much. You have enough curiosity to have done it. Great! Now if you have just a bit of interest in the topics mentioned in the title click on the video. This guy is amazing, trust me! Read below for the credentials of Tom Woods.

Thomas E. Woods, Jr., is a senior fellow of the Ludwig von Mises Institute and creator of Tom Woods’s Liberty Classroom. He holds a bachelor’s degree in history from Harvard and his master’s, M.Phil., and Ph.D. from Columbia University. He is the author of eleven books, most recently Rollback: Repealing Big Government Before the Coming Fiscal Collapse and Nullification: How to Resist Federal Tyranny in the 21st Century.

This is his website.

Public Private Partnerships or Fascism?

Economicpolicyjournal.com has a post about what our betters apparently have in store for us:

"The nation’s major internet service providers by year’s end will institute a so-called six-strikes plan, the “Copyright Alert System” initiative backed by the Obama administration... The plan, now four years in the making, includes participation by AT&T, Cablevision Systems, Comcast, Time Warner Cable and Verizon... The internet companies may eliminate service altogether for repeat file-sharing offenders, although the plan does not directly call for such drastic action."

 But fear not, Hillary Clinton cometh to the rescue to calm things down:

"The problems we face today will not be solved by governments alone. It will be in partnerships - partnerships with philanthropy, with global business, partnerships with civil society."

If you head over to Wikipedia and type in "fascism" in the search box this is one of the things you can read (my bold):

Economic policies

Further information: Economics of fascism

Fascists used to promote their ideology as a "Third Position" between capitalism and Bolshevism.^[237] Italian Fascism involved corporatism, a political system in which the economy is collectively managed by employers, workers, and state officials by formal mechanisms at the national level.^[238] Fascists advocated a new national class-based economic system, variously termed "national corporatism", "national socialism" or "national syndicalism".^[35] The common aim of all fascist movements was elimination of the autonomy or, in some cases, the existence of large-scale capitalism.^[239]
According to Bruce Pauley, Fascist governments exercised control over private property but did not nationalize it.^[240] However, according to Patricia Knight, they did, with the Italian Fascist government coming to own the highest percentage of industries outside the Soviet Union.^[241] The Nazis also nationalized some business.^[242] In fact, the "Twenty-Five Point Programme" of the Nazi party, adopted in 1920, demanded "the nationalization of all businesses which have been formed into corporations."^[243] Other scholars noted that big business developed an increasingly close partnership with the Nazi and Fascist governments as it became increasingly organized. Business leaders supported the government's political and military goals, and in exchange, the government pursued economic policies that maximized the profits of its business allies.^[244]

Hip hip hurray for public private partnerships. Mussolini would be proud.



Matej Avsenak Ogorevc

A Joke for Economists

Walter Block of Loyola University, New Orleans, has it:

There were 3 prisoners in the Soviet Union and as prisoners do, they swapped stories as to why they were in jail. The first guy says "well, I got to work late and they accused me of cheating the State out of my labor services." The other guy says "I got to work early and they accused me of brown nosing." And the third guy said "I got to work every day exactly on time and they accused me of owning a Western wrist watch."

There were 3 guys in jail in the US due to anti trust violations and the first one said "well I am in jail because I charged higher prices than everyone else and they accused me of profiteering." The second guy said "I got in jail because I had lower prices than everyone else and they accused me of predatory price cutting." And the third guy said "well I charged the same prices as everyone else and they accused me of colluding." 

But Dr. Block says it better, watch it here (the joke starts at 30:20):

The Beautiful Circle

The European Central Bank (ECB) is printing a lot of money to bail out struggling governments and banks. Here is a graph of its balance sheet to illustrate exactly what I mean by printing a lot of money money:

ECB balance sheet, millions €

Source: ECB

One of the problems with this (beside the fact that it's creating inflation on steroids, of course) is that by doing this it is exposing itself to a lot of risk which comes with lending to nearly bankrupt governments and banks. If these assets are written down the ECB will face losses that cold likely lead to negative capital. In this case the Eurozone member states have to recapitalize teh ECB. Get it?

If the Eurozone governments become insolvent and can't pay their debts, causing financial institutions lending to these governments to also become insolvent, leading the ECB to reach negative capital, these same bankrupt governments must somehow raise money and recapitalize the ECB. I wonder who's gonna get the bill.

But all in all, a beautiful circle, no?



Matej Avsenak Ogorevc

A Successful Businessman on College Education

When asked "Do you believe a college education for the young man to be a necessity in the future?", he answered the following:

"Not for business purposes. Better training will become more and more a necessity. The truth is, with most young men, a college education means that just at the time when they should be having business principles instilled into them, and be getting themselves energetically pulled together for their life's work, they are sent to college. Then intervenes what many a young man looks back on as the jolliest time of his life, - four years of college. Often when he comes out of college the young man is unfitted by this good time to buckle down to hard work, and the result is a failure to grasp opportunities that would have opened the way for a successful career.

How very insightful these words sound as millions of kids are graduating from college with worthless degrees and no jobs waiting for them these days.

Well, if you're thinking how sexist this man is to talk only about men, please bear with me for a second. You might also think, in light of all the calamities surrounding the aforementioned problems with college graduates, that this was quoted out of a recent business magazine. But in fact, it's far from that.

This statement can be found in the book How They Succeeded and was uttered by Marshall Field, one of the richest businessmen in US history. He was born in 1835 according to the book (and 1834 according to Wikipedia) and was known for his Marshall Field's company and department stores, which continued to operate under this name until 2006 when they were renamed into Macy's by the new owners.

Today most people think acquiring a college degree is a necessity without even thinking about it much. College education is encouraged, subsidized, if not made outright free (of course, to the user, not to the taxpayer) by practically all governments. This is supposed to be the ideal, the way forward towards an enlightened, successful and technology driven society. Of course, when you make education free or below the market price, you are going to get more demand and college education is going to get more expensive and of lesser quality. People are going go to college who otherwise wouldn't or shouldn't. But here you have Field saying not only that not everyone should go to college, he is saying that it is detrimental to entrepreneurship and development. And being one of the most successful people in modern history, he should know a thing or two about success.

Marshall Field was a Merchant whose success is reportedly based on hard work, determination and honesty. In his own words, the qualities that make for success are honesty, energy, frugality and integrity. The phrase "the customer is always right" is apparently attributed to him. During his lifetime he gave in charity and donations one million dollars (given that in the last 100 years or so, the US dollar has lost ca. 95% of its value, this was a huge amount of money) to the Museum of Natural History which is now named after him and co-founded the University of Chichago with John D. Rockefeller (who, interestingly enough, also did not go to college). After his death an additional 8 million dollars went to the museum in accordance with his will. Apparently he was worth $150,000,000 when he died in 1906.


Matej Avsenak Ogorevc

Out of the American Declaration of Independence

I came across this and thought it was interesting enough. Written in July 1776 by a committee of five appointed by the Second Continental Congress and headed by Thomas Jefferson it declared that the colonies would henceforth become independent States (mind you, not an independent state, but states) and listed a number of reasons why they thought the conduct of the King was unjust. The following passage I find particularly interesting (my bold):

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.--Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States.

When government becomes destructive of people's rights, it is "the Right of the People to alter or to abolish it". When a long train of abuses shows a design to reduce people under absolute despotism, it is their right and duty to throw off such government.

You find this as fascinating as I do? I'm pretty sure most American politicians today would rather denounce Jefferson and burn an American flag than read this declaration in full on national TV.

Source.



Matej Avsenak Ogorevc

Chatting With a Marxist - Part 2

Shortly after I posted Chatting With a Marxist an annonimous comment appeared with a few interesting remarks and questions. I wanted to address them briefly but the amount of words written in response hinted it might be better to post it in a new blog post. Unfortunately I haven't had the time to do so until now. I'm reproducing the whole comment here and my remarks below:

You say you have a choice, be employed or be self-employed, that is not true. If you are born in a poor family you cannot start your own bicycle factory or any other business, you just have no money to do it. If you saw hardworking honest men waiting for months to get their lousy paychecks, without any other option but to starve or keep working, you wouldn't be saying so.

When you say supply of labor is not limited, that would be true for a country with a really low unemployment rate. 3-5, or even lower. You are not talking about my country. In Serbia, around 30% are unemployed, average working class pay is 150-200 euros a month, you work 10-11 hours, have one week of holiday if ur lucky, there are no workers unions in private sector, cose when you complain you get fired, and trust me, supply of new labor to replace you is limitless.

And one important thing is that proletariat is not only in factories. I had a job selling sneakers, and i had to stand for 11 hours every other day, for 200 euros a month, and sitting was strictly forbidden even if a store is empty. You have a 15 minutes break for lunch and that's it. I saw a guy get shouted at and fired for leaning on a wall while talking to a customer.

This version of capitalism is what happens when the state is not interfering to protect the worker with social programs, and minimum wage, and to protect them from being fired for trying to organize a union. That's what a truly free market does.

Interesting comments, but erroneous, in my opinion. Here's my response to a few particular statements:

You say you have a choice, be employed or be self-employed, that is not true. If you are born in a poor family you cannot start your own bicycle factory or any other business, you just have no money to do it. 

This would, incidentally, also be true for a person born in a middle class or even a rich family. It's very hard to start and run any successful factory. You have to sacrifice a lot, save and work hard and have unique skills. But a lot of successful companies, some of which became mega-big, were started out of a garage by what were then poor people, including Microsoft for example. Think about it this way... You are very much accustomed today that people work for their employers. This was not always the case. Before mass production was possible people were more or less self-employed and produced for themselves. They were very poor as a result. When factories started popping up in the industrial revolution, people now had a choice. They could stay self employed farmers doing back-breaking work 15 hours a day or find employment in a factory and work perhaps 12 hours a day in mildly better conditions and receive a slightly higher income. These were the only choices (similarly these are the only choices people have today in poor third world countries). Today we are much better off than that but the choices are similar. I used this hypothetical example to illustrate how much harder it is to make a living without capital (machines, tools, infrastructure etc.), so let's be careful condemning people who actually work hard, save and invest in it. Furthermore, anyone can become a capitalist, even a poor person. You find a job, save a portion of your income and make an investment when you are ready. As I said, it doesn't have to be much, you can start a business with very little capital these days.

When you say supply of labor is not limited, that would be true for a country with a really low unemployment rate. 3-5, or even lower. You are not talking about my country. In Serbia, around 30% are unemployed, average working class pay is 150-200 euros a month, you work 10-11 hours, have one week of holiday if ur lucky, there are no workers unions in private sector, cose when you complain you get fired, and trust me, supply of new labor to replace you is limitless.

I said the supply of labor is limited, but I figure that's what you meant. The unemployment rate is irrelevant here, the supply of labor is always going to be limited by the number of persons. When people are out of work, they are not working because they either chose to do so or because someone is preventing them from working. In either case, this has nothing to do with the employer-employee relationship and the exploitation that is presumably going on. My point was that if the worker is going to work voluntarily and is not forced to do so, to label this exploitation is absurd. I'll give an example. Say me and you get stranded on a tropical island. At first we both fish with our hands and manage to catch two fish a day each. In a few days I figure that it might be easier to catch fish with the aid of some tools. So I start saving fish I've caught and only eat one per day while saving the other. When I have saved up enough fish, I start working on fish nets and spears. I invest the saved fish in fishing equipment production, so to speak. Because I am working hard on these tools (what we call capital) for a few full days I can't engage in fishing so I need to eat the saved fish. Finally I am finished and with this equipment it is possible to catch 6 fish a day. Suppose I now give you this proposal: Please borrow my tools and catch 6 fish a day. Give me five and keep one for yourself. You might not agree, this could be worse for you (depending on how much time it takes), because you can catch 2 fish per day on your own. Now if I forced you to accept these terms, that would indeed be exploitation. But suppose I then change my proposal and say OK, you catch the fish and give me 3 while you can keep the other 3. You might accept that because now you are better off. I am also better off. But who is exploiting whom? I saved, invested and worked hard to produce capital equipment and am now employing you and paying you a salary of 3 fish a day. The truth is that there is no exploitation, we are both better off. Also, you write that salaries in Serbia are low and this is true, though not quite as much as you stated. But why is this so? Are you saying there are no wicked capitalists in Germany? Or do they all have a better conscience? Or is government reining in their exploitative ambitions? Of course not. Capitalists in Germany are plentiful, their ambitions are similar and it is certainly not government who enables high wages in Germany. Germany doesn't even have a minimum wage. The reason wages are much higher in Germany is that the amount of capital invested per capita is much higher than in Serbia, rendering the productivity of labor much higher as a result. Companies compete for scarce labor on the market and one of the ways they attract workers is to offer them a higher wage than the next company. 

Another useful way of thinking would be how to improve the conditions of this person who is receiving low income and is working in what we would deem poor conditions today. It would be to make sure he has plenty of options to choose from, and not to condemn the person who actually gave this person the job he thought at the time was the best option. And the greatest number of options arises in an environment where businesses are allowed to invest and hire employees, while government regulation always only poses costs which diminish the demand for labor and the incentive to invest.

This version of capitalism is what happens when the state is not interfering to protect the worker with social programs, and minimum wage, and to protect them from being fired for trying to organize a union. That's what a truly free market does. 

It is interesting that you write "this version of capitalism". I don't like to use this word because pretty much every person has a different definition for it. For mine, please look at my post on this subject. Government, of course, does not protect workers at all. Social programs always come with tax increases, which means companies are going to employ fewer workers and pay them less. Many very prosperous countries have no minimum wages, including Germany, as stated above. And if the minimum wage really did the trick, as you seem to think, we would have a moral duty to impose a 5000 EUR minimum wage per hour instantly. Or double that. How much would be enough? Of course then no one would have a job. As for the unions, historically the US was the least unionized but paid the highest wages in the world. The US economy grew very rapidly in the 18th century with no minimum wage laws, which were enacted only in the 1930s, very little unionization and practically non-existent labor legislation. Wages grew to the highest levels in the world. You can also find a few of my thoughts on this topic at the end ofthis post.

For more information on the topic of labor, labor unions and how wages naturally rise on the free market I recommend these two videos:

Matej Avsenak Ogorevc

Chatting With a Marxist

Yesterday I had the privilege of chatting with an aspiring, and rather attractive, I might add, Marxist. We briefly exchanged our views and unfortunately had to end the conversation early. Nevertheless, I did enjoy it. And not only for the visual aspects of it.

When she started telling me how supportive she is of a proletarian revolution, I had a few questions on the topic, as one might expect. Namely, why the focus on the proletariat. Why these people in particular and why group them like that? She replied that she prefers to view and analyze people in groups rather than as individuals but more importantly, the proletariat in particular because they are being exploited by the capitalists, predictably. How, exactly, are they being exploited? The reason for this is supposed to be the observable fact that the wage a worker receives is lower than the price the capitalist receives for the final product on the market.

My response was that this is true only insofar as the capitalist is engaged in forced labor. But if the relationship is voluntary, how can there be any exploitation involved? By definition, any voluntary exchange or contract implies that both parties to the contract expect to be better off as a result of engaging in it than they would otherwise be. The worker always has a choice. Her answer was that there is very little choice for a worker. But this is not true. Firstly, as long as we allow competition in the labor market, firms are going to compete for the limited supply of labor. What's more, there is always the choice of being self-employed and trying to create a product with your own hands in your own garage. An employee in a bicycle factory can always choose to quit his job and try to create the bicycle(s) by himself. This is difficult, true. But that is precisely my point. The capitalist lends the worker capital equipment to work with, while the worker brings in the labor services. They are both better off as a result.

Another point I made was one which I borrowed from Hans-Hermann Hoppe. Namely, a capitalist has many expenses when bringing inputs together to produce outputs, labor services being only one of them. He also has to buy or borrow capital and buy or rent buildings from his fellow capitalists. For these he also pays less than the price he receives for his products on the market. If we want to be consistent in our analysis we have to thus claim that capitalists, in doing this, are also exploiting each other. But then of course the whole edifice of Marxist though collapses instantly.

I do hope I was able to install at least a fraction of doubt in the young lady. It remains to be seen.

Meanwhile, as suggested by a friend, we concluded that perhaps indeed one day a bunch of us from both camps should get together, each reading a book recommended by the other side, and then engage in a debate. What a wonderful idea!


Matej Avsenak Ogorevc

Capitalism and Survival of the Fittest

A few days ago I got into a conversation with a friend who said (something to the effect) that capitalism was the survival of the fittest and look what a mess this got us into. Such as I am, I couldn't let it pass so I wrote a brief commentary. To be sure, this is a lengthy topic and many volumes have been written on it, so there are many things left out, naturally. Either way, here it is.

The term capitalism itself was coined by none other than Karl Marx himself. He used the term to describe an economic system where owners of capital rather than lords and aristocrats were able to make economic decisions about production in society as was the case in the manorial and feudal system. Later on classical liberals such as Ludwig von Mises and others were quite happy to use this term since it described rather well precisely what they were arguing in favor of. Namely, that economic decisions in society be left to those who were, through economy and entrepreneurship, able to amass ever greater amounts of capital by satisfying the demands of their customers. And therein lies the difference. Whereas before persons of nobility, regardless of their merit, were able to determine production and extract income from their subjects through coercion, in this new system called capitalism there were no limits nor subscribed production processes. Anyone could become a capitalist, provided only they saved and had the insight to invest in capital equipment that would prove valuable as a means of satisfying consumer demands. Private property rights became central to this economic system since any infringement on property rights would necessarily mean an expropriation of property, which greatly reduces the incentive to invest in capital. Capital will be invested in and accumulated more readily and heavily if the investor can expect to generate an income from it free from expropriation and a system with built-in disincentives to invest in capital (which is therefore destructive of capital accumulation) could hardly be called capitalism.

However, I cannot blame anyone for using the term capitalism to describe our current state of affairs, many people have done so in the past and continue to do it at present. After all, capital is a class of inanimate objects and attaching an –ism to it can hardly describe a series of interactions between individuals in a society. But I would still prefer to use the term capitalism to describe the free market and resort to the use of corporatism, fascism or socialism to describe the modern economy. Common to all these systems, which vary in degree, rather than character, is an economy centrally planned by an institution who’s decrees are enforced by violence and intimidation. And this description is much more akin to the world today than a system where private property is absolute and the only way of gaining property is through voluntary exchange and homesteading.

When you say survival of the fittest, that only begs the question – fittest for what? In the pre-capitalist society where no large scale markets existed, exchange was very limited and most people produced for their own needs, most rich people, with the exception of the few merchants, were rich because they exhibited the the greatest skills in warfare. They suppressed their fellow men and were able to extract from them because they were the fittest in physical strength and could just take what others had produced. However, with the advent of capital, i.e. tools and machinery for large scale production, one was able to become rich by producing for, and not taking from, the masses. In such a system one could only succeed, save a few exceptions, of course, by producing something people wanted and could afford. In such a system survival of the fittest means the fittest in producing things the public values and one could hardly see anything wrong with that. Virtue, rather than violence, then, becomes the norm. You will also notice that this is not descriptive of our social order today. The whole edifice of the State run society is founded in coercion, confiscation and violence.

Either way, if by survival of the fittest you mean survival of the fittest to tax, regulate, punish and coerce then yes, capitalism is what we have and it’s horrible and I denounce it. But we would also be (perhaps more so) well justified to say capitalism is the survival of the fittest in serving their customers, in which case we do not have capitalism at all.

So when you say capitalism is to blame for all this mess, you should probably qualify it with a bit more than »survival of the fittest«.


Matej Avsenak Ogorevc

Murder is Murder, Theft is Theft

If I had a euro for every time I heard »yes, your philosophy of libertarianism is all fine and well and the principle of non-aggression sounds good, but we all know that there is in any society a given number of people who will not adhere to these rules and therefore we need government to bring all these people in their place«, I'd probably be building a mansion somewhere in Thailand right now.

Once you get the chance to talk to people and show them how libertarianism is really only based on the principle that a man (and all men) should not initiate violence against a fellow human being and his property, the argument above is probably the most common one. Or, in other words, »yes, your goal seems morally correct but we all know that in practice it is not going to work.« Therefore, the non sequitur argument that we need a coercive government.

Perhaps so and we shall never have a society where aggression against a fellow human being is completely wiped out. But if we concede that this is the goal, then it seems to me that we (i.e. everyone who recognizes this as a correct social norm) should all work tirelessly towards this goal and not, contrary to our recognized ideal, allow in our society a group of people recognized rights to systematically aggress against other people, provided only that they carry the badge of the State. This seems to me so contrary to the purpose of peaceful human cooperation that I can only explain so many people believing this is because most people go through a thorough process of thought-molding called the government schooling system.

The libertarian counter-argument then, correctly stated, would be as follows: »I recognize that the initiation of aggression against people and their property is morally wrong, but I nevertheless want to allow a certain group of people, whom we call government, to have the right to aggress against any and all persons.« And it gets even worse. In our age of democracy everyone is allowed to join this group of people who have recognized rights of legal aggression. And since it is always easier to confiscate what has been produced, rather than produce it yourself, it is quite predictable that this group called government or public employees will continually grow until most people are engaged in direct or indirect expropriation and only a minority remains in production. These kinds of conditions cannot last and always lead to conflict.

Let us draw an analogy. We believe murder is wrong. But some say we must, in the name of erradicating murder, allow a certain group of people, carrying the badge of the State, recoginzed rights to murder others. What will happen is murderers will join the legions of the State to be allowed to murder without repercussions. And all people on the brink, considering murder, might also join the legions of the State since it becomes allowable behavior, provided only you carry the badge of the State. As more and more people engage in murder, this becomes socially acceptable and society disintegrates.

By the same token, we believe theft is wrong. But some say we must, in the name of eradicating theft, allow a certain group of people, carrying the badge of the State, recognized rights to steal from others. What will happen is robbers will join the legions of the State to be allowed to steal without repercussions. And all people on the brink, considering theft, might also join the legions of the State since it becomes allowable behavior, provided only you carry the badge of the State. As more and more people engage in theft, this becomes socially acceptable and society disintegrates.

Matej Avsenak Ogorevc

Did the Free Market Cause the Crisis?

Tom Woods says no. Here is an excerpt out of his recent post:

As I’ve noted elsewhere, the current system is rather far from the Misesian [i.e. the ideal of Ludwig von Mises] ideal; it includes:

(1) a coercively imposed monopoly on the production of money;

(2) monopolistic legal tender laws, which artificially privilege the money issued by the government-established central bank;

(3) a central bank with the monopoly power to create legal-tender money out of thin air, a power granted to it by the government, and with a mandate to manipulate the money supply in the purported service of maximizing output and minimizing unemployment and price inflation;

(4) interest rates influenced by a monopoly monetary authority instead of by the free market;

(5) implicit and explicit bailout guarantees for large financial institutions;

(6) artificially low borrowing costs for large institutions, since the public knows these institutions will be bailed out;

(7) artificial protection of the banks, in the form of government deposit insurance and various Federal Reserve mechanisms, thereby keeping afloat a fractional-reserve system that would be radically different under a free market; under the existing system the banks will therefore create more money out of thin air than they otherwise would.

This is just off the top of my head. A free-market banking system would have no central bank and no “monetary policy.” It would not rely on politicians to print up “interest-free money.” It would not require any guns or badges. It would preserve the purchasing power of people’s money, as it did even under the classical gold standard. It would make entrepreneurial profit-and-loss calculation far easier, without the white noise introduced by the monetary manipulations of the government or its privileged central bank.

 I would tend to agree. You can read his whole post here.

How Much Are You WIlling to Pay?

You go to a bakery and you see a woman working there who has four children. You want her to make more money? Fine, so do I. But the question is not how high her salary should be because she has four children, but rather how much more are you willing to pay for bread baked by a woman with four children. Because if you are buying there, you are the one paying her salary.

No established firm in this world pays salaries to their employees, their customers always do. I say established because in a startup business the investor has to save up money to pay for all the salaries (plus capital equipment and other expenses), sometimes for months and years, before the revenues and profits (if they ever arrive) come in, and in that case the investor is the one paying the salaries. But once a firm is making profits and is therefore able to stay on the market, the customers are always signing every paycheck every month.

Think about the BMW automobile company and imagine that for some reason people completely stopped buying their cars. How many salaries could they pay out? Not many. Maybe they would scrape by for a month or two, maybe not even that. But if the customers stop coming in, the salaries stop going out. I own a business as well and I never pay my employees out of my pocket, it's always our customers. They show up in our stores, they pay for what they find interesting and at the end of the month we use this money to pay out the salaries. If the customers stopped showing up we would have to stop paying out salaries.

This might seem obvious to some people but I write this only because I can assure you that to many it is not. Some will say "let's pass a law raising her salary and making it harder to fire her and that will take care of that." I would reply that these people have not taken the time to study the nature of human action. Such a mandate passed by the government would, as most government decrees do, only make the situation for this woman worse. Raising her salary above the market wage will cause her employment to become unprofitable and thus fewer people will want to hire her. And if you make it harder to fire her, then employers will again be afraid to hire her because the risk of her not being the right employee suddenly becomes much higher. So whereas before she actually had a job which she had chosen among the alternatives that she could choose from, now no one will be willing to hire her and she becomes jobless with four kids.

So then if the capitalists don't employ us but rather we employ each other and thus our wages depend on the number of our customers and the thickness of their wallet, rather than on the "greed" of our employers, how do we get a higher wage for this woman and indeed for everyone in society?

How to get more customers? We allow her employer the freedom to invest and thereby make her work more productive and the products more attractive in order to attract more customers. And how do we make the customers richer? We allow everyone else in society to invest in order to make labor more productive. The fact is that we are (materially - and we all need material things to survive) only as rich as our productiveness allows us to be. And we become more productive only by investing in new and better capital equipment (machines & tools) so that we can produce more with fewer resources. Then things become better and cheaper.

But people will only save and invest if they can expect to receive a profit from their investment. The bigger the share of the savings and profits that is taken away from investors, the less they will invest. The more money a central bank prints, the more this money loses value, the less people will save. Less savings equals less funds available to invest. The more the government taxes profits, the less attractive it is to invest. The more the government taxes wages, the higher the wage cost, the lower the profits. Low profits equals less investment. Less investment means we become poorer.

All the above is of course descriptive of the economic means, i.e. through production and trade, of making profits. There is also the political way, i.e. through extortion and confiscation, of making profits, but that is a whole other subject...



Thanks for the inspiration to Ludwig von Mises and his short book Economic Policy: Thoughts for Today and Tomorrow, which is available online for free here.

Matej Avsenak Ogorevc

How About I Operate on Your Kidney, Sir?

Would you trust me to perform kidney surgery on you? Probably not, and that would be a wise decision too, for I know nothing about kidney surgery. Then why would you trust politicians to make good economic decisions? Or even any good decision whatsoever for you? Why do people want to be in power? Simple, they want power. With very few exceptions, people get into politics because they have what is called libido dominandi, the lust to dominate. With political positions comes power, money, and prestige. In this kind of environment the worst of power mongers succeed and the worst cases of libido dominandi get to the very top. And I don't distinguish between the left and right either. The differences are purely cosmetic and insubstantial.

But back to economics (yay!).

All the above being said, there are a lot of "experts", such as university economists and political advisers, who give advice to all these politicians and surely then these politicians will be well informed and will make good decisions, right? Not so fast. First of all, all these supposed experts, if they are giving advice to politicians, are on their payroll. You should not expect them to give politicians advice they do not want to hear. Rather, their job becomes to invent semi scientific apologies for policies politicians are going to adopt anyway. So don't look for sound economics in the realm of politics and government run and/or funded educational institutions. This is not to say there isn't any. But the odds to find it there are rather against you.

Don't believe me? Let us do a short exercise. We have learned recently that the EU Commission will enact (new) price controls on mobile service providers in the EU for international calls, price controls downwards, of course. Now, which of the following scenarios do you think is more likely to play out: a) the mobile service providing corporations are going to say "oh well, guess our profits are just going to have to be smaller henceforth", or is it b) "since we cannot charge our preferred rates on international calls, we will have to raise our prices on domestic calls and other services in order to maintain our profitability". If you can answer this correctly (I will not be giving out any hints this time), you know more about economics than all the eurocrats combined. And trust me, there are quite a few of them. So in essence, what this move by the Commission does is transfer the cost of international calls to domestic users. In other words, the poorer people who cannot afford to travel as much will now be paying for the international calls of wealthier people when they are traveling. Brilliant institutions we have in our government, no? The excellence of their genius never ceases to amaze me. I do suppose it is also possible that they are aware of the sinister effects of their actions but... That just makes my case that much stronger.

So how would I suggest you read and watch the news then? After all, the saying "How can you tell when politicians are lying - when their lips are moving" is not very far off. My first suggestions would be learn Austrian economics. Short of that, whenever you hear a proposal from a politician, ask yourself where the money is going to come from. Who is going to lose money so that this can be undertaken? What is not going to come to life because this new political project has siphoned off the resources? What productive enterprise will see its funds stolen so that the politicians will have it their way? After all, government doesn't have any money that it didn't first confiscate from private citizens. So in short, when you see a project is being funded through coercive measures of the State, you should not support it. And by that I don't mean growing a mohawk and throwing stones at the parliament. I mean be principled and be against the initiation of force and theft against peaceful people, whether it's called taxation, tariffs, fines or any other euphemism we have become accustomed to.

Matej Avsenak Ogorevc

Five Reasons Why You Should Think Progress Differently

Think Progress just came out with this article listing 5 reasons why Americans should blame Bush for the economic woes we are enduring. While there are plenty of perfectly sound reasons why one should blame the former president and his aides, these are not 5 (or 4, to be fair) of them.

1. Deregulation caused the crisis? The article goes, and I quote, "Sweeping financial deregulation helped build the housing bubble". This statement would have you believe there was massive abolishing of regulation across the board going on in the previous decade under Bush's presidency to build up the housing bubble which ran roughly from 2002 to its peak in late 2006 and early 2007. But wait a minute, then the article links to a proposed (whether it ever got enacted or not, I do not know and the article or the sites it links to do not make this clear) plan by Bush's treasury secretary Henry Paulson in 2008! Now even if it was true that this plan really did deregulate the financial industry, how a proposed plan in 2008 could cause a housing bubble in the previous 5 years and a recession starting in December 2007 is beyond me. This logic has yet to penetrate my mind. But as we open the sites that the article links to, we learn that the proposed plan did not really deregulate anything. Honestly, read it and decide for yourself. It shifted more power in one direction, chiefly to the Treasury and to the Fed, and supposedly took away from others. The best the article manages is to link to three single changes to or abolishments of rules of certain regulatory agencies. Even if you take the author at his word that these changes to the rules really did destabilize the industry, and he does not provide a causal relationship at all, this is hardly the "sweeping financial deregulation" we were told was going on. If you subscribe to this website you might also be surprised to know that the Securities and Exchange Commission (SEC), one of the chief regulatory financial bodies in the US, saw its funding increase by 140% during the Bush years. That's right, from $377 million in 2000 to $906 million in 2008. To boot, Boston University professor Laurence Kotlikoff points to 115 agencies regulating the financial industry in 2010. Sweeping deregulation, right? Yeah.

The Financial system went off its rails simply because the Fed was providing cheap money for everyone to go crazy and gamble with. And they did go crazy, they invested in all the wrong places that looked profitable because interest rates were artificially set insanely low by the Fed and when the interest rates crept back up the system went broke. There was also a major moral hazard built in the system where everyone more or less suspected that the government would bail out the big players if things went sour. They suspected correctly.

2. Cutting taxes for the rich did it? No. Cutting taxes simply means you have more money left in the hands of private citizens to spend it productively. This on its own cannot cause a downturn. Besides, the US government cut taxes massively after 1918 and then again after 1945 and these policies were followed by vigorous economic growth and prosperity both times. To be sure, there is one significant point that the authors make correctly - cutting taxes without cutting government spending means increasing the national debt and this truly is toxic and dangerous. But not tax cuts on its own.

3. Wars. This is the one thing the authors get right fully and wholly. Wars are destructive, both morally and economically, and the empire the US has built for itself is going to cost Americans dearly.

4. Didn't help homeowners? Yes and no. The help the authors are presumably envisioning is precisely the kind of "help" that led to the whole housing fiasco in the first place. Government can help one homeowner by taxing another, or, more likely, by taxing the same homeowner. So now your mortgage is lower but your taxes are much higher. Great! It can also "help" you by making borrowing more attractive through subsidies and loan guarantees. But that is exactly what it did in the last decade and that is what helped pump the housing bubble. The authors are correct, however, to point to the endless bank bailouts in the wake of the financial crisis. This has been a disastrous policy and will only lead to more reckless behavior by these banks in the future.

5. Weakened workers? Apparently less government labor regulation and less labor unionism equals financial meltdown. First of all, work safety does not happen because government passes laws and regulations. It "happens" because businesses compete for labor on the market and one way of attracting workers is to offer them a safer workplace. It also "happens" because, believe it or not, entrepreneurs don't actually want their workers to get killed. If nothing else, injuries cost money. You can read here for more detail. As for collective bargaining - I am not against it. I am, however, against the notion that an oligarchy of labor union bosses can prevent someone else fom signing a contract on their own terms and thereby trow millions of people out of work. But again, we are supposed to believe that a smaller amount of labor laws and regulations in the US caused or at least helped cause the greatest systemic global economic collapse in our generation, if not in modern history. I'm done inferring, you draw your own conclusions.

To learn more about the causes of depressions and the role of government in them see this video, this, this or this book.


Matej Avsenak Ogorevc

Stefan Molyneux on Voluntraysim

This piece below is and excerpt of Stefan Molyneux guest hosting the Peter Schiff show. It is one of the best short and comprehensive cases I've ever heard made in favor of a free stateless society. I hope you find he is absolutely spot on:

"I think we have to look at why we believe we need a government, and I think fundamentally we believe we need a government because we're afraid of bad people. We are afraid of bad people doing bad stuff to us and taking our property. Now, logically it doesn't make much sense to put a government into place to do that. It's like - I'm afraid that someone might come and steal my property so I'm going to create a monopoly of violence with the right to violate my property and take 50% of it pretty much at will. And that really doesn't make any sense, but it's sort of what we've inherited from the past. 

We understand that if everybody was an angel we wouldn't need a government, and people who are voluntaryists or are looking for a stateless solution in the long run are often called idealistic - we don't understand how bad human beings can be and not everyone is perfect and therefore we need a government. But if you think about it logically, I think quite the opposite is true. I think that voluntaryists really recognize that human nature has a pretty dark side. If you create a government in order to save you from bad people then the smartest and most able bad guys - where are they going to go? They are going to flock like flies to a big mount of horsy cac, they're going to flock straight to the government. Because what do evil people want? They want something for nothing and they want to escape the consequences of their actions. Well, that is the government, the government gives you something for nothing - you get to print money, you get to go to war, you get to do all these terrible things with no negative consequences - so you get to get something for nothing and you get to escape the consequences of your actions. So I believe that government, this hierarchical violence that we use in society, is something that attracts and draws bad people in to run it. You do not protects yourself from bad people by creating a monopoly of violence that bad people will infest and expand at your expense."

And here is the whole show (the excerpt starts at 48:30):

Rothbard in 1989: Beware a European Central Bank

A central bank is good at one thing: printing money.

The Economics of a Compulsory Government - Part 3

In the free market the price system allocates limited resources so that they go to the people who are willing to pay the highest price for them and have the knowledge to employ them productively at those prices. Government, however, since it can collect as much money as it wishes (in theory) with its legislative power to tax, is not very sensitive to the price signals. The prices are much less a matter of concern to an entity that can simply increase taxes when it runs out of funds. Whenever funds are scarce, the answer is simple – higher taxes. There is no room for thrift and economy when you have the power to confiscate when in need. This means that the bigger the government gets, the more money it collects and spends, the more resources it commands which in turn are not distributed in society according to where they would be most productively used, but are rather funneled into unproductive use by the government.

As is obvious, I assert here that every and all government activities are wasteful, since the only way it could avoid this predicament is, working outside the profit/loss system, which is a yardstick for productiveness, to employ them all in a productive manner by pure chance. And given the number of activities governments find themselves entangled in these days, those chances are less than great. And even if, as if by some miracle, the government managed to succeed in that, since we know that resources tend to be commanded in the private sector by individuals who can most productively employ them and are therefore willing to pay the highest price, this would only mean that government is taking away resources from the private sector and preventing it to do the things that then in turn the government does anyway. One would have to turn a blind eye not to question the reasoning behind this. Even if this scenario were to happen, it would still be more productive to just let the private sector do these things by itself instead of having to finance a middleman in between in the form of a coercive government. On the basis of this we can see how government is, even in its best theoretical position, a net loss to society.

Furthermore, government has a severe lack of competition, to put it mildly. Most of what governments do are monopolized activities where the formation of competition is prohibited. And as we know from the theory of free markets and competition, a lack thereof results in lesser quality at a higher price. Two of the most obvious, and perhaps in essence the only really important monopolies the government holds are the monopoly of taxation and the monopoly of final decision making in all conflicts on its territory. Since the latter also applies to conflicts where government itself is involved, this composition enables it, for instance, to raise taxes and then decide that this is indeed a just and justified or even necessary thing to do. It is no coincidence that under such circumstances taxes will continually rise and conflicts in society will continually be decided in favor of bigger and stronger government.

It is often the case that people, especially the economically illiterate, will support government intervention in the economy despite all these obvious economic distortions that necessarily ensue. This is at first glance hard to understand, but not all that difficult to fathom once you come to realize the relationship between short term and long term effects or apparent and hidden results of a certain policy. An instance of the former would be precisely the credit expansion and the accompanying artificial boom described earlier. The boom period will quickly be ascribed to the expansionary policy and since it is apparent and immediate, it is not hard to make this connection. Also, since there is the illusion of a hike in the general welfare, people will naturally support such a policy. When the inevitable recession and/or inflation period arrives at a later time, the causes are harder to understand and this connection is not made by the public, which is why there is always an unfleeting reservoir of other causes to point the finger to, such as the "wicked" free market and capitalism. The same goes for the minimum wage. At first, a raise in the minimum wage will create a short term illusion that the public is now better off due to higher wages and such a policy will thus attract many proponents. But this effect can only be carried out to the detriment of the future welfare. If the labor market is relatively unregulated, it will of course eventually lead to higher unemployment, less production and a fall in the standard of living. If, however, the labor is heavily protected and the laying off process hampered, these wages must come from entrepreneurial profits. This will reduce investment into capital goods, which will in turn reduce labor productivity and again cause a slump in wages and general welfare at a later time. But since there is a time lag between the cause and effect, it will be hard for the general public to understand the connection. As for the apparent versus hidden results of government intervention, the most obvious example would be government job creation. Since government has no funds of its own, it must first appropriate them through taxation of the public. This means that in order for the government to create one unproductive job, it must first expropriate the resources away from the productive private sector. Knowing that in shifting resources from the productive private to the unproductive public sector there is always a net loss, one new job in the government could mean a loss of two productive jobs in the private sector. The public will only see the one job created by government, it will not see the two jobs that would have been created, had the money to pay this job not been confiscated from the private sector. To an individual who is untrained in economics, which is most of the public, the gain in the government created job will be apparent, while the loss in the private sector job creation will go unnoticed.

Given all of the above, we can be sure to say that the more resources are funneled to the government, the worse off the society and its people are. Any increase in government will therefore impair the economy and every decrease will make it function more productively. The worst government is a socialist kind that envelopes most of the economy and the best kind is the one that taxes no man and spends no man’s money.

Gold vs. Stocks

Gold dropped quite a bit approaching 2011 year-end, which sent a few Johnny-come-latelies home crying and encouraged the gold bears to come out and feast. Not so fast.

Gold has already recovered most of its losses in 2012 but more importantly, looking at the chart you will quickly notice that the recent drop was merely a correction after it had shot up off its trend line in November. This is scarcely an odd thing. Granted, it hasn't recovered fully yet but I have no doubt it will shortly and then continue its growth. For the media it presented an exciting story, for people buying gold just because they heard it was going up it was drama, for the rest of the gold bulls it signaled a good buying opportunity.

When buying gold one must never forget the nature of the precious metal. It is not an investment in the traditional sense, it yields no dividend and produces no value. It is a means of saving, especially long-term, because of its unique characteristics, i.e. it cannot be counterfeited (printed), it is easy to store, easily divisible etc. Of course there is always money to be made in speculation but for the vast majority of us non-experts I would suggest buying into dips (such as this recent one) and holding onto it until you want to buy the thing you have been saving for.

Gold price in EUR, 1 year

Source: goldprice.org

Gold, denominated in EUR, has gone up by about 25% in the last year and roughly 170% in the past five years. That's pretty impressive, no? Of course it does not mean it will continue to go up under any circumstances, but given our current monetary and political system of massive public debt growth, bank bailouts and money printing, yes, I think it's the safe side of the trade.

 Gold price in EUR, 5 year

Source: goldprice.org

I also made a comparison between gold and the DAX (an index of 30 German blue chip companies traded on the Frankfurt stock exchange) just for kicks. If you had put 1,000 EUR into gold 5 years ago, you would have had ca. 2,700 EUR today. Adjusted for inflation (the EUR17 CPI grew about 11.2% in the period) you now have 2,428 EUR. On the other hand, the DAX fell roughly 8% in the same period, which means that investing 1,000 EUR 5 years ago would have left you with 920 EUR today. Given a 3.5% dividend yield on your DAX stocks (holding your 1,000 EUR investment constant, which it wasn't), you made 175 EUR (but probably a bit less) in dividends, a combined sum of 1,095 EUR nominally. Adjusted for inflation you now have 985 EUR, not counting all the broker fees you had to pay for the privilege (yes, you had to pay commission for gold as well, but at least there you made a profit to pay it with).

DAX, 5 year

Source: bloomberg.com

This is not to say that stocks can't be a good investment. They absolutely can. At the right time and price, some stocks can be an excellent bargain. Also, corporate profits seem to be doing well so you are likely going to be better off in equities than fixed income investment vehicles such as bonds (esp. government bonds) with the official YoY inflation rate being in the 3% area. But again, for the vast majority of us non-experts, the stock market might prove to be just a bit too expensive of a playground.