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